Dollar sinks on softer US data

•   ●  DXY plunges to 100
  
•   ●  Magnificent seven stocks diverge
  
•   ●  Semiconductors roar back to life

Currency shenanigans

The Federal Reserve elected to maintain rates at 3.50-3.75% on Wednesday, prompting a collective sigh of relief throughout financial markets. While largely expected, the decision was by no means set in stone. In fact, three of the twelve members cast in favour of an immediate rate hike, exposing the division within the committee. Those opting for a hike may consider a change of heart after yesterday’s GDP and PCE Price Index data prints however, which together point more in favour of a rate cut than anything else. Q2 GDP growth came in at just 1.5% versus expectations of 2.1% and while the release is only the advance estimate, it nevertheless shows an unforeseen slowdown in US economic activity. Meanwhile, the core PCE Price Index sank to just 0.1% in June, also falling below expectations. Lower inflation is obviously a good thing in the eyes of the Fed, but coupled with slower growth, the central bank may be more inclined to ease rather than tighten monetary policy. A number of high-profile investment firms now believe the Fed will hold rates steady throughout 2026 and well into 2027.

The effects on the dollar were immediate and severe. The DXY fell down to 100 by the end of yesterday’s session, down from 101.5 just two days prior. The rare period of weakness was seized upon by Japanese monetary authorities, who took the opportunity to intervene on behalf of their currency with an aggressive bout of yen-buying right in the middle of the New York session. The intervention proved to be clinical and very effective, dragging USDJPY down from 163 to 158 within a couple of hours, before the pair stabilised around the 159.5 mark. The move was executed less than 24 hours before the Bank of Japan’s own interest rate decision, which resulted in a predictable rate hold at 1%. It remains to be seen how much impact such actions will have long-term, because despite the 2.4% drop in the currency pair, the yen was only able to recover to levels seen just two months ago. The BoJ had better have more ammunition in reserve.

Mixed bag for earnings

Microsoft (MSFT) recorded its largest single-day jump in history on Thursday after delivering a bombshell Q4 earnings report. The software giant surged 15.5% after posting better-than-expected earnings and revealing lower capital expenditures than predicted. The latter point has been a thorn in the side of many companies recently, including Meta Platforms (META), which also reported after the bell on Wednesday. The company behind Facebook beat on revenue but fell short on earnings per share. However, the figure that really had investors running for the exit were the capital expenditure estimates, which are forecast to rise to $135 billion, surpassing predictions by a solid $10 billion. The massive rise in AI spending continues to spook markets, as evidenced by yesterday’s price action. Far from Microsoft’s meteoric rise, Meta collapsed 8% on Thursday following the sub-par earnings report. The conflicting performances are set to continue later today, following the latest earnings from Apple (AAPL) and Amazon (AMZN). The former slid 7% in after-hours trading, while in contrast the latter rose almost 10%.

Semiconductors bounce back

The roller-coaster ride continues in semiconductors, with AMD, Seagate (STX), Western Digital (WDC) and Micron (MU) all boasting double-digit gains yesterday. Major infrastructure spending by the likes of Microsoft and Meta is obviously good news for the companies responsible for providing the necessary hardware and the latest earnings reports certainly show no evidence of said spending slowing down. The positive sentiment has finally spilled over into the Asian semiconductor sector, which up until last night had been getting systematically dismantled for over a month strait. The Korean Kospi index had fallen to a 40% drawdown by the time trading closed on Thursday evening, but the benchmark is absolutely flying this morning, surging 15% within minutes of the opening bell. Samsung and SK Hynix are the obvious drivers behind the move, together accounting over half the index’s weight; both rose over 20% as trading got underway. The leverage that drove Korean stocks higher earlier in the year was equally responsible for their downfall after the June peak. Despite the huge pullback, the Kospi is still up 50% so far this year, making it by far one of the best performing markets in the world. Recent moves, both up and down, suggest much of the leverage has yet to unwind; the drama may not be over quite yet. Japanese chipmaker stocks were also pumping fiercely this morning, rapidly driving the Nikkei 225 index 5% higher within the first hour of trading. Should the momentum continue throughout the day, semiconductor stocks will have had the ride of a lifetime.

#MSFT #AMZN #AAPL

About the Author

Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.

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