Europe Market Open: Asian stocks are mixed as markets reflect on recent developments including a dovish Powell and disappointing Chinese Caixin Manufacturing PMI – Newsquawk Europe Market Open

• FOMC kept rates unchanged at 5.25-5.50%, as expected, while it stated that inflation remains 'somewhat elevated' and the committee is attentive to the risks to both sides of its dual mandate. 
• Fed Chair Powell said if the Fed sees inflation move down with expectations, growth remains reasonably strong and the labour market remains as it is, a rate cut would be on the table in September.
• US stocks saw a rally in tech and some mild two-way action following the FOMC announcement but were ultimately underpinned during Fed Chair Powell's dovish press conference.
• APAC stocks traded mixed as participants digested the latest key developments including strong tech earnings, Fed Chair Powell's dovish press conference and disappointing Chinese Caixin Manufacturing PMI data.
• European equity futures indicate a mildly higher open with Euro Stoxx 50 futures up 0.2% after the cash market finished with gains of 0.7% on Wednesday.
• Looking ahead, highlights include EZ, UK, US PMIs, US IJC, ISM Manufacturing, BoE & CNB Policy Announcements, OPEC+ JMMC, Comments from BoE's Bailey & Pill, Supply from Spain & France.
• Earnings from ING, Hugo Boss, BMW, Volkswagen, Credit Agricole, Société Generale, Rolls Royce, Shell, Barclays, Amazon, Apple, Coinbase, Intel, Snap, and many more.

1st August 2024

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US TRADE

EQUITIES

• US stocks gained with a significant rally in tech leading the advances amid a myriad of positive semi-conductor news including AMD's solid report, US exemptions for ASML and Tokyo Electron in its new sanctions on exports to Chinese chipmakers, and Nvidia's inclusion to Morgan Stanley's top pick list. Stocks then saw some mild two-way action following the FOMC announcement but were ultimately underpinned during Fed Chair Powell's dovish press conference.
• SPX +1.6% at 5,522, NDX +3.0% at 19,362, DJIA +0.2% at 40, 843, RUT +0.5% at 2,254
• Click here for a detailed summary.

FOMC ANNOUNCEMENT AND PRESS CONFERENCE

• FOMC kept rates unchanged at 5.25-5.50%, as expected, while it stated that inflation remains 'somewhat elevated' and the committee is attentive to the risks to both sides of its dual mandate. FOMC repeated it does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2% but noted that in recent months, there has been some further progress toward the Committee's 2% inflation objective (prev. 'modest' progress) and said risks to achieving its employment and inflation goals continue to move into better balance.
• Fed Chair Powell said in the post-meeting statement that inflation has eased but remains above the goal and Q2 data has added confidence on inflation. Powell added the Fed is maintaining its restrictive stance and policy is well positioned to deal with dual mandate risks.
• Fed Chair Powell said during the Q&A that the Committee has made no decisions about future meetings and the broad sense is the Fed is moving closer, while he added that if the Fed sees inflation move down with expectations, growth remains reasonably strong and the labour market remains as it is, a rate cut would be on the table in September. Powell said the policy path ahead will depend on the economy and he can imagine a scenario of zero cuts this year, to several, depending on how the economy evolves, as well as noted that they have made real progress on inflation and there is growing confidence on the path to 2% inflation. Furthermore, Powell said it's coming to be the time to adjust rates to support our continued progress and the Fed does not need to be 100% focused on inflation, while he added the job is not done on inflation but they can afford to begin to dial back restriction in the policy rate. Powell also said that some people examined the case for cuts at this meeting, although overwhelmingly, the sense was not at this meeting, but at the next if the data supports it.

FOMC MARKET REACTION

• Indices saw slight two-way action after the FOMC rate decision, but later extended on notable gains through Powell's dovish presser where he noted there was a real discussion about the case for reducing rates at this meeting; a strong majority supported not moving at this meeting, and September is the base case, albeit data dependant. T-Notes saw gains on Wednesday in choppy trade, extending on its bid during Powell's dovish presser. Although the curve saw initial weakness after the FOMC held rates, as expected.

NOTABLE HEADLINES

• WSJ's Timiraos wrote the Fed cleared the path for a September rate cut and noted officials held rates steady but made an important pivot of highlighting a more balanced focus on employment and inflation goals.
• Arm Holdings (ARM) Q1 2025 (USD): Adj. EPS 0.40 (exp. 0.34), Revenue 939mln (exp. 903mln) Shares fell 10.5% after-market.
• Meta Platforms Corp (META) Q2 2024 (USD): EPS 5.60 (exp. 4.73), Revenue 39.07bln (exp. 38.31bln) Shares rose 7.2% after-market.
• Qualcomm Inc (QCOM) Q2 2024 (USD): adj. EPS 2.33 (exp. 2.25), Revenue 9.39bln (exp. 9.22bln) Shares fell 1.3% after-market.

APAC TRADE

EQUITIES

• APAC stocks traded mixed as participants digested the latest key developments including strong tech earnings, Fed Chair Powell's dovish press conference and disappointing Chinese Caixin Manufacturing PMI data.
• ASX 200 was led higher by strength in the rate-sensitive sectors amid a softer yield environment.
• Nikkei 225 suffered heavy losses and briefly dipped beneath the 38,000 level alongside a firmer currency after the recent BoJ rate hike and as participants also digested earnings releases, while Toyota shares were heavily pressured after Japan's Transport Ministry announced that misconduct was discovered in an additional 7 Toyota models.
• Hang Seng and Shanghai Comp. were subdued after disappointing Caixin Manufacturing PMI which unexpectedly slipped into contraction territory for the first time in 9 months.
• US equity futures were kept afloat post-FOMC and following mostly better-than-expected earnings after-hours.
• European equity futures indicate a mildly higher open with Euro Stoxx 50 futures up 0.2% after the cash market finished with gains of 0.7% on Wednesday.

FX

• DXY briefly breached the 104.00 level to the downside following the FOMC and press conference where Powell provided a dovish tone and suggested September is the base case for a rate cut if the data supports it.
• EUR/USD eked marginal gains in a gradual continuation of a rebound from support at the 1.0800 level post-FOMC.
• GBP/USD traded little changed after the choppy performance so far this week and with the BoE policy decision due later.
• USD/JPY continued its slide to briefly below the 149.00 level following the recent BoJ rate hike and a hawkish Ueda.
• Antipodeans were rangebound amid the mixed risk appetite and disappointing Chinese Caixin PMI data.
• Brazil Central Bank maintained its Selic rate at 10.50%, as expected, with the decision made unanimously. Committee judged that the domestic and international environments require even greater caution on the conduct of monetary policy and stated that risks to its inflation scenarios remain in both directions.
• Chile Central Bank maintained its benchmark interest rate at 5.75% (exp. 25bps cut), while it stated the decision was unanimous and is in line with monetary policy strategy.

FIXED INCOME

• 10-year UST futures rallied in the aftermath of the FOMC and post-meeting press conference where Fed Chair Powell signalled the potential for a September rate cut but noted that it would depend on the data.
• Bund futures advanced in tandem with US counterparts and climbed above the 134.00 level.
• 10-year JGB futures rebounded off post-BoJ lows with flattening seen as Japan's 2-year yield rose to the highest since December 2008 owing to the BoJ's short-term benchmark interest rate increase.

COMMODITIES

• Crude futures remained underpinned after rallying yesterday amid heightened geopolitical tensions and bullish inventories, while the attention for the energy complex turns to the OPEC+ JMMC meeting today.
• Spot gold slightly pulled back after climbing alongside a weaker dollar following Powell's dovish presser.
• Copper futures held on to the prior day's gains which were spurred by the constructive risk tone although further upside was capped amid the mixed Asia sentiment and after Chinese Caixin Manufacturing PMI slipped into contraction territory.

CRYPTO

• Bitcoin was pressured and gradually retreated to beneath the USD 64,000 level.

NOTABLE ASIA-PAC HEADLINES

• HKMA maintained its base rate unchanged at 5.75%, as expected.
• China NDRC vice head said there is 'sufficient' room for counter-cyclical policy adjustments and that China has the conditions, ability, and confidence to achieve its full-year growth target. Furthermore, China will actively expand domestic demand and put consumption boost in a more striking position, as well as promote effective investment.

DATA RECAP

• Chinese Caixin Manufacturing PMI Final (Jul) 49.8 vs. Exp. 51.5 (Prev. 51.8)
• Australian Trade Balance (AUD)(Jun) 5.59B vs Exp. 5.00B (Prev. 5.77B)
• Australian Exports MM (Jun) 1.7% (Prev. 2.8%)
• Australian Imports MM (Jun) 0.5% (Prev. 3.9%)
• Australian Export Prices (Q2) -5.9% (Prev. -2.1%)
• Australian Import Prices (Q2) 1.0% (Prev. -1.8%)

GEOPOLITICAL

MIDDLE EAST

• Iran’s Supreme Leader Ayatollah Ali Khamenei issued an order for Iran to strike Israel directly in retaliation for the killing in Tehran of Hamas leader Ismail Haniyeh, according to the New York Times citing three Iranian officials.
• Israeli PM Netanyahu said Israel delivered 'crushing blows' to Iranian proxies and will exact a heavy price for any aggression towards it from anywhere.
• Israel sent messages through diplomatic channels to Lebanon and Iran in which it stated that Israel is ready to go to the point of all-out war if Hezbollah and Iran respond in a way that will severely damage Israel, according to Israel's Channel 12 cited by Faytuks News on X.
• US Deputy Representative to the Security Council said a wider war is neither imminent nor inevitable, according to Al Jazeera.
• Hamas said it targeted a gathering of Israeli soldiers at the Salem military checkpoint west of Jenin with machine guns and achieved direct hits, according to Sky News Arabia.
• Hezbollah military commander Shukr's body was found in the rubble in Beirut's southern suburbs, according to Reuters citing two security sources.
• There were unconfirmed reports that senior IRGC member Hajj Habib Zadeh had been assassinated in Damascus, Syria.

OTHER

• Chinese Foreign Ministry said China and India are to speed up the negotiation process for the border situation and continue to maintain peace and tranquillity in border areas.
• Chinese military said a Canadian frigate sailed through the Taiwan Strait, while it added that Canada's actions have disrupted and undermined peace and stability across the Taiwan Strait.