Markets Rebound as Investors Weigh Rates and Earnings

Stock markets are attempting to rebound from Wednesday’s selloff as investors digest central bank decisions, corporate earnings, and signs of stagflation in today’s US Q2 GDP report. Annualized economic growth missed expectations by a wide margin at 1.5% v. Street 2.1%, while the Q2 GDP price index came in much higher than expected at 5.7% v. Street 3.6%, pointing toward persistent inflation alongside slowing growth.

The Federal Reserve and Bank of England both concluded their meetings with hawkish holds. Although neither central bank changed interest rates, both votes included three hawkish dissenters, which markets appear to have interpreted as a signal that rates could rise later this year if inflation pressures continue to build. The Bank of England maintained its benchmark rate at 3.75% as expected, but its three hawkish dissenters exceeded the two anticipated.

The divide between the current winners and losers from the AI revolution has emerged again this morning. Microsoft is up 9.6% in premarket trading after earnings beat expectations by a wide margin at $4.74 v. Street $4.24, helped by contributions from its AI businesses. Meta Platforms is down 9.8% after earnings of $6.18 fell well short of the Street estimate of $7.19 and guidance also disappointed. Canadian Pacific Kansas City beat expectations at $0.89 v. Street $0.87, while Starbucks reported earnings of $0.85 v. Street $0.66 and is up 4.9% premarket.

NASDAQ futures are up 1.8% after the index declined 1.7% on Wednesday, while Dow Futures are up 0.4% following yesterday’s 2.2% decline. Overseas, the Nikkei gained 0.7% and the Hang Seng rose 0.2%. In Europe, the DAX is up 0.3% and the FTSE is up 0.4%.

Commodity markets are mixed. Crude Oil is down 0.2%, trading below $85.00/bbl, while Brent Crude is down 0.4% near $90.00/bbl. Gasoline is down 1.7%, slipping back under $3.35/gallon. Metals are rebounding as the US Dollar declines slightly, with Gold up 1.7% near $4,075/oz, Copper up 2.3% and approaching $6.50/lb, and Silver up 0.8%. The Euro is up 0.1%, while the Loonie is steady.

Bond yields continue to climb, with the US 10-year Treasury note yield moving above 4.65% and the 30-year yield rising above 5.20%. Looking ahead, the Bank of Japan meets Friday morning, with no change to interest rates expected. National PMI figures from China and regional PMI data from the US are also due Friday, which is the final trading day of the month. Apple and Amazon.com report earnings this afternoon, followed by Chevron, ExxonMobil, Enbridge, Imperial Oil, Magna International, and TransAlta tomorrow morning.

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