Fed meeting, Amazon results, struggling US consumers – what’s moving markets

The U.S. Federal Reserve concludes its latest policy-setting meeting later Wednesday, while Amazon’s first-quarter results largely impressed. Crude prices have been hit by a large build in U.S. inventories, while Wall Street looks set to start the new month on a negative note.

1. Powell in focus as Fed meeting concludes
The Federal Reserve concludes its latest two-day policy meeting later in the session – the marquee event for markets this week.

The U.S. central bank is widely expected to hold its benchmark overnight interest rate steady, and thus the main focus will be on what Chair Jerome Powell has to say in his news conference, particularly given the bank won’t be updating economic projections this time around.

Progress towards the Fed’s 2.0% medium-term inflation target has somewhat stalled of late, as typified by Tuesday’s release of the Employment Cost Index, which rose at an elevated 4.2% rate on a year-over-year basis in the first quarter, matching the rise in the fourth quarter.

Investors will be awaiting indications about whether the Fed still expects to cut interest rates at some stage this year, given the sticky nature of recent inflation data releases.

“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence” and proceed with rate cuts, Powell said on April 16 in what were his last public comments before this week’s meeting.

Futures markets now just barely see a single quarter-point rate cut by year-end, from as many as five of those at the start of the year.

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2. Futures slip lower ahead of Fed decision
U.S. stock futures drifted lower Wednesday, amid caution ahead of more corporate earnings and the Federal Reserve’s latest policy decision.

By 04:10 ET (08:10 GMT), the Dow futures contract was 35 points, or 0.1%, lower, S&P 500 futures dropped 12 points, or 0.2%, and Nasdaq 100 futures fell by 80 points, or 0.5%.

The major Wall Street indices struggled in April, as sticky inflation data prompted investors to rein in expectations of early interest rate cuts by the Federal Reserve.

The S&P 500 and the Nasdaq Composite posted losses of more than 4% last month, while the Dow Jones Industrial Average fell 5% for its worst monthly performance since September 2022.

The Fed concludes its latest policy-setting meeting later Wednesday [see above] and this is likely to keep volatility low.

Focus will also be on the continuing quarterly earnings season, with results due from the likes of drugmaker Pfizer (NYSE:PFE), food giant Kraft Heinz (NASDAQ:KHC) and pharmacy chain CVS Health (NYSE:CVS) before the opening bell, with chipmaker Qualcomm (NASDAQ:QCOM) and food delivery service DoorDash (NASDAQ:DASH) later in the session.

Investors are also likely to keep an eye on the job openings and labor turnover survey for March as well as ADP’s private employment data for April, especially ahead of Friday’s nonfarm payrolls report.

3. Amazon’s first-quarter boosted by cloud demand
Amazon (NASDAQ:AMZN) became the latest tech giant to release its latest quarterly results late Tuesday, and largely beat expectations as interest in artificial intelligence helped drive cloud-computing growth.

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First-quarter sales increased 13% to $143.3 billion, higher than the $142.5 billion consensus, while net income more than tripled to $10.4 billion in the quarter.

Importantly, Amazon Web Services, its cloud revenue segment, grew 17% to $25 billion, topping consensus estimates of 14.7% growth, with the division’s annual revenue run rate now at $100 billion.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate,” the company said Tuesday.

There was a blip in the strong results, however, as the company forecast revenue of $144.0 billion to $149.0 billion for the current quarter ending June, below the consensus expectations of $150.1 billion.

That said, Stifel remains a fan of the group, keeping a ‘buy’ rating, and lifting its 12-month target price to $228 from $224.

“Despite an uneventful quarter, the company made progress on the margin story (more to go), AWS is largely past digestion phase, and advertising continues to ramp,” analysts at Stifel said, in a note.

Amazon stock closed Tuesday at $175, and gained 1.3% in aftermarket trade.

4. U.S. consumer feeling the pinch
Officials at the Federal Reserve may be laser-focused on the inflation level, but they may also be minded to listen to comments from some of America’s largest consumer-focused corporations who are saying their customers are struggling.

“It is clear that broad-based consumer pressures persist around the world,” McDonald’s (NYSE:MCD) CEO Chris Kempczinski said on the fast-food chain’s earnings call early Tuesday. “Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending.”

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The fast-food chain reported a sequential drop in sales growth for the fourth straight quarter as low-income customers reined in spending.

Elsewhere, Starbucks (NASDAQ:SBUX) cut its annual sales forecast on Tuesday after reporting a fall in same-store sales for the first time in nearly three years.

“We still see the effects of a slower-than-expected recovery, and we see fierce competition among value players in the market,” CEO Laxman Narasimhan said on a post-earnings call.

Away from the food retail sector, 3M Company (NYSE:MMM) topped expectations for its first quarter, but the maker of Scotch tape and Post-it notes still said it’s seeing “continued softness in consumer discretionary spend.”

5. Crude falls after U.S. inventories build
Crude prices fell Wednesday, continuing the recent weak tone after a surprise build in U.S. stockpiles and strong crude production sparked doubts over tight supply conditions.

By 04:15 ET, the U.S. crude futures traded 1.1% lower at $81.03 a barrel, while the Brent contract dropped 1.1% to $85.42 per barrel.

The American Petroleum Institute indicated late Tuesday that U.S. crude inventories grew by 4.9 million barrels in the week to April 26, a sharper jump than the 1.5 million barrels increase expected.

This suggested that oil supplies were not as tight as initially expected in the world’s biggest fuel consumer, a notion reinforced by separate data showing U.S. domestic crude output rose to 13.15 million barrels per day in February from 12.58 million barrels in January, just short of the record high and its biggest jump since October.

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Crude prices slid to over three-week lows on Monday on growing expectations that a ceasefire agreement between Israel and Hamas could be in sight, reducing tensions in the region and cutting the likelihood of oil supplies being disrupted.