Fed Holds Steady as US Payrolls Data Looms

Last week's financial news was dominated by the Federal Reserve holding its policy rate steady despite three policymakers dissenting for a hike. Fed Chair Kevin Warsh gave no sign of imminent tightening, unsettling investors over the Fed's ability to anchor inflation expectations. The 30-year Treasury yield spiked to 5.27%, its highest since 2007.

In other monetary policy news, the Bank of England held its policy rate at 3.75% with hawkish dissents rising to three from two. The Bank of Japan also held steady at 1%, though an upgraded GDP forecast and inflation-overshoot warnings read hawkish.

On the economic front, Australia's consumer price index (CPI) growth eased to 3.8% year-on-year in June from 4.0% in May, easing pressure on the Reserve Bank of Australia to tighten further. Bets on an August rate hike collapsed from 32% to just 4%.

However, China's official manufacturing purchasing managers' index (PMI) unexpectedly fell to 49.2 in July from 50.3 in June, ending four months of expansion. Non-manufacturing PMI slid into its lowest since December 2022 at 49.0 from 50.2.

Mega-cap earnings drove a sharp divergence in US equities, with Apple falling 7.2% despite record quarterly revenue due to guidance for lower fourth-quarter revenue growth. Meta shed 6.5% after an earnings per share (EPS) miss and a 91% collapse in free cash flow.

By contrast, cloud strength lifted Microsoft (+21.8%) and Amazon (+17.0%), as both companies posted accelerating cloud revenue growth, Azure up 43% and AWS up 37%. The Hang Seng Index rallied as Beijing signaled more support for domestic demand, while the Nikkei 225 tumbled amid a global semiconductor rout.