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Powell’s rate comments, tech giants to report – what’s moving markets


© Reuters — Federal Reserve Chair Jerome Powell tempers expectations that the central bank will soon begin to slash interest rates, as he seeks further evidence that inflation in the U.S. is continuing to cool. The Fed also holds borrowing costs at 23-year highs after its latest policy meeting, but ditches prior language flagging the potential of additional hikes. U.S. stocks slip after the gathering, while investors gear up for a fresh batch of earnings from tech giants, Apple (NASDAQ:AAPL), (NASDAQ:AMZN), and Meta Platforms (NASDAQ:META).

1. Fed’s Powell tempers hopes for imminent rate cuts

Federal Reserve Chair Jerome Powell has poured yet another bucket of cold water on recent hopes that the central bank would soon start to cut interest rates.

In a press conference after the Fed held rates at a target range of 5.25% to 5.50% on Wednesday, Powell noted that a reduction as soon as March were not his “base case” despite growing signs of cooling inflation. Instead, Powell and other Fed officials said they want to gain “greater confidence” that price growth is indeed easing before they consider slashing borrowing costs.

The official statement from the Fed also said risks from full employment and low inflation were “moving into better balance,” while any mention of “additional policy firming” was removed completely. The language was translated by many to mean that the world’s most influential central bank had finally called time on an aggressive tightening cycle that bumped rates up to more than two-decade highs.

However, analysts at ING flagged that the Fed recognizes its credibility was damaged after it asserted that “inflation is transitory” in 2021 only to reverse course with significant rate increases over the next two years. “The last thing the Fed wants to do is get it wrong again at a key turning point, loosen too soon, too quickly and reignite inflation pressures,” the ING analysts said.

Markets have subsequently dialed down prior bets for an early spring cut of 25 basis points, with the CME Group’s closely-monitored Fed Watch Tool now showing a 35% possibility of such a scenario. In late December, when traders were buoyed by surprisingly dovish Fed commentary following its previous meeting, that chance stood at 73%.

2. Futures edge higher post Fed decision

U.S. stock futures pointed into the green on Thursday, as traders digested Powell’s comments and looked ahead to a slate of results from megacap tech groups (see below).

By 05:03 ET (10:03 GMT), the Dow futures contract had inched up by 47 points or 0.1%, S&P 500 futures had gained 16 points or 0.3%, and Nasdaq 100 futures had risen by 95 points or 0.6%.

The main averages ended the prior session lower, as sentiment was dented by the diminishing expectations for a March interest rate cut and Powell’s cautious statements. The benchmark S&P 500 shed 1.6% and the tech-heavy Nasdaq Composite dipped by 2.2%, while the blue-chip Dow Jones Industrial Average fell by 0.8%.

Weighing on equities was a slide in shares in Microsoft (NASDAQ:MSFT) and Google-parent Alphabet (NASDAQ:GOOGL). Both of the rival tech giants warned of rising costs needed to build out their artificial intelligence capabilities, offsetting what were otherwise solid quarterly returns.

3. Tech giants to report

The intensifying corporate earnings season is due to feature even more tech behemoths this week, with e-commerce firm, iPhone maker Apple, and Facebook-owner Meta Platforms all set to unveil their latest quarterly figures after the closing bell on Thursday.

The health of Amazon’s AWS cloud computing division will likely be in focus, while analysts will be keeping an eye on Apple’s iPhone sales and the advertising revenue Meta has generated with its Reels short-form video offering. The AI arms race could also be a major focus for analysts, as they attempt to gauge how much each firm expects to spend on developing the nascent technology.

Along with Microsoft and Alphabet, these companies make up five of the so-called Magnificent Seven stocks which have largely driven a rally in equity markets this year.

Elsewhere, Qualcomm (NASDAQ:QCOM) reported a fiscal second-quarter profit that topped Wall Street estimates, although investors were concerned that the San Diego-based AI chipmaker is losing crucial market share in China. Shares were lower in premarket U.S. trading after they seesawed in after-hours dealmaking.

4. Musk says Tesla to hold investor vote on Texas incorporation

Elon Musk has said that Tesla (NASDAQ:TSLA) will hold a shareholder vote on shifting its corporate registration to the U.S. state of Texas, after a judge in Delaware invalidated his massive $56 billion compensation package.

Judge Kathaleen McCormick voided the pay package on Tuesday, arguing that it was an “unfathomable sum” that was ultimately unfair to investors and negotiated by a directors of board who appeared to be overawed by a “Superstar CEO.”

Musk wrote on his X social media platform shortly after the ruling: “Never incorporate your company in […] Delaware.” He later held a poll on X asking users if Tesla should incorporate in Texas, and more than 87% of over 1.1 million respondents were in favor of the shift.

Citing the poll, Musk said on X that the electric carmaking giant Tesla will “move immediately” to put the decision to investors. Tesla already has a significant interest in Texas: the company switched its corporate headquarters from California to the southern U.S. state in 2021.

5. Crude higher with OPEC+ meeting in focus

Crude prices inched up on Thursday, as traders awaited the latest meeting of the OPEC+ oil group.

By 05:04 ET, U.S. crude futures traded 0.8% higher at $76.44 a barrel, while the Brent contract climbed by 0.7% to $81.12 per barrel.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, is set to hold a meeting of the Joint Ministerial Monitoring Committee later in the day — its first major gathering of 2024.

The meeting is not expected to result in any changes to production, particularly after the difficulties the group had in agreeing output cuts late in 2023.

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