Fed rate decision eyed

By: Miguel A. Rodriguez

12:09, 01 August 2022

US stock indices fell on Tuesday after Walmart announced a "profit warning" and raised fears in the retail sector that consumers were cutting back on discretionary spending due to inflation

At the close of the session, Microsoft and Google announced earnings with disparate results. Although none of them met analysts' forecasts for Q2, Google substantially improved its cloud and ads revenue. After the announcement, it shot up over 3%.

 

Wall Street's major indices have rebounded from mid-June lows as falling commodity prices and downbeat economic data prompted investors to pare back expectations of aggressive rate hikes by the Federal Reserve. However, recession fears have weakened momentum in the last three days.

 

In this sense, today's Fed meeting has special relevance. The central bank is widely expected to raise interest rates by 75 basis points. With the evident slowdown in the economy that is reflected in the latest data, there is a possibility that the Fed will decide to be less aggressive with a hike of just 50 bps. Or on the other hand, President Powell could make fewer "hawkish" comments after today's meeting if the interest rate is raised as expected.

 

Economic data continues to be on a downward path. US consumer confidence fell for the third straight month in July amid lingering concerns about higher inflation and rising interest rates that point to slower economic growth at the start of Q3.

 

The Q2 GDP advance data will be published tomorrow, which could be negative after the US economy contracted in the year’s first three months. This is another factor of concern in the market. It will probably condition today's Federal Reserve decision since two consecutive quarters with a negative GDP figure is the definition of a technical recession.

 

The S&P500 index closed the session down by 1%. From a technical point of view, it has retraced from the Fibonacci 61,8% threshold, located at 3.985, now the level to beat to continue the bullish momentum.

 

Sources: Bloomberg.com, reuters.com

 

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