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A look at the day ahead in U.S. and global markets from Mike Dolan
The Federal Reserve left Wall Street with little doubt about a first U.S. interest rate cut in seven weeks' time, but multiple cross-currents from the earnings season, Japan and China, and domestic politics all make for a noisy start to August.
The backdrop of falling rates clearly dominated on Wednesday as Fed boss Jerome Powell said a first cut could come as soon as September, putting the central bank near the end of a more-than-two-year battle against inflation just before the election.
Aided by a benign Treasury debt sale schedule, bond markets have rallied hard.
Two-year yields plunged as low as 4.25%, their lowest since February and completing a drop of more than 50 basis points for July alone. Five-year yields fell below 4% for the first time in four months and the 10-year benchmark is also flirting with 4%.
With further evidence of a cooling labor market as the backdrop ahead of Friday's July employment report, futures markets now price as much as 70bp of Fed easing by year-end.
The signals sent benchmark borrowing rates tumbling across the world, despite the Bank of Japan's jarring move in the opposite direction earlier on Wednesday.
And the Bank of England may also be poised to make its first cut of the cycle later today - with markets leaning to cut in what will likely be split decision among BoE policymakers. Sterling fell to its lowest in advance of the news.
With the yen stabilising somewhat just below 150 per dollar after Wednesday's BOJ-related surge, the dollar index was firmer despite the Fed optimism.
Adding to the sense of monetary easing and ebbing world growth were further signs of China's economy struggling. The Caixin/S&P Global manufacturing PMI fell sharply back into contraction territory, its lowest reading since October and missing forecasts for a continued expansion.
That news knocked Chinese stocks back into the red, while Japan's Nikkei skidded more than 2% in a delayed reaction to the previous day's BoJ move and yen spike.
Although lifted by the Fed view, Wall Street stocks were also being sideswiped in the thick of the earnings season.
Chipmakers across the world rose sharply on Wednesday, aided by Microsoft's big spend on artificial intelligence capacity despite the latter's stock stumbling on its own earnings outlook.
AI-bellwether Nvidia soared 13% and added $330 billion in market cap in just one day - the biggest such gain in history. Other global chipmakers advanced on reports the U.S. government may exempt firms in allied countries from additional chip curbs on China.
And Meta wowed the gallery overnight with its quarterly update, sending its stock up 7% ahead of Thursday's opening bell and steadying the ship for the so-called Magnificent Seven mega caps - which had wobbled over the past week.
The Facebook parent beat market expectations for second-quarter revenue and issued a rosy sales forecast for the third quarter, crucially indicating that robust digital-ad spending on its social media platforms could cover the cost of its AI spend.
Apple and Amazon will report earnings after the bell on Thursday.
The upshot on Thursday is that S&P500 and Nasdaq futures were higher again before the bell after the prior days' index surges of more than 1% and 2% respectively.
Partly on dour factory news but also on some disappointing regional earnings, European stocks bucked that trend and fell back earlier.
Euro zone manufacturing activity remained mired in contraction in July, with output declining at its fastest pace this year, according to an updated Purchasing Managers' survey.
The U.S. equivalent surveys from ISM and S&PGlobal are due out later too.
Oil prices, meantime, held Wednesday's jump on rising Middle East tensions as the OPEC+ producer group held its latest meeting.
Key developments that should provide more direction to U.S. markets later on Thursday:
Bank of England policy decision, quarterly monetary policy report and press conference
OPEC+ ministerial panel meets in London to review oil policy* US July manufacturing surveys from ISM and S&P Global, weekly jobless claims, Q2 unit labor costs and productivity estimates,
US corporate earnings: Apple, Amazon, Intel, Clorox, Prudential Financial, Motorola Solutions, Microchip Technology, Consolidated Edison, Booking, Biogen, Bio Rad, Moderna, Regeneron, Cigna, Ventas, Conocophillips, Dominion Energy, Xcel Energy, Alliant Energy, Coterra Energy, Entergy, Camden Property, Kimco, Federal Realty Investment Trust, Regency Centers, Ameren, Mettler-Toledo, Hershey, GoDaddy, EOG, Gen Digital, AMETEK, Eaton, Intercontinental Exchange, WW Grainger, Southern, etc

Futures for the S&P 500 and the Nasdaq rose modestly on Thursday, boosted by the U.S. Federal Reserve's signals of a September interest-rate cut and a rosy sales forecast from Meta, but a pullback in some megacap and chip stocks capped gains.
Meta Platforms soared 7% in premarket trading after a second-quarter revenue beat and an upbeat third-quarter sales forecast pointed to the possibility that its artificial intelligence costs would be covered.
"Meta has bought the AI theme some time... investors are willing to overlook increased capital expenditure, as long as revenue growth remains strong," said Kathleen Brooks, research director for XTB.
The Facebook-owner's quarterly results were the first among the "Magnificent Seven" group of companies to enthuse investors, allaying some concerns around AI spending following dismal earnings from Alphabet and Microsoft last month.
Wall Street has been on tenterhooks, looking for signs that the tech behemoths can hold on to their bumper gains after steering the U.S. equity market to record highs this year on AI euphoria and hopes of early rate cuts.
Premarket trends in megacaps were largely mixed after Wednesday's rally, with Apple and Amazon.com gaining 0.5% and 0.9%, respectively, ahead of their results, which are due after markets close. Alphabet and Tesla were down 0.1% and 0.6%, respectively.
AI-trade favorite Nvidia rose 0.60%, a day after adding about $330 billion to its market value, a record one-day gain for any Wall Street company.
At 5:23 a.m. ET, Dow e-minis were down 18 points, or 0.04%, S&P 500 e-minis were up 12.5 points, or 0.22%, and Nasdaq 100 e-minis were up 62.25 points, or 0.32%.
The S&P 500 and the Nasdaq scored their biggest one-day gains since Feb. 22 on Wednesday, after Fed Chair Jerome Powell offered the stock market what it has been seeking - a likely pivot to policy easing in September, with inflation on track to finish the journey to 2% without undue damage to the labor market.
However, as the prospect of rate cuts gained traction, investors are now trying to gauge if the central bank will be able to ease policy at a pace consistent with achieving the much awaited "soft landing" for the economy.
Futures tracking the Russell 2000 also rose 0.5% after the small-cap index logged its biggest monthly gain in July since the start of 2024, on hopes that mid- and small-cap companies will benefit from a low-interest-rate environment.
Economic data including weekly jobless claims and manufacturing PMIs, due through the day, is at the top of investors' watch list.
Most chip stocks retreated after Wednesday's rally saw the Philadelphia SE Semiconductor index log its best one-day gain of 7% since November 2022.
Arm Holdings slumped 10.7% following a conservative revenue forecast, while Qualcomm lost 1.9% on flagging a revenue hit after the U.S. revoked one of its export licenses for sanctioned Chinese telecom firm Huawei.
Western Digital Corp dropped 6.2% after forecasting first-quarter revenue below estimates.
Of the 283 S&P 500 companies that have reported second-quarter earnings till date, 78.4% beat expectations, LSEG data showed.

Microsoft's earnings are poised to shape market sentiment in the coming days as investors anticipate more big-tech earnings. We continue to expect profits for S&P 500 companies to grow 10-12% for the second quarter, and see a favorable backdrop for the US market amid resilient economic growth, falling inflation, likely Fed rate cuts, and solid AI spending.
Microsoft’s cloud business reported a 29% y/y revenue gain for the second quarter on Tuesday after US market close, decelerating from the 31% y/y growth in the previous three months. The tech giant, however, said it expects cloud growth to accelerate in the first half of next year. While the slight revenue miss sent its shares down 4% in extended trading, the Nasdaq futures are now up 0.7%.
The tech giant’s 2Q24 results could set the stage for market sentiment in the coming days as investors brace for more big-tech earnings, including from Meta, Apple, and Amazon. A Federal Reserve meeting that could open the door to the first rate cut since the pandemic is also high on investors’ agenda. Elsewhere, the Bank of Japan is likely to announce a reduction in the pace of its Japanese government bond purchase, and the Bank of England could begin cutting rates on Thursday.
Without taking single-name views, Microsoft also reported an uptick in artificial intelligence (AI) adoption, and guided for another 28-29% growth for the September quarter. The fall in operating margins forecast by Microsoft over the next 12 months is smaller than what the market had expected.
With the earnings season in full swing, we believe profits for S&P 500 companies remain on track to grow 10-12% for the second quarter. The combination of resilient US economic growth, falling inflation, likely Fed rate cuts, and solid AI spending should push up the benchmark to 5,900 by the end of the year.
The tech sector should see 20-25% earnings growth. More details are still due in the coming days, but we maintain our positive outlook on the technology sector amid strong AI capex and demand. Microsoft’s guidance suggests that monetization is picking up gradually amid solid growth. Our latest supply chain checks also suggest strong demand for AI accelerators, which include both GPUs and custom chips. Following the recent tech correction, we see tactical opportunities in companies with strong earnings growth visibility. We continue to like AI beneficiaries in the semiconductor, software, and internet sectors.
Overall, earnings reports have been good across sectors. Companies accounting for more than 50% of the S&P 500 market capitalization have now reported, and the results have been good overall. So far, some 60% of companies have beat sales estimates, and 75% have beat earnings estimates, in line with historical averages. Guidance for the third quarter is also in line with normal seasonal patterns. While it appears that lower-end consumer spending weakened a bit further in 2Q, as highlighted by Visa, Coca-Cola, and McDonalds, banking services provider Capital One called out a resilient labor market, with US consumers remaining a source of strength in the US economy. Additionally, companies continue to suggest easing inflation and pricing pressure.
Positioning and rotation impact are likely to fade. Equity market volatility has picked up although 2Q results have been mostly in line. For example, Alphabet’s results beat estimates by 3% and analysts have raised their forecasts for 2024 and 2025. However, its shares fell 6% on the week. Conversely, chemical company Dow was only down 2% last week despite missing earnings estimates by 6%, which prompted analysts to cut full-year 2024 and 2025 estimates by 6-7%. We believe this reaction is related to investor positioning and the high bar for tech companies heading into earnings—Alphabet shares had risen 27% this year through last week, compared to Dow, which was flat on the year. However, we think investors are likely to shift their focus back to fundamentals, with technical factors supporting the rotation likely to dissipate soon.
So, we continue to see a favorable backdrop for US equities, and advise investors to maintain a full allocation to the US market. AI beneficiaries should continue to account for a substantial part of the portfolios as the technology drives further growth in the year ahead, but we also see opportunities in other quality companies, including those exposed to secular trends of energy transition, blue economy, and water scarcity.

Broad commodity prices have fallen in recent weeks due to demand concerns, but we remain positive on the price outlook and see particular opportunities in oil and gold.
Concerns over sluggish Chinese demand have weighed on commodity prices in recent weeks. Brent crude oil is trading some 7% lower than its early July levels, while prices of industrial metals have fallen more than 9%. China’s second-quarter GDP came in well below market expectations, and the country’s twice-a-decade Third Plenum last week failed to inspire investors as officials signaled policy continuity instead of more stimulus.
However, we continue to see higher commodity prices ahead due to solid demand and limited supply, and we expect the asset class to deliver strong diversification benefits in a portfolio context.
Oil exports are lower amid otherwise healthy demand. The latest available data showed that Russian crude oil exports in the first two and half weeks of July fell to a multi-year low. While Russian domestic oil demand typically increases during the summer period, the drop appears larger than just the usual seasonal pattern. In our view, this suggests that Russia has made some compensation production cuts to comply with the OPEC+ decision, as Russia’s refinery runs have recovered from several drone attacks. Separately, crude exports from OPEC were lower in July from already low June levels amid hot weather in the Middle East, and demand overall remains healthy. We think lower OPEC+ crude exports should help tighten the oil market, and maintain our year-end Brent target at USD 87 per barrel.
Gold has more room to rally. Gold took a breather after hitting a new all-time high last week, but the drivers for the rally remain in place, including strong central bank buying, ongoing geopolitical uncertainty, and the likely Federal Reserve move to cut interest rates in the coming months. We expect the yellow metal to reach USD 2,600/oz by the end of the year and USD 2,700/oz by mid-2025, from around USD 2,380/oz today. For investors, an allocation to gold within a portfolio can be an attractive diversifier and a hedge, in our view.
Copper prices should find support in an undersupplied market. Copper prices have held up relatively well, even though disappointing manufacturing data across the globe and China’s uneven recovery kept industrial metals under pressure. We reiterate our target of USD 12,000/mt for LME copper over the next 12 months as energy-related transition demand remains strong while supply disappointments continue. Our call for a broader manufacturing lift in the second half of the year and in 2025 should also be supportive for a market in deficit.
So, we recommend investors consider opportunities in the commodity space to enhance and diversify portfolio returns. In addition, an active strategy on broad commodities can also help investors navigate the markets effectively with potentially improved risk-adjusted returns.