The Federal Reserve kept interest rates unchanged on Thursday, a move that aligned with market expectations. Three out of twelve voting members dissented, advocating for a rate hike, marking the first time since 2016 that the Fed has seen three unified dissenting votes in a single meeting. This signals growing internal division and increasing pressure for tighter monetary policy. While Fed Chair Jerome Powell emphasized the need to bring inflation down, neither the meeting statement nor the press conference provided forward guidance on future rate increases.
The Fed's "Talk Without Action" Weighs on the US Dollar
Due to the lack of any clear hints of a rate hike from the meeting, the interest rate curve implied by futures markets shifted lower compared to last Friday's close, indicating a more dovish market outlook. The probability of a September rate hike fell below 70%. The yield on the two-year Treasury note, which is more sensitive to interest rate expectations, dropped to 4.266% overnight. Conversely, yields on longer-dated bonds, such as the 10-year and 30-year notes, which are more responsive to inflation and economic growth, surged higher, with the latter reaching 5.20%, a level not seen since 2007. This has led to a steeper yield curve. The US Dollar Index closed lower overnight and may be in a period of adjustment following the Fed meeting. However, ongoing geopolitical tensions are keeping oil prices elevated near the $90 per barrel mark, which remains a factor that could continue to fuel rate hike expectations and support the dollar going forward.
Mixed Fortunes for Tech Giants
Despite the market interpreting the rate decision as not sufficiently hawkish, US stocks faced continued selling pressure on Wednesday, with tech stocks experiencing a significant rout. Concerns over AI-related capital expenditure continue to loom over the sector. In after-hours trading, Microsoft and Meta Platforms reported their quarterly earnings, with the market reacting very differently to each. Meta's shares fell nearly 7% after the bell. The company's second-quarter revenue beat expectations, but profit declined sharply year-over-year. The midpoint of its third-quarter revenue guidance fell short of forecasts. More concerning was its cash flow, which plummeted to a four-year low of $780 million, a 91% decrease from the same period last year. The company also raised the lower end of its full-year capital expenditure forecast to $130 billion. This pattern of "earning more but spending even more" mirrors what was seen with Alphabet last week, resulting in a very similar post-market reaction.
In contrast, Microsoft's shares surged over 7% in after-hours trading. The company exceeded expectations on both second-quarter revenue and profit. Azure and other cloud services grew 43% year-over-year, beating the 39.6% consensus estimate, and full-year revenue surpassed the $100 billion mark. Paid Copilot users saw robust growth, and the commercial cloud remaining performance obligations (RPO) surged 84% year-over-year to $678 billion, roughly double the company's annual revenue. Quarterly capital expenditure came in at $41 billion, below market estimates, while cash flow reached $55.44 billion, a 30% increase from the prior year. Furthermore, the company's guidance for the current quarter's revenue and cloud business growth rates both exceeded Wall Street expectations, while its capital expenditure forecast was lower than expected, sending a positive signal that "massive spending is translating into returns." The Nasdaq 100 Index futures rose over 1% after hours, but the sustainability of this short-term oversold bounce will be tested by earnings reports from tech heavyweights like Apple and Amazon.
Gold's Rebound Faces a Long Road Ahead
After the brief volatility surrounding the Fed meeting, gold prices stabilized in early trading on Thursday. On the hourly chart, the pattern of giving back earlier gains during the early morning hours suggests a state of relative balance between bulls and bears. Both sides appear to need time to digest the Fed's rate decision before forming a clearer direction. The 4110 level, which was tested twice this week, may serve as an initial resistance point for the day. Prices could oscillate lower below this level. The primary support is seen around the 4045 area, which was the starting point of Wednesday's short-term breakout. A break below this level could trigger another test of the 3970-4000 zone.
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