Market 07/31: Powell signals September rate cut as expected

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FOMC does not set rate cut date but Powell signals for September

Post-meeting statement:

FED keeps base rate unchanged
Unemployment rate has risen but not yet worrisome
FED will wait for more data to confidently cut rates
Inflation changed from “high” to “somewhat high” (“elevated” → “somewhat elevated”)
FED's concerns have returned to balance between price stability and the economy

Powell signals for September

Inflation is progressing quite well but if it rises again, FED will act
Labor market remains strong but not overheating
Envisions scenarios from no cuts to multiple cuts this year, all depends on data
FED has no intention of 0.5% cut
Rate cut could be discussed at September meeting
Question: Why not set the rate cut date right away when the market has fully priced in the September cut
- Powell replies there is still a lot of data from now until then

→ Although the FOMC post-meeting statement shows no signs of a cut, Powell in the subsequent press conference signaled the September cut to the market as expected.

Weakest private employment data since the beginning of the year, wage inflation decreases

Private sector job growth from ADP shows US businesses added only 122 thousand jobs in July, lower than 150,000 expected and sharply down from 155,000 previous month

Impact spreads to many sectors with small businesses losing jobs for the first time since COVID

Wage growth for both job switchers and job stayers decreases, as expected by FED

Unlike official payroll data from the US government to be released on Friday, ADP data from a private company focuses only on US businesses. However, this data is seen as a more accurate predictor of BLS (Bureau of Labor Statistics) trends as official payroll data has been repeatedly revised over the past year.

ADP data has been consistently lower than BLS for the past 12 months

Europe: Rate cut plans face hurdles as GDP and inflation exceed forecasts

After pausing rate cut plans to “wait for more data”, Europe's GDP rose +0.3% in Q2, higher than +0.2% forecast.

Services confidence survey points also dipped slightly to 4.8 from 6.2

German GDP declined but was pulled up by France and Spain

Impact from energy prices and uncertainty in technology demand and supply continues to weigh on German growth

→ GDP report shows although the economy is still growing, expectations remain low, paving the way for ECB to continue rate cuts

However, this morning's CPI report shows inflation still higher than expected

Headline CPI 2.6% higher than 2.5% expected
- However, monthly growth down to 0.0% from 0.2% previous month
Core CPI 2.9% higher than 2.8% expected

Contrary to prior data, monthly goods deflation slows (rising +0.8% YoY from +0.7%) while services inflation eases slightly to +4.0%

Fragmentation risks also persist as both GDP growth and inflation move unevenly within the bloc.

→ Although both data points fell short of ECB expectations, the slight stabilization in services inflation is a bright spot for ECB to cut alongside FED in September.

Read more about the Fragmentation issue in Europe in the early stages of the crisis:

Japan raises rates 0.25% but less aggressively than markets feared

After recent fears from BoJ tightening that caused 2 unwinds of The Yen Carry Trade, yesterday BoJ clarified its decision.

Raised the basic interest rate by another 0.25%, as forecasted.
- Highest since 2008

However, only cutting monthly bond purchases (QE) by 400 billion Yen per month and reducing to 2.9 trillion Yen per month in Q1 2026.
- Currently, BoJ is buying 6 trillion Yen (~$39 billion) per month
- Market fears were a cut to 1 trillion per month starting from August.
RBC Capital Markets: “This step shows the degree of tightening by BoJ, however, this level is still lower than market fears.”
BoJ announced it spent $36.6 billion to rescue the Yen in July

→ Fears from the unwind of The Yen Carry temporarily ease as BoJ has made its plan clear to the market and reduced fears of investment funds

Pending home sales slightly recover in June

Pending homes up +4.8% from May to June but still on a -7.8% yearly decline

Sales slightly rebound from 2001 lowest point

Israel eliminates target on Iranian soil, war tensions erupt

Israel yesterday announced it eliminated 2 high-value targets: Ismail Haniyeh, the number 2 of the Hamas organization, politically responsible
This event took place right on Iranian territory just hours after Ismail Haniyeh attended the inauguration ceremony of Iran's new president and even sat next to Iran's Supreme Leader.

Information about this assassination is not yet clear but Iran announced it was carried out by bombing, while Israeli sources say the assassination happened at close range “right in the bathroom”
- However, the location has been confirmed to be not far from the presidential palace and right in the capital Tehran
Previously, Israel also bombed Lebanon's capital Beirut to eliminate one of the leaders of the Hezbollah organization

→ Overall, Israel's recent actions show that it will not bow to pressure from the international community and is determined to go all the way in the war in Gaza.

→ The ability to eliminate a high-level target right in the capital Tehran just hours after meeting the highest leaders is also an extremely embarrassing security breach for Iran.

→ Market reaction shows the thinking is that since Israel did not target figures directly from the Iranian government, similar to March, Iran will not retaliate directly and will continue only through third parties.

→ Oil prices pushed up significantly after the development but other markets have little reaction.

Crude oil inventories at 6-month low

Domestic gasoline and oil demand continues to stay higher than expected:

Crude oil stockpiles -3.44 million barrels last week (-3.9 million estimated)
Gasoline -3.67 million barrels last week (double the -1.6 million estimated)

Stockpiles lowest since February

Biden administration continues to buy an additional 685 thousand barrels of oil last week

Production continues at record levels with declining rig count:

Earnings reports: Paypal, Starbucks, AMD, Microsoft, Boeing

Paypal: First signs of growth turnaround

Revenue $7.88 billion higher than $7.82 billion expected, +9% YoY
Earnings $1.19/share higher than $0.99 expected
Transaction volume growth at 11% YoY to $417 billion
Number of accounts slightly down -0.4% YoY to 429 million accounts
Transactions per account up 11% YoY to 61 transactions

Steve: Overall, this is a better-than-expected report but not too good. has shown investors the first signs of growth although user numbers slightly declined but service optimization has improved. The stock's rise after the earnings report shows the market's perception of quite low valuation for and Steve also agrees on the potential valuation of Paypal.

AMD: Growth along with industry-wide demand

Revenue +9% YoY to $5.8 billion (higher than $120 million forecast)
- Data center +115%
- Client +49%
- Gaming -59%
Product gross margin 49% (up 0.3% YoY)
Operating margin 5% (up 0.5% from same period last year)
Earnings $0.69/share beats forecast by $0.01
Raises full-year revenue forecast slightly to $6.7B from $6.6B

Steve: To be honest, this isn't really a good report for AMD but more for NVDA. Most of the optimism after this earnings report comes from the fact that AMD held its market share as market demand surged strongly in Q2. However, this means NVDA will grow even more as NVDA still dominates this segment with much superior margins and overall metrics compared to AMD. Currently semis are still quite high, but if comparing, NVDA's business health remains more attractive than AMD's.

Fun Fact: Few people know but Jensen Huang, CEO NVDA and Lisa Su, CEO AMD are cousins in real life.

Starbucks: Consumer demand continues to be pessimistic

Earnings $0.93/share in line with $0.93 forecast
Revenue $9.11B misses $9.25B forecast
Same-store sales down -3%, vs -2.71% forecast

China store revenue down -14%, worse than -10.6% forecast
International segment revenue still down -7% after adding 1,600 locations

Steve: Similar to $MCD, this report of shows strong demand drop from consumers with discretionary spending being cut. Although the stock rose after earnings as investors braced for worse numbers, the truth is the report, and the near-term outlook for the business of are not optimistic, especially in international markets.

Boeing: The necessary change has finally arrived

Appoints Kelly Ortberg as CEO and returns to its core
- Kelly Ortberg is an engineer and formerly led Rockwell Collins, a Boeing parts manufacturer

But overall Q2 data must be said to be bad:

Loss -$2.9/share worse than -$2.01 expected
Revenue $16.87B misses $17.35B forecast

Free cash flow negative -$4.3B

Total debt up $10B

Steve: This is the high-level change Steve was waiting for but really feels too late after nearly 5 years. Q2 business results continue to be very disappointing despite the stock price rising on CEO change hopes. However, Steve feels more time is needed for changes at Boeing and to see how the plan to improve product quality and address past mistakes on product lines is implemented.

Microsoft: Azure growth disappoints

Revenue $64.73B beats $64.44B forecast, up only 1% YoY
- Cloud $28.52B misses $28.72B forecast
Earnings $2.95/share beats $2.93 forecast, up 11% YoY
Capex $13.87B above $13.27B expected

The issue is in the Cloud segment, as other services grew in line with expectations, Azure revenue growth +30%, below +30.3% expected.

Steve: This earnings report of isn't a bad report but also not a good one. Everything is nearly in line with forecasts with cloud growth only slightly below expectations. However, at current big tech valuations, similar to in line is not enough and investors have made the first adjustments in today's session. If the market wasn't strong today, Steve thinks could go down more.

Market: Tech pulls SPX above 5500 in strong rally day

Market opened Wednesday's session in extremely cheerful sentiment with risks from The Yen Carry Trade temporarily gone. Additionally, ADP jobs report much weaker than expected reinforces investor faith in FOMC, pulling semis and tech up strongly.

From a positioning perspective, SPX breaking above 5500 level moves the market into positive gamma territory with VIX retreating from early morning.

Internals maintained clear bullish bias throughout the session but liquidity focused on tech. This is the area that needs improvement for the market to continue rallying.