The Week Ahead: Microsoft results; Fed, BoE rate decisions; US jobs

Welcome to Michael Kramer’s pick of the top three market events to look out for in the week ahead.

After a quiet few days, the week beginning Monday 29 July will be the busiest of the third quarter. Traders will be keeping close tabs on a slew of company earnings announcements – notably from Microsoft and Apple, among others – and macroeconomic data releases. It’s also a key week for monetary policy, with both the US Federal Reserve (Wednesday) and the Bank of England (Thursday) set to make their latest interest rate decisions. Most economists expect the Fed to keep rates unchanged, but the Bank of England's vote could be close, with some policymakers favouring a rate hold while others appear to be leaning towards a quarter-point cut.

Microsoft Q4 results

Tuesday 30 July
Analysts are forecasting that Microsoft’s fourth-quarter earnings grew 9.3% year-on-year to $2.94 a share, as revenue jumped 14.8% year-on-year to $64.5bn. The company’s Intelligent Cloud unit, which houses its Azure cloud-computing platform, is the primary growth driver, with revenue from the segment projected to have increased 19.7% year-on-year to $28.7bn. Revenue from Azure is expected to have grown 30.3% year-on-year. Looking ahead to the first quarter of fiscal 2025, analysts foresee revenue rising to $65.3bn, with Intelligent Cloud revenue at $29.1bn. Based on options pricing, the market is pricing in a 4.5% move in the Microsoft share price following the release of the Q4 results.

Microsoft shares – down 7.5% in the past month at $418.40, as of Thursday’s close – have slipped below a key support level at $430 and broken below an uptrend (see the ascending broadening wedge pattern on the below chart). The recent price action suggests that the stock could drop further, perhaps to around $400, if the Q4 results fail to meet expectations. Upside potential appears to be more limited, with resistance around $450.

Microsoft’s results are also likely to have a big impact on the wider technology sector and the Nasdaq, since Microsoft is one of the biggest contributors to the AI trade.

Microsoft share price, October 2023-present

Note: Michael Kramer and his clients at Mott Capital Management own shares in Microsoft. 

Federal Reserve interest rate decision

Wednesday 31 July
Central bank watchers will be paying close attention to the Federal Reserve’s interest rate decision on Wednesday, even though the market expects the Fed to keep rates at a 23-year high range of 5.25% to 5.5%. Markets are pricing in a rate cut for the Fed’s 17-18 September meeting, so investors will be listening out for any signals that the Fed intends to cut rates in less than two months’ time. However, the Fed may be reluctant to give the all-clear.

The following day, on Thursday 1 August, the Bank of England's rate decision is likely to be a close-run thing The Bank might hold interest rates at their current level of 5.25%. However, the market is pricing in a 92% chance that the Bank will, by the end of September, cut the base rate by a quarter of a percentage point to 5%. Investors will be all ears for any clues regarding the future of the BoE's monetary policy.

The two central banks’ rate decisions could have a bearing on GBP/USD. Cable recently broke through resistance at $1.28, a key level that had held firm for almost a year. With the pound rising towards $1.29 on Friday, the $1.28 level could act as support in the coming days. If the Fed doesn’t signal a September rate cut, GBP/USD could fall to test $1.28. A break below that level would be negative for GBP/USD, suggesting a possible move back to $1.267 in the near term. Meanwhile, resistance looms overhead at $1.30.

GBP/USD, May 2023-present

US jobs report

Friday 2 August
Given the recent steepening of the US yield curve, the jobs report for July will be crucial. Analysts estimate that the US economy added 175,000 non-farm payrolls in July, down from 206,000 in June. They also expect the unemployment rate to have remained at 4.1%. Average hourly earnings growth is forecast to be unchanged at 0.3% month-on-month, while dropping to 3.7% year-on-year, down from 3.9% in June. 

If for some reason, the unemployment rate ticks higher to 4.2%, the so-called Sahm Rule could come into play. The Sahm Rule is an economic indicator that uses unemployment data to flag the onset of a recession. The rule has a proven track record of accurately predicting recessions. An increase in the unemployment rate could therefore accelerate the steepening of the yield curve.

This would likely come at the expense of US technology stocks and the tech-heavy Nasdaq 100. Since 10 July the Nasdaq 100 has fallen almost 9% to about 18,830 points, while over the same period the difference between the 10-year Treasury rate and the two-year Treasury rate has increased from roughly -35 basis points to -15 basis points. The Nasdaq 100 has support at a gap near 18,650, with resistance now firmly in place at 19,470. A break of support at 18,650 could open the door for a further drop towards a gap at 17,540.

NDAQ 100, December 2023-present

Key economic and company events

Here’s our rundown of notable economic announcements and company reports scheduled for the coming week:

Monday 29 July

• Japan: June unemployment rate
• Results: McDonald’s (Q2)

Tuesday 30 July

• Australia: June retail sales
• Eurozone: Q2 gross domestic product (GDP)
• France: Q2 GDP
• Germany: Q2 GDP, July consumer price index (CPI)
• US: May housing price index, June JOLTS job openings, July consumer confidence
• Results: Advanced Micro Devices (Q2), BP (Q2), Merck & Co. (Q2), Microsoft (Q4), Pfizer (Q2), Procter & Gamble (Q4), S&P Global (Q2), Standard Chartered (HY), St James’s Place (HY), Stryker (Q2)

Wednesday 31 July

• Australia: Q2 CPI
• China: July NBS manufacturing and non-manufacturing purchasing managers’ indexes (PMI)
• Eurozone: July harmonised CPI
• Germany: June retail sales
• Japan: Bank of Japan interest rate decision
• US: Federal Reserve interest rate decision, July ADP employment change
• Results: Arm (Q1), HSBC (HY), Mastercard (Q2), Meta Platforms (Q2), Qualcomm (Q3), Rio Tinto (HY), T-Mobile US (Q2), Taylor Wimpey (HY)

Thursday 1 August

• Australia: June trade balance
• China: July Caixin manufacturing PMI
• Eurozone: June unemployment rate
• UK: Bank of England interest rate decision 
• US: July ISM manufacturing PMI, initial jobless claims to 26 July 
• Results: Amazon (Q2), Apple (Q3), BAE Systems (HY), Booking Holdings (Q2), ConocoPhillips (Q2), Intel (Q2), London Stock Exchange Group (HY), Next (Q2), Rolls-Royce (HY), Shell (Q2), Wizz Air (Q1)

Friday 2 August

• Australia: Q2 producer price index (PPI)
• Switzerland: July CPI
• US: July jobs report (non-farm payrolls, unemployment rate, average hourly earnings, etc.)
• Results: Chevron (Q2), Exxon Mobil (Q2), Internation Consolidated Airlines (HY), Linde (Q2)

Note: While we check all dates carefully to ensure that they are correct at the time of writing, the above announcements are subject to change