Mixed Earnings for Big Tech

STOCK INDEX FUTURES

Stock index futures are mixed as hopes for a trade deal with the EU keep market sentiment lifted and as investors assess earnings on Wall Street. On the data front, weekly initial jobless claims came in lower than expected, with 217,000 new claims vs. an expected 227,000. Markets will also be turning their attention to PMI data later this morning for clues on how private sector activity is holding up.

Markets rallied Wednesday on the news of the trade deal with Japan, which will see Japan face a 15% tariff rate and $550 billion invested into the US. The deal will allow Japanese auto exports to the US to face a 15% tariff as well, below the 25% tariff currently in place on all auto imports. Deals struck with Indonesia and the Philippines also helped lift market sentiment. Furthering the rally were reports that the US and EU were close to finalizing a trade deal in which the EU would accept 15% tariffs on most exports to the US. Despite this, the European Union is readying a retaliatory set of tariffs in case trade talks fail. The deals come as talks with India are reportedly deadlocked on key agricultural and dairy products, clouding the prospect of an interim deal before August 1. Treasury Secretary Scott Bessent said he would soon meet top Chinese officials to extend the two countries’ trade truce, saying he expects the two economic powerhouses to work together on issues like manufacturing and oil.

On the earnings front, Alphabet (Google) beat Wall Street’s second-quarter earnings expectations and doubled down on its AI spending spree. The Google parent’s shares rose in premarket trading alongside other AI-linked stocks. Meanwhile, Tesla reported an earnings miss and a continued slump in European sales while the company warned that it will face rough times with cuts to tax credits for EVs. Earnings season continues on with results from Intel and American Airlines today.

Data released Wednesday showed that home prices rose to a new high in June while the spring sales season slowed down considerably, signs that a housing market recovery is unlikely in 2025. Home sales in June fell to a nine-month low, and with prices at record highs, along with mortgage rates above 6.5%, home purchases are seemingly unaffordable for many. New home sales data will be published at 9:00 a.m. CT today, followed by June durable goods figures on Friday.

CURRENCY FUTURES

The USD index strengthened following the release of weekly initial jobless claims data, which pointed to a resilient labor market as businesses start to get a better picture of what the tariff picture looks like. The dollar broadly gained against most major currencies.

Euro futures are lower following the European Central Bank’s decision to hold rates steady, in a widely expected move. Manufacturing and services PMI data for July in the eurozone both beat expectations. Manufacturing PMI came in at 49.8, a gain over last month’s 49.5 and above expectations of 49.7 but still in contractionary territory. Services PMI showed a reading of 51.2, above expectations of 50.6 and a step above last month’s 50.5. Composite PMI equated to 51.0, signaling an overall increase in activity. The EU and US appear to be closing in on a trade and tariff deal, according to multiple reports, which would see US tariffs on EU imports set at 15%, instead of the 30% President Trump threatened in his tariff letter. The news comes even as the EU Commission prepared counter-tariffs on 93 billion euros ($109 billion) of US goods.

British pound futures are lower after UK PMI data came in weaker than expected, boosting bets of a rate cut by the Bank of England. Services and composite readings both missed expectations, signaling a slowdown in private sector growth. However, manufacturing activity posted a smaller-than-expected contraction in activity. The PMI data also showed that job cuts accelerated, a key figure in the data, as markets are expecting the BoE to prioritize growth over inflation due to weak economic data and a soft labor market. Markets now await retail sales data for June, which will be published on Friday.

Japanese yen futures are lower following data that showed Japan’s private sector growth held steady in July, supported by solid services activity, though manufacturing activity fell into contraction territory. Despite the readings, market optimism remains lifted following the trade deal with the US. Speculation that Prime Minister Ishiba plans to step down next month following the upper house election defeat remains although Ishiba said he does not plan on doing so. Rising political uncertainty regarding the leadership in Japan could have potential downside risks for the yen. The trade deal with the US offers the Bank of Japan more certainty surrounding the future of the Japanese economy and adds potential for the bank to hike interest rates later this year. Critically for Japan and its auto industry, tariffs on autos will be reduced from 25% to 15%, although tariffs on steel will remain at 50%. Government data due Friday is expected to show inflation remains above the BOJ’s 2% target. Core consumer prices excluding fresh food in the Tokyo metropolitan area are expected to have risen 2.9% in July from a year earlier, slowing slightly from June’s 3.1% gain. Markets are expecting the Bank of Japan to keep rates steady at its July 30-31 meeting.

Australian dollar futures are higher, supported by the US-Japan trade deal and improved market sentiment as reports that the US and EU are nearing a trade deal lifted optimism globally. PMI data also showed Australia’s business activity grew at its fastest pace in July, as manufacturing output rose for the first time in three months and services expanded sharply, driven by strong new orders and ongoing hiring. On the policy front, RBA Governor Michele Bullock said a “measured and gradual” approach to rate cuts is appropriate, citing strong labor demand and easing core inflation. Markets are fully pricing in that the bank will deliver a rate cut in August.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve, with Treasury yields higher into the morning. President Trump announced that he would be visiting the Federal Reserve, a move that concerns markets over the political interference in monetary policy. Weaker-than-expected initial jobless claims also pressured Treasurys lower, as the labor market has remained resilient in the face of sweeping tariffs. PMI data due later this morning will have the potential to swing Treasurys as well. Investors will be looking to how private sector activity has held up in July and for signals on any underlying economic momentum. Fed policymakers are behind the curtain of their pre-meeting monetary-policy blackout until Powell’s presser on July 30. This leaves room for markets to focus on any developments from the White House. Yields are also likely to react to any developments or setbacks in trade negotiations with other countries, particularly with India.

Wednesday’s sale of 20-year bonds was met with strong demand, as fears over US fiscal health and a widening deficit appear to calm, for now. 20-year bonds, worth $13 billion, were sold with a high yield of 4.935%, nearly two basis points below the market at the bidding deadline, a sign investors were willing to pay up to absorb the issuance. The bid-to-cover ratio was 2.79, the highest since April 2024, while dealers (who are required to bid at auction) took a 10.7% share of the auction, which is one of the lowest percentages in the last year for this maturity, showing demand from other users was very solid. Investors have been scrutinizing Treasury auctions over the past few months to assess demand for government debt after the US bond market wobbled in recent months. Sweeping US tariffs, a downgrade in credit rating, and the passage of the tax-cut bill that is expected to add trillions to the government debt sent worries in the market about the safe-haven quality of Treasuries. The Treasury will auction $21 billion in inflation-protected TIPS later today.

The 10-year Treasury yield is 4.44%, and the 30-year yield is 4.99%. The spread between the two- and 10-year yields fell to 50 bps from 51 bps on Wednesday.

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