By Mike Dolan
Oct 29 (Reuters) – There were few fireworks from the Federal Reserve on Wednesday, with two dissenters to the decision to keep rates unchanged, but there were indications of more hikes to come down the line.
Fed Chair Kevin Warsh said financial conditions were tightening but by no means tight, and he also flagged a reduction in the number of Fed policymaking meetings beginning next year.
In the backdrop, the Bank of Canada hiked rates for the first time in three years, as expected. The European Central Bank is expected to stay on hold today.
Interest rate markets seemed to take a dovish tilt from the Fed meeting, paring back some Fed tightening from the futures horizon even as the yield curve steepened. But that may owe as much to what’s going on in the wider markets.
Alphabet’s stock plunged 10% overnight as its incoming earnings disappointed and markets fretted about the scale of its cash burn and spending. South Korea’s Samsung also disappointed and, in contrast to rival SK Hynix on Wednesday, hesitated in detailing returns to shareholders.
But even though those two weighed on broad indexes, it wasn’t all gloom in the AI and tech space, with Microsoft shares advancing on a big beat in its cloud business and as it missed its own capex guidance.
Market nerves over excessive spending by hyperscalers seem to be the theme again. On that score, Oracle rose earlier on Wednesday as it projected a rapid return to positive free cash flow over the coming three years.
Energy markets remained edgy, meantime, with oil hovering near recent highs and European natural gas futures topping 100 euros for the first time in four years.
That sets up the ECB meeting, where the central bank has to juggle energy-aggravated inflation rates with rising debt stress in France. Like the Fed, another ECB rate rise is still expected by year-end, but today’s press conference is likely to be dominated by the long-awaited announcement that President Christine Lagarde will step down on February 7.
While she was expected to go before her term ends in October 2027, the formal announcement now sets off a stream of speculation about who will take her place and what that may mean for ECB policy.
Oil slipped back a touch on Thursday after reports of new mediation efforts in the Iran war.
CHART OF THE DAY
Cash burn appears to be the theme of the Big Tech earnings season once again, with market reactions to hyperscaler reports homing in on the degree to which AI spending is eating into their cash generation.
TODAY’S EVENTS TO WATCH
• US September PCE inflation (8:30 a.m. EDT), Q3 GDP (8:30 a.m. EDT), weekly jobless claims (8:30 a.m. EDT)
• ECB interest rate decision (9:15 a.m. EDT), press conference (9:45 a.m. EDT)
• US corporate earnings: Amazon, Intel, Mastercard, Caterpillar, Eli Lilly, SanDisk
• US 7-year note auction (1 p.m. EDT)
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