Surprise, surprise: Microsoft failed to meet investor expectations when it announced its Q2 results yesterday, while Google did better than expected. The S&P500 advanced to the highest levels since April 2022, while Nasdaq 100 was up by 0.73% yesterday. Meta is due to announce earnings today after the bell.

Zooming out, the IMF raised its outlook for the world economy this year and it now expects the global GDP to expand 3% in 2023. But it also warned that Germany will probably be the only G7 economy to suffer an economic contraction this year. US growth forecast was optimistic even though risks prevail as PacWest has been the latest US regional bank to succumb to this year’s bank stress.

Today, the Federal Reserve (Fed) will likely announce another 25bp hike today, and warn that there could be more in the store. The US dollar index pushes higher as the EURUSD continues its nosedive on IMF’s less than ideal Germany outlook and the news that corporate loan demand plunged by the most on record in Q2, as higher rates started to bite European businesses.

Unfortunately, however, inflation expectations are getting stronger globally as the rising energy and crop prices hint that the upcoming inflation figures won’t be a piece of cake. The barrel of US crude flirted with the $80pb level on Chinese stimulus hopes and the pricing of a soft landing, while wheat futures continue rising along with the escalating tensions in the Black Sea and Danube. Corn and soybean futures rise as well as hot weather in the US belt is adding to the positive pressure for corn.

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Both Eurozone and UK PMI numbers hinted at faster-than-expected slowdown in economic activity. Both the euro and sterling retreated against the US dollar.

The Federal Reserve (Fed) starts its two-day policy meeting today, and will highly likely announce a 25bp hike on Wednesday. But what Fed officials will also do is to remind investors that the tightening cycle is probably not juts yet.

US stocks traded higher yesterday with the S&P500 adding 0.40% and Nasdaq 0.14% after its special rebalancing. The US 2-year yield advanced past 4.90% and fell this morning. While the VIX index shows no sign of a particular stress from equity traders, BoFA’s MOVE index is close to 110 level, versus around the 60 level prior to the Q3 of 2021: bond traders remain very much uncertain about the number of additional rate hikes that the Fed could deliver. And there is no line in the sand, the Fed will continue hiking if the US jobs market, consumption, and housing market remain resilient to interest rate hikes.

On the corporate menu, Microsoft is due to announce its Q2 earnings after the bell today. Focus is on whether, and by how much Microsoft benefited from the AI craze and how much AI boosted growth for Azure.

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