The Friday Market Minute

  • Global stocks trade firmly higher on hopes of near-term support from major central banks as the U.S.-China trade war takes it toll on world economic growth.
  • Federal Reserve officials Williams and Clarida hint at proactive rate cuts to prevent a slowing global economy from derailing the longest U.S. expansion on record.
  • Japan's core inflation rate rises at the slowest pace in two years, reviving bets of fresh support from the Bank of Japan.
  • Microsoft posts stronger-than-expected fourth quarter earnings, driven by a surge in cloud revenues, while Boeing books a $4.9 billion second quarter charge linked to its 737 MAX crisis.
  • U.S. equity futures suggest solid opening bell gains on Wall Street ahead of earnings from American Express, Kansas City Southern and Skyworks as well as consumer confidence data at 10:00 am Eastern.

Market Snapshot

U.S. equity futures are pointing to solid gains across Wall Street Friday as investors react to comment from Federal Reserve officials that could signal deeper rate cuts and stronger-than-expected fourth quarter earnings from Microsoft (MSFT) that look to revive hopes for a tech-lead rally into the second half of the year.

New York Fed Governor John Williams told a conference in his home city Thursday that rate setters were better off taking "preventative measures than to wait for disaster to unfold" when considering the level of policy support needed for a slowing economy. 

"When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress," he added in comments that rate-traders took as a signal that the Fed could cut its key benchmark rate, which currently sits in the region of 2.25% to 2.5%, by as much as 50 basis points when the Fed meets later this month in Washington. 

Fed Vice President Richard Clarida echoed William's proactive approach, telling Fox Business Network that you "don't have to wait until things get bad to have a dramatic series of rate cuts."

Because of the faulty thought process we have going for us at the Federal Reserve, we pay much higher interest rates than countries that are no match for us economically. In other words, our interest costs are much higher than other countries, when they should be lower. Correct!

— Donald J. Trump (@realDonaldTrump) July 19, 2019

The twin remarks, alongside stronger-than-expected fourth quarter earnings from Microsoft, which included a forecast-beating $11.4 billion in revenues from its cloud computing division, boosted global markets overnight and should lift Wall Street into solid opening bell gains.

Contracts tied to the Dow Jones Industrial Average, which are also getting support from Boeing's (BA) move to take a $4.9 billion charge to its second quarter earnings linked to the 737 MAX crisis, were marked 69 points higher in early European trading. Futures contracts linked to the broader S&P 500, which has gained 19.5% so far this year, are primed for a 6 point gain while the Nasdaq Composite is looking at a 36 point bump higher at the opening bell.

Overnight in Asia, both the Fed comments, as well a as softer-than-expected reading for inflation in Japan, primed investors for near-term rate cuts and supported big gains for stocks around the region, with the Nikkei 225 surging 2% to erase nearly all of yesterday's decline and close at 21,466.99 points while the MSCI Asia ex-Japan benchmark rose 0.93% into the final hours of trading.

European stocks were also firmer at the start of trading in Frankfurt and London, buoyed by hopes of near-term central bank support and comments from Treasury Secretary Steven Mnunchin regarding the slow -- but potentially steady -- pace of trade negotiations between Washington and Beijing last night.

The Stoxx Europe 600 was marked 0.1% higher by mid-day of trading, boosted by basic resource and industrial stocks, while Britain's FTSE 100 edged 0.01% higher in London as the pound rebounded to 1.2533 against the U.S. dollar.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.1% higher at 96.89 amid the renewed market optimism, which benchmark Treasury bond yields drift lower, pulling 10-year notes to 2.04%, as traders priced in lower Fed rates 

Global oil prices, which have been active all week amid mixed signals on demand, rising middle east tensions and supply disruptions in the Gulf of Mexico, were marked firmly higher in early European trading following a statement from the U.S. Navy that it had shot down and destroyed an Iranian drone that had threatened an American vessel in the Strait of Hormuz.

Brent crude contracts for September delivery, the global benchmark, were seen $1.01 higher from their Thursday close and changing hands at $62.94 per barrel in early European trading while WTI contracts for August, which are more tightly linked to U.S. gas prices, were marked 68 cents higher at $55.98 per barrel.

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