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FOMC statement will open the door to a September cut: Morgan Stanley

Morgan Stanley analysts anticipate that the Federal Reserve’s upcoming July meeting will pave the way for a rate cut in September.

They believe the Federal Open Market Committee (FOMC) will highlight significant progress in combating inflation and acknowledge rising risks in the labor market, which will signal a readiness to lower interest rates.

The analysts expect the FOMC to maintain the current interest rate at 5.375%. They predict that the FOMC statement will reflect improvements in inflation and labor market conditions, with Chair Powell likely to emphasize increased confidence in achieving the Fed’s inflation targets.

According to Morgan Stanley, “Considerable progress on inflation allows the Fed to inch closer to rate cuts. Chair Powell should emphasize increased confidence.”

In their preview, Morgan Stanley notes, “We continue to look for three cuts this year starting in September.” They expect Powell to indicate that the Fed is nearing a decision to lower rates, without committing to a specific timeline for future cuts.

Morgan Stanley’s analysis suggests that recent inflation data supports this outlook. They state, “Core PCE inflation has eased considerably over the past year, and though progress flattened out in 1Q24, disinflation resumed in the second quarter.”

The analysts forecast a 0.18% increase in June’s core PCE, further supporting their view of an impending rate cut.

Furthermore, they anticipate a more balanced view from the Fed regarding risks to the economy and labor market. “Chair Powell and the FOMC have highlighted that risks to the outlook – on both growth and the labor market – are more two-sided now,” Morgan Stanley points out.

In conclusion, the bank believes that the upcoming FOMC meeting will set the stage for a rate cut in September, reflecting confidence in the progress made on inflation and a cautious approach to labor market conditions.

 

Main News

BofA says we are ‘one bad payroll away from cracking’ Magnificent 7 dominance

Emerging markets (EM) equity funds saw their largest weekly inflow since February, and tech funds continued to attract positive flows, Bank of America (BofA) said in a new report.

According to EPFR Global data, equity funds experienced $22.2 billion in inflows for the week ending July 24, with half of this amount directed towards emerging markets stock funds.

China stock funds saw an $8.3 billion inflow, the strongest since February, while Japan stock funds recorded their biggest weekly inflow in three months at $4.1 billion.

Tech stock funds continued to attract investors, with $2 billion of inflows, even as other sectors like energy, consumer, and financials saw outflows.

Specifically, energy funds saw a record outflow of $3.0 billion, consumer sector funds experienced their largest outflow in three months at $0.9 billion, and $0.8 billion left financials, marking the biggest outflow since February.

BofA notes that $42.3 billion was pulled from cash funds. Meanwhile, bond funds saw $16.1 billion in inflows, with high-yield bonds receiving $2.7 billion and investment-grade bonds $8.8 billion.

Moreover, $1.3 billion flowed into gold, marking the biggest two-week inflow since March 2022, and $1.2 billion was added to crypto assets.

BofA said bullish investors view the recent pullback in stocks as healthy, noting that key levels are holding and credit spreads remain “well-behaved.”

However, bearish investors argue that “we are one bad payroll away” from disrupting the dominance of mega-cap technology stocks, also known as the Magnificent 7.

Bears also view the steeper yield curve as “recessionary” and believe that bond vigilantes will prevent the Fed’s cuts from being effective due to the rising US debt, strategists led by Michael Hartnett pointed out.

 

Main News

Stock Market Today: Dow in 4th weekly win as data puts September rate cut in play

Investing.com– The Dow rallied Friday to a fourth-straight weekly win, supported by upbeat quarterly earnings from corporates and data showing cooling inflation that boosted hopes for a sooner interest rate cut.

At 16:00 ET (20:00 GMT), Dow Jones Industrial Average rose 654 points, or 1.6%, S&P 500 rose 1.1%, and NASDAQ Composite rose 1.1%, with the latter two indexes posting two-straight weeks of loses for the first time since April. 

Cooling inflation data puts September rate cut in play 

The PCE price index, the U.S. Federal Reserve’s preferred inflation metric, rose 0.1% on a monthly basis in June and 2.5% annually, both as expected.

While the Federal Reserve‘s meeting next week is too soon for a rate cut, Macquarie says, the Fed is likely to stoke expectations for cuts to begin in September. 

“We expect the FOMC to leave the fed funds rate unchanged next week, but for the communication to foreshadow rate cuts ahead,” Macquarie said.

Treasury yields fall on rate-cut hopes, boosting dip-buying in tech   

Rate-cut optimism pushed Treasury yields lower, sparking a bid in tech stocks following their recent malaise.

The dip-buying action comes just ahead of further earnings from major tech names inclding Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) due on Tuesday and Thursday, respectively.

Microsoft’s results are likely to steal the spotlight as investors look for further clues that the tech giant’s cloud business Azure is capitalizing on the AI wave.  

Beyodn AI, “capex trends and the return on Microsoft’s AI investments and Office growth, specifically when Copilot uplift can offset slowing seat growth,” will likely dominate investor attention, UBS said in a note.

Prints from Advanced Micro Devices (NASDAQ:AMD), Qualcomm Incorporated (NASDAQ:QCOM) and Amazon (NASDAQ:AMZN) are also due next week. 

3M in record rally after impressive earnings; Bristol-Myers Squibb, Deckers also impress

3M Company (NYSE:MMM) stock soared nearly 23% to record highs after the industrial conglomerate raised the low end of its full-year adjusted profit forecast expecting to benefit from restructuring measures and increasing demand for electronics.

Bristol-Myers Squibb (NYSE:BMY) stock rose 11% after the drugmaker posted better-than-expected second-quarter results, driven by growth from new products like anemia treatment Reblozyl and heart drug Camzyos as well as from its top-seller, blood thinner Eliquis.

Deckers Outdoor (NYSE:DECK) stock rose more than 6% after the athletics shoes and apparel company raised its annual profit forecast following a first-quarter results beat.

On the flip side, DexCom (NASDAQ:DXCM) stock slumped 41% after the medical device maker cut its annual revenue forecast, saying it had fewer new customers than expected.

(Peter Nurse, Ambar Warrick contributed to this article.)

 

Main News

Tesla stock downgraded to Sell, analysts say ‘not much to like’

Tesla (NASDAQ:TSLA) stock has been downgraded to a Sell recommendation by Philip Securities analysts, who said there is “not much to like” about the electric vehicle (EV) giant following its latest quarterly report. The analysts set a price target of $135 on TSLA, implying nearly 40% downside risk from the current levels.

The downgrade comes amid several pressing concerns, primarily soft deliveries and pricing, pressured auto margins, and “minimal commentary” from Tesla’s management to dispel near-term concerns.

Tesla’s EV deliveries increased by 15% quarter-over-quarter, likely driven by the sixth consecutive quarter of reduced EV prices and attractive financing options. However, deliveries fell by 5% year-over-year for the second consecutive quarter, reflecting persistently weak overall demand.

“Intense competition, particularly in China, remains a key near-term headwind, while the potential reduction in IRA credits if former President Trump is elected to office could also negatively impact demand in the US. Auto revenue declined 7% YoY,” analysts noted.

Moreover, Cybertruck ramp and EU tariffs continue to weigh on Tesla’s auto margins, one of the closely watched metrics. The EV giant reported margins of 14% in the second quarter, missing consensus estimates.

“We believe these headwinds will persist and continue to weigh on near-term margins,” analysts added.

Lastly, the analysts said Tesla’s management “spent almost no time dispelling concerns over its stalling Auto business,” and rather focused on plans such as Robotaxi, its Full Self-Driving (FSD) solution, and Optimus. But this, analysts cautioned, “is still 3-5 years away from contributing meaningfully to growth.”

On the other hand, Tesla’s revenue from energy storage doubled year-over-year, representing one of the few positive highlights of the report, according to analysts.

Record energy storage deployments of 9.4GWh propelled TSLA’s energy storage business to $3 billion, “more than offsetting the dip in Auto revenue,” they said.

“This was due to increasing ramp-up in its Lathrop Megapack factory, as TSLA remained demand constrained,” the analysts added.

 

Main News

Doesn’t matter who wins election, Fed will start cutting rates in September and proceed into 2025: Citi

The Federal Reserve’s path for monetary policy likely remains unaffected by the outcome of the upcoming U.S. presidential election or the composition of Congress, Citi economists said in a Thursday note, highlighting several reasons.

Economists pointed out that former President Trump has confirmed he will leave Jerome Powell as Fed Chair until his term expires in early 2026. Furthermore, Fed officials are expected to focus on macroeconomic outcomes rather than proposed policies.

“That means any change in Fed plans would depend on actual outcomes in data,” they explained.

Also, new fiscal policies enacted by a Republican-controlled Congress would not take effect until 2026, with any significant changes likely requiring extended negotiations.

“Extending the existing individual tax cuts would only affect the budget starting in 2026 – affecting individual tax payments due in April 2027,” Citi’s team added.

Despite the rise in political volatility, the market’s reaction has been muted, economists said. Interest rates have occasionally moved higher on expectations that a Republican-controlled government would lead to higher inflation and larger deficits, but these moves have been modest and not reflected in other asset markets.

The limited election-induced market volatility may reflect the reality that structural issues leading to higher and more volatile inflation and larger deficits are likely to dominate any differences in policy in the near term.

“In short, the consensus narrative has overstated both the certainty and size of the macroeconomic effects of different election outcomes,” Citi noted. “This may partly explain why political volatility is not translating to market volatility.”

The economists also addressed potential fiscal policy changes, noting that new tariffs under a Republican administration are unlikely to lead to significant inflationary pressure. A proposed 10% across-the-board tariff, excluding Mexico and Canada, would raise an estimated $2.2 trillion in revenues over ten years if trade flows remain at current levels. This could offset revenue reductions from extending individual tax cuts.

While there is speculation about substantial tariffs on specific countries or products, such as 60% tariffs on Chinese imports or 100-200% tariffs on German autos, both Trump and his former trade representative Robert Lighthizer have repeatedly stated that these measures are meant as threats to drive negotiations to reduce bilateral trade deficits, economists noted.

 

Commodities

Main News

FOMC statement will open the door to a September cut: Morgan Stanley

Morgan Stanley analysts anticipate that the Federal Reserve’s upcoming July meeting will pave the way for a rate cut in September.

They believe the Federal Open Market Committee (FOMC) will highlight significant progress in combating inflation and acknowledge rising risks in the labor market, which will signal a readiness to lower interest rates.

The analysts expect the FOMC to maintain the current interest rate at 5.375%. They predict that the FOMC statement will reflect improvements in inflation and labor market conditions, with Chair Powell likely to emphasize increased confidence in achieving the Fed’s inflation targets.

According to Morgan Stanley, “Considerable progress on inflation allows the Fed to inch closer to rate cuts. Chair Powell should emphasize increased confidence.”

In their preview, Morgan Stanley notes, “We continue to look for three cuts this year starting in September.” They expect Powell to indicate that the Fed is nearing a decision to lower rates, without committing to a specific timeline for future cuts.

Morgan Stanley’s analysis suggests that recent inflation data supports this outlook. They state, “Core PCE inflation has eased considerably over the past year, and though progress flattened out in 1Q24, disinflation resumed in the second quarter.”

The analysts forecast a 0.18% increase in June’s core PCE, further supporting their view of an impending rate cut.

Furthermore, they anticipate a more balanced view from the Fed regarding risks to the economy and labor market. “Chair Powell and the FOMC have highlighted that risks to the outlook – on both growth and the labor market – are more two-sided now,” Morgan Stanley points out.

In conclusion, the bank believes that the upcoming FOMC meeting will set the stage for a rate cut in September, reflecting confidence in the progress made on inflation and a cautious approach to labor market conditions.

 

Main News

BofA says we are ‘one bad payroll away from cracking’ Magnificent 7 dominance

Emerging markets (EM) equity funds saw their largest weekly inflow since February, and tech funds continued to attract positive flows, Bank of America (BofA) said in a new report.

According to EPFR Global data, equity funds experienced $22.2 billion in inflows for the week ending July 24, with half of this amount directed towards emerging markets stock funds.

China stock funds saw an $8.3 billion inflow, the strongest since February, while Japan stock funds recorded their biggest weekly inflow in three months at $4.1 billion.

Tech stock funds continued to attract investors, with $2 billion of inflows, even as other sectors like energy, consumer, and financials saw outflows.

Specifically, energy funds saw a record outflow of $3.0 billion, consumer sector funds experienced their largest outflow in three months at $0.9 billion, and $0.8 billion left financials, marking the biggest outflow since February.

BofA notes that $42.3 billion was pulled from cash funds. Meanwhile, bond funds saw $16.1 billion in inflows, with high-yield bonds receiving $2.7 billion and investment-grade bonds $8.8 billion.

Moreover, $1.3 billion flowed into gold, marking the biggest two-week inflow since March 2022, and $1.2 billion was added to crypto assets.

BofA said bullish investors view the recent pullback in stocks as healthy, noting that key levels are holding and credit spreads remain “well-behaved.”

However, bearish investors argue that “we are one bad payroll away” from disrupting the dominance of mega-cap technology stocks, also known as the Magnificent 7.

Bears also view the steeper yield curve as “recessionary” and believe that bond vigilantes will prevent the Fed’s cuts from being effective due to the rising US debt, strategists led by Michael Hartnett pointed out.

 

Main News

Stock Market Today: Dow in 4th weekly win as data puts September rate cut in play

Investing.com– The Dow rallied Friday to a fourth-straight weekly win, supported by upbeat quarterly earnings from corporates and data showing cooling inflation that boosted hopes for a sooner interest rate cut.

At 16:00 ET (20:00 GMT), Dow Jones Industrial Average rose 654 points, or 1.6%, S&P 500 rose 1.1%, and NASDAQ Composite rose 1.1%, with the latter two indexes posting two-straight weeks of loses for the first time since April. 

Cooling inflation data puts September rate cut in play 

The PCE price index, the U.S. Federal Reserve’s preferred inflation metric, rose 0.1% on a monthly basis in June and 2.5% annually, both as expected.

While the Federal Reserve‘s meeting next week is too soon for a rate cut, Macquarie says, the Fed is likely to stoke expectations for cuts to begin in September. 

“We expect the FOMC to leave the fed funds rate unchanged next week, but for the communication to foreshadow rate cuts ahead,” Macquarie said.

Treasury yields fall on rate-cut hopes, boosting dip-buying in tech   

Rate-cut optimism pushed Treasury yields lower, sparking a bid in tech stocks following their recent malaise.

The dip-buying action comes just ahead of further earnings from major tech names inclding Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) due on Tuesday and Thursday, respectively.

Microsoft’s results are likely to steal the spotlight as investors look for further clues that the tech giant’s cloud business Azure is capitalizing on the AI wave.  

Beyodn AI, “capex trends and the return on Microsoft’s AI investments and Office growth, specifically when Copilot uplift can offset slowing seat growth,” will likely dominate investor attention, UBS said in a note.

Prints from Advanced Micro Devices (NASDAQ:AMD), Qualcomm Incorporated (NASDAQ:QCOM) and Amazon (NASDAQ:AMZN) are also due next week. 

3M in record rally after impressive earnings; Bristol-Myers Squibb, Deckers also impress

3M Company (NYSE:MMM) stock soared nearly 23% to record highs after the industrial conglomerate raised the low end of its full-year adjusted profit forecast expecting to benefit from restructuring measures and increasing demand for electronics.

Bristol-Myers Squibb (NYSE:BMY) stock rose 11% after the drugmaker posted better-than-expected second-quarter results, driven by growth from new products like anemia treatment Reblozyl and heart drug Camzyos as well as from its top-seller, blood thinner Eliquis.

Deckers Outdoor (NYSE:DECK) stock rose more than 6% after the athletics shoes and apparel company raised its annual profit forecast following a first-quarter results beat.

On the flip side, DexCom (NASDAQ:DXCM) stock slumped 41% after the medical device maker cut its annual revenue forecast, saying it had fewer new customers than expected.

(Peter Nurse, Ambar Warrick contributed to this article.)