Four megacap technology companies report earnings in the same week the Federal Reserve delivers its July rate decision and the June PCE inflation print lands. Rekindled Middle East tensions and the resulting oil move have put a rate hike back into market pricing.
The busiest week of this summer earnings season stacks four megacap reports, a Fed decision and the Fed's preferred inflation gauge onto one five-day calendar. Amazon, Meta Platforms, Microsoft and Apple headline the schedule, and the July policy meeting adds intrigue following rekindled Middle East tensions.
AI capex dominates the megacap reports
Meta and Microsoft both report Wednesday night. For Meta, the focus falls on AI capital expenditure guidance and management's intentions for the compute power now being stood up; the stock trades 11% below its pre-April earnings levels, so the bar of expectations sits lower than last time.
Microsoft faces the same demand to justify its spending, with Azure growth the key metric outside sales and earnings. Amazon closes out the hyperscalers on Thursday night, where AWS growth is what investors will measure, and Apple reports the same evening in what will be Tim Cook's last call as CEO before he becomes executive chairman in September.
Markets price a live chance of a July hike
Whether the central bank delivers a rate hike is the question hanging over midweek. The Fed issues its latest decision on interest rates Wednesday afternoon, followed by Chairman Kevin Warsh's post-meeting press conference. The market prices a one-third chance of a quarter-point hike Wednesday and a 95% chance of a hike by September.
That marks a shift from a week earlier. After the June consumer price index report on July 14 came in softer than expected, a hike this week looked unlikely and a September move roughly 50-50, according to market probabilities compiled by the CME FedWatch tool. Warsh has said the Fed cannot control short-term bursts of inflation, yet he recently stressed to Congress that the central bank is responsible for controlling it over the medium term.
PCE and second-quarter GDP arrive Thursday
The most influential economic report of the week comes Thursday morning with the June personal consumption expenditures price index. It is the Fed's preferred measure of inflation. Economists polled by FactSet expect June PCE to decline 0.07% from May and be up 3.7% year over year, with core PCE rising 0.2% month over month and 3.3% on an annual basis.
Economists at Bank of America believe underlying inflation trends remain well above the Fed's 2% target, even excluding special factors likely boosting it temporarily. They wrote in a Tuesday note to clients: "That argues for tighter policy rates rather than an extended pause".
Source: CNBC
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