Stocks Higher, Fed Rate Decision, Microsoft, Google and Visa In Focus – Five Things To Know

Stock futures higher as fed decision looms; Powell comments in focus as markets look for new rate signals; Microsoft leaps as bullish outlook offsets Q4 earnings miss; Google powers higher as earnings defy ad market gloom and Visa beats Q2 earnings forecast, sees no signs of spending slowdown.

Here are five things you must know for Wednesday, July 27:

1. — Stock Futures Higher As Fed Decision Looms 

U.S. equity futures bumped higher Wednesday, powered by a spate of better-than-expected big tech earnings after the close of trading yesterday that helped boost sentiment ahead of a crucial Fed rate decision later in the session.

Bets on a 75 basis point hike have been largely priced-in for today’s meeting, capping gains for U.S. Treasury bonds and holding the dollar near to the highest levels against its global peers in more than two decades.

That dollar strength, however, has added a headwind to U.S. corporate earnings as companies pay more to repatriate their overseas sales, and profits, into greenbacks. And with more Fed hikes on tap, including a likely 75 basis point move in September, many companies have told investors to expect dollar-related pressures for much of the second half of the year. 

Last night’s earnings slate, however, looks to have eased at least some of those concerns, with Microsoft  (MSFT) – Get Microsoft Corporation Report issuing a bullish near-term outlook despite the currency headwinds and Google parent Alphabet  (GOOGL) – Get Alphabet Inc. Report defying predictions of an ad market meltdown. Visa  (V) – Get Visa Inc. Report, as well, topped Street forecasts and indicated it isn’t seeing any signs of a slowdown in consumer spending.

Bristol Myers  (BMY) – Get Bristol-Myers Squibb Company Report, T-Mobile US  (TMUS) – Get T-Mobile US Inc. Report, Boeing  (BA) – Get The Boeing Company Report and Kraft Heinz  (KHC) – Get The Kraft Heinz Company Report are scheduled to report June quarter earnings prior to the start of trading, with Meta Platforms  (META) – Get Meta Platforms Inc. Report, Qualcomm  (QCOM) – Get QUALCOMM Incorporated Report and Ford  (F) – Get Ford Motor Company Report expected after the closing bell. 

Collective S&P 500 earnings for the second-quarter are forecast to grow by around 6.2% from last year, to a share-weighted $467.2 billion, but that pace is largely the result of record profits for the energy sector. Stripping away that contribution leaves earning down 3.2% from last year, according to Refinitiv data.

A solid set of European earnings this morning, including a 51% leap in profits for German lender Deutsche Bank, helped the region-side Stoxx 600 post modest early gains in Frankfurt, offsetting reports of reduced gas flows through the Nord Stream 1 pipeline controlled by Russia-owned energy giant Gazprom.

In the U.S, benchmark 2-year note yields held at 3.041% ahead of today’s Fed decision at 2:00 pm Eastern time, while 10-year notes were pegged at 2.786% in overnight dealing.

On Wall Street, futures tied to the S&P 500 are indicating a 35 point opening bell jump while those liked to the Dow Jones Industrial Average are priced for an 140 point gain. Futures linked to the tech-focused Nasdaq are indicating a 180 point advance.

2. — Powell Comments In Focus As Markets Look For New Rate Signals

The Federal Reserve is likely to deliver its second consecutive outsized rate hike Wednesday, while signaling more near-term tightening, as it steps-up its fight against the fastest inflation in more than four decades,

The expectation of a 75 basis point increase in the Fed Funds rate, which would take it to a range of between 2.25% and 2.5%, comes against a very different economic backdrop than when the Fed delivered its previous 75 basis point hike in June. That could set the stage for Chairman Jerome Powell to hint towards smaller moves in the coming months, or indeed a pause in tightening altogether, should the economy tip deeper into recession.

Inflation pressures are likely to show modest easing over the summer months, with base-effects clipping headline readings into the autumn and beyond. Jobless claims, which reached an eight-month high last week, are moving in the wrong direction, and hiring is likely to ease as companies pull back on spending and investment amid the macro uncertainty. 

Still, markets expect Powell to hold course at today’s meeting, repeating the Fed’s pledge to bring down inflation while easing the burden of price increases on low-income households.

“We doubt Powell will be drawn into making any predictions of a slower pace of tightening as soon as the next meeting,” said Ian Shepherdson of Pantheon Macroeconomics. “If he does, you can expect a substantial stock rally, a bull steepening of the Treasury curve, and a drop in the dollar.”

3. — Microsoft Leaps As Bullish Outlook Offsets Q4 Earnings Miss

Microsoft  (MSFT) – Get Microsoft Corporation Report shares moved higher in pre-market trading after the tech and cloud computing giant issued a robust near-term profit forecast that offset a dollar-weakened set of fourth quarter earnings.

Microsoft said it sees revenues growing by a double-digit percentage from 2022 levels, with a four-point impact from foreign currency headwinds, as well as double-digit growth in operating income.

Intelligent Cloud revenues were forecast between $20.3 billion and $20.6 billion for the first quarter, with continued margin improvements expected for Azure, which will see a growth slowdown of around three percentage points.

The outlook blunted the impact of weaker-than-expected fourth quarte earnings, which included significant hits from the ongoing surge in the U.S. dollar. Microsoft’s bottom line rose 2% to $16.7 billion, as adjusted earnings rose 2.7% from last year to $2.23 per share, well shy of the the Street consensus forecast of $2.29 per share.

Microsoft said revenues for Azure, its flagship cloud division, rose 40% from last year, slowing notably from its prior quarter gains, with overall revenues of $51.87 billion missing Street forecasts by around $1.5 billion.

“We’re not immune to what’s happening in the macro broadly,” CEO Satya Nadella told investors on a conference call late Tuesday.whether it’s on the demand side with consumers or SMBs, businesses are trying to make sure that they can do more with less.”

Microsoft shares were marked 3.8% higher in pre-market trading to indicate an opening bell price of $261.41 each.

4. — Google Powers Higher As Earnings Defy Ad Market Gloom 

Alphabet  (GOOGL) – Get Alphabet Inc. Report shares firmly in pre-market trading after the search and ad sales giant posted modestly softer-than-expected second quarter revenues, defying concerns of the ad-spending meltdown forecast last week by messaging app maker Snap Inc.  (SNAP) – Get Snap Inc. Class A Report.

Group revenues rose 13% from last year to $69.69 billion, narrowly missing Street forecasts, as ad sales rose 11.6% to $56.29 billion. Currency headwinds, Google said, took 3.7% from the overall topline total, with CFO Ruth Porat warning that the impact will be even greater over the second half of the year. 

Search and other revenues rose 13.5% to $40.69 billion, while YouTube ad sales were pegged at $7.3 billion. Google network revenues were $8.26 billion. Alphabet also said cloud revenues were up 35%, albeit from a much lower base, to $6.28 billion.

Google’s bottom line came in at $1.21 per share over the three months ending in June, a tally that missed Street forecasts by around $1.29 per share. 

Google shares were marked 4.03% higher in pre-market trading to indicate an opening bell price of $109.25 each.

5. — Visa Beats Q2 Earnings Forecast, Sees No Signs of Spending Slowdown

Visa Inc  (V) – Get Visa Inc. Report shares edged lower in pre-market trading after the credit card issuer posted stronger-than-expected third quarter earnings as cross-border transactions topped pre-pandemic levels for the first time in more than two years.

Dow component Visa earned $1.98 per share over the three months ending in June, well ahead of the Street consensus forecast of $1.74, per share, as group revenues jumped 19% to a Street-beating $7.3 billion. 

Cross border spending was up 40%, Visa said, with payments volume up 12% on a constant-currency basis. 

“We keep looking (for signs of a slowdown in consumer spending) because we’ve heard some other people say it, and we’re not seeing any evidence of that,” CFO Vasant Prabhu told investors on a conference call late Tuesday. “If anything, affluent spending has been on the rise and is one of the reasons why we’ve seen some of the robust growth we saw this quarter.”

Last week, American Express  (AXP) – Get American Express Company Report posted better-than-expected second quarter earnings, and boosted its full-year revenue growth forecast, as a rebound in business and leisure travel trigged record cardmember spending.

Visa shares were marked 0.23% in pre-market trading to indicate an opening bell price of $212.00 each. 

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