Finally wait till today! Global markets face the Fed storm: the dollar fell first as a message from China and the United States

FX168 Financial News (Hong Kong) The day of the Federal Reserve is here! On Wednesday (July 27), the global market will usher in the highlight of the week - the Fed's July interest rate decision, and investors are highly vigilant. During the European trading hours, European stocks rose slightly, US stock futures rose, the dollar fell under pressure, gold continued to fluctuate at 1720, and crude oil was basically stable, waiting for today's storm.

European stocks and U.S. stock futures rose on Wednesday as a slew of resilient corporate earnings helped ease the overall cautious mood ahead of the Federal Reserve's key monetary policy meeting.

Futures on the tech-heavy Nasdaq 100 rose about 1.7 percent, with major tech and internet stocks rising in premarket trading after reassuring reports from Alphabet Inc., Microsoft and Texas Instruments. Elsewhere, Dow Jones Industrial Average futures rose 168 points, or 0.52%. S&P 500 futures rose 1%.

European shares opened higher, with the pan-European Stoxx 600 up 0.4%, led by a 2% gain in travel and leisure stocks and a 0.7% decline in telecom stocks. The banking sector was higher, with Credit Suisse reporting a bigger-than-expected loss and Deutsche Bank issuing a cost warning.

Credit Suisse shares rose as it replaced its troubled chief executive and said it would launch a new turnaround plan. Deutsche Bank shares fell after it scrapped efficiency targets for the year and warned that key earnings targets were increasingly difficult to achieve.

Shares of UniCredit soared about 6% after the company reported second-quarter profit that nearly doubled analysts' expectations and raised its full-year target, expecting further gains from rising interest rates in Europe.

"Some good revenue numbers, especially from big tech and luxury goods," said Vincent Manuel, chief investment officer at Indosuez Wealth Management, although he noted a split between strong earnings and weaker macro sentiment. "The question is how long will this divide continue?"

Global investors today focused on the Federal Reserve's upcoming monetary policy decision, which will be announced on Wednesday after a two-day meeting. The Fed is widely expected to raise interest rates by 75 basis points for the second time in a row.

While a 75-basis-point move has been priced in, futures still imply a 15% chance of a 100-basis-point upside. Like many central banks around the world, the Fed is moving aggressively to curb inflation amid slowing economic activity.

If the Fed continues to raise interest rates by 0.75 percentage points today, the federal funds rate will rise from near 0% less than five months ago to a range of 2.25%-2.5%, a level in line with most officials' estimates of long-term neutrality.

“The Fed has told us that they are unlikely to ease the brakes until there is a convincing change in monthly inflation data that suggests inflation is moving toward the Fed’s 2% target,” Ellen Gaske, chief economist for fixed income at PGIM, said by email. commented. "We expect Powell will likely reiterate this message at a post-meeting press conference."

Market sentiment remained nervous ahead of the much-anticipated Fed rate hike. Part of the central bank's tightening of monetary policy to curb inflation has sparked fears of a global economic slowdown. Investors are bracing for the busiest reporting day of the quarter and a slew of macroeconomic data due on Thursday.

Italian government bond prices fell after Standard & Poor's Global Ratings cut its outlook on Italy's credit rating to stable from positive.

The dollar and U.S. Treasury yields slipped, while oil and European natural gas extended gains.

Yields on the 10-year U.S. Treasury note held near three-month lows hit on Tuesday, while several recession indicators in the bond market continued to warn that growth in the world's largest economy is growing, if not reversed. slow down.

“(Company results) are positive for stocks, but bonds are pricing in more economic weakness than stocks,” said Nordea chief economist Jan von Gerich.

He noted that uncertainty remains about the Fed's future course, but added that "what they're seeing in terms of economic activity lessens the pressure to do more."

The Fed is expected to raise rates by 75 basis points in response to price pressures, cementing the biggest two-month hike since the 1980s. The key question is whether Fed Chairman Jerome Powell's policy signals confirm or refute previous forecasts that the federal funds rate will peak at 3.4% around year-end and cut rates in 2023 to support an economy at risk of recession.

"The Fed isn't even at neutral," said Jason England, global bond portfolio manager at Janus Henderson Investors. "I think for them, start to ease monetary policy or they start to see easing priced in. , it's too early."

The situation is particularly fragile in Europe, where gas flows from Russia's Nord Stream 1 pipeline are expected to halve on Wednesday from levels that have already fallen. That has pushed energy prices soaring, which have hit record highs in Germany this year.

Currency tightening, the European energy crisis brought on by Russia's invasion of Ukraine, challenges in China's real estate sector and Covid-19 are all risks to a gloomy global outlook. The International Monetary Fund (IMF) has warned that the world economy could soon plunge into a full-blown recession.

The IMF now expects the global economy to grow by 3.2% this year, with GDP growth slowing further to 2.9% by 2023. The revised figures were down 0.4 and 0.7 percentage points, respectively, from their April forecasts.

U.S. corporate results offer a glimmer of hope -- more than three-quarters of companies that have reported results so far have either beat or met expectations. But there are doubts about how long they will survive the economic challenges.

“Inflation is hurting business, and the question is whether these policy hikes will ease the pain,” Nancy Davis, founder of Quadratic Capital Management, said on Bloomberg Television.

Elsewhere, President Joe Biden will hold talks with Chinese leaders on Thursday amid fresh tensions over Taiwan. The White House is also considering whether to remove some tariffs on Chinese imports to curb inflation.