Day: July 31, 2024

Investing.com — The Bank of Japan hiked interest rates earlier Wednesday, putting the focus on the Federal Reserve, which concludes its July meeting later in the session. Wall Street looks set to end the month on a positive note as investors digest earnings from the likes of Microsoft. 

1. BOJ hikes, and the Fed is next… 

The Bank of Japan started the week’s central bank parade earlier Wednesday, raising interest rates and signaling its resolve to unwind a decade of massive monetary stimulus.

The Japanese central bank hiked its overnight call rate target to 0.25% from 0-0.1% by a 7-2 vote and laid out a detailed quantitative tightening plan that will reduce monthly bond buying in several stages to around Y3 trillion, half the current rough target, by early 2026.

Wednesday’s rate hike comes amid some improvements in Japanese inflation over the past two months, especially as consumer spending improved on stronger wages. 

This trend furthered the central bank’s forecast that inflation will climb to its 2% annual target sustainably, and that monetary conditions will have to tighten accordingly.

In the U.S., by contrast, a benign June inflation report has investors looking for the policymakers to lay the groundwork for a September rate cut.

The Federal Reserve concludes its July meeting later 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.

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 rise as investors digest corporate results

U.S. stock futures rose Wednesday as investors awaited the conclusion of the latest Federal Reserve meeting while parsing through a series of important earnings reports. 

By 04:10 ET (08:10 GMT), the Dow futures contract was 77 points, or 0.2%, higher, S&P 500 futures climbed 42 points, or 0.8%, and Nasdaq 100 futures rose by 252 points, or 1.3%.

The Federal Reserve concludes 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.

There are more earnings to digest Wednesday, including from Facebook-parent Meta Platforms (NASDAQ:META) [see below] after the close. Other names set to release numbers include Boeing (NYSE:BA) before the bell, as well as Qualcomm (NASDAQ:QCOM), Etsy (NASDAQ:ETSY) and Carvana (NYSE:CVNA) later on.

This is the final session of July, and both the S&P 500 and Nasdaq Composite are on course to end the month lower, with the latter seen losing over 3%.

The Dow Jones Industrial Average, on the other hand, is on track to finish the month higher by more than 4%, as the market rotated out of the major tech stocks into companies that are smaller and more cyclically oriented.

3. Microsoft’s cloud growth disappoints 

Microsoft (NASDAQ:MSFT) disappointed with its fourth-quarter update after the close Tuesday, as the tech giant indicated it would spend more money on artificial intelligence infrastructure, even as growth slowed in its cloud business.

This offered another sign that the payoff from hefty investments in the technology may take longer than Wall Street had hoped.

Microsoft’s cloud business, Azure, which is widely viewed as a barometer for AI demand, grew 29%, marking a slowdown from 31% growth seen in the previous quarter. 

Additionally, AI-related growth accounted for about 8% of Azure’s total growth, up from 7% in the third quarter. 

However, this came as Microsoft continued to ramp up investments, with capital spending jumping to $19 billion in the quarter, up from $14 billion in the prior quarter, and nearly double the $10.7 billion seen a year ago. 

It wasn’t all bad news for the sector though, as Advanced Micro Devices (NASDAQ:AMD) increased its 2024 forecast for artificial intelligence chip sales by $500 million and said supplies would remain tight through 2025.

4. Meta expected to see jump in revenue

Meta Platforms is the latest of the mega-cap tech giants to release quarterly results this week, with the numbers due after the close Wednesday.

Meta, which owns and operates Facebook, Instagram, Threads, and WhatsApp, among other products and services, is expected to report a 20% rise in quarterly revenue, helped by strong ad sales driven by the Olympics and elections in several countries.

However, like fellow tech giants Alphabet (NASDAQ:GOOGL) and Microsoft, investors will want to see if the billions it is spending on tech infrastructure to support AI development is starting to yield returns. 

“We remain positive on Meta and think Reels, Messaging and AI-driven ad improvements are still early, and could lead to positive product surprises and revenue upside,” analysts at BofA Securities said.

“With political spend, and potential TikTok ban in 1Q’25, Meta could also see an ad spend benefit in 2H’24.”

5. Crude prices rise on elevated political tensions

Crude prices soared Wednesday after the killing of Hamas leader Ismail Haniyeh in Iran ratcheted up tensions in the Middle East, raising the prospects of a wider conflict hitting supplies.

By 04:10 ET, the U.S. crude futures (WTI) climbed 1.8% to $76.08 a barrel, while the Brent contract rose 1.7% to $79.38 a barrel.

Multiple media reports said that Ismail Haniyeh was killed in an Israeli strike, and could mean a potential escalation in the Israel-Hamas war, which stretched into a ninth month in July. 

It could also result in a resurgence in tensions between Iran and Israel, after a series of missile strikes between the two earlier this year, and furthered fears of an all-out war in the Middle East, especially after Israel carried out strikes against Lebanon-based, Iran-backed armed group Hezbollah on Tuesday.

This news has overshadowed data from the American Petroleum Institute showing on Tuesday that U.S. inventories saw a draw of nearly 4.5 million barrels last week. 

The reading marked a fifth straight week of draws in U.S. inventories, as fuel demand remained underpinned by the travel-heavy summer season.

Investing.com — As big tech earnings continue to disappoint, with another miss from Microsoft (NASDAQ:MSFT) last evening, several investors are beginning to think this might be an overall bearish earnings season.

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Shares of Nvidia (NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO) opened higher on Wednesday following AMD (NASDAQ:AMD) earnings report after the close on Tuesday.

AMD reported Q2 EPS of $0.69, $0.01 better than the analyst estimate of $0.68. Revenue for the quarter came in at $5.84 billion versus the consensus estimate of $5.72 billion.

Looking ahead, the company sees Q3 2024 revenue of $6.7 billion plus or minus $300 million versus the consensus of $6.61 billion. At the mid-point of the revenue range, this represents year-over-year growth of approximately 16% and sequential growth of roughly 15%.

AMD’s positive financial results have had a ripple effect across the semiconductor sector, lifting the stocks of its competitors.

Nvidia is up more than 8% shortly after the open, while Broadcom has gained almost 6%.

AMD reported strong quarterly earnings that surpassed analysts’ expectations, driven by robust demand.

Nvidia, known for its leadership in graphics processing units (GPUs) and artificial intelligence (AI) technology, saw its shares rise in response to AMD’s success. Similarly, Broadcom, a key player in the semiconductor and infrastructure software sectors, experienced a boost as the optimistic sentiment spread throughout the industry.

Reacting to the AMD report, analysts at Morgan Stanley said the company’s Q3 revenue guidance reflects strong momentum across compute businesses.

It was “a good quarter, all things considered,” wrote the bank. “We didn’t expect an upward revision, so better guidance was a surprise.”

“Given management’s enthusiasm for AI in conversations during 2q, we had previewed that the number could come up slightly, and it did – that helped numbers as well,” said Morgan Stanley. “We have highlighted concern that AI expectations were higher, the sharp selloff in AI related names mitigate that somewhat, as previewed. Our numbers come up only slightly – delaying the recovery in the 70% gross margin Xilinx business weighs on gross profit and EPS – but the stock should see relief.”

AMD shares are up 9% at the open.

Samsung Electronics (KS:005930) reported strong Q2 2024 results, sending its Korea-listed shares rising more than 3.5% Wednesday.

The electronics behemoth posted revenue of KRW74.07 trillion and an operating profit of KRW10.44 trillion, representing strong growth mainly driven by increased demand for memory chips due to rising AI investments from major tech companies.

The Memory sector benefited significantly, with heightened demand for High Bandwidth (NASDAQ:BAND) Memory (HBM), DRAM, and SSD products.

Samsung anticipates continued high demand for server products like HBM, DDR5, and SSDs, driven by ongoing AI investments. The company plans to boost sales of advanced AI-related products, including HBM3E and high-density server modules utilizing its latest 1b nano 32Gb DDR5 technology.

Commenting on the report, Mizuho trade desk analysts said Samsung remains their “top long idea.”

While expecting a limited recovery in Samsung’s smartphone business this year, Mizuho predicts DRAM and NAND prices will trend higher.

The analysts see “material upside and growth potential in DRAM” as Samsung begins to ramp up production of HBM3e with 8 layers and quickly transitions to 12 layers. Moreover, the supply of conventional DRAM for PCs and smartphones is tight, leading to strong pricing expectations.

Analysts also believe the major price-to-book discount of Samsung compared to peers SK Hynix and Micron (NASDAQ:MU) could narrow due to several catalysts.

These include the anticipated approval and sale of HBM3e to Nvidia (NASDAQ:NVDA), given Samsung’s forecast for a significant production ramp-up. The analysts expect HBM3e to make up 60% of all HBM sales by the fourth quarter of 2024.

“Quick move to next-gen 12L HBM3e with potential to get ahead of MU / Hynix and gain material share in CY25,” they added.

Mizuho’s price target for the stock stands at 125,000 KrW, implying a nearly 50% upside from current levels.