Bigger tides, Fed on notice, Intel-Amazon AI chip deal

Investing.com — Wall Street futures are looking slightly higher, with markets focused on the size of a possible interest rate cut at a key Federal Reserve policy meeting this week. Meanwhile, shares of Intel (NASDAQ: ) rose in extended trading hours after the semiconductor firm said its chipmaking unit has struck a deal to make artificial intelligence chips for Amazon’s (NASDAQ: ) cloud division . Elsewhere, Microsoft (NASDAQ: ) is raising its dividend and unveiling a new $60 billion share buyback program.

1. Futures look higher

US stock futures were higher on Tuesday as investors braced for the highly anticipated Federal Reserve interest rate decision this week (more below).

By 03:36 ET (0736 GMT), the contract had added 46 points, or 0.1 percent, gained 8 points, or 0.1 percent, and was up 54 points, or 0.3 percent.

The benchmark ended the previous session slightly higher, while a decline in technology names led to the decline, halting a five-day streak of positive gains. Apple (NASDAQ: ) was a big laggard, falling 2.8% after analysts at TF International Securities warned that demand for the latest iPhone 16 models was warmer than expected. In turn, the note weighed on shares of chipmakers such as Nvidia (NASDAQ: ) and Broadcom (NASDAQ: ).

2. Focus feed rate reduction scale

Fed officials are set to begin a crucial two-day meeting on Tuesday that is likely to conclude with an eagerly awaited — and widely debated — interest rate cut.

With a price cut by markets, much of the conversation focused on the scope of the September decision.

According to CME Group’s (NASDAQ: ) FedWatch tool, the odds of a 50 basis point cut this week — rather than a more traditional 25 basis point cut — are currently 67 percent.

As of last weekend, the odds were even, but bets for a jumbo cut were fueled by media reports suggesting such a cut was still an option. Former New York Fed President Bill Dudley has also argued that a sharp cut is needed because short-term interest rates are “well above” a neutral level that neither helps nor hinders economic activity, a belief that he reiterated it on Monday.

Analysts at ING said in a note to clients that markets could push prices for Fed tapering closer to 50 basis points “in an attempt to sway” policymakers. Either way, they expect the decision to be “a close call.”

3. Intel Foundry inks custom chip deal with Amazon

Intel shares rose in extended trading hours after the U.S. semiconductor group said its contract manufacturing unit signed a deal to produce custom artificial intelligence chips for Amazon’s cloud division.

Chief executive Pat Gelsinger said the “multi-billion” dollar deal, which expands an existing strategic partnership between the firms, “reflects the strength of our process technology” and will “unleash innovation in our shared ecosystem and support the growth of both business. “

It was a win for Gelsinger, which is trying to stem disappointing profits recently by focusing Intel on its foundry or a maker that makes chips for outside companies.

The deal was accompanied by a series of other announcements regarding Intel’s efforts to achieve $10 billion in savings after a period of weak demand and widening losses. In addition to previously disclosed plans to cut the workforce and suspend its dividend, the company said it would halt construction of two projects in Europe and offload part of its stake in Altera Corp.

Earlier Monday, Intel said it was eligible for up to $3 billion in US government funding to make chips with military applications. Shares rose 6.4 percent in regular trading.

4. Microsoft raises dividend, approves share buyback plan

Microsoft said on Monday its board approved a new share buyback program worth up to $60 billion and raised its dividend as the tech giant seeks to return cash to shareholders following a string of solid earnings based on artificial intelligence.

The Redmond, Washington-based group’s buyback program replaces the previous one initiated in 2021. Meanwhile, it declared a quarterly dividend of $0.83 per share, up 10% from the previous quarter.

The company’s shares were slightly higher in after-hours trading.

Microsoft previously posted double-digit sales and quarterly earnings growth in July, although that was offset by a substantial increase in capital spending related to the company’s AI investments.

5. Oil flows

Crude oil prices rose on Tuesday due to continued disruption to US production from Hurricane Francine, ahead of the latest reading of the country’s crude stockpiles.

By 03:37 ET, the contract had gained 0.3% to $72.97 a barrel, while futures (WTI) traded 0.4% higher at $69.32 a barrel .

Both contracts settled higher on Monday after the latest hurricane to impact the key crude-producing region of the Gulf of Mexico, and traders awaited the potential start of an easing cycle by the Federal Reserve.

More than 12 percent of crude oil production and 16 percent of U.S. Gulf of Mexico production remained offline, according to the U.S. Office of Safety and Environmental Enforcement on Monday.

The American Petroleum Institute is due to release its weekly inventory data later in the session, ahead of Wednesday’s official figures, and traders are expecting a further decline in US crude stockpiles.