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Marketmind: Big Tech litmus test as Fed gathers

[July 25, 2023] A look at the day ahead in U.S. and global markets from Mike Dolan

Buoyant Wall St stocks brace for a critical test of this year's extraordinary surge in Big Tech shares as Microsoft and Alphabet both report after the bell on Tuesday, just as Federal Reserve officials kick off their two-day policy meeting.

The mood on world markets generally was lifted by a bounce-back in ailing Chinese stocks - a delayed reaction to Monday's somewhat vague statement from the country's ruling Politburo on supporting the "tortuous" economic recovery there.

The 4% snapback in Hong Kong's Hang Seng index - still down almost 2% for the year - was driven by a 12% surge in the beaten-down property sector but only brought the overall benchmark back to where it was on July 14. The wider blue-chip CSI 300 Index snapped a six-day losing streak to pop 3% and buying from state banks propped the yuan.

In sweltering Europe, the tone was more subdued as a survey of big banks by the European Central Bank - also meeting this week - showed business demand for loans dropped in the second quarter to their lowest in the 20-year history of the poll as credit conditions tightened further. German business confidence sagged again this month too.

Euro/dollar slipped further after the reports.

All of which painted a confusing picture of the global demand pulse going into the Fed meeting, with Monday's news of ebbing U.S. business sentiment in July at least showing overall growth in activity - in contrast to the euro zone contraction.

A jump in crude oil prices to three-month highs on Monday - due to a major U.S. refinery outage and background China stimulus hopes - was twinned with a 10 basis-point spike in two-year Treasury yields on a downbeat auction to add to the messy dashboard.

Both oil and Treasury yields gave back some of those gains again today, however, with year-on-year crude price declines still tracking more than 21%. S&P500 and Nasdaq stock futures pushed higher, after fresh Wall St gains on Monday that saw Dow Jones bluechips clock an 11-day winning streak for the first time in more than six years. VIX volatility gauges subsided from two-week highs.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 24, 2023. REUTERS/Brendan McDermid/File Photo

There was little ostensible reaction to the formal rebalancing of the Nasdaq 100 index that pared weightings of several of the big caps to reduce "over-concentration".

With the earnings season in full swing, investors now focus on readouts from mega caps Microsoft and Google-owner Alphabet's after the bell on Tuesday - with the bar high after this year's AI-infused stock surges and sky-high valuations.

The approach of Wednesday's Fed decision may limit market moves until then. As it stands, futures are fully priced for another quarter-point rate hike to the 5.25-5.50% range - and still see this as likely the last in the cycle as markets indicate less than a 50% chance of another move later in the year.

Easing expectations for 12 months time are gradually being reined in however.

Events to watch for on Tuesday:

* U.S. corporate earnings: Microsoft, Alphabet, Texas Instruments, NextEra Energy, Visa, Invesco, GE, GM, Dow, Danaher, Corning, Kimberly-Clark, Biogen, Verizon, Moody's, EQT, 3M, Universal Health, Chubb, Dover, Nucor, Paccar, Sherwin-Williams, Archer-Daniels-Midland etc

* U.S. July consumer confidence, Richmond Fed July business survey, Philadelphia Fed July service sector, May house prices

* Federal Reserve's Federal Open Market Committee starts 2-day policy meeting - decision Wednesday

* International Monetary Fund updates World Economic Outlook

* U.S. Treasury auctions 5-year notes

(By Mike Dolan, editing by Ed Osmond, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

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