Day: July 30, 2024

Investing.com — The Federal Reserve starts its latest policy-setting meeting, while investors look forward to more corporate earnings, particularly from the important tech sector. BP has already impressed with its second-quarter numbers. 

1. Fed starts policy-setting meeting 

The Federal Reserve starts its July policy meeting later in the session, and after a benign June inflation report, investors after looking for the policymakers to lay the groundwork for a September rate cut.

The U.S. central bank concludes its latest meeting on 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.

Investors are looking for signals about when and how many rate cuts may occur this year, and will therefore be intently following any policy guidance issued by the central bank, as well as the post-meeting press conference with Fed Chairman Jerome Powell.

Fed officials have repeatedly stated that they are looking for more evidence that inflation is steadily returning to 2% before cutting rates, but Fed Chair Jerome Powell indicated earlier this month that the central bank may not wait until inflation reaches this target before cutting rates.

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 edge higher with corporate results in focus

U.S. stock futures edged higher Tuesday as investors awaited the start of the latest Federal Reserve meeting as well as key corporate earnings. 

By 04:00 ET (08:00 GMT), the Dow futures contract was 60 points, or 0.1%, higher, S&P 500 futures climbed 12 points, or 0.2%, and Nasdaq 100 futures rose by 35 points, or 0.2%.

The Federal Reserve is set to start 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.

The main earnings release Tuesday will be from Microsoft (NASDAQ:MSFT) after the close, but there will also be results from the likes of Merck (NYSE:MRK), Pfizer (NYSE:PFE), PayPal (NASDAQ:PYPL) and Procter & Gamble (NYSE:PG) before the open, as well as Starbucks (NASDAQ:SBUX) and AMD (NASDAQ:AMD) post closing bell.

So far, more than 40% of the S&P 500 companies have reported their results with 79% posting earnings that exceeded Wall Street expectations, according to LSEG. 

3. Microsoft’s Azure sales in spotlight 

Microsoft (NASDAQ:MSFT) releases its quarterly results after the close Tuesday – the first of a series of numbers from the tech giants this week, including Facebook-parent Meta (NASDAQ:META) on Wednesday and then both Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday.

Investors will be looking to see if sales in Microsoft’s Azure cloud-computing business have picked up enough to justify the billions of dollars being spent on artificial intelligence infrastructure.

The software behemoth is expected to report that Azure’s growth stayed steady quarter-over-quarter at about 31% between April and June, according to data from Visible Alpha, helped by its tie-up with ChatGPT maker OpenAI.

Microsoft’s capital spending likely surged about 53% year-over-year to $13.64 billion in the period, according to 16 analysts polled by LSEG. A big step up from the $10.95 billion in expenditure it recorded in the previous quarter.

Shares of Google-parent Alphabet (NASDAQ:GOOGL) fell sharply last week after the company reported a quarterly capital spending that exceeded estimates by nearly $1 billion, while the revenue boost from AI integrations remained modest, sparking a selloff in major tech companies.

4. BP (NYSE:BP) lifts its dividend after Q2 results

BP (LON:BP) released impressive second-quarter results earlier Tuesday, resulting in the energy giant raising its dividend after beating profit forecasts.

BP reported an underlying profit of $2.76 billion for the second quarter of the financial year, up from $2.59 billion in the same quarter in 2023, and slightly higher than the $2.72 billion it earned in the first three months of the year.

The oil major generated substantial cash flow of $8.1 billion, enabling it to lower net debt to $22.6 billion as well as raising its dividend by 10% and announcing another share buyback, worth $1.75 billion, for the last quarter. 

“Our decision to increase our dividend by 10%, and extend our buyback program commitment to 4Q 2024, reflects the confidence we have in our performance and outlook for cash generation,” said CFO Kate Thomson.

“We are maintaining a disciplined financial frame and remain committed to growing value and returns for BP.”

At 04:00 ET (08:00 GMT), BP shares rose 2.5% to £4.65, trading largely flat year-to-date.  

5. Crude prices remain weak

Crude prices steadied Tuesday, traded near two-month lows on continuing concerns about demand in China, the world’s largest crude importer, while traders shrugged off the risk of conflict escalating in the Middle East.

By 04:00 ET, the U.S. crude futures (WTI) climbed 0.1% to $75.88 a barrel, while the Brent contract rose 0.1% to $79.09 a barrel.

Traders were seen pricing out a risk premium from crude after media reports said Israeli officials were not seeking all-out war with Lebanon in their retaliation for a rocket strike that killed 12 in Israel-occupied Golan Heights.

Crude prices are trading near two-month lows amid persistent concerns over slowing demand, especially in top importer China after last week’s weak growth data.

That said, the Politburo, a top decision-making body of the ruling Communist Party, pledged at the end of its July meeting to pursue a “proactive” fiscal policy, suggesting more stimulus ahead.

The Organization of Petroleum Exporting Countries meets later in the week to discuss output levels, although recent weakness in crude is likely to see the cartel downplay any plans for scaling back production cuts. 

Investing.com– Bitcoin price dipped on Tuesday, largely reversing a weekend rebound as reports that the U.S. government had mobilized $2 billion worth of tokens largely offset optimism over positive comments on regulation from Donald Trump. 

The world’s biggest cryptocurrency had risen as far as $70,000 on Monday after Republican presidential nominee Trump promised friendlier regulations when speaking at the Bitcoin Conference over the weekend.

But Bitcoin swiftly reversed course, falling 4.8% in the past 24 hours to $66,507.4 by 08:25 ET (12:25 GMT). 

US government seen moving $2 bln of Bitcoin 

Bitcoin’s losses were exacerbated by media reports that the U.S. government had moved $2 billion worth of seized Bitcoin on Monday, sparking renewed concerns over more selling pressure on the token.

 A wallet associated with the government was seen transferring 29,800 tokens to two different addresses, potentially to a custody service. But a movement of tokens usually precedes a sale, as seen with the Mt Gox exchange earlier in July.

Fears of selling pressure stemming from distributions from Mt Gox had driven Bitcoin as low as $54,000, although the token had since rebounded and was headed for a monthly gain in July. 

The U.S. government reportedly holds about $12 billion worth of confiscated tokens, a bulk of them coming from the now defunct Silk Road marketplace. 

Trump vowed that the government will not sell any of its holdings in the event of his presidency. But he also stopped shy of declaring plans to create a strategic reserve of Bitcoin.

Still, the former President said he will loosen regulatory conditions for crypto and foster the industry better than Democratic frontrunner Kamala Harris. 

Crypto price today: altcoins track Bitcoin losses, Fed jitters also in play 

Broader cryptocurrency prices trended lower on Tuesday in tandem with Bitcoin, with caution before a Federal Reserve meeting also factoring into pressures on prices. 

World no.2 token Ether fell 1.4% to $3,335.05, taking little support from the recent launch of spot exchange-traded funds. 

XRP rose around 4%, while ADA and SOL sank 3.3% and 6%, respectively. Among meme tokens, DOGE fell 3.5% while SHIB lost 2.5%. 

Crypto was caught in a broader risk-off sentiment as caution persisted before the conclusion of a Fed meeting on Wednesday. 

While the central bank is widely expected to keep rates unchanged, traders will be watching whether the bank signals any plans to cut interest rates.

SEC may drop charges against SOL and other 3rd party tokens in Binance case 

In other crypto-related developments, new filings indicated that the U.S. SEC may drop its charges against certain third-party tokens, including Solana‘s SOL and Polygon’s MATIC, which have been part of its case against Binance.

According to a court filing early Tuesday, the SEC has informed the defendants, Binance and its affiliated entities, that it “intends to seek leave to amend its complaint, including with respect to the ‘Third Party Crypto Asset Securities’… obviating the need for the Court to issue a ruling as to the sufficiency of the allegations as to those tokens at this time.”

This issue gained attention during a July 9 hearing when Binance’s attorneys interpreted Judge Amy Berman Jackson’s June 28 ruling on Binance’s motion to dismiss the SEC’s case as excluding third-party tokens from the case.

However, the judge clarified that this was not her intention. Third-party tokens are digital assets issued by companies other than Binance but listed on its exchange. The 10 tokens named in the SEC’s complaint are SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI. The SEC had alleged that these tokens are unregistered securities.

The Tuesday filing was a court-ordered joint response outlining both parties’ positions on how to proceed. The judge was expected to review the role of third-party tokens in the SEC’s ongoing case against Binance. However, it now appears that the SEC may be changing its position and could drop this part of its allegations.

As a result, the defense wants to see the amended complaint before proceeding with the discovery process.

“Until defendants have a set of proposed amended allegations in front of them, it is premature and unreasonable for the SEC to expect them to agree to conduct merits discovery for claims on which the SEC may soon seek leave to amend its allegations,” the filing stated.

Barclays analysts said in a note Tuesday that an “unprecedented rotation” in the stock market, driven by higher hopes for US rate cuts, “should stop very soon.”

This rotation has seen a significant shift into small-cap firms, resulting in a remarkable rally in small caps, which has surpassed all other indices with a 3.5 times weekly standard deviation rally.

This shift has included a “Big Tech unwind, NDX to RTY flows, momentum reversal, and SPW/SPX broadening.”

According to Barclays, small-cap firms, with their more levered balance sheets and floating rate debt, are more sensitive to interest rates than at any point in the last decade.

Currently, “small cap vol to S&P vol is near a 20-year peak,” notes Barclays, emphasizing the heightened volatility in this sector. This movement is largely attributed to a “positioning-driven technical squeeze,” supported by a “strongest spot up/vol up dynamic in decades and much higher call to put volumes.”

Despite the recent surge, Barclays believes that small caps, which have nearly closed their historical discount to large caps, possess weaker fundamentals. The bank says they have deteriorating leverage profiles and lower forward EPS expectations, making the recent rotation unsustainable.

Barclays is skeptical about street forecasts predicting a strong margin pick-up for small caps in the second half of the year relative to large caps. Consequently, Barclays analysts suggest that this rotation “has largely run its course and do not expect it to continue this week.”

Barclays adds that the US economy remains stable, with Q2 GDP surpassing expectations at 2.8% q/q saar. However, they note concerns persist regarding the global economy, with Euro area PMIs and China’s Q2 data missing forecasts. Despite this, the resilience of US economic data suggests that the recent USD weakness is unlikely to persist.

The Wall Street Journal (WSJ) on Tuesday published a critical video about Tesla (NASDAQ:TSLA)’s driver-assist systems, highlighting “longstanding concerns” regarding the company’s camera-based technology.

The video, which represents a part of the Journal’s comprehensive investigation into Tesla’s Autopilot system, suggests that this technology has been a key factor in several crashes, some of which have been fatal.

Specifically, the investigation gathered data and video from more than 200 Tesla Autopilot crashes, revealing how the driver-assist algorithms process inputs from Tesla Vision cameras in real-time.

The video highlights a fatal accident from May 2021 involving Steven Hendrickson, who was driving his Tesla Model 3 in Autopilot mode on his way to work. An overturned double trailer appeared on the highway, which Tesla’s system failed to recognize, resulting in a full-speed collision that killed Hendrickson.

“The kind of things that tend to go wrong with these systems are things like it was not trained on the pictures of an overturned double trailer. It just didn’t know what it was,” said experts who reviewed the footage.

The WSJ’s video points out similar issues where Autopilot misinterprets the lights of emergency vehicles, leading to crashes.

The investigation notes that Tesla’s self-driving crashes result from both hardware and software issues, including slow algorithm updates and inadequate camera calibration. While the findings raise significant concerns, more independent analysis may be necessary to challenge Elon Musk’s assertion that Tesla’s self-driving feature is ultimately safer than human drivers.

The Wall Street Journal cross-referenced individual state accident reports with the federal database maintained by the National Highway Traffic Safety Administration (NHTSA) and reenacted 222 Tesla crashes. Of these, 44 incidents occurred when Teslas on Autopilot “veered suddenly,” and 31 happened when the vehicles “failed to stop or yield,” with the latter causing the most severe accidents.

Analysts who reviewed the crash footage and the Autopilot system’s algorithmic operations indicated that it would take time to train the system to handle all road scenarios.