Fed meeting, Microsoft earns, BP dividend - what's moving markets

Investing.com -- The Federal Reserve starts its latest policy-setting meeting, while investors look forward to more corporate earnings, particularly from the important tech sector. BP has already impressed with its second-quarter numbers. 

1. Fed starts policy-setting meeting 

The Federal Reserve starts its July policy meeting later in the session, and after a benign June inflation report, investors after looking for the policymakers to lay the groundwork for a September rate cut.

The U.S. central bank concludes its latest meeting on Wednesday, and is widely expected to maintain its benchmark overnight interest rate in the current 5.25%-5.50% range, as it has done since last July.

Investors are looking for signals about when and how many rate cuts may occur this year, and will therefore be intently following any policy guidance issued by the central bank, as well as the post-meeting press conference with Fed Chairman Jerome Powell.

Fed officials have repeatedly stated that they are looking for more evidence that inflation is steadily returning to 2% before cutting rates, but Fed Chair Jerome Powell indicated earlier this month that the central bank may not wait until inflation reaches this target before cutting rates.

Futures are fully priced for a quarter-point easing in September, with a small chance of a reduction of 50 basis points, and have 66 basis points of easing priced in by Christmas.

2. Futures edge higher with corporate results in focus

U.S. stock futures edged higher Tuesday as investors awaited the start of the latest Federal Reserve meeting as well as key corporate earnings. 

By 04:00 ET (08:00 GMT), the Dow futures contract was 60 points, or 0.1%, higher, S&P 500 futures climbed 12 points, or 0.2%, and Nasdaq 100 futures rose by 35 points, or 0.2%.

The Federal Reserve is set to start its two-day policy meeting later in the session, and investors will be looking for clues over the timing and number of rate cuts to expect this year.

The main earnings release Tuesday will be from Microsoft (NASDAQ:MSFT) after the close, but there will also be results from the likes of Merck (NYSE:MRK), Pfizer (NYSE:PFE), PayPal (NASDAQ:PYPL) and Procter&Gamble (NYSE:PG) before the open, as well as Starbucks (NASDAQ:SBUX) and AMD (NASDAQ:AMD) post closing bell.

So far, more than 40% of the S&P 500 companies have reported their results with 79% posting earnings that exceeded Wall Street expectations, according to LSEG. 

3. Microsoft’s Azure sales in spotlight 

Microsoft (NASDAQ:MSFT) releases its quarterly results after the close Tuesday - the first of a series of numbers from the tech giants this week, including Facebook-parent Meta (NASDAQ:META) on Wednesday and then both Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday.

Investors will be looking to see if sales in Microsoft’s Azure cloud-computing business have picked up enough to justify the billions of dollars being spent on artificial intelligence infrastructure.

The software behemoth is expected to report that Azure's growth stayed steady quarter-over-quarter at about 31% between April and June, according to data from Visible Alpha, helped by its tie-up with ChatGPT maker OpenAI.

Microsoft's capital spending likely surged about 53% year-over-year to $13.64 billion in the period, according to 16 analysts polled by LSEG. A big step up from the $10.95 billion in expenditure it recorded in the previous quarter.

Shares of Google-parent Alphabet (NASDAQ:GOOGL) fell sharply last week after the company reported a quarterly capital spending that exceeded estimates by nearly $1 billion, while the revenue boost from AI integrations remained modest, sparking a selloff in major tech companies.

4. BP (NYSE:BP) lifts its dividend after Q2 results

BP (LON:BP) released impressive second-quarter results earlier Tuesday, resulting in the energy giant raising its dividend after beating profit forecasts.

BP reported an underlying profit of $2.76 billion for the second quarter of the financial year, up from $2.59 billion in the same quarter in 2023, and slightly higher than the $2.72 billion it earned in the first three months of the year.

The oil major generated substantial cash flow of $8.1 billion, enabling it to lower net debt to $22.6 billion as well as raising its dividend by 10% and announcing another share buyback, worth $1.75 billion, for the last quarter. 

“Our decision to increase our dividend by 10%, and extend our buyback program commitment to 4Q 2024, reflects the confidence we have in our performance and outlook for cash generation,” said CFO Kate Thomson.

“We are maintaining a disciplined financial frame and remain committed to growing value and returns for BP.”

At 04:00 ET (08:00 GMT), BP shares rose 2.5% to £4.65, trading largely flat year-to-date.  

5. Crude prices remain weak

Crude prices steadied Tuesday, traded near two-month lows on continuing concerns about demand in China, the world's largest crude importer, while traders shrugged off the risk of conflict escalating in the Middle East.

By 04:00 ET, the U.S. crude futures (WTI) climbed 0.1% to $75.88 a barrel, while the Brent contract rose 0.1% to $79.09 a barrel.

Traders were seen pricing out a risk premium from crude after media reports said Israeli officials were not seeking all-out war with Lebanon in their retaliation for a rocket strike that killed 12 in Israel-occupied Golan Heights.

Crude prices are trading near two-month lows amid persistent concerns over slowing demand, especially in top importer China after last week’s weak growth data.

That said, the Politburo, a top decision-making body of the ruling Communist Party, pledged at the end of its July meeting to pursue a "proactive" fiscal policy, suggesting more stimulus ahead.

The Organization of Petroleum Exporting Countries meets later in the week to discuss output levels, although recent weakness in crude is likely to see the cartel downplay any plans for scaling back production cuts.