By Peter Nurse
Investing.com -- The Federal Reserve is widely expected to increase interest rates once more, while better than expected earnings from both Microsoft and Alphabet should give Wall Street an opening boost. EIA crude stocks data are due later while the U.K. economic outlook deteriorates. Here's what you need to know in financial markets on Wednesday, July 27.
1. It’s Fed decision day
The Federal Reserve concludes its two-day policy-setting meeting later Wednesday, and is widely predicted to hike its key interest rate by three-quarters of a percentage point as it battles inflation at 40-year highs.
Earlier expectations of an increase of a full percentage point have been largely doused by Fed policymakers, and this could mean they are discussing just how much tighter monetary policy needs to be to slow price increases against the risk that going too far could trigger a recession.
With this in mind, the focus will likely shift away from the decision itself to the statement and accompanying press conference by Fed head Jerome Powell for clues over how deeply signs of an economic slowdown have registered with the central bank’s policymakers.
The latest release of second quarter gross domestic product is due on Thursday, and is expected to show that the U.S. economy grew just 0.5% on the quarter.
2. Microsoft, Alphabet earnings soothe nerves
Solid earnings from a couple of the mega-cap tech stocks that tend to dominate investors’ thinking have helped to ease nerves in stock markets ahead of the Fed meeting.
Microsoft (NASDAQ:MSFT) forecast after the close Tuesday that revenue this fiscal year would grow by double digits, driven by demand for cloud computing services.
This strong outlook shows that despite signs that U.S. economic growth - and global growth for that matter - is slowing, Microsoft continues to benefit from companies continuing to move more business and work online even as the COVID-19 pandemic eases.
Additionally, Google-parent Alphabet (NASDAQ:GOOGL) posted solid search engine ad sales, suggesting the world's biggest seller of online advertising is withstanding the slowdown relatively well.
While YouTube ad sales grew at their slowest pace since disclosures began in 2018, second-quarter sales from the company's biggest moneymaker - Google search - actually topped expectations.
This prompted a sign of relief among investors after social media rival Snap (NYSE:SNAP) last week missed sales expectations and warned of an ad market slowdown.
3. Stocks set to open higher; Tech sector to the fore
U.S. stock markets are set to open higher Wednesday ahead of the conclusion of the latest Fed meeting, with the tech sector leading the way after the solid results from Microsoft and Alphabet [see above].
By 06:15 AM ET (1015 GMT), Dow Jones futures were up 140 points, or 0.4%, S&P 500 futures were up 0.9%, and Nasdaq 100 futures were up 1.5%.
The Federal Reserve concludes its latest policy-setting meeting at 02:00 PM ET (1800 GMT), with a hike of 75 basis points widely expected.
Aside from this, there are more major earnings reports to come, with the likes of Boeing (NYSE:BA) and Shopify (NYSE:SHOP) expected to release their quarterly results before the bell, and Qualcomm (NASDAQ:QCOM), Ford (NYSE:F), and Meta Platforms (NASDAQ:META) reporting at the end of the day.
The economic data slate includes durable goods orders and pending home sales, both for June.
4. U.K. economic problems mount
The race to become the new leader of the ruling Conservative Party, and thus the next U.K. Prime Minister, has boiled down to two, Foreign Secretary Liz Truss and former chancellor Rishi Sunak.
Both have been trying to woo party members with promises of tax cuts, but whoever is handed the keys to power is going to be landed with very difficult economic circumstances to guide the country through.
The International Monetary Fund cut its global growth forecasts on Tuesday, and warned that Britain will have the slowest growth among major industrialized nations next year as double-digit inflation and rising interest rates squeeze household spending.
The fund predicted that Britain will have just 0.5% growth next year, adding soaring prices and sub-inflation pay rises “are eroding household purchasing power”, and causing slower growth.
Unrest is also growing.
A national rail strike started early Wednesday, with acrimonious negotiations over wage increases seemingly getting nowhere. This marks the fourth day of action by the National Union of Rail, Maritime and Transport workers this summer, and other unions are set to follow suit in the coming days.
5. Oil gains; API shows healthy draw
Crude oil prices climbed Wednesday, as concerns over weakened U.S. demand were offset by industry data showing a healthy drawdown of stocks by the largest consumer in the world.
Data from the American Petroleum Institute showed U.S. crude stocks fell by about 4 million barrels last week, four times bigger than the decline expected, while gasoline inventories fell by 1.1 million barrels, compared with expectations for a build of 3.5 million barrels.
Traders will be looking for confirmation from the official data, released by the Energy Information Administration later in the session.
Elsewhere, gas flows from Russia through Nord Stream 1 fell to a fifth of the pipeline's capacity on Wednesday, prompting Germany's network regulator to issue another plea to households and industry to save gas and avoid rationing.
EU member states agreed on Tuesday to cut their demand for gas by 15% over the next eight months.
By 06:15 AM ET, U.S. crude futures were up 0.3% at $95.30 a barrel, while Brent crude was up 0.3% at $99.71 a barrel.