Fed decision looms, Microsoft and Alphabet earnings - what's moving markets

Investing.com -- The Federal Reserve gears up to deliver an expected quarter-point interest rate hike, with investors on the lookout for any clues about the central bank's future policy plans. Meanwhile, Microsoft and Google-parent Alphabet post solid earnings despite headwinds from a slowdown in customer spending. But the companies stay away from outlining exactly how much they plan to spend on developing their all-important generative artificial intelligence services.

1. Fed decision looms

The Federal Reserve is widely tipped to raise interest rates by 25 basis points following its latest two-day meeting on Wednesday, meaning the spotlight will likely be even brighter on comments from the central bank's chair Jerome Powell.

According to Investing.com's Fed Rate Monitor Tool, there is a more than 98% probability that the rate-setting Federal Open Market Committee will lift the benchmark fed funds rate to a range of 5.25% to 5.50%.

Yet questions still remain over how policymakers view the road ahead for borrowing costs. Crucially, inflation, the central target of the Fed's long-standing campaign of aggressive rate hikes, is showing signs of cooling.

Fed officials could thus signal that today's projected increase will be the end of its tightening cycle. But with the outlook for price growth and the broader U.S. economy still uncertain, there is also a chance that the bank may choose to give itself the flexibility to raise rates further if needed.

2. Futures point lower

U.S. stock futures edged lower on Wednesday, but stayed relatively close to the flatline, as investors prepared for the Fed's rate decision and a fresh batch of corporate earnings.

By 05:08 ET (09:08 GMT), the Dow futures contract slipped by 67 points or 0.19%, S&P futures inched down by 3 points or 0.07%, and Nasdaq 100 futures dipped by 28 points or 0.18%.

The major indices all ended the prior session in the green, with the benchmark S&P 500 touching its highest level in more than a year.

After the bell, tech giants Microsoft and Google-parent Alphabet reported better-than-anticipated revenue in the second quarter (see below).

3. Resilient returns for Microsoft, Alphabet

Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) posted better-than-anticipated quarterly earnings as their core businesses performed solidly despite a downturn in customer spending.

For Microsoft, growth at its key Azure cloud computing division decelerated to 27% in constant currencies during the April to June period as clients moved to rein in expenditures in the face of economic uncertainty. Shares fell in premarket U.S. trading on Wednesday.

However, the Azure figure was still at the top end of the company's guidance, while the Redmond, Washington-based group also beat Wall Street estimates for both revenue and profit.

Meanwhile, Alphabet's own cloud services, as well as its all-important digital advertising operations, topped expectations. Investing.com senior analyst Thomas Monteiro noted that the results indicate that "a new growth phase" is likely underway for the Google owner. Shares rose ahead of U.S. dealmaking.

Executives at both companies also addressed their plans for generative artificial intelligence (AI) as the race to monetize the nascent technology intensifies. The firms suggested they will likely spend more in the coming quarters to build new data centers needed to meet surging demand for generative AI services. They did not say exactly how much they plan to spend, however.

4. Meta on deck

Meta Platforms (NASDAQ:META) will be the next tech behemoth to post second-quarter earnings, with the Facebook owner expected to provide its own update on digital advertising and AI after the close of U.S. trading Wednesday.

In particular, analysts will be keen to hear how Chief Executive Mark Zuckerberg plans to use AI to help optimize returns on ad spending. Focus will also be on Meta's push to monetize services like its Instagram Reels short-video offering and WhatsApp messaging platform.

Observers will likely be eager to receive a status update on the roll-out of Threads, which was launched earlier this month as a rival to Twitter.

Elsewhere, earnings season marches on. Coca-Cola Company (NYSE:KO), Boeing (NYSE:BA), and AT&T (NYSE:T) are just some of the big-name brands set to report results before the bell today.

5. Oil dips after U.S. inventories jump

Oil prices retreated from three-month highs after industry data showed a rise in U.S. crude stockpiles, suggesting that supplies were not as tight as previously thought in the important American market.

Data from the American Petroleum Institute, released Tuesday, showed that U.S. crude stocks rose by 1.3 million barrels in the past week. Official numbers from the Energy Information Administration will be studied later in the session for confirmation.

By 05:12 ET, U.S. crude futures traded 0.64% lower at $79.12 a barrel, while the Brent contract dropped 0.60% to $82.75 per barrel.

Both benchmarks hit their highest levels since April on Tuesday, driven up by concerns over tighter supplies and pledges by Chinese authorities to bolster the stuttering post-COVID recovery of the world's second-biggest economy and largest crude importer.

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