Early Morning Call: USD sees another pullback after Fed rate decision

Indices outlook

It was a mixed session in the Asia-Pacific region despite a rally for US stocks in the last hours of yesterday’s session.

The Nasdaq posted its biggest daily percentage gain since April 2020 as the Federal Reserve (Fed) raised interest by 75-basis points (bps). The tech index also got a boost from upbeat quarterly reports from Microsoft Corp (All Sessions) and Alphabet Inc - A (All Sessions).

Currencies

As expected, the US Federal Reserve pulled another 75bps rate hike out of the bag. Rates now stand at a target range of between 2.25 to 2.5%. It was a unanimous decision and followed a similar rise last time and a half point rise the previous occasion.

In a press conference following the decision, Jay Powell, Fed chair, said that as the central bank continues to tighten policy "it likely will become appropriate to slow the pace of increases" while policymakers assess how rate rises are affecting the economy and inflation. Those remarks prompted a stock market rally, and the dollar lost ground against all major currencies. GBP/USD hit a four-week high, USD/CAD briefly fell to levels not seen since June. Overnight, USD/JPY (大口） extended gains to settle firmly under ¥135.

The fall of the greenback also had a positive effect on gold which climbed back to two-week highs, along with base metals.

Today, currency traders will turn their focus on inflation in Germany. Last month, consumer price index (CPI) slowed for the first time in five months falling to 7.6% from 7.9% which was the highest reading since Germany reunification. This afternoon at 1pm, economists expect the index to fall further to 7.4% in July year-on-year (YoY).

In the US, second quarter (Q2) gross domestic product (GDP) is expected at 1.30pm. Economists forecast an expansion of 0.5%. Also at 1.30pm we'll see initial jobless claims figures, which rose to 253,000 last week.

Corporate news

On the corporate front, today is arguably the busiest day in terms of earnings publication in Europe this quarter.

Barclays PLC reports profits before tax of £3.7 billion for the first six months of the year, down from £4.9bn in the same period a year ago.

BT Group PLC's revenue increased by 1%, helped by price rises and improved trading in its consumer division and Openreach networks, and remains confident about its outlook.

ITV PLC's first half (H1) total advertising rose 5%, while digital advertising is up 20%. The group expects total advertising revenue for the nine months to be flat, before it enjoys a pickup from the football World Cup at the end of the year.

Shell PLC has reported a profit of $11.5bn for the second quarter, beating expectations, lifted by strong refining profits and energy prices. The company also announced a share buyback programme of $6bn in the third quarter.

Elsewhere in Europe, investors will be particularly attentive to carmakers, Volkswagen AG (Ord) and Stellantis NV (Italy), Nestle SA, Anheuser-Busch InBev NV - ADR, Banco Santander SA (LSE), Sanofi and a few more after all these groups report earnings this morning.

In the US, Facebook parent Meta Platforms Inc reported a steeper-than-expected drop in revenue yesterday evening. Earnings missed expectations and the group issued a surprisingly weak forecast pointing to a second consecutive decline in year-over-year sales.

Ford Motor Co (All Sessions) saw its shares climb around 9% to a near three-month high last night as it beat top and bottom line estimates. Adjusted earnings per share (EPS) came in at 68 cents, 23 cents higher that expectations. Automotive revenue came close to $38bn, up from $24.13bn this time last year.

Pfizer Inc (All Sessions) is set to post its quarterly earnings before markets open today. The pharmaceutical giant is expected to report earnings of $1.79 per share, to be compared to the $1.07 recorded during the same quarter last year. Revenue is also expected to rise sharply to $26.79bn. Another pharmaceutical group, Merck & Co., is also set to report at lunchtime.

Analysts are gearing up for a series of reports after market close, starting with Apple Inc (All Sessions). The Cupertino California-based company is forecast to post earnings of $1.16 per share. Revenue is expected to increase by 1.7% to $82.81bn.

Amazon.com Inc (All Sessions) is forecast to report earnings of 13 cents per share. Revenue is set to rise by just over 5% to $119bn. Amazon shares are more than 20% down year-to-date. In Q1, the group posted a disappointing set of earnings and outlook. Analysts will be particularly attentive to advertising revenue. Amazon has the third largest ad market behind Alphabet and Meta. Cost cuts could be also announced. Amazon faced the challenge of a fast expansion during the pandemic. It has now too many workers and is considering leasing out portions of its warehouses.

Market expect increases in earnings and revenue for Apple and Amazon, but a fall is on the cards for Intel Corp (All Sessions). Intel's earnings are expected to nearly halve to 70 cents per share. For the same quarter last year, the group posted earnings of $1.28 per share. Revenue is also set to decline to $17.92bn from $18.53bn a year ago.