A look at the day ahead in U.S. and global markets from Mike Dolan
With Federal Reserve policy likely paused until midyear and megacaps throwing up a mixed bag of results so far, stock markets stayed calm overnight as attention switches to European interest rates and a fourth-quarter U.S. GDP healthcheck.
Quarterly results from Microsoft and Meta after the bell on Wednesday drew different reactions, with the artificial intelligence theme more broadly thrown into the flux this week by China’s DeepSeek revelation.
With the heavy AI spend of both firms in question due to the arrival of the cheaper Chinese model, but defended by their respective bosses overnight, Microsoft shares shed 4% out of hours while Meta jumped 4%. Traders fretted about the former’s cloud business outlook but took Meta’s beat at face value.
Auto giant Tesla jumped 4%, meantime, as plans for cheaper models this year appeared to offset an earnings miss. Apple and Intel top another heavy earnings diary on Thursday.
The upshot before Thursday’s open is that index futures are up to half a percent higher, brushing aside Wednesday’s expected Fed decision to keep rates on hold while it assesses the impact of new government policies in Washington.
Chair Jerome Powell said the Fed was in no “hurry” to change a “well-positioned” stance even as President Donald Trump lambasted the central bank for doing a “terrible” job on inflation while claiming it spent too much time on diversity and climate.
Fed futures were broadly unchanged – pricing in another cut by midyear, only a 20% chance of an earlier move in March and two cuts overall for 2025.
But Treasury yields have ebbed since the decision, in part due to signs of a weakening of the economy late last year and also as interest rates tumbled elsewhere around the world.
The Bank of Canada cut its policy rates by another quarter point on Wednesday, citing in part the threat of Trump tariffs to the economy, and the European Central Bank is widely expected to lop another 25 basis points off its key rate on Thursday.
TRADE DEFICIT
But as traders awaited the release of U.S. fourth-quarter gross domestic product readouts later on Thursday too, Wednesday’s news of a sharp widening of the international trade deficit reset some calculations about just how brisk growth is coming into this year.
The U.S. goods trade deficit vaulted to a record high in December, prompting the Atlanta Fed’s closely-watched “GDPNow” model to recalibrate to a 2.3% rate from a prior estimate of 3.2%.
