Investing.com -- The Bank of Japan hiked interest rates earlier Wednesday, putting the focus on the Federal Reserve, which concludes its July meeting later in the session. Wall Street looks set to end the month on a positive note as investors digest earnings from the likes of Microsoft.
1. BOJ hikes, and the Fed is next…
The Bank of Japan started the week’s central bank parade earlier Wednesday, raising interest rates and signaling its resolve to unwind a decade of massive monetary stimulus.
The Japanese central bank hiked its overnight call rate target to 0.25% from 0-0.1% by a 7-2 vote and laid out a detailed quantitative tightening plan that will reduce monthly bond buying in several stages to around Y3 trillion, half the current rough target, by early 2026.
Wednesday's rate hike comes amid some improvements in Japanese inflation over the past two months, especially as consumer spending improved on stronger wages.
This trend furthered the central bank’s forecast that inflation will climb to its 2% annual target sustainably, and that monetary conditions will have to tighten accordingly.
In the U.S., by contrast, a benign June inflation report has investors looking for the policymakers to lay the groundwork for a September rate cut.
The Federal Reserve concludes its July meeting later Wednesday, and is widely expected to maintain its benchmark overnight interest rate in the current 5.25%-5.50% range, as it has done since last July.
Futures are fully priced for a quarter-point easing in September, with a small chance of a reduction of 50 basis points, and have 66 basis points of easing priced in by Christmas.
2. Futures rise as investors digest corporate results
U.S. stock futures rose Wednesday as investors awaited the conclusion of the latest Federal Reserve meeting while parsing through a series of important earnings reports.
By 04:10 ET (08:10 GMT), the Dow futures contract was 77 points, or 0.2%, higher, S&P 500 futures climbed 42 points, or 0.8%, and Nasdaq 100 futures rose by 252 points, or 1.3%.
The Federal Reserve concludes its two-day policy meeting later in the session, and investors will be looking for clues over the timing and number of rate cuts to expect this year.
There are more earnings to digest Wednesday, including from Facebook-parent Meta Platforms (NASDAQ:META) [see below] after the close. Other names set to release numbers include Boeing (NYSE:BA) before the bell, as well as Qualcomm (NASDAQ:QCOM), Etsy (NASDAQ:ETSY) and Carvana (NYSE:CVNA) later on.
This is the final session of July, and both the S&P 500 and Nasdaq Composite are on course to end the month lower, with the latter seen losing over 3%.
The Dow Jones Industrial Average, on the other hand, is on track to finish the month higher by more than 4%, as the market rotated out of the major tech stocks into companies that are smaller and more cyclically oriented.
3. Microsoft’s cloud growth disappoints
Microsoft (NASDAQ:MSFT) disappointed with its fourth-quarter update after the close Tuesday, as the tech giant indicated it would spend more money on artificial intelligence infrastructure, even as growth slowed in its cloud business.
This offered another sign that the payoff from hefty investments in the technology may take longer than Wall Street had hoped.
Microsoft's cloud business, Azure, which is widely viewed as a barometer for AI demand, grew 29%, marking a slowdown from 31% growth seen in the previous quarter.
Additionally, AI-related growth accounted for about 8% of Azure's total growth, up from 7% in the third quarter.
However, this came as Microsoft continued to ramp up investments, with capital spending jumping to $19 billion in the quarter, up from $14 billion in the prior quarter, and nearly double the $10.7 billion seen a year ago.
It wasn’t all bad news for the sector though, as Advanced Micro Devices (NASDAQ:AMD) increased its 2024 forecast for artificial intelligence chip sales by $500 million and said supplies would remain tight through 2025.
4. Meta expected to see jump in revenue
Meta Platforms is the latest of the mega-cap tech giants to release quarterly results this week, with the numbers due after the close Wednesday.
Meta, which owns and operates Facebook, Instagram, Threads, and WhatsApp, among other products and services, is expected to report a 20% rise in quarterly revenue, helped by strong ad sales driven by the Olympics and elections in several countries.
However, like fellow tech giants Alphabet (NASDAQ:GOOGL) and Microsoft, investors will want to see if the billions it is spending on tech infrastructure to support AI development is starting to yield returns.
"We remain positive on Meta and think Reels, Messaging and AI-driven ad improvements are still early, and could lead to positive product surprises and revenue upside," analysts at BofA Securities said.
"With political spend, and potential TikTok ban in 1Q'25, Meta could also see an ad spend benefit in 2H'24."
5. Crude prices rise on elevated political tensions
Crude prices soared Wednesday after the killing of Hamas leader Ismail Haniyeh in Iran ratcheted up tensions in the Middle East, raising the prospects of a wider conflict hitting supplies.
By 04:10 ET, the U.S. crude futures (WTI) climbed 1.8% to $76.08 a barrel, while the Brent contract rose 1.7% to $79.38 a barrel.
Multiple media reports said that Ismail Haniyeh was killed in an Israeli strike, and could mean a potential escalation in the Israel-Hamas war, which stretched into a ninth month in July.
It could also result in a resurgence in tensions between Iran and Israel, after a series of missile strikes between the two earlier this year, and furthered fears of an all-out war in the Middle East, especially after Israel carried out strikes against Lebanon-based, Iran-backed armed group Hezbollah on Tuesday.
This news has overshadowed data from the American Petroleum Institute showing on Tuesday that U.S. inventories saw a draw of nearly 4.5 million barrels last week.
The reading marked a fifth straight week of draws in U.S. inventories, as fuel demand remained underpinned by the travel-heavy summer season.