Morning in New York: Fed stimulates volatility spike

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The upcoming trading session will be rich in events, macro publications and corporate news. The results of the Fed meeting and the press conference of its head Jerome Powell will be in the center of attention of traders. There is no doubt that the rate will remain unchanged. The main interest is the rhetoric of the regulator's leadership. It is expected that signals of readiness to ease monetary policy may come from Christopher Waller and Michelle Bowman. If both of these Governing Council members vote against the rate decision, it would be the first such instance since 1993. Any dovish signals could support stocks near the close of the session. At the same time, the absence of clear hints of willingness to ease the MPC in the coming months may cause a moderate cooling of risk appetite. Thus, the intrigue around the FOMC meeting will contribute to the increase in intraday volatility.

Trading participants will have to evaluate preliminary GDP data for the second quarter, but the significance of this release is limited: fluctuations in imports and inventories are unlikely to be interpreted as a shift in fundamental trends. Even in case of a significant deviation from the consensus, which assumes economic growth of 2.5%, the market reaction may be restrained.

The ADP report on new job openings for July will be released this Wednesday (forecast: +110k). Also, the statistics of pending transactions in the residential real estate market will be released (consensus: -1.6% m/m). The coincidence of the actual figures with the expected ones can be interpreted by stock exchange players as a sign of GDP stability, while weaker results will strengthen speculations about the Fed's imminent shift to monetary policy easing. In general, in our view, the impact of these macro data on the dynamics of stock indices at the beginning of the session will be moderate and short-term.

Investors await a major block of corporate reporting centered around the releases of Microsoft (MSFT) and Meta Platforms (META). Market participants will be asked to assess the extent to which current investments in AI technologies are converting into revenue, margin and cash flow growth. Particular attention will be paid to the structure and scale of issuers' capital expenditures. Strong guidances will confirm market valuations of stocks and support interest in risky assets, while weak results or a decrease in guidances can strengthen demand for protective instruments.

Vertiv (VRT), ADP (ADP) and Kraft Heinz (KHC) will report quarterly results before the opening of the main session, Microsoft (MSFT), Meta (META), Robinhood (HOOD), Qualcomm (QCOM), Ford (F) and ARM Holdings (ARM) will release their results after the close.

Futures on US indices are trading sideways. We assess the balance of risks for the upcoming session as neutral with high volatility, given the density of the macroeconomic agenda and the publication of important corporate reports. We focus on S&P 500 movements in the range of 6300-6460 points (from -1.1% to +1.4% to the closing level of the previous session).

- Toyota (TM) recorded record sales of 5.1 million (+5.5% y/y) in the first half of the year on a 5.8% increase in production volume. Hybrids accounted for almost half of deliveries. Most of the growth came from the US, Japan and China.

- UBS (UBS) reported a second-quarter profit of $2.4 billion, boosted by stronger client activity and $23 billion in inflows into its Wealth Management unit. The bank is implementing a $3 billion buy back program and is looking to adapt to new regulatory requirements in Switzerland.

- Profit at HSBC (HSBC) from April to June fell 29% YoY to $6.3 bln amid write-downs related to the Chinese bank and loss of proceeds from divested assets. Against this backdrop, management announced a $3 billion buyback program. At the same time, management warned the investment community about pressure on earnings due to the U.S. foreign trade policy and macro environment instability, despite the successful results of the Wealth Management segment.

- Tesla (TSLA) has signed a $4.3 billion contract with LG Energy Solution to supply LFP batteries for energy storage systems from its Michigan plant. The deal runs from August 2027 to July 2030 and is aimed at reducing dependence on supplies from China in the face of tariff pressure.

- Starbucks (SBUX) exceeded average revenue forecasts thanks to increased sales in China and a brand relaunch program that includes a menu refresh, point-of-sale redesign and investment in staff. At the same time, the chain's profit fell short of consensus due to business transformation costs.

July 29 trading on the U.S. stock exchanges ended in the negative. S&P 500 fell by 0.3%, Nasdaq 100 decreased by 0.21%, Dow Jones - by 0.46%, Russell 2000 - by 0.61%. The correction followed six days of gains and repeated updates to all-time highs. Most of the "Magnificent Seven" stocks closed in the negative. The best performing stock was Alphabet (GOOGL: +1.56%). Most of the sectors included in the broad market index ended the day in the red. The real estate industry (XLRE: +1.66%) was the top gainer. Industrial companies (XLI: -1.72%) were the outsiders.

Trade talks between the US and China, held in Stockholm, ended without breakthroughs, but with mutual willingness to continue the dialog. The two sides discussed the possibility of extending the tariff moratorium for another 90 days after August 12. U.S. Treasury Secretary Scott Bessent noted that the final decision on these issues rests with the president. It is also reported about progress in the supply of rare earth metals and a possible meeting between Donald Trump and Xi Jinping before the end of the year. At the same time, the head of the White House allowed the introduction of duties of 20-25% on imports from India. 

Macroeconomic statistics turned out to be mixed. The consumer confidence index from Conference Board for July rose to 97.2 points against the consensus of 95.5 due to the improvement in the expectations of the population. At the same time, assessments of the current situation slightly deteriorated. The number of job openings for June, according to JOLTS, totaled 7.44 million, nearly matching forecasts but down from May. The percentage of respondents who think jobs are hard to find widened from 17.2% to 18.9%. The "labor market differential" indicator hit its lowest level since 2021. This data is perceived as a signal that the labor market is cooling, which may affect the Fed's stance.

- Weak third-quarter EPS guidance and slowing growth in branded online checkout were the main pressure factors on PayPal (PYPL: -8.7%) securities, despite revenue and earnings above consensus.

- SoFi Technologies (SOFI: +6.6%) showed strong results that were better than average market expectations in all key areas. The company's management raised its full-year guidance, pointing to the positive dynamics of the mortgage segment.

- News of lowered expectations for Wegovy and Ozempic sales in the U.S., as well as the announcement of a change in the head of Novo Nordisk (NVO: -21.8%) led to a collapse in quotes the company, which revised down its 2025 outlook for the second time in a year.

- Shares of Spotify (SPOT: -11.6%) came under pressure amid weak second-quarter results and a disappointing outlook for the third quarter. Investors took a negative view of higher costs and lower operating margins.

This article was AI-translated and verified by a human editor