Morning Bid: Long bond takes fright

By Mike Dolan

July 30 (Reuters) -

What matters in U.S. and ‌global markets today

By Mike Dolan, ​Editor-at-Large, Finance ​and Markets

The Federal Reserve held the line on Wednesday, but three policymakers voted for a hike, the most significant dissent against a new Fed chair since 1970. This shows just why markets were so uncertain about the outcome.

The decision to hold did ‌little to reassure markets, with 30-year borrowing rates jumping to their highest in 19 years and the yield curve ⁠steepening, suggesting traders are concerned that the Fed may tolerate above-target inflation over the long term.

I'll get into that and more below.

But first, check out my latest column on why the ‌world's $1.8 quadrillion balance sheet may be more ‌precarious than it looks.

And listen to the latest episode of the Morning Bid daily podcast, where we discuss the Fed's "family fight" and Big Tech earnings. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.

LONG BOND TAKES FRIGHT

Fed boss Kevin ​Warsh gave little away about what's coming next from the central bank, in line with his stance on forward guidance, but he did suggest that the bond market is doing some of the Fed's job for it by tightening aggressively.

That may be a case of "careful what you wish ⁠for", as bond yields appear to be rising due to doubts about Fed credibility and concern that the Fed is mistakenly trying to pass high inflation off as transitory for the second time ​in five years.

With oil prices jumping back up nearly 8% yesterday amid renewed strikes by the U.S. and Iran, the fuel squeeze seems far from transitory, too.

Wall Street stocks ended in the red after the Fed decision, ​with eyes on Big Tech earnings after the bell. Meta plunged 7% after-hours on ‌worries about evaporating free cash flow driven by its AI buildout. Chipmaker Qualcomm also missed estimates.

But Microsoft, a lagging stock this year, leapt more than 8% after it reported yesterday. Its cloud business beat forecasts, and revenue-generating aspects of ⁠its AI offering were applauded.

In Asia, South Korea's KOSPI rebounded in early trading on Thursday after Samsung Electronics posted a 250-fold rise in chip profit and said it expected the memory supply shortage to worsen and extend into 2028. The volatile index closed down 1% after a choppy session, however.

Another busy day lies ahead. The Bank ⁠of England will announce its latest policy decision, U.S. June inflation and second-quarter GDP are coming, and we'll get Amazon and Apple results after Thursday's bell to boot. Phew!

Chart ​of the day

Cash burn has become the main theme in this earnings season for the big U.S. AI "hyperscalers". Meta reported a 91% drop in second-quarter free cash flow after the bell on Wednesday, underscoring the financial strain of the social media giant's costly AI buildout amid growing doubts about its eventual payoff.

The Facebook and Instagram parent ‌company reported free cash flow of $784 million in the second quarter, down from $8.55 billion a year earlier, sending its shares down by as much as 10% in extended trading overnight.

Today's events to watch

• U.S. June PCE (8:30 a.m. ‌EDT), Q2 GDP estimate (8:30 a.m. EDT), weekly jobless claims (8:30 a.m. EDT)

• U.S. corporate earnings: Apple, Amazon

• Bank of England interest rate announcement (7 a.m. EDT)

Want to receive the Morning ⁠Bid in your inbox every weekday morning? Sign up for ‌the newsletter here. You can find ROI on ​the Reuters website, and you can follow us on LinkedIn and X.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from ‌bias.

(By Mike Dolan)

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Ferrari CEO says Luce orders "in line with expectations"
• Freedom Broker Upgrades Core Scientific Inc. (CORZ) to Buy
• Mizuho upgrades Bloom Energy to Outperform on stronger execution, margin expansion