CURRENCIES
Bank of Japan hikes rates:
- The Bank of Japan (BoJ) raised the policy rate from 0.1% to 0.25%, with a 7-2 vote in favour.
- This decision marks a 0.15% increase in the policy rate.
Bond tapering details:
- The BoJ announced a gradual reduction of Japanese government bond (JGB) purchases, reducing Y400 billion per quarter.
- Monthly JGB purchases will decrease to Y3 trillion from January to March 2026.
Monetary policy outlook:
- The BoJ plans to continue raising the policy interest rate and adjusting monetary accommodation, aiming for a stable 2% inflation target.
- Negative real interest rates are maintained to support economic activity.
Impact on Japanese Yen:
- The yen initially weakened but later strengthened following the BoJ’s hawkish measures.
- Speculation arose regarding potential FX intervention due to the yen’s appreciation after lower US CPI data.
Market reactions and considerations:
- The relationship between FX markets and inflation is now more closely monitored, with particular attention to the USD/JPY exchange rate.
- The 152.00 and 150.00 levels are critical points for observing potential bearish trends in USD/JPY.
STOCK MARKET
Meta’s Q2 earnings report:
Meta (META), parent company of Facebook and Instagram, is set to announce its second-quarter earnings, highlighting AI spending and advertising business performance.
AI spending and expense estimate:
- AI investment is a key focus, with Meta CFO Susan Li previously increasing the full-year expense estimate to $96-$99 billion.
- Investors are closely watching for returns on these tech investments.
Earnings and revenue expectations:
- Expected earnings per share: $4.74, with revenue of $38.3 billion.
- Previous year’s Q2 results: $2.98 EPS on $31.9 billion revenue.
- Family of Apps revenue (Facebook, Instagram, WhatsApp, Messenger) expected at $37.7 billion, up from $31.7 billion last year.
Advertising revenue and market position:
- Meta could benefit from election and Olympic advertising, potentially impacting overall ad revenue positively.
- Continued growth expected in Reels as it competes with TikTok; Threads competes with X, though monetization remains uncertain.
Analyst perspectives:
- Forrester’s Mike Proulx notes Meta’s strong position heading into Q2 earnings, expecting little focus on “the metaverse” or Horizon Worlds.
- Jefferies analyst Brent Thill remains bullish, citing healthy ad budgets and strong Meta spend growth.
Reality labs and financial challenges:
- Expected Q2 revenue for Reality Labs: $376 million, up from $276 million in 2023.
- Reality Labs reported a $3.8 billion loss in Q1, facing challenges such as turnover and unclear direction.
Legal and regulatory update:
Texas Attorney General Ken Paxton secured a $1.4 billion settlement with Meta over allegations of improper use of Texans’ biometric data.
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