The Federal Reserve (Fed) will announce its July interest rate decision later, and the market is expected to raise interest rates by 3 yards (75 basis points). In addition, Microsoft’s financial forecast is optimistic, and Google’s parent company Alphabet’s financial report is poor but not in line with market expectations. Far from it, boosting market confidence, U.S. stocks opened higher on Wednesday (27th). Microsoft (MSFT-US) and Alphabet (GOOGL-US) both rose 5% in early trade.
At the time of writing, the Dow Jones Industrial Average rose more than 150 points or 0.5%, the Nasdaq Composite rose more than 200 points or nearly 2.1%, the S&P 500 rose more than 1%, and the Philadelphia Semiconductor Index rose nearly 2.5%.
On the eve of the much-anticipated Fed announcement to raise interest rates, market sentiment remains tense. The central bank’s monetary tightening policy to curb inflation has raised concerns about a global economic slowdown. The market is generally expected to raise interest rates for the second time in a row by 3 yards ( 75 basis points). In addition, investors are also looking forward to the earnings reports of major companies this week, as well as a series of macroeconomic data released on Thursday (28th).
U.S. 10-year yields held near 3-month lows hit on Tuesday, as multiple recession indicators in the bond market continued to warn that U.S. economic growth is slowing even if not contracting.
“Corporate earnings are positive for stocks, but bonds are reflecting more economic weakness than stocks,” said Jan von Gerich, chief analyst at Nordea. He also noted that uncertainty remains about the Fed’s future course, although data on economic activity has eased pressure for them to do more to stop high inflation.
The key question now is whether Fed Chairman Powell’s policy signals confirm or refute projections that previously suppressed the federal funds rate will peak at 3.4% around year-end and cut rates in 2023 to support recession risks.
In Europe, a sharp drop in natural gas flow from Russia’s Nord Stream 1 pipeline has pushed energy prices soaring, with German energy prices hitting record highs this year.
Meanwhile, JPMorgan said the ECB would only raise interest rates by another two yards (50 basis points) this year as the euro zone economy heads into recession in the fourth quarter.
Currency tightening, the energy crisis brought on by the Russian-Ukrainian conflict, challenges in China’s real estate sector and the COVID-19 pandemic are all risks to a gloomy global economic outlook. The International Monetary Fund (IMF) recently warned that the world may soon be on the verge of a full-blown recession, while Goldman Sachs said the euro zone economy may have shrunk.
Still, U.S. corporate earnings provided a glimmer of hope, with more than three-quarters of the earnings reports so far either beating or matching expectations, but investors still questioned how long they could last in a tough economy.
In other news, the White House is also considering whether to lift some tariffs on Chinese imports to curb inflation. U.S. President Joe Biden will hold virtual talks with Chinese leader Xi Jinping on Thursday (28th).
As of 21:00 on Wednesday (27th) Taipei time:
Stocks in focus:
Enphase Energy (ENPH-US) rose 8% to $233.44 a share in early trade
Solar equipment maker Enphase Energy, boosted by strong growth in Europe, delivered better-than-expected earnings in the second quarter, with revenue of $530 million, beating analysts’ estimates of $505 million, and adjusted earnings of $1.07 per share . Growth in the European region is mainly due to rising natural gas prices, which has led consumers to switch to solar energy.
Boeing (BA-US) rose 3.31% to $161.09 a share in early trade
Boeing’s latest financial report was less than expected before the market, with second-quarter revenue of $16.68 billion, lower than analysts’ expectations of $17.57 billion, and an adjusted loss of $0.37 per share, worse than analysts’ expectations of a loss of $0.14 per share . Boeing, however, maintained its forecast for a return to free cash flow in 2022.
PayPal (PAPL-US) rose 7.72% to $82.99 a share in early trade
According to reports, the US hedge fund Elliott Investment Management has a stake in the e-commerce payment giant PayPal, but it is not clear the size of the stake, and Elliott’s stake is to accelerate the pace of PayPal’s cost-cutting, and Elliott may become PayPal’s top five one of the shareholders.
Today’s key economic data:
The initial monthly rate of U.S. durable goods orders in June was 1.9, expected -0.5%, and the previous value was 0.8. The initial monthly rate of U.S. wholesale inventories in June was 1.9%, expected to be 1.5%, and the previous value of 1.8%. The monthly rate of sales index is expected to be -1.5%, the previous value of 0.7%
Wall Street Analysis:
Ellen Gaske, chief economist for fixed income at PGIM, believes that the Fed has shown that the pace of rate hikes is unlikely to hit the brakes until the monthly inflation data shows a convincing change, indicating that inflation is moving towards the Fed’s 2% target. Ball will reiterate this point at a news conference.
Jason England, global bond portfolio manager at Janus Henderson Investors, said the Fed hasn’t even raised rates to neutral, so it’s too early for them to start easing monetary policy or to see inflation start to fall back.