Morning Bid AMERICAS - Megacaps mixed with Fed pause; ECB cuts and GDP next

Mike Dolan gives us a look at what the U.S. market and global markets will be like today. With Federal Reserve policy likely to be paused until next year and megacaps delivering mixed results, overnight stock markets were calm as they shifted their attention towards European interest rates and an assessment of U.S. GDP for the fourth quarter.

Microsoft's and Meta's quarterly results after the bell Wednesday attracted different reactions. China's DeepSeek disclosure this week has thrown the artificial intelligence topic into flux more generally.

Microsoft shares fell 4% overnight due to their heavy AI spending, which was defended by the respective CEOs. Meta, however, jumped 4%. The cloud business outlook of the former was a concern for traders, but Meta's performance was taken at face value.

Tesla's stock rose 4% in the meantime as it appeared that plans to release cheaper models next year had offset a disappointing earnings report. Apple and Intel topped another busy earnings report on Thursday.

Before Thursday's opening, index futures were up to a half-percent higher. This was despite the Fed's decision on Wednesday to hold rates while it assessed the impact of Washington's new policies.

Jerome Powell, the Fed's Chairperson, said that the Fed is not "hurried" to change its "well-positioned" position even though President Donald Trump blasted the central bank as doing a terrible job in tackling inflation and claimed it was spending too much time on climate change and diversity.

Fed futures are largely unchanged. They price in another cut for mid-year. There is only a 20% probability of an earlier March move and two cuts in total in 2025.

Treasury yields, however, have fallen since the decision. This is partly due to signs that the economy weakened in the last quarter of 2014 and the fact that interest rates fell elsewhere.

Bank of Canada reduced its policy rate by another quarter-point on Wednesday. The Bank cited in part Trump's tariffs as a threat to the economy. It is widely expected that the European Central Bank will slash another 25 basis points from its key interest rate on Thursday.

TRADE DEFICIT

As traders awaited Thursday's release of U.S. gross domestic product figures for the fourth quarter, the news on Wednesday of a dramatic increase in the international trade deficit re-calibrated some estimates about how fast growth will be this year.

The U.S. trade deficit in goods reached a new record in December. This prompted the Atlanta Fed’s closely watched "GDPNow” model to recalibrate its estimate to 2.3% from an earlier estimate of 3.2%.

Prior to the release of the trade report, the GDP growth forecasts were based on a rate of 2.6% annualized for the third quarter. This was down from the 3.1% pace during the period July-September.

The economy will have grown by 2.8% for the entire year, just shy of the 2.9% growth rate recorded in 2023.

The yields on ten-year Treasury bonds fell to near the lows of the year, around 4.5%. This was helped by the fact that U.S. crude prices have fallen to their lowest level since January 2, with crude falling as much as 7.0% year-on year for the first month.

The dollar index remained steady while the euro dipped slightly before the anticipated ECB rate reduction.

The ECB has every reason to continue easing its policy despite the disappointing German and French GDP figures for Q4.

Germany's economy shrank more than expected during the fourth quarter of 2013. Europe's largest economy is struggling with trade concerns and uncertainty ahead of federal elections next month. The GDP dropped by 0.2% compared to the previous three months in the fourth quarter. France also contracted unexpectedly, amid budget and political impasses.

Italy stagnated as well, leaving Spain the only big country in the Eurozone with a positive Q4 growth rate.

The reports contained a sliver optimism from a rise in the economic sentiment of the euro zone in January. Also, thanks to ECB easing measures, stocks in the euro zone rose another 0.5% Thursday.

This was despite some major European companies suffering losses on earnings days. Deutsche Bank dropped 6% following a larger-than-expected decline in profits for the fourth quarter and full year 2024. STMicroelectronics, one of Europe’s largest chipmakers fell 8% after a bad forecast for the first three months.

Trade worries are high, and the possibility of Trump's first tariffs being implemented as early as next week is still very real - even if officials have indicated that they will continue to review the situation until April 1 despite expressing optimism about a possible deal.

Howard Lutnick, Trump's nominee for commerce secretary, said Canada and Mexico could avoid Trump's threatened 25 percent U.S. tariffs on imports if both countries act quickly to stop allowing illegal immigrants and fentanyl into the United States.

He said: "And from what I can tell, they're acting quickly, and if the execute, there won't be any tariff."

The following developments should give U.S. stock markets more direction on Thursday:

(source: Reuters)