Hawkish Fed Talk, Iran Tensions, and Mixed Tech Earnings Pressure Markets.
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The Federal Reserve opts for a hawkish pause, with the chairman, Kevin Warsh, warning markets about rising inflation. Simultaneously, the US continues to strike Iranian targets, sending oil prices higher for a second day and adding to inflation fears. As a result, the stock market continues to decline, the US Dollar took a dive but is now recovering, and Gold continues to experience swings in both directions.
The stock market’s first reaction to the Federal Reserve’s decision was positive, as 36% of the market had previously been expecting a rate cut. However, US indices were quick to fall back lower as the chairman’s hawkish tone hit investor sentiment.
Microsoft Earnings Saves The NASDAQ From Larger Declines
The NASDAQ has fallen to its lowest level since 29 April as investors price in higher inflation, rate hikes, and mixed earnings reports. During the early hours of this morning’s Asian session, the NASDAQ rose upwards after finding some support from positive earnings reports.
Microsoft stock saw a significant rise after market close due to its stronger-than-expected quarterly earnings report for the second quarter. After the report was made public, the stock rose 8.90%, a much-needed boost for a stock that was trading at a 17% loss. According to analysts, without the boost from Microsoft’s positive earnings report, the NASDAQ would likely be trading below 27,000 points.
Microsoft’s revenue reached $90 billion, up 18% year over year and above Wall Street’s expectation of approximately $87 billion. Earnings were $4.74 per share, comfortably beating the expected $4.24. Furthermore, Azure and cloud services revenue grew 43%, exceeding the roughly 40% growth analysts expected. Azure also generated more than $100 billion in annual revenue for the first time.
Meta, on the other hand, saw a significant decline after making its own report public. Analysts had feared that Meta’s aggressive AI expansion and rising investment costs could weigh on its results. This fear indeed was proven through the latest quarterly report. Free cash flow collapsed by 91%, falling to just $784 million, as spending on data centres, chips, and other AI infrastructure increased sharply. In addition to this, Meta reported earnings of $6.18 per share, below analysts’ estimate of around $7.20.
HFM - NASDAQ 2-Hour
The price of the index retraced upwards but is seeing another bearish swing. However, sell indications may not be seen until the price falls to $27,240.00. On larger timeframes, the indications remain in favour of a bearish sentiment. The main concern for investors remains higher interest rates, trade tariffs, and rising inflation.
Gold - A Hawkish Fed Keeps the Pressure on Gold
The price of Gold rose in response to the Federal Reserve’s pause. However, concerns remain, and bearish signals remain in place. The US Dollar Index fell 0.74% after the announcement and formed a bearish breakout. However, Gold’s upward price movement formed no breakout, and the momentum did not follow the traditional correlation magnitude. For this reason, indications remain in favour of a range-bound condition with a bearish sentiment.
The US 10-year treasury yield rose to 4.70%, up 78 points, and the US Dollar index is again on the rise. Currently, the US Dollar is the best-performing currency of the day. This applies further pressure on Gold, particularly if the Dollar Index again rises above 101.00.
Most metals are trading lower this morning, but Silver is particularly trading with a large decline. If Gold prices fall below $4,034.65, sell signals are likely to strengthen, while the support level can be seen at $4,010.00.
HFM - Gold 1-Hour Chart
USDJPY - The US Dollar Rises After a Sharp Fall on Wednesday
The worst-performing currency of the Asian session is the Japanese Yen while the best performing is the US Dollar. The US Dollar continues to remain under the influence of last night’s press conference. Chairman Kevin Warsh told markets that the committee has no soft inflation target and that many members support his position.
Three members of the FOMC voted to hike interest rates, while nine voted for a pause. However, almost 70% of the market believes the Federal Reserve will hike in September. Previously, a hike in September was deemed a 50/50 possibility. This morning’s oil prices rose to a weekly high, also adding further pressure on the Federal Reserve to start hiking.
This afternoon, the US will release its Core PCE Price Index and advance Gross Domestic Product. If these reports exceed expectations, they will likely support the US Dollar, especially if the PCE Price Index comes in higher than expected.
In addition to this, the Bank of Japan will also announce its rate decision tomorrow. If the central bank does not hike or convince markets that it can keep up with the global adjustments and inflation, the USD/JPY could potentially rise to 165.00.
Key Takeaways:
* The Federal Reserve’s hawkish pause increased concerns about persistent inflation and raised expectations of future interest rate hikes.
* Microsoft’s stronger-than-expected earnings gave the NASDAQ important support and helped prevent an even larger decline.
* Meta shares fell sharply after weak earnings and heavy AI spending caused free cash flow to drop significantly.
* Rising oil prices added to inflation concerns, putting further pressure on global stock markets and investor sentiment.
* The US Dollar recovered after an initial decline, while Gold remained volatile and continued to face bearish pressure.
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Please note that times displayed based on local time zone and are from time of writing this report.
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Michalis Efthymiou
HFMarkets
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