Microsoft, Alphabet earnings lift futures ahead of Fed decision

© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 26, 2022. REUTERS/Brendan McDermid

(Reuters) - U.S. stock index futures rose on Wednesday as better-than-feared quarterly reports from technology giants Microsoft and Alphabet (NASDAQ:GOOGL) calmed investors ahead of a key U.S. interest rate decision later in the day.

The results lifted sentiment after markets closed sharply lower on Tuesday on a profit warning from top U.S. retailer Walmart (NYSE:WMT) and weak consumer confidence data.

Microsoft Corp (NASDAQ:MSFT) rose 3.8% in premarket trading on Wednesday after it forecast revenue would grow by double digits this fiscal year, driven by demand for cloud computing services.

Alphabet Inc added 3.5% as better-than-expected sales at Google search ads brought relief after social media firm Snap Inc (NYSE:SNAP)'s warning last week raised fears of a sharp ad market slowdown.

"A positive reaction from the latest quarterly numbers has been incredibly hard-won given the negative market sentiment surrounding broader tech," said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

Shares of other high-growth stocks including Amazon.com Inc (NASDAQ:AMZN), Meta Platforms Inc and Apple Inc (NASDAQ:AAPL) also got a boost ahead of their earnings this week.

Megacap growth stocks have been hammered this year as the Federal Reserve raised interest rates aggressively to tame decades-high inflation. Future cash flows on which valuation of these companies rests are discounted heavily when rates rise.

Investors widely expect the U.S. central bank to increase interest rates by another 75 basis points later on Wednesday, with focus likely to shift to how deeply signs of an economic slowdown have registered with its policymakers.

Money market traders were even placing about a one-in-four chance the Fed would surprise markets with a larger 1-percentage-point increase, as per CME Group's (NASDAQ:CME) Fedwatch tool.

The decision is due at 2:00 pm ET (1800 GMT) and Fed Chair Jerome Powell's news conference half an hour later should elaborate on how the central bank views the recent economic data and at least hint at its next steps.

"Earnings may play second fiddle to the FOMC meeting tonight if the Fed surprises with more hawkishness than the market is pricing," Peter Garnry, head of equity strategy at Saxo Bank said in a note.

At 06:40 a.m. ET, Dow e-minis were up 136 points, or 0.43%, S&P 500 e-minis were up 34.75 points, or 0.89%, and Nasdaq 100 e-minis were up 175.25 points, or 1.45%.

PayPal Holdings Inc (NASDAQ:PYPL) jumped 5.7% after a report said activist investor Elliott Investment Management is building a stake in the fintech giant to push it to ramp up its cost-reduction efforts.