Fed’s Call
Dow futures had gained 34 points or 0.1%, S&P 500 futures had dropped 27 points or 0.5%, and Nasdaq 100 futures had fallen 224 points or 1.3%.
Fed decision soon
After Wednesday’s two-day policy meeting, the Federal Reserve is expected to hold interest rates constant, so any comments from officials on the future of rates will be closely watched.
After the Fed aggressively raised rates to temper U.S. inflation, borrowing costs are at 5.25% to 5.50%, the highest in more than two decades.
This tightening cycle may be working, according to recent data. Price growth remains over the Fed’s 2% objective, but it’s showing signs of slowing. Last week’s stronger-than-expected fourth-quarter U.S. GDP gain showed economic resilience.
The numbers support the Fed’s “soft landing.” theory that it can fight inflation without causing an economic disaster.
In December, policymakers signaled six rate cuts in 2024, fuelling speculation late last year that a 25 basis point decrease could follow in March. However, numerous Fed officials have quashed these hopes to avoid reviving inflation. Thus, Fed commentary today, particularly from Chair Jerome Powell, could affect market expectations for rates in the coming months.
Microsoft, Alphabet report AI expenses
As they compete to meet rising demand for generative AI, Microsoft and Alphabet expect capital spending to climb this year.
Redmond, WA-based Microsoft told analysts in a post-earnings call that scaling its AI infrastructure would “increase materially” data center and server spending. CFO Amy Hood said Microsoft, which overtook Apple as the world’s largest company this month, is adopting a “AI-first position.”
Alphabet said investment would be “notably larger” in 2024 as it builds out its AI solutions at its advertising and cloud services units. Alphabet plans to enhance its creative AI chatbot Bard later this year.
Finance head Ruth Porat said AI had “extraordinary” user applications and “long-term growth opportunities.”
Both corporations reported better-than-expected earnings and revenues in their latest quarters, but Wall Street’s lackluster reaction suggested they may struggle to continue the high spending needed to develop generative AI.
“The larger picture for this earnings season is clear: the market wants to see who has enough spending power to dominate the innovation war expected to play out as soon as monetary conditions improve,” said Investing.com Senior Analyst Thomas Monteiro. “In this case, more than actual [earnings per share], investors want to see improving margins and free cash flows so they can understand that the company will have a shot in the AI arms race.”
Judge rejects Musk’s hefty Tesla salary.
A Delaware judge ruled that Elon Musk’s $55.8 billion Tesla compensation package was a “unfathomable sum” that was unfair to shareholders.
The verdict, which slashes corporate America’s largest pay, claimed that Tesla’s directors were influenced by Musk’s “superstar appeal.” Tesla stakeholders claimed the compensation was exorbitant.
If the verdict stands, Musk would lose options to more than 303 million Tesla shares, or 10% of the firm, well below his 25% ambition.
Wednesday premarket Tesla shares fell.
Weak Chinese manufacturing data lowers crude.
China, the world’s largest crude importer, reported weak manufacturing activity, lowering oil prices.
At 05:27 ET, U.S. oil futures fell 1.2% to $76.89 per barrel and Brent fell 1.1% to $81.59 per barrel.
In January, Chinese manufacturing activity fell for a fourth month, casting uncertainty on this crucial crude market’s economic rebound.
As Middle East tensions increased supply concerns over this oil-rich region, crude benchmarks are still on track for their first monthly gain since September.
According to the American Petroleum Institute, oil stockpiles fell 2.5 million barrels in the week ended Jan. 26.
Economic Calendar
7:00 AM ET MBA Mortgage Applications Data
8:15 AM ET ADP Employment Change for January
8:30 AM ET Employment Costs for Q4
9:45 AM ET Chicago PMI for January
10:30 AM ET Weekly DOE Inventory Data
2:00 PM ET FOMC Meeting – no rate change expected.
Other Key Events:
- China Caixin Manufacturing PMI for January
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2023 Chinese growth exceeds objective, but difficulties persist
China’s economy grew slightly less than predicted in the fourth quarter due to sluggish spending and a property market slump, but it narrowly beat government expectations for 2023.Gross domestic product rose 5.2% year-over-year in the three months to Dec. 31, the National Bureau of Statistics reported Wednesday. The reading was weaker than 5.3% predictions but up from 4.9% the quarter before.This raised 2023 growth to 5.2%, above Beijing’s 5% target. Despite COVID-19 limits, activity increased from 3% in 2022 due to a lower base for comparison. Except for the three pandemic-era closures, it was the lowest yearly expansion rate since 1990.Last year, the Chinese economy was hampered by falling consumer spending, a housing market crash, and deflation. The world’s second-largest economy has demographic concerns, as shown by new data showing a faster population fall in 2023.
Last year, the Chinese economy was hampered by falling consumer spending, a housing market crash, and deflation. The world’s second-largest economy has demographic concerns, as shown by new data showing a faster population fall in 2023.
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