Microsoft's revenue and net profit beat expectations; China's PMI expected to slow slightly

The inflation indicator watched by the Federal Reserve declined month-on-month in June. The Japanese yen surged sharply against the US dollar overnight, reportedly due to intervention by Tokyo authorities. Apple shares plummeted after hours, dragged down by supply shortages affecting its financial outlook. Microsoft's operating profit exceeded expectations, with its stock surge marking the best single-day performance in 18 years. China will release July PMI data today, with both manufacturing and services expected to slow slightly.

Overnight Highlights

– Positive earnings outlooks from tech giants like Microsoft alleviated market concerns over AI spending, driving strong gains in chip stocks. All three major US indices closed higher. US inflation slowed in June and the Fed held interest rates steady, causing the US 10-year Treasury yield to jump and the 30-year yield to hit a new high since 2007. The US dollar weakened across the board. Traders assessed a proposed plan led by Saudi Arabia to form a maritime alliance to enhance defense cooperation around the Red Sea, while oil prices closed lower amid volatility. Gold prices rose due to the weakening dollar and slowing inflation.

International News

– A natural gas ship at Egypt's Damietta port was attacked by drones, raising external concerns that the US-Iran conflict might escalate. The Suez Canal is one of the few remaining export channels for Saudi oil. The Egyptian cabinet stated that no organization has claimed responsibility for the attack so far.

– US economic growth slowed in the second quarter due to a widening trade deficit, but robust consumer spending and corporate investment related to artificial intelligence (AI) infrastructure construction highlighted that domestic demand remains strong.

– Trump signed a measure on Thursday authorizing officials to impose export restrictions on certain industrial waste under the Defense Production Act, aiming to retain critical minerals and rare elements contained in these products and reduce dependence on China.

– The Bank of Japan is expected to keep interest rates unchanged on Friday, with investors focusing on whether Governor Ueda Kazuo will hint that the next rate hike could come earlier than many economists expect. Citigroup expects Ueda will not send a more hawkish signal, leaving room for the yen to weaken.

– The yen briefly spiked over 3% against the dollar overnight, marking the largest intraday gain in two and a half years. Reports indicate the US Treasury Secretary stated the yen appears severely undervalued. The Japanese government and central bank intervened in the foreign exchange market during US trading hours on Thursday, and US authorities also conducted exchange rate inquiries.

– The Bank of England maintained interest rates unchanged with a 6-to-3 vote. Governor Bailey downplayed the prospect of rate hikes, leading traders to reduce bets on action at the September meeting. Domestic wage and labor market pressures in the UK are easing, but recurring US-Iran tensions, declining refining capacity, and low European natural gas inventories have significantly increased energy price risks.

– Major Eurozone economies including Germany and France achieved growth in the second quarter. Despite soaring oil prices driving up inflation, burdening household budgets, and suppressing investment, the region largely withstood the ripple effects of uncertainty surrounding the US-Iran war.

– Saudi Arabia discussed forming a multinational coalition responsible for protecting maritime shipping with military representatives from 43 countries, hoping to address the blockade by Houthi forces in the Red Sea.

– As Ukrainian drones attacked Russian refineries, Russia extended the export ban on most diesel fuel to avoid domestic shortages. This move will further exacerbate global diesel supply tightness.

– Apple (AAPL.US) reported Q3 fiscal quarter revenue and profits exceeding Wall Street expectations, benefiting from a general rise in consumer electronics. However, sales in Greater China and Services were disappointing. The outlook for Q4 revenue growth fell short of Wall Street expectations, reflecting supply shortage issues. Shares plunged after hours.

– Microsoft (MSFT.US) shares soared 15.2% in a single day, marking its best single-day performance in 18 years. Benefiting from strong Azure cloud business growth and profits significantly beating expectations, without announcing large-scale increases in AI spending.

– Benefiting from strong demand for AI services, Amazon (AMZN.US) saw its cloud business revenue surge 37% in the last fiscal quarter, exceeding analyst expectations and growing for the fifth consecutive quarter. Shares skyrocketed after hours.

– Meta (META.US) stated that the company has committed through long-term and short-term agreements to invest nearly $700 billion in the future in areas such as AI data centers and cloud computing.

Greater China News

– Chinese Vice Premier He Lifeng spoke with US Treasury Secretary Bessent and Trade Representative Greer, discussing multiple issues including rare earths and agricultural products. Bessent stated this move was preparation for Chinese President Xi Jinping's visit to the US.

– Reuters: Ford CEO stated that Chinese automakers may enter the US market within 5-10 years. Despite trade barriers in the US, this risk remains. Industry insiders view Canada as a pioneer market for Chinese car companies to test US consumer acceptance.

– China will release official July Purchasing Managers' Index (PMI) data on Friday. Manufacturing and service sector growth are expected to slow slightly but remain above the boom-bust line.

– China's clean energy transition reached a milestone, with coal-fired power generation accounting for less than 50% of total national power generation for the first time in the first half of the year. Among them, renewable energy power generation continued to grow, accounting for about 40% of total power generation.

– Leading Chinese robot manufacturer Unitree Robotics launched its IPO prospectus on the STAR Market, planning to issue 40.45 million shares, with subscription scheduled for August 10.

– DeepSeek is reportedly planning to build a large AI data center in Ulanqab, Inner Mongolia, with plans to put some computing power into operation by the end of 2027, directly competing in the computing power race with international giants like OpenAI, while also leasing additional computing power from other companies.

– Xiaomi (01810.HK) $XIAOMI-W(01810.HK) released the Pengcheng series of oil-electric hybrid vehicles, positioned as intelligent variable-space SUVs, built on Xiaomi's Kunlun technology architecture. Pre-sales for two new models have now opened.

– The Information reported that TSMC (TSM.US) is developing AI chip packaging technology with Nanya Technology, similar to technology already launched by Intel (INTC.US).

Commodities and FX Markets

– The Bloomberg Dollar Spot Index recorded its largest drop in six months.

– The Personal Consumption Expenditures Price Index, an inflation indicator watched by the Fed, declined month-on-month in June, pushing gold prices slightly higher.

– Traders weighed the recovery in transport volume through the Strait of Hormuz against the impact of the US-Iran conflict, causing crude oil futures to fall.

Earnings and Economic Data Focus

– US July University of Michigan Consumer Sentiment Index Final Value (Previous: 54.4, Forecast: 54)

– US July Chicago PMI (Previous: 56.7, Forecast: 56)

Source: Golden Horse Capital Management (Hong Kong) Limited

Author: Penny Yang