• US equity indices opened solidly lower Friday, as the selloff in AI names continued after a powerful new model from Chinese AI pioneer Moonshot introduced new concerns about the sustainability of the US AI ecosystem as discussed in the morning update.

• Indices though would quickly cut back those losses with a morning rally, although only the Russell 2000 and Dow Jones Industrial Average made it back to positive levels, before things unraveled again to a lesser extend in the afternoon, although indices all finished off their worst levels. The Nasdaq Composite led the decline -1.4%, the S&P 500 fell -1.0%, the Dow Jones Industrial Average declined -0.8%, and the Russell 2000 finished -0.4%.

• Unlike Thursday, when the solidly down day for the S&P 500 masked 8 of 11 sectors finishing higher, Friday’s weakness was much broader with Energy the only positive sector. That saw the equal-weighted S&P 500 index fall -0.8%, just marginally better than its market cap-weighted counterpart. Growth sectors led the weakness with the Technology, Communication Services, and Consumer Discretionary sectors, three of the four largest, finishing at the bottom of the sector scorecard for a second day, all down at least 1%.

• Also continuing to loom over markets was a very unstable Mid-East situation. Oil extended its advance after Axios reported that President Trump could decide within days whether to escalate military action against Iran, with options reportedly including strikes on Iranian infrastructure, nuclear facilities, and the underground Pickaxe Mountain site.

• Economic data were mixed.

  • June housing starts beat expectations, but all due to a surge in multifamily starts while single-family starts and permits showed no growth.

  • Import prices rose more than expected mostly due to petroleum prices, although import prices from China hit a record monthly as the country moves up the value chain as discussed in Thursday’s morning update.

  • Industrial production was softer than expected (report coming) with US manufacturing production stalling, dragged down by a decline in durable goods such as machinery.

  • The preliminary July University of Michigan consumer sentiment reading improved more than expected, helped by lower gas prices, though the renewed jump in oil raises questions about whether that improvement can be sustained as inflation concerns remain elevated.

• For the week, the indices spent little time above the flatline but were still there at Wednesday’s close before falling back Thursday and Friday. The Nasdaq Composite in particular was down as much as -4.0% for the week at one point this morning before cutting that loss to -2.9%, while the S&P 500 ended the week -1.6%, the Dow Jones Industrial Average -0.9%, and the Russell 2000 -0.5%.

Some market commentary:

• “When there’s panic, no one wants to be the last one in a selloff, so the selling pressure increases,” said Guillermo Hernández Sampere, head of trading at MPPM. “With the start of reporting, the suspicion of overvaluation has been confirmed and will continue for a bit.”

• “The question now is whether this will become yet another ‘buy the dip’ opportunity, or if the pace of selling accelerates as everyone rushes to the exit doors at the same time,” David Morrison at Trade Nation asked.

• “The market has started to hope for some long-awaited broadening,” Citigroup Inc.’s Beata Manthey told Bloomberg Television. “For that to happen, you need to have some rotations, and rotations tend to happen in quite a violent way sometimes — and this is what we’re seeing right now.”

• In a note on Friday morning, strategists at BBH said investors are “increasingly questioning the sustainability of the ongoing AI capital expenditure boom.”

  “The [Bank for International Settlements] annual economic report cautions that boom-bust cycles are a regular feature of past investment surges driven by transformative technologies,” they said.

• Barclays strategists appeared unperturbed by the tech volatility in a Friday note. “While Tech volatility may persist in the near term, we believe that the reset in positioning should ultimately prove healthy, creating more attractive entry points for long-term investors targeting the structural AI theme,” they said.

• For Francisco Simon, European head of strategy at Santander Asset Management, the selloff still looks moderate in comparison to the preceding rally. “We would distinguish between fundamentals and positioning,” he said. “From a fundamental perspective, the picture remains solid: earnings momentum has been exceptional this year, and results are still coming in strongly.” Cash would offer good protection in the near term, Simon said. Bonds are a less attractive option as higher oil prices could undermine the defensive characteristics of sovereign debt. “The key reassurance would probably come from the earnings season,” he said. “If companies continue to deliver solid results, and valuations become more attractive after the correction, that could help bring longer-term buyers back.”

• “The latest development is competition from open-source models in China, which are reportedly rivaling the performance of leading offerings from Anthropic and OpenAI, raising fresh concerns about the heavy pace of technology spending,” said Angelo Kourkafas, senior investment strategist at Edward Jones. “We are seeing signs of fatigue, with end-user demand for AI becoming more price sensitive and the market starting to penalize companies that are ramping spending too aggressively,” he continued. “We view this volatility as a signal that the AI theme is likely maturing rather than breaking, which is a healthy part of how transformative investment cycles evolve.”

• With Iran continuing maritime attacks and insisting all ships seek its permission before sailing through the strait, there’s a good chance both sides continue to escalate, according to Mehran Kamrava, a professor of political science at Georgetown University in Qatar. The attacks are “an ominous sign of more to come, worse to come,” Kamrava told Bloomberg TV on Friday from Doha. “Neither side wants to see this escalation but both have become dependent on the path of an escalatory cycle from which they cannot back out. This tit-for-tat is now very dangerous in the sense of attacks and counter attacks on critical infrastructure.”

In today’s Markets Update:

• A deeper look at Friday’s stock and sector breakdown, including semiconductor weakness tied to Moonshot AI, renewed megacap growth pressure, Energy’s relative strength, and the weakness broadening.

• A closer look at key company movers and corporate developments.

• Updated daily and weekly technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.

• A review of market breadth and participation, including weakness among the largest stocks, IBM’s record week, and large individual winners and losers.

• A look at the rates and Fed backdrop, including Treasury yields, Fed hike expectations, the move into the blackout period, and Fed Vice Chair Jefferson’s comments on inflation and the policy stance.

• A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and Citadel’s Rubner on the spike in stock-level risk relative to index risk.

• A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin including select weekly charts.

• A comment on the Morgan Stanley Tech Momentum Index, Truist on Financials and Health Care, Goldman on high-beta momentum, Warren Pies on semiconductor analogs, Bloomberg on corporate insider selling, Goldman on central-bank gold demand, the Atlanta Fed GDPNow tracker, and John Authers on inflation swaps.

• A wrap-up on the various cross-currents and Friday’s broader “sell everything” tone.

• A look ahead to next week’s calendar, including US economic data, the Fed blackout, Treasury auctions, and SPX earnings.

Read more

US Housing Starts Jun: 1427K (est 1310K; prev 1177K; prev R 1199K)
-Housing Starts (M/M): 19.0% (est 11.2%; prev -15.4%; prev R -15.2%)

US Building Permits Jun: 1367K (est 1403K; prev 1410K)
-Building Permits (M/M): -3.0% (est 0.1%; prev -0.9%)

Executive Summary:

• Housing starts surged +19.0% m/m in June, the biggest monthly increase since May 2023, to 1.427mn SAAR — the highest since March and above every BBG estimate.

• The increase was driven by a +76.3% MF rebound (the largest since 2011) that fully reversed May’s collapse taking MF starts to the quickest pace since 2023.

• SF starts though edged down -0.2% for a second straight month as single-family builders continue to contend with elevated inventory and weak demand, after NAHB sentiment fell to the joint lowest since September.

• Building permits in contrast fell for a second straight month to 1.367mn, with SF permits hitting the lowest since August 2025.

• Completions rose +3.3% led by SF at the highest pace of the year, while the pipeline (units under construction has stabilized this year above pre-pandemic levels).

  

Now let’s take a deeper look with more details including lots of charts, regional analysis, and thoughts from analysts including Goldman.

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Sentiment: 54.4 (Jun. Final 49.5)
Current Conditions: 54.9 (Jun. Final 47.7)
Expectations: 54.0 (Jun. Final 50.7)

1-Yr Inflation: 4.2% (Jun. Final 4.6%)
5–10 Yr Inflation: 3.3% (Jun. Final 3.3%)

Executive Summary:

• Preliminary read of University of Michigan consumer sentiment for July rose nearly 5 points to 54.4, the highest since February, topping all estimates in a Bloomberg survey of economists, “the second straight month of 10% jumps.” All five index components improved, with the rise across age, income, wealth, and political party.

• However, “sentiment’s upward momentum may prove difficult to sustain” with more than 70% of interviews completed before the resumption of US strikes against Iran on July 7 and the subsequent reacceleration in gas prices. Sentiment remains down 12% from a year ago.

• 1-yr inflation expectations ticked down to 4.2% from 4.6% in June, still substantially above the pre-war 3.4% in February, and the survey noted “with prices remaining frustratingly high, consumers are hardly ebullient about the economy… consumers continued to worry that inflation pressures may worsen going forward.” Long-run 5–10 yr expectations held steady at 3.3%, a bit above the 2.8–3.2% range seen in 2024.

Now let’s take a deeper look with more details, charts, UMich analysis on top vs bottom tercile stockholder sentiment, and Goldman’s initial thoughts.

Read more

Nvidia Corp. dropped 2.7% to lead declines among the Magnificent Seven. Chip-equipment makers, optical and energy names also fell. The iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH) were both down more than 3%. The SMH is down 6.9% for the week, on pace for its third weekly decline in four weeks. Netflix Inc. tumbled 11% after a disappointing forecast.

Also continuing to loom over markets is a very unstable Mid-East situation. The US and Iran intensified their attacks beyond military targets during a sixth straight day of hostilities, increasing fears of a return to full war with no agreement reached over the Strait of Hormuz. The US hit southern Iran overnight, striking six road bridges, according to Iranian state media. There were separate reports of attacks on the southern town of Bushehr, which houses the country’s only nuclear power plant, and the western province of Lorestan. Iran responded by firing on US bases in Kuwait, Jordan and Bahrain.

In US economic data earlier this morning we got June import prices, which came in hotter than expected although mostly due to petroleum prices, and housing starts which came in well above expectations although permits were weaker than expected.

Later this morning we’ll get June industrial production (our broadest look at the manufacturing sector) and the University of Michigan preliminary July consumer sentiment report.

[Note the International Update is below the US update]

US Import Price Index (M/M) Jun: 0.3% (est -0.7%; prev 1.9%; prevR 1.7%)
- Import Price Index Ex-Petroleum (M/M): 0.5% (est 0.4%; prev 0.8%; prevR 0.7%)
- Import Price Index (Y/Y): 7.1% (est 6.5%; prev 6.7%)
- Export Price Index (M/M): -0.6% (est -0.7%; prev 1.3%; prevR 1.2%)
- Export Price Index (Y/Y): 10.2% (est 10.2%; prev 11.2%)

US Housing Starts Jun: 1427K (est 1310K; prev 1177K; prevR 1199K)
- Housing Starts (M/M): 19.0% (est 11.2%; prev -15.4%; prevR -15.2%)
- Building Permits: 1367K (est 1403K; prev 1410K)
- Building Permits (M/M): -3.0% (est 0.1%; prev -0.9%)

Note on all charts the colored lines are daily moving averages (the average price over the given number of days):

20 = green
50 = purple
100 = blue
200 = brown

The middle panel is MACD = Moving average convergence/divergence line, a measure of momentum that compares longer term and shorter term momentum to gauge if a move is strengthening or weakening. This is probably my favorite individual indicator (it’s also the favorite of Katie Stockton, a very fine technician).

The bottom panel is RSI = Relative Strength Index (basically what it sounds like) = measures the strength of the move comparing gains to losses over the given lookback window (I use the standard 14 periods).

SPX futures (/ES): SPX futures -1.0%, testing 50-DMA. Hasn’t closed below since April 7th.

10yr Yield - down to the lows of the week.

DXY US dollar index - Up for a second session but still (just) down for the week.

US WTI crude - 1-month high.

Gold futures (/GC) - lowest levels since November.

US copper futures (/HG) - back below the 50-DMA.

US natural gas futures (/NG) - continues to try to carve out a bottom.

Bitcoin futures - easing back.

CNBC:

BBG:

Some pre-market company news from CNBC, MarketWatch.

International Update:

Europe’s benchmark STOXX 600 as of 8.20 am ET was -0.5% putting it back to slightly down for the week, despite Thursday’s reversal from red to green.

Major European indices are also mostly lower while Spain's IBEX (+0.1%) outperforms slightly with help from some countercyclical names.

Germany's DAX: -0.5%, U.K.'s FTSE 100: -0.2%, France's CAC 40: -0.8%, Italy's FTSE MIB: -0.9%, Spain's IBEX 35: +0.1%.

The broad MSCI AC Asia Pacific Index was lower by -2.8%, taking it to the lowest close since May 20th.

Major equity indices in the Asia-Pacific region also ended the week on a mostly lower note with Japan's Nikkei (-4.0%) falling to its lowest level since early June while South Korea's Kospi was (thankfully) closed for a holiday.

Japan's Nikkei: -4.0%, Hong Kong's Hang Seng: -1.8%, China's Shanghai Composite: -3.1%, India's Sensex: +1.3%, South Korea's Kospi: CLOSED, Australia's ASX All Ordinaries: -0.6%.

Some ex-US highlights:

BBG - President Donald Trump accused China of interfering with US elections in 2020, threatening to upend ties with the world’s second-biggest economy ahead of a planned trip by President Xi to the US in September.

• Speaking in a prime-time address from the White House on Thursday night, Trump said the Chinese government stole 220 million voter files, including names, addresses and other sensitive data in what is “believed to be the largest compromise of election data in history” — claims that US intelligence agencies have previously debunked.

• Trump’s allegations risk derailing a fragile truce between the world’s two superpowers, just months after a May visit to Beijing in which he promised ties will be “better than ever before.” They also raise the stakes for a state visit by Chinese President Xi Jinping to the US planned for September, the second of potentially four meetings between them this year.

• China punched back on Friday, with Foreign Ministry spokesman Lin Jian calling Trump’s allegations “purely fabricated” and “malicious smears.” Saying China has never interfered in American elections, and has no interest in doing so, he also accused the US of interfering in the affairs of other nations, conducting mass surveillance operations and large-scale data theft, without offering specifics.

• Still, China appeared to leave the door open for further talks. Chinese state media mostly republished the Foreign Ministry’s response, without elaborating on the accusations. “We urge the US side to reflect on its own actions, stop baselessly smearing China, refrain from making China an issue in its elections, and do more to foster positive China-US relations,” Lin said, remarks in line with Chinese responses to similar US accusations made in previous years.

• “This is a ‘storm in a teacup,’” said Wang Yiwei, a former Chinese diplomat and director of Renmin University’s Institute of International Affairs. He suggested Trump’s claims of election interference are meant to help him secure a Senate majority in the midterms, adding: “China understands well that Trump’s uncertainty is the biggest certainty.”

• “If the administration believes China carried out the largest compromise of American election data in history, that cannot be treated as a passing revelation while Washington resumes high-level engagement with Beijing as though nothing happened,” said Craig Singleton, senior fellow at the Foundation for Defense of Democracies.

BBG - Andy Burnham said he’ll be a pro-business prime minister, but also undo some of the privatization from previous administrations, in his first speech since formally winning an uncontested race to lead the governing Labour Party.

• “Make no mistake, everybody, I will be a pro-business leader of the Labour Party, as I was a pro-business mayor of Greater Manchester,” he said, pointing to small local businesses like pubs and shops, rather than large firms.

• Burnham said he’s ready to lead the nation and return Labour to being a party which represents the UK’s forgotten regions. He criticized decisions taken under former Conservative premier Margaret Thatcher to increase privatization, saying, “The country surrendered control of the essentials: housing, water, energy, transport, and left people exposed to higher costs.” Bloomberg reported on Thursday that the incoming prime minister will use his first days in office to announce that he’s bringing Thames Water under greater public control: “The right used the phrase ‘take back control’ but they are the ones who gave it away in the first place,” he said.

• In terms of his cabinet Burnham said “I haven’t made any decisions yet about who will be in that top team, but I will soon. And when I have, you will see it reflects all parts of our party, all communities, and it will reflect your own place within this great party of ours.”

• In his speech, the former mayor of Manchester said he’d prioritize five key changes to how the government is run. He said he would:

  • Unify his party and break from Labour “factionalism”

  • Build a new politics that eschews points-scoring

  • Setting a direction that is distinctively “Labour” without imitating opposition parties

  • Represent all parts of the UK

  • Restore power to the regions by devolving power from Whitehall

BBG - The European Central Bank will probably pause to assess inflation next week before delivering a final interest-rate hike in September, economists say.

• All respondents in a Bloomberg survey predict no change in borrowing costs next Thursday. Most of them then anticipate a quarter-point increase in the deposit rate to 2.5% in September, when policymakers will have new quarterly forecasts, which they then see reversing a year later.

• Economists see risks to the ECB’s June baseline for growth and inflation this year on the downside, though broadly balanced in the medium term. Only 9% can point to evidence that inflation expectations are becoming unanchored, and most aren’t overly concerned about second-round effects.

• Some 41% of respondents expect the central bank to already drop at least some hints next week on where rates may be headed in the coming months, even as President Christine Lagarde recently renewed her commitment to steer clear of forward guidance.

• “The deceleration of euro-area inflation in June eliminated any need for urgent action. However, buoyant commodity prices keep the Governing Council on track to raise borrowing costs again in September, when it’s armed with fresh forecasts from the staff economists, for a final time in this short tightening cycle.” —David Powell and Simona Delle Chiaie.

• “We do not think a September hike is a done deal,” said Chris Hare, an economist at HSBC. “If progress towards peace and improved energy supply gets back on track, we think the ECB could ultimately avoid needing to raise rates.”

BBG - The yen has room to weaken more before Japanese officials step in to support the currency, options suggest. Traders are comfortable pricing yen weakness all the way to 165 per dollar — a drop of about 1.6% from the current level, which is already near the weakest in four decades. Here are some of the options metrics hinting that the government may tolerate more weakness, to a point:

• One-week risk reversals, a gauge of short-dated demand for protection against yen gains or losses, show yen calls are trading at a 176 basis-point premium to puts. That suggests the market continues to acknowledge there’s a risk of the currency rallying as long as interventions could happen, though the premium is far below the extremes seen in May.

• One-week hedging costs for the dollar-yen pair, which protect against swings in either direction, are less than half their levels after the April intervention and close to a four-year low reached in late May, when the yen was roughly 1.5% stronger. That could mean traders don’t see a high probability of intervention in the coming days.

• Over the next month, sizeable expiries are clustered in the 162-164 area, suggesting traders see a move to the 165 handle as providing a possible trigger for the central bank to step in.

• The US-Japan two-year yield spread has widened since early May and the dollar-yen pair is following. That message is echoed in longer-dated options: one-year risk reversals, which filter out short-term intervention noise, have turned modestly dollar-bullish for the first time since late 2022.

BBG - "President Xi Jinping is looking to the robotics industry for help beating the US in a global technology race.

• "For years, China has led the world in robotics. The country installed about 300,000 robots in 2024, according to the latest estimates from the International Federation of Robotics. That eclipsed the 38,000 machines that were set up in the US last year, the group said.

• "A divergence has emerged between Chinese and American firms developing embodied intelligence. In China, models are increasingly trained using data generated by humanoids in the environments in which they will be operated. In contrast, US firms are buying data and looking to lab simulations as well as human workers in India, Vietnam and other low-cost markets for their training needs. At stake is the future of the humanoid market, which Morgan Stanley estimates will be worth $5 trillion a year by 2050."

• “The whole world is still at the starting line in physical intelligence,” said Su Hao, a US-educated computer scientist who returned to China to set up an institute at Shanghai’s Fudan University. “China, with its supply chain edge, has the opportunity to set the direction and define the paradigm.”

Some international corporate highlights:

• Aston Martin Lagonda Global Holdings Plc is in talks with funds including BlackRock Inc.-owned HPS Investment Partners to raise additional finances to shore up its available cash, according to people familiar with the matter.

• Airbus SE won an order from Air China for 15 A350-900 widebody aircraft as well as 40 A320neo series for its Shenzhen Airlines subsidiary, with a total transaction value of about $12.4 billion.

• Germany is preparing core demands for possible discussions with UniCredit SpA over Commerzbank AG, according to people familiar with the matter, highlighting how Berlin’s focus is shifting from stopping the proposed takeover to shaping it.

• Swedish buyout group EQT said it was seeing strong fundraising momentum as its first-half results exceeded analysts’ forecasts.

• Burberry’s sales rose in the first quarter as healthy demand in the US and China offset the impact of the war in the Middle East, as the UK luxury brand’s recovery gathers momentum.

Europe/Asia economic highlights from Briefing.com:

• Eurozone's June CPI -0.1% m/m, as expected (last 0.1%); 2.8% yr/yr, as expected (last 3.2%). June Core CPI 0.2% m/m, as expected (last 0.2%); 2.4% yr/yr, as expected (last 2.6%). May Current Account surplus EUR25.1 bln (expected surplus of EUR18.1 bln; last surplus of EUR15.7 bln)

• Hong Kong’s June Unemployment Rate 3.7% (last 3.7%)

• New Zealand’s June FPI 0.6% m/m (last 1.0%)

• Singapore’s June trade surplus SGD13.817 bln (last surplus of SGD5.556 bln). June non-oil exports -8.9% (last 7.7%); 20.7% yr/yr (expected 30.2%; last 38.4%)

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• US equity indices started the Thursday session mostly trading solidly lower as the on-again, off-again love affair with semiconductors turned off again on the back of a continued selloff in South Korean heavyweights SK Hynix and Samsung and a poor reaction to Taiwan Semiconductor Manufacturing Co’s (TSMC) earnings which while a blowout on the revenue line also saw a big jump in its spending forecast as discussed in the morning update. The PHLX Semiconductor Index would end the day down 4.3%.

• After a brief attempt at a rally, indices fell most of the session despite 8 out of 11 S&P 500 sectors finishing in the green as selling in growth names outweighed strength elsewhere. The Nasdaq Composite led the indices lower -1.5%, the S&P 500 fell -0.5%, the Dow Jones Industrial Average slipped -0.2%, and the Russell 2000 gave back earlier gains to finish -0.1%.

• The weakness in the growth space broadened later in the day after reports Alphabet’s Gemini 3.5 Pro model will be delayed. As noted, though, under the surface, participation was stronger than the headline indices suggested. The S&P 500 Equal Weight Index gained +1.0%.

• Economic data were mixed showing continued resilience in the consumer and labor market but a sluggish housing sector. June retail sales rose modestly but were held back by gasoline station sales which masked strength beneath the surface led by autos and online (Prime Day), initial jobless claims eased back remaining subdued historically and in the middle of multi-year ranges, June pending home sales fell the most this year, while the July NAHB Housing Market Index fell back to the least since September as builder concessions rose.

• Oil settled modestly lower, though it remained higher for the week, as the US intensified strikes against Iran, hitting an oil tanker near the country’s main export terminal for the first time since the restart of the blockade on the Islamic Republic’s ports as discussed in the morning update.

Some market commentary:

• “There’s been a lot of concentration in the market and that means there’s little room for error,” said Richard Flynn, managing director at Charles Schwab UK. “Global geopolitical risk is elevated and so there’s a relative tone of caution fundamentally looking at the macro outlook.”

• “There’s been a lot of rotation within the AI trade, and a small rotation more broadly,” said Toni Meadows, head of investments at BRI Wealth Management. “It’s probably a healthy thing to have consolidation. The further things go, the more stretched they get and then the reaction is bigger.”

• “The action in the chip stocks going forward is still the most-important issue for the stock market,” Matt Maley at Miller Tabak said. “They are definitely showing some meaningful cracks, so they’re going to have to see a strong and sustainable rebound soon or it will raise some real warning flags.”

• “All told, it’s still a strong market when you look at earnings across all caps,” said Patrick Ryan, chief investment strategist at Madison Investments.

• Consumer spending is a critical engine, and investors want to see households continue opening their wallets, according to Bret Kenwell at eToro. June’s retail sales report was not particularly robust, but it was not a red flag either — especially given the upward revision to May, he said. “Earnings should help separate signals from noise, revealing whether consumers remain resilient or are finally starting to pull back,” Kenwell concluded.

• “Despite challenges, consumers are still spending and the labor market shows no signs of cracking,” said Ellen Zentner at Morgan Stanley Wealth Management. “This type of data won’t move the Fed’s needle either way, but it underscores the ongoing resilience of the US economy.”

In today’s Markets Update:

• A deeper look at Thursday’s stock and sector breakdown, including semiconductor weakness, broader megacap growth pressure, and the rotation into defensive sectors.

• A closer look at key company movers and corporate developments.

• Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.

• A review of market breadth and participation, including large individual winners and losers, the equal-weighted SPX, and the split between headline index weakness and broader sector strength.

• A look at the rates and Fed backdrop, including Treasury yields and Fed commentary from Dallas Fed President Logan.

• A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and options-expiration considerations.

• A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.

• A look at the after-hours drop in Netflix shares, Marvell’s weakness, the KBW bank index strength, Goldman’s high-beta momentum selloff, Leuthold on margin debt caution flags, BoA/Hartnett on excessive fund-manager positioning and cash levels, UBS on market themes, Yardeni on inflation, Goldman on the US-Iran war/macro backdrop, and Goldman on the Philadelphia Fed manufacturing report.

• A look ahead to Friday’s calendar, including US economic data, Fed speakers, SPX earnings, and ex-US highlights.

Read more

Executive Summary:

• The NAHB home builder Housing Market Index fell back -2pts in July to 34 — matching April as the lowest since September’s near 4-year low of 32 and remaining well below the 50 dividing line between poor/good conditions for a 27th consecutive month. In addition, the index has been below 40 for a 15th consecutive month, the longest such stretch since 2012.

• All three components worsened.

• The concession picture deteriorated (for homebuilders): 37% of builders cut prices in July, up from 35% in June (and 32% in May). The average price reduction held at 6%, but the use of sales incentives rose to 63% from 62% in June, marking the 16th consecutive month this share has reached 60% or higher.

Now let’s take a deeper look with more details, charts, and commentary.

Read more

Existing home sales normally represent 90% of home sales in the US but fell to as low as two-thirds due to low supply (which has improved) and homebuilder incentives for new homes. They are now back to around 85% (over the past year). Pending home sales are contract signings not actual transactions so a little more forward looking. Contract signings usually lead sales by about 45 to 60 days.

• June pending home sales (contract signings so more forward looking) fell -5.4% from May (m/m), the largest decline since December (and second largest since April 2024), snapping a four-month streak of gains and falling well short of estimates for just -0.5%.

• The index level (sales pace) fell to 72.5, back near January’s 70.9 all-time low and down from May’s 76.8 (highest since Nov 2025 though still very low historically). “A reading of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined.”

• All four US regions declined m/m. Y/y the Northeast and Midwest remained positive while the South and West slipped into negative territory.

Now let’s take a deeper look with more details (including top 10 local markets) and charts.

Read more

Note: All changes m/m unless otherwise noted. Usual caveats — First, these are not adjusted for prices so that also should be taken into account. Second, this report is more of a goods report with only one main services category (bars and restaurants) so it is not a complete picture of consumer spending, representing only around 35% of the total. Data on inflation-adjusted personal spending and overall services spending will be out later this month, offering a more full picture of consumer outlays in the month. Finally this report is seasonally adjusted which can always cause distortions, particularly for retail sales which are very lumpy throughout the year.

Executive Summary:

• June retail sales came in as expected at +0.22% m/m, a fifth consecutive monthly gain, decelerating from an upwardly revised May of +1.02% (from +0.88%), with 7 of the 13 major categories rising.

• The headline was this month dragged down rather than flattered by gasoline stations, which fell -5.27% m/m — the biggest monthly decline since December 2022.

• But outside gasoline, sales rose a very solid +0.72% led by gains of +1.9% in both automobiles and online sales. The control group (which feeds into GDP) came in at +0.548%, just rounding to the +0.5% estimate, a sixth straight monthly increase and 15th in 17 months, with the y/y remaining very strong at +6.45%.

• Real retail sales improved to +3.14% y/y, the highest since February 2022.

Now let’s take a deeper look with more details including lots of charts and thoughts from analysts including Goldman.

Read more

After falling to 190k twelve weeks ago, the joint least since 1969, initial jobless claims slowly made their way to 227k four weeks ago, the most since late January, consistent with the seasonal drift that typically occurs around this time of year, but have since fallen back, dropping another -8k to 208k in the week through July 11th (from revised 216k the prior week), remaining in their relatively narrow range since November 2021.

The four-week average fell -4.75k to 214.25k (~-14.75k y/y), just +12.25k from the least since Jan ‘24 (202k).

Continuing claims (SA) in the week through July 4th (1-week lagged) fell -16k to 1.805mn (after a +7k revision to the prior week), remaining in their range since mid-2023 (~1.75mn to 2.0mn).

We did though see the four week avg of continuing claims continue its drift higher since bottoming May 9th, +1.25k to 1.811mn, the most since April, but it remained lower y/y for a 24th straight week (-142.75k), just off the most since December 2022.

The 20yr pre-pandemic avg for initial claims is 345k & continuing claims ~2.9mn.

https://dol.gov/ui/data.pdf

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TSMC though declined by 4.6%, as the increase in its spending forecast overshadowed the better-than-expected revenue guidance. The VanEck Semiconductor ETF (SMH) in the US slid 2.2%, led by a 4% drop in Arm Holdings. After SK Hynix shares plunged 11% in Seoul, Switzerland’s ST Microelectronics — Europe’s largest semiconductor manufacturer — shed 3%. Dutch chip imprint ASMI dropped 2.92%, and Germany’s Infineon Technologies fell 2.8%.

Traders were also considering an in-line retail sales report showing a modest rise in headline sales in June dragged down by a big drop in gasoline sales due to falling prices that masked stronger growth elsewhere led by online due in part to Amazon’s Prime Day and auto sales (see post below). We also got weekly unemployment claims which edged lower, remaining historically subdued.

Looming over markets though remains a very unstable Mid-East situation. The US intensified strikes against Iran, hitting an oil tanker near the country’s main export terminal for the first time since the restart of the blockade on the Islamic Republic’s ports. The target, deep within the Persian Gulf, suggests Washington is widening the scope of the naval operation in parallel with continued attacks on military sites. Iran responded by firing upon American bases in Kuwait and Jordan. The Jordanian government said it intercepted eight missiles.

Later this morning we’ll get June pending home sales and hear from regional Fed presidents Logan and Schmid (both hawks).

[Note the International Update is below the US update]

10:00 a.m. ET U.S. pending home sales for June.

10:00 a.m. U.S. business inventories for May.

12:30 p.m. Dallas Fed President Lorie Logan speaks.

13:25 p.m. Kansas City Fed President Jeffrey Schmid speaks on the economic outlook.

Note on all charts the colored lines are daily moving averages (the average price over the given number of days):

20 = green
50 = purple
100 = blue
200 = brown

The middle panel is MACD = Moving average convergence/divergence line, a measure of momentum that compares longer term and shorter term momentum to gauge if a move is strengthening or weakening. This is probably my favorite individual indicator (it’s also the favorite of Katie Stockton, a very fine technician).

The bottom panel is RSI = Relative Strength Index (basically what it sounds like) = measures the strength of the move comparing gains to losses over the given lookback window (I use the standard 14 periods).

SPX futures (/ES): SPX futures -0.4%.

10yr Yield - up after two-day drop.

DXY US dollar index - stabilizing after two-day drop.

US WTI crude - up for a fourth day.

Gold futures (/GC) - remaining at bottom of range over past two weeks.

US copper futures (/HG) - continuing to slowly extend above 50-DMA with solid underlying technicals.

US natural gas futures (/NG) - edging higher for third day.

Bitcoin futures - easing back.

CNBC:

BBG:

Some pre-market company news from CNBC, MarketWatch.

International Update:

Europe’s benchmark STOXX 600 as of 8.20 am ET was -0.7% giving back its small progress over the past four sessions.

Major European indices are also lower with risk sentiment being held in check by rising bond yields, ongoing geopolitical tension, and some giveback in Wednesday gains from AI related shares such as heavyweight ASML.

STOXX Europe 600: -0.5%, Germany's DAX: -0.9%, U.K.'s FTSE 100: -0.3%, France's CAC 40: -0.8%, Italy's FTSE MIB: -0.6%, Spain's IBEX 35: -0.6%.

The broad MSCI AC Asia Pacific Index was lower by -1.5%, giving back most of Wednesday’s gains.

Major equity indices in the Asia-Pacific region were also mostly lower, as the AI trade turned south again pressuring South Korea's Kospi (-6.4%). Samsung and SK Hynix each tumbled more than 8%. Since a June high, the Kospi has tumbled more than 25%.

Japan's Nikkei: -2.8%, Hong Kong's Hang Seng: +1.3%, China's Shanghai Composite: -1.9%, India's Sensex: flat, South Korea's Kospi: -6.4%, Australia's ASX All Ordinaries: flat.

Some ex-US highlights:

BBG - South Korea will temporarily halt new listings of single-stock leveraged exchange traded products to curb market volatility after a surge in popularity of funds tied to Samsung Electronics Co. and SK Hynix Inc.

• The ban will remain in place until market conditions stabilize, the Financial Services Commission said in a statement Thursday. Authorities will also raise the minimum deposit requirement — or minimum account balance in cash required — for leveraged ETF trading to 30 million won ($20,300) from 10 million won, expected to be implemented Aug. 5.

• The measures mark Seoul’s most comprehensive effort yet to cool a retail trading frenzy that’s transformed the $4.1 trillion equity market into the world’s hottest and also one of the most turbulent.

• As part of the changes, regulators will also increase the mandatory training requirement for leveraged ETF investors to three hours from two, while raising the minimum trading lot size to 20 units from one. Authorities will also tighten control on discrepancies between the ETF’s market price and its net asset value, requiring liquidity providers to keep that gap at 2% from the current 3%. Higher deposit rates also apply to overseas-listed leveraged ETFs, a move aimed at preventing investors from shifting into offshore assets, said FSC’s Byun.

• The products, along with the two chipmakers they track, have become so popular they now account for more than 70% of trading value after attracting a flood of retail money. Foreign investors, however, have grown increasingly cautious, selling more than $100 billion worth in local shares this year alone. Still, investors have continued to pour money into the products, with assets under management reaching more than $10 billion at the June peak, according to Bloomberg Intelligence data. On Thursday, the top 10 most traded securities on Korea Exchange by trading volume were all leveraged or inverse ETFs tied to indexes and the chip duo.

BBG - South Korea’s central bank raised interest rates for the first time in more than three years and flagged more hikes to come — without offering guidance on the likely timing of the next move.

• The Bank of Korea increased the seven-day repurchase rate Thursday by a quarter point to 2.75% in a unanimous decision, in line with the expectations of all economists surveyed by Bloomberg. The move marks the start of a new policy cycle after officials cut borrowing costs four times since late 2024. The last hike was in January 2023.

• Governor Shin Hyun Song said it’s necessary to maintain a tightening bias as inflation stays above target, growth strengthens and financial stability risks persist. Still, he stopped short of signaling the likelihood of another hike as soon as next month or where rates might ultimately peak. Still, the governor’s remarks were consistently hawkish. He said the bank’s May projection of 2.6% growth this year now appeared too low, and would be revised up “substantially” in August. Exports, investment and consumption were all proving stronger than expected, he said, while inflation was likely to remain above the BOK’s target for a considerable period.

• “Shin was hawkish in his press conference. He spelled out why policymakers are worried about waiting too long to tighten and why they are unlikely to look through elevated inflation pressure...Shin’s stance backs our view on the pace and peak of tightening: quarterly hikes, taking the base rate to 3.5% by the first half of next year.” — Hyosung Kwon, economist

BBG - Andy Burnham is set to appoint Shabana Mahmood as his Chancellor of the Exchequer, according to reports that suggest the UK’s incoming prime minister will snub key ally and early favorite Ed Miliband for the role.

• Burnham has picked Mahmood, who currently serves as home secretary, to lead the UK Treasury, the FT reported on Wednesday, citing three people briefed on the decision, one of whom described it to the paper as “nailed down.” The i newspaper also reported earlier that Mahmood would be named chancellor.

• Burnham is due to take the reins of the Labour Party on Friday and the premiership on Monday, but a lack of clarity over who will serve as chancellor had fueled some criticism that he lacked a coherent plan for power. A spokesperson for Burnham said that no final decision has been made. A representative for Mahmood didn’t immediately respond to a request for comment. An ally of the home secretary said she hadn’t been told of any appointment.

• Gilts held earlier gains across maturities after the reports. The 30-year yield, which is particularly sensitive to fiscal and political risk, closed four basis points lower at 5.64%.

• “Mahmood, part of ‘Blue Labour,’ is seen as a more pragmatic choice for chancellor than ‘Red Ed’ Miliband,” said Simon Harvey, senior macroeconomist at LB Macro SA. The news, “alongside the drop in US yields and oil, is helping to ease pressure on longer-dated gilts,” he said.

• The Bloomberg British Pound Index rose as much as 1% on Wednesday to its highest since July 2025, extending gains that built steadily through the session. It held near that level in early London trading on Thursday. Options pricing also supported the moves. Traders turned bullish on the pound versus the euro in short-dated contracts this week for the first time in two years. And sentiment is the least bearish against the dollar since February, following a series of strong UK data releases since mid-March.

BBG - Inflation expectations among Japan’s households climbed to the highest level in data back to 2006, supporting Bank of Japan’s stance to keep raising interest rates.

• Households see annual inflation averaging 10.8% over the next five years, according to the central bank’s quarterly survey released Thursday. The median expectation was unchanged at 5%.

• The result backs the case for the BOJ to keep increasing its policy rate after it reached the highest level since 1995 in June. Traders see about a 66% chance of the next move taking place by October. The BOJ is scheduled to deliver its next policy decision on July 31.

BBG - China is getting more use out of its growing fleet of battery storage stations after policy changes made the industry more market-driven, according to a new report from energy and climate think tank Ember.

• Standalone battery storage systems averaged 299 cycles of charging and discharging a year in 2025, more than double the level in 2022, Ember analyst Biqing Yang said in the report on Thursday. Co-located systems, in which batteries are installed alongside wind and solar farms, also more than doubled their utilization to 199 cycles.

• After years of requiring many renewable projects to install batteries, Beijing is increasingly relying on market-based mechanisms that let storage operators earn revenue by providing services to the power grid. While the earlier mandate helped the industry expand, it left many batteries underused because they were installed mainly to satisfy regulations.

• China added a record amount of new battery storage facilities in 2025, ending the year with more than half of global capacity. Growth has continued this year, with installed lithium-ion battery storage reaching almost 150 gigawatts by the end of the first quarter, according to Ember. The country is targeting 300 gigawatts of battery storage capacity by 2030, up from 136 at the end of 2025, in addition to expanding its fleet of longer-duration pumped hydro storage to around 160 gigawatts from 66.

Some international corporate highlights:

• Taiwan Semiconductor Manufacturing Co. raised its spending and revenue projections for the year, reflecting its confidence that torrid growth in demand for chips and data centers will extend into 2027 and beyond. The main chipmaker for Nvidia Corp. now expects capital expenditure of $60 billion to $64 billion in 2026, at least $4 billion higher than previously forecast. It’s projecting revenue growth of slightly above 40%, significantly higher than the 30%-plus it had predicted. Still, its American depository receipts slid about 3% in pre-market trading, reflecting the heightened expectations that have lifted the AI industry linchpin almost 40% this year in the US.

• Baidu Inc. plans to pursue a dual primary listing in the US and Hong Kong, a move that will allow it to tap mainland Chinese investors.

• ABB Ltd. agreed to buy British industrial components company Rotork Plc for an enterprise value of around $5.5 billion to expand its electrification and automation businesses. Under the deal, ABB’s biggest-ever acquisition, Rotork investors will get £5.03 ($6.81) in cash per share, a premium of around 60% on its latest three-month average price, the Swiss industrial company said Thursday. ABB also signaled it has deep pockets for more purchases. Rotork makes equipment that opens and closes industrial valves to control the movement of liquids and gases through pipelines and plants. The Bath, England-based company has significant exposure to energy, water infrastructure and utilities. Its sale marks the latest in a string of acquisitions of UK firms by foreign buyers this year.

Europe/Asia economic highlights from Briefing.com:

• UK’s May GDP 0.1% m/m (0.0% expected; prior -0.1%) and 1.3% yr/yr (1.4% expected; prior 1.1%); May Trade Balance GBP -18.66 bln (GBP -23.10 bln expected; prior GBP -24.58 bln); May Industrial Production -0.5% m/m (-0.1% expected; prior 0.2%); May Construction Output -0.8% m/m (-0.3% expected; prior -0.1%)

• Eurozone's May Trade Balance EUR -7.8 bln (EUR2.8 bln expected; prior EUR -1.2 bln)

• Italy's June CPI 0.0% m/m (0.0% expected; prior 0.4%) and 3.0% yr/yr (3.0% expected; prior 3.2%)

• Australia's July MI Inflation Expectations 4.7% (prior 5.5%)

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• US equity indices started the Wednesday session modestly higher as discussed in the morning update, with tech shares continuing to lead after a strong report from Dutch lithography maker ASML and further encouraged by another cool inflation report, this time in producer (wholesale) prices which fell the joint-most since April 2020 driven by falling energy prices and moderating pressures down the pipeline which also pulled Treasury yields and Fed rate hike expectations lower.

• The indices would chop around throughout day traveling in a 1% band, before ending right about where they started, with the S&P 500 and Russell 2000 rising +0.4%, the Nasdaq Composite leading +0.6%, and the Dow Jones Industrial Average gaining +0.3%.

• The gains were despite semiconductors remaining volatile and turning lower, although they ended well off their worst levels of the day. That weakness was offset by strength across several other large-cap technology and growth names, with Communication Services, Consumer Discretionary, and other parts of Technology helping lift the major averages.

• Earnings also remained in focus, with another round of bank results, including strong offerings from Blackrock and Morgan Stanley, and several notable company-specific moves, including a potential takeover of PayPal, as Q2 reporting season continued to pick up. Financials finished higher, while defensive areas were more mixed as investors continued to rotate back toward growth.

• Oil remained a key macro focus, with WTI finishing modestly higher as US-Iran tensions continued and pushing further up in post-market trade after US Central Command announced “a second wave of strikes today against Iran.”

• The Fed’s Beige Book was also in focus, on balance a much more favorable readout than June with economic growth and employment broadening and prices cooling but still containing plenty of caveats, perhaps most germanely regarding concerns about a reclosing of the Strait of Hormuz which has happened since the end of Beige Book survey period.

• Attention now turns to another busy Thursday calendar detailed in the subscriber section.

Some market commentary:

• “What we’re seeing in these [ASML] numbers is confirmation that this cycle is very much alive,” said Guy Miller, chief markets strategists at Zurich Insurance. “We are going to see a continuation, I believe, of super-normal profits for certain sectors within the semiconductor space.”

• “Investors are aware that the road toward peace could never have been expected to be a straight line,” said Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management. “As such, company fundamentals matter more than ever.”

• What makes the current situation different from previous flare-ups is that the oil market has much less supply cushion available to absorb a disruption, Ryan Fitzmaurice, commodity research and trading professional at Marex wrote, adding that the “market no longer has the same readily available emergency barrels that helped dampen earlier supply shocks.”

• “The rolling negative five-day correlation between the Stoxx Europe 600 and Brent suggests renewed tensions in the Middle East are once again weighing on European equities. That relationship has not re-emerged for the S&P 500, suggesting it would take a much larger rise in oil prices to derail the outlook for US stocks.” — Skylar Montgomery Koning, macro strategist

• “We are seeing fatigue in tech and doubts about the longer-term staying power of the chips,” said David Russell, global head of market strategy at TradeStation, in an interview Wednesday. “We’ve priced in years of growth.”

• Investors aren’t likely to make any bold moves in the stock market until there’s more clarity from earnings from the “hyperscalers” of the artificial-intelligence race, according to Mark Hackett, chief market strategist for Nationwide.

• “It appears that the 2026 inflation resumption crested last month and headed back to its pre-conflict trend lower,” said Jamie Cox at Harris Financial Group. “This really helps the Fed avoid the mistake of hiking rates into a supply shock.”

• “There’s no near-term pressure on the Fed, but oil is in the driver’s seat over the longer term,” said David Russell at TradeStation. “Energy saved the day in June, but that might become ancient history if the Strait of Hormuz doesn’t open soon.”

• “I’m not convinced [the cool PPI reading] takes rate hikes off the table because if the target is truly 2%, these numbers are still coming in well over 2%,” said Melissa Brown, global head of investment decision research at SimCorp. “The markets these days are maybe overreacting to one piece of news one way or the other.”

In today’s Markets Update:

• A deeper look at Wednesday’s stock and sector breakdown, including the split between semiconductor weakness and strength in other large-cap growth areas.

• A closer look at key company movers and corporate developments.

• Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.

• A look at the rates and Fed backdrop, including the PPI reaction, updated Fed hike pricing, Treasury yields, Fed commentary, and the Beige Book.

• A review of market breadth and participation, including large individual winners and losers, Nasdaq trading activity, and the cap-weighted versus equal-weighted split.

• A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and Tier1Alpha’s implied-correlation framework.

• A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.

• Citadel’s Rubner on positioning, Tier1Alpha on gamma, CFRA’s Sam Stovall on Q2 earnings expectations, BoA on client flows, Daily Chartbook/Alpha Exchange on global stock correlation, and the FT on wealth concentration.

• A look ahead to Thursday’s calendar, including US economic data, Fed speakers, SPX earnings, and ex-US highlights.

Read more

First, growth broadened to all but one District expanding (San Francisco was flat), and “contacts generally expected the economy to continue to expand in the coming months.”

Second, the number of Districts posting genuine employment gains jumped from one to five, and the breadth of hiring widened beyond manufacturing into construction and retail.

Third, the price picture cooled for the first time since the Middle East conflict erupted “the same or slower in all Districts”. That compares to June when most Districts reported inflation running hotter than the cycle before. That said, the reprieve traces in large part to easing fuel prices following the interim peace deal and the reopening of the Strait of Hormuz, and the report flags that a resumption of hostilities keeps the fuel-cost outlook a source of uncertainty.

Otherwise, manufacturing stayed a growth engine — data center, machinery, and defense orders leading — but supply chain frictions crept back in. Consumer spending edged up as fuel costs siphoned off discretionary dollars, and trading-down behavior persisted. Agriculture deteriorated further on weak commodity prices, high input prices, and tighter credit, and consumer loan quality ticked down — the two clearest soft spots, even as commercial loan quality stabilized and construction and real estate saw slight growth.

Now let’s take a more granular look including notable regional anecdotes.

Read more

US PPI Final Demand (M/M) Jun: -0.3% (est 0.0%; prev 1.1%; prev R 0.6%)
- PPI Final Demand (Y/Y): 5.5% (est 6.2%; prev 6.5%; prev R 6.0%)
- PPI Ex Food And Energy (M/M): 0.2% (est 0.3%; prev 0.4%; prev R 0.1%)
- PPI Ex Food And Energy (Y/Y): 4.7% (est 5.1%; prev 4.9%)
- PPI Ex Food, Energy And Trade (M/M): 0.1% (est 0.3%; prev 0.8%)
- PPI Ex Food, Energy And Trade (Y/Y): 5.1% (est 5.2%; prev 5.1%)

Executive Summary

• June final demand PPI (wholesale prices) comes in well below expectations at -0.28% m/m (-0.3% rounded, matching the largest monthly decline since April 2020), as a sharp reversal in energy prices pulled headline goods into deflation. May was also revised sharply lower to +0.6% from +1.1%. Y/y slowed to +5.5% from a revised +6.0%.

• Goods prices fell -1.38% m/m, the largest decrease since July 2022, driven by energy (-6.40%, the most since December 2022), with gasoline alone (-12.0%) accounting for nearly two-thirds of the goods decline. Food also fell -0.58%. Core goods edged up +0.19%.

• Headline services rose +0.21% m/m after a revised -0.1% in May, with over 60% from a bounce in trade services margins (+0.44%) after the record -2.3% plunge in May.

• Core-core (ex-food, energy, and trade services) was +0.13% m/m, a sharp deceleration from +0.78% in May which was the highest since March 2022. Core-core y/y held at +5.1%, the highest since October 2022.

• Pipeline pressures also fell, with processed goods for intermediate demand falling -1.2% m/m (the most since December 2022) and unprocessed goods -4.1% (the most since May 2023), both driven by the energy reversal. All four production flow stages declined. Services for intermediate demand rose +0.3% m/m, a deceleration from the revised +0.6% in May.

• Both Goldman and BoA say the inputs into core PCE prices (the Fed’s preferred inflation metric) were slightly cooler than expected further moderating expectations for June PPI..

Now let’s take a deeper look with a lot more detail and charts along with analysis from Goldman and Bank of America, including their estimates for May core PCE prices.

Read more

The VanEck Semiconductor ETF (SMH) advanced more than 1%, led by a 3% gain in ASML. The semiconductor equipment maker hiked its sales outlook for the second time this year. Intel and Lam Research were up more than 2%. Paypal Holdings Inc. surged 20% as Reuters reported that Stripe Inc. and Advent International are pursuing a buyout. Meanwhile, Morgan Stanley’s stock traders sailed past Wall Street’s expectations to set another quarterly record, adding to the industry’s second-quarter windfall from buoyant markets and ongoing volatility.

Traders were also encouraged by another cool inflation report, this time in producer (wholesale) prices which fell for the first time since August as goods prices saw the largest drop since 2022 on the back of a -12% drop in gasoline prices (see post below).

Looming over markets though remains a very unstable Mid-East situation. Oil prices rose for a third straight day, with Brent trading near $85 a barrel, after the US military launched more airstrikes against Iran on Wednesday. President Donald Trump said he would intensify bombardments until a resolution was reached regarding the Strait of Hormuz.

Later this morning we’ll get US petroleum inventories, and at 10.00 am ET Kevin Warsh presenting the second half of the semi-annual Monetary Policy Report to the Senate Banking Committee (who generally asks better questions).

We’ll also hear from Governor Cook (who though we head from Tuesday), and regional Fed president Musalem (NY Fed president Williams is speaking currently). Finally, we’ll get the Beige Book prepared for the July FOMC this afternoon.

[Note the International Update is below the US update]

US PPI Final Demand (M/M) Jun: -0.3% (est 0.0%; prev 1.1%; prev R 0.6%)
- PPI Final Demand (Y/Y): 5.5% (est 6.2%; prev 6.5%; prev R 6.0%)
- PPI Ex Food And Energy (M/M): 0.2% (est 0.3%; prev 0.4%; prev R 0.1%)
- PPI Ex Food And Energy (Y/Y): 4.7% (est 5.1%; prev 4.9%)
- PPI Ex Food, Energy And Trade (M/M): 0.1% (est 0.3%; prev 0.8%)
- PPI Ex Food, Energy And Trade (Y/Y): 5.1% (est 5.2%; prev 5.1%)

10:00 a.m. Federal Reserve Chair Kevin Warsh testifies to Congress.

10:30 a.m. U.S. weekly crude oil inventories.

1:00 p.m. Federal Reserve governor Lisa Cook speaks

2:00 p.m. Federal Reserve Beige Book.

6:30 p.m. St. Louis Fed President Alberto Musalem speaks

Note on all charts the colored lines are daily moving averages (the average price over the given number of days):

20 = green
50 = purple
100 = blue
200 = brown

The middle panel is MACD = Moving average convergence/divergence line, a measure of momentum that compares longer term and shorter term momentum to gauge if a move is strengthening or weakening. This is probably my favorite individual indicator (it’s also the favorite of Katie Stockton, a very fine technician).

The bottom panel is RSI = Relative Strength Index (basically what it sounds like) = measures the strength of the move comparing gains to losses over the given lookback window (I use the standard 14 periods).

SPX futures (/ES): SPX futures +0.3%.

10yr Yield - easing back for second day.

DXY US dollar index - again testing uptrend line after the cool PPI report.

US WTI crude - up 1% this morning.

Gold futures (/GC) - remaining in range over past two weeks.

US copper futures (/HG) - continuing to extend above 50-DMA with solid underlying technicals.

US natural gas futures (/NG) - Weakest since May.

Bitcoin futures - starting to push out of range from last month.

CNBC:

BBG:

Some pre-market company news from CNBC, MarketWatch.

International Update:

Europe’s benchmark STOXX 600 as of 8.20 am ET was little changed continuing its mostly sideways change over the past week.

Major European indices are mostly lower.

Germany's DAX: -0.6%, U.K.'s FTSE 100: -0.1%, France's CAC 40: -0.1%, Italy's FTSE MIB: -0.4%, Spain's IBEX 35: -0.5%.

The broad MSCI AC Asia Pacific Index was though higher by +1.9%, as it continues a rebound started Tuesday from the lowest levels in nearly two months.

Major equity indices in the Asia-Pacific region ended mostly higher, with South Korea's Kospi (+6.2%) continuing its wild swings on the volatility of its leading semiconductor components, Samsung Electronics and SK Hynix.

Japan's Nikkei: +1.5%, Hong Kong's Hang Seng: +1.4%, China's Shanghai Composite: -0.3%, India's Sensex: +0.2%, South Korea's Kospi: +6.2%, Australia's ASX All Ordinaries: +0.4%.

Some ex-US highlights:

WSJ - The United Arab Emirates has gained expanded access from the U.S. to coveted artificial-intelligence chips after aiding America in recent months by carrying out dozens of airstrikes against Iran, intercepting hundreds of missiles and keeping oil moving through the Strait of Hormuz.

• The move by the U.S. to give greater AI capabilities to the U.A.E. caps a yearslong push by the Gulf state to obtain American technology to diversify its economy. The decision also highlights the central role chips have come to play during diplomatic discussions.

• Under a Trump administration rule change announced Friday, the U.A.E. will be treated like European countries, South Korea and India when buying technology, military items or energy infrastructure that could have military applications, the Commerce Department said. The U.A.E. previously was in a group that included China and Yemen.

BBG - China provided its monthly firehose of data which came in unexpectedly weak on balance:

• Gross domestic product grew 4.3% from a year ago, according to data released by the National Bureau of Statistics on Wednesday, the least since 2022 and below the bottom of this year’s official target range of 4.5% to 5%. That compares with a 4.5% gain projected by economists polled by Bloomberg, following an increase of 5% in the first quarter. Taken together, growth in the first half of the year was 4.7%. GDP expanded 0.9% on a quarter-on-quarter basis, the slowest in more than two years. Banks including Morgan Stanley, Goldman Sachs Group Inc. and Australia & New Zealand Banking Group Ltd. lowered their forecasts for China’s full-year growth following the data. They now see the economy expanding at a clip of 4.5% or 4.6% in 2026.

• Fixed-asset investment was down 5.7% in the first half from a year ago, lower than estimated and worsening from the 4.1% decline recorded in the first five months.

• But in a surprise to most economists who predicted a slight fall in retail sales, they grew 1% after a 0.6% drop in May. Industrial production beat forecasts and rose 5.3%. The surveyed urban jobless rate eased to 5% from 5.1% in May.

• Property investment tumbled 18% in the first half of the year, the worst reading since data started in 1992. That dragged China’s economic growth last quarter to the weakest in more than three years.

• China’s new home prices fell at a slower pace in June, fueling hopes that the battered real estate market is stabilizing. New home prices in 70 cities, excluding state-subsidized housing, dropped 0.15% from May when they slid 0.2%, figures from the National Bureau of Statistics showed on Wednesday. The improvements didn’t extend to values of second-hand homes, which fell 0.32%, the most in four months. “In the second half of this year, we may see a trough in long-term cycles of China’s property market,” Citic Securities Co. analysts including Chen Cong wrote in a recent report. “Following Shanghai, more and more cities may start to see their residential values stop declining.”

• China’s credit expansion missed forecasts in June, as weaker government bond issuance and subdued demand for borrowing outweighed the usual pickup in quarter-end lending. Borrowing demand is showing little sign of emerging from a years-long funk caused by weak domestic consumer spending and investment.

• The GDP deflator — a broad measure of price changes in the economy — turned positive for the first time since early 2023. But that’s largely a result of the higher cost for imported products such as oil, and the underlying deflationary pressure stemming from a glut of goods still lingers.

• “The disappointing performance highlights an urgent need for a change in policy tempo in the second half of the year. At a minimum, policymakers are likely to fast-track the delivery of the fiscal stimulus pledged in March. The case is also strengthening for more monetary easing.” — Chang Shu and Eric Zhu.

• David Li Daokui, a prominent economist and government adviser estimates about 24 million people have left the workforce because they couldn’t find a job for a long time, with over half of those dropping out aged 16 to 24. Taking into account people who’ve involuntarily exited the labor market, a broader unemployment rate would be at 10.2%, he said in a recent speech.

• Chinese oil refiners slashed output last month to the weakest level in six years, as the industry responded to worsening demand and disruptions to crude shipments from the Persian Gulf. Processing volumes extended their decline in June, dropping 18% year-on-year to 51.24 million tons, the lowest since March 2020 and the first throes of the pandemic, according to the statistics bureau on Wednesday. It follows a collapse in Chinese crude imports last month to near a decade low. China’s total refining runs are expected to fall further in July as more firms shelve units for maintenance in order to limit losses, according to GL Consulting, which expects throughput over the year to drop 5.6%.

Some international corporate highlights:

• ASML Holding NV lifted its annual sales forecast for the second time this year as a surge in artificial intelligence spending drives demand for the Dutch company’s chip-making machines.

• Richemont sales expanded nearly twice as strongly as expected in the quarter through the end of June, supported by robust demand among wealthy Americans for its Cartier rings and bracelets.

• BASF SE expects to see higher earnings than previously expected this year, after the company increased prices for its chemical products that include base materials for plastics and cleaning agents.

Europe/Asia economic highlights from Briefing.com:

• Eurozone's May Industrial Production -0.2% m/m (0.3% expected; prior 0.3%) and -1.2% yr/yr (-0.5% expected; prior 0.4%)

• Spain's June CPI 0.6% m/m (0.6% expected; prior 0.1%) and 3.2% yr/yr (3.2% expected; prior 3.2%) and core CPI 2.9% yr/yr (2.9% expected; prior 3.0%)

• China's June Retail Sales 1.0% yr/yr (-0.1% expected; prior -0.6%); June Industrial Production 5.3% yr/yr (4.7% expected; prior 4.5%); June Fixed Asset Investment -5.7% yr/yr (-5.0% expected; prior -4.1%); Q2 GDP 0.9% qtr/qtr (0.9% expected; prior 1.3%) and 4.7% year-to-date (4.5% expected; prior 5.0%); June House Prices -3.3% yr/yr (prior -3.5%); June Unemployment Rate 5.0% (5.1% expected; prior 5.1%); June New Loans CNY1610.0 bln (CNY1950.0 bln expected; prior CNY520.0 bln)Japan's July Reuters Tankan Index 13 (prior 13); May Core Machinery Orders -12.4% m/m (-4.2% expected; prior 8.7%) and -1.9% yr/yr (12.9% expected; prior 15.6%); May Tertiary Industry Activity Index -1.4 (prior -11.1)

• South Korea's June Imports 30.0% yr/yr (30.1% expected; prior 20.7%) and Exports 70.7% yr/yr (70.9% expected; prior 53.4%); June Unemployment Rate 2.7% (prior 2.8%)
  

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• US equity indices started the Tuesday session higher, turning around from earlier losses after a much cooler than expected CPI report eased Fed rate hike concerns despite a continued rise in crude prices adding to a bounceback in semiconductor shares as detailed in the morning update.

• The S&P 500 and Russell 2000 would maintain those gains trading in a narrow range most of the day to finish +0.4%. The Nasdaq Composite though would extend on the semiconductor strength to end +0.9%. In contrast the Dow Jones Industrial Average would spend most of the session in negative territory weighed down by a record loss for IBM struggling to a flat finish.

• The June CPI report showed headline and core prices falling the most month-over-month since April 2020 on a broad softening in price pressures. The report pulled Treasury yields lower, especially at the front end most influenced by Fed rate expectations, as pricing for a July Fed hike withered, though markets continued to price 80% odds of a hike by the end of the year. Fed Chair Kevin Warsh’s testimony before Congress reiterated the Fed’s focus on restoring price stability (more in the subscriber section).

• Semiconductors rebounded after Monday’s selloff, with the PHLX Semiconductor Index rising 2.5% and strength across names including Nvidia, Micron, Lam Research, Applied Materials, Teradyne, and SK Hynix’s ADRs. The rebound helped Technology lead the sector scoreboard despite the sharp decline in software names led by IBM after weaker-than-expected guidance.

• Big bank earnings were also in focus to start Q2 reporting season, with Goldman Sachs leading after a strong beat, while JPMorgan and Bank of America also gained, while Citigroup and Wells Fargo moved lower despite topping expectations.

• Oil remained a key macro focus, with WTI briefly moving above $80 before settling just under after President Trump backed away from a proposed fee on Strait of Hormuz shipments instead calling for “Trade and Investment Deals” in the United States as repayment. Still he reiterated a blockade on vessels transiting to or from Iran (see post below).

Some market commentary:

• “The well-behaved CPI print likely lowers pressure on the Fed to hike soon, but the reignition of hostilities in Iran means the prospect of hikes is far from over,” said Kay Haigh at Goldman Sachs Asset Management. “Although a path remains for rates to stay unchanged this year, the reescalation of the conflict has narrowed it.”

• “The very benign June CPI inflation report gets Warsh off the hook in terms of pressure to hike near-term and allows him to position the Fed as resolutely committed to bringing inflation back to target without fueling expectations of a July move,” economists at Evercore ISI wrote in a note to clients, referring to the Federal Open Market Committee meeting scheduled for July 28-29.

• “Softer than expected CPI is a big relief,” said Tiffany Wilding at Pacific Investment Management Co. “While today’s report will not eliminate discussion of further tightening entirely, it should effectively remove a July rate hike from consideration.”

• “Today’s report provides breathing room, not an all-clear,” said Bret Kenwell at eToro. “While inflation has cooled, it has not disappeared.”

• The well-behaved CPI likely lowers pressure on the Fed to hike soon, but hostilities in Iran mean the prospect of hikes is far from over, noted Kay Haigh at Goldman Sachs Asset Management. Although a path remains for rates to stay unchanged this year, the re-escalation of the conflict has narrowed it, he added.

• “Tuesday’s weaker-than-expected CPI print suggests the inflation surge driven by the Iran war is fading, but this may just be a temporary relief as tensions have escalated in recent days,” said Skyler Weinand, chief investment officer at Regan Capital. “The weaker inflation data likely keeps the Fed on hold for now and reduces any rate hike odds, but we remind investors that almost every communication that has emanated from Chair Warsh during his short tenure so far has been hawkish.”

  “Warsh is looking to get consumer prices under control and the best tool the Fed currently has is raising interest rates,” he added.

• “Warsh reinforced the Fed’s inflation-fighting credibility without committing policymakers to a particular course before additional economic data become available,” said Brian Therien at Edward Jones.

In today’s Markets Update:

• A deeper look at Monday’s stock and sector breakdown, including renewed weakness in semiconductors, pressure on the megacap growth sectors, and rotation into Energy, defensive sectors, Financials, and Real Estate.

• A closer look at key company movers and corporate developments.

• Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.

• A look at the rates and Fed backdrop, including the move higher in Treasury yields, updated Fed hike expectations, Governor Waller’s market moving comments, and additional Fed-related commentary.

• A review of market breadth and participation, including increased stock dispersion, large individual winners and losers, Goldman’s momentum analysis, and the share of SPX stocks above their 200-DMAs.

• A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and the latest moves in volatility expectations.

• A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.

• A look at broader market commentary, including AI and semiconductor momentum, earnings expectations, strategist views on market leadership, BofA’s Hartnett, leverage/funding pressure, a resurgence of the carry trade, CPI expectations, ETF launches, economic indicators including jobs and freight demand, sentiment, and private credit.

• A look ahead to Tuesday’s calendar, including US economic data, Fed speakers, SPX earnings, and key ex-US data.

Read more

US CPI Supercore (M/M) Jun: -0.20% (prev +0.27%)
- CPI Supercore (Y/Y): +3.17% (prev +3.67%)

Executive Summary

• US June headline CPI -0.4% (-0.42%), its largest monthly decline since April 2020 on the back of falling energy prices and broad core disinflation dragging the y/y rate down to +3.5% (+3.53%) from +4.2% — the first sub-4% reading since March and well below the -0.1% expected.

• Energy tumbled -5.7% (its largest drop since April 2020) and was the single biggest contributor to the decline, with gasoline -9.7%.

• Core CPI though also declined -0.02% — the first monthly decrease in core since May 2020 — well below the +0.2% expected with core y/y easing to +2.6% (+2.59%) from +2.9%, on broad-based declines across motor vehicle insurance, communication, apparel, medical care, and used cars.

• Core Goods deflated for a second month (-0.09%), and core Services rose just +0.03%, the least since September 2021, helped by shelter slowing to +0.12% — its smallest monthly gain since January 2021.

• Supercore (core services ex-housing) fell -0.20%, its biggest monthly decline since May 2020, with the y/y rate down to +3.17% from +3.67%.

• The read-through to households was very positive: real average weekly earnings jumped +0.77% m/m — outside the April 2020 COVID spike, the strongest since January 2016 — and turned positive y/y at +0.36% (from -0.42%).

• Rate-hike odds slumped: pricing for a July hike fell from roughly 40% to 15% after the print.

Now let’s take a deeper look with lots of charts, reaction from Fed funds markets, and analysis from Wall St, including Goldman and Bank of America takeaways.

Read more

Crude prices are higher as the Mid-East situation remains very unstable. The US launched airstrikes at military sites in several southern Iranian towns and cities over a five-hour period on Monday night. Iran targeted US bases in Jordan and Bahrain, and hit two oil tankers from the United Arab Emirates with cruise missiles. The latter attack killed an Indian crew member and wounded about eight others. Trump, late on Tuesday, said the strait was “open” but added to the uncertainty for energy companies and shippers by saying he would demand a reimbursement fee of 20% on all cargo shipped through.

Traders also were digesting a slew of big bank earnings which came through with a round of solid beats fueled by equity trading and dealmaking, although market reaction was tepid (see post below).

Semiconductor stocks rebounded after a sell-off in the previous session. The VanEck Semiconductor ETF (SMH) traded more than 2% higher in the premarket. Shares of International Business Machines though dropped nearly 21% in the premarket after the company posted weak preliminary second-quarter earnings.

It’s a very busy week as I went in the Week Ahead, and today could be the busiest. Already this morning we got the CPI report which came in much cooler than expected as noted above, falling at the headline level for the first time since 2020 on a month-over-month basis, and seeing the core reading come in flat well under the two tenths increase expected. We also got the ADP weekly hiring report for the four weeks ending June 27th continued its softening since peaking the four weeks to May 2nd at +163k, coming in at +79k (+19.75k/wk).

Later this morning (10.00 am ET) we’ll get Kevin Warsh presenting the semi-annual Monetary Policy Report to the House Financial Services Committee (Senate comes Wednesday). We’ll also hear from Governors Barr, Bowman, and Cook, and regional Fed president Goolsbee.

[Note the International Update is below the US update]

US CPI (M/M) Jun: -0.4% (est -0.1%; prev 0.5%)
- CPI (Y/Y): 3.5% (est 3.8%; prev 4.2%)
- Core CPI (M/M): 0.0% (est 0.2%; prev 0.2%)
- Core CPI (Y/Y): 2.6% (est 2.8%; prev 2.9%)

Note on all charts the colored lines are daily moving averages (the average price over the given number of days):

20 = green
50 = purple
100 = blue
200 = brown

The middle panel is MACD = Moving average convergence/divergence line, a measure of momentum that compares longer term and shorter term momentum to gauge if a move is strengthening or weakening. This is probably my favorite individual indicator (it’s also the favorite of Katie Stockton, a very fine technician).

The bottom panel is RSI = Relative Strength Index (basically what it sounds like) = measures the strength of the move comparing gains to losses over the given lookback window (I use the standard 14 periods).

SPX futures (/ES): SPX futures +0.2%.

10yr Yield - falling back but still near the highs of the year.

DXY US dollar index - dropping back to uptrend line after the cool CPI report.

US WTI crude - up another 3% this morning.

Gold futures (/GC) - remaining in range over past two weeks.

US copper futures (/HG) - push through the 50-DMA with solid underlying technicals.

US natural gas futures (/NG) - continuing to drop. Weakest since May.

Bitcoin futures - remaining in range over past month.

CNBC:

BBG:

Some pre-market company news from CNBC.

Too much to keep up with this morning, so International Update is slightly abbreviated:

International Update:

Europe’s benchmark STOXX 600 as of 9.00 am ET was -0.2% like US shares recovering from earlier losses.

The broad MSCI AC Asia Pacific Index was though lower by -1.8%, taking it to the lowest levels in nearly two months.

Major equity indices in the Asia-Pacific region ended Tuesday on a mostly higher note with South Korea's Kospi (+0.7%) recording a modest gain after touching its lowest level since late April.

Japan's Nikkei: +0.7%, Hong Kong's Hang Seng: +0.5%, China's Shanghai Composite: +1.4%, India's Sensex: -0.7%, South Korea's Kospi: +0.7%, Australia's ASX All Ordinaries: UNCH.

Some ex-US highlights:

BBG - Traders boosted wagers on faster Bank of England and European Central Bank interest-rate hikes after surging oil prices reignited inflation fears.

For the first time in a month, traders are fully pricing a quarter-point BOE hike by September, followed by another before year-end. They also expect the ECB to raise rates by 25 basis points in September, with another hike by year-end all but certain.

BBG - China exported a record $412 billion worth of goods in June, blowing past all forecasts as factories gain a competitive edge in high-end industries that will draw scrutiny abroad as it generates record trade surpluses with countries from Asia to Europe.

• Turbocharged by a global investment supercycle in artificial intelligence, exports climbed 27% from a year earlier, the most in four months, according to data released by the General Administration of Customs on Tuesday.

• Imports also surged far more than expected and rose 36%, the fastest in five years. As a result, China’s trade surplus swelled to $125.6 billion, a monthly level exceeded only once in history.

• The breakout performance for China’s trade in June caps a six-month period that saw exports grow by nearly 18% to over $2 trillion. As its factories pump out products in areas ranging from electric vehicles to ships, the political rhetoric is heating up abroad, with German Chancellor Friedrich Merz using a speech on Monday to call for dialogue with China over trade issues such as the yuan’s exchange rate.

• China’s semiconductor exports climbed 122% in dollar terms from a year ago, the fastest in 13 years. But when measured by volume and not value, sales actually fell 0.4%, declining for the first time in more than two years. The same effect also likely played a part in the 53% increase in exports of computers and their parts.

• Taken together, the two categories covering chips and computers accounted for a little over a third of China’s exports growth in June, down from about half in May and April, according to Bloomberg calculations. That shows the surprising strength in overseas sales is broadening to products beyond AI-related goods. Cars were a case in point. China exported more than 1 million vehicles in a single month for the first time on record, with their value jumping 70% from a year ago. Other products also saw rapid growth. Ship exports soared 42% and home appliances increased 15%. China’s trade surplus more than doubled with Germany in June from a year earlier and widened by 27% with the European Union to a fresh record of $32.9 billion.

• That also though is turning China from a global deflationary impulse to an inflationary one, as seen in the US import price numbers which saw import prices from China jump a record (to 2004) 0.92% m/m in May (most recent data, chart).

• “Rising global demand for AI infrastructure, advanced electronics, and capital equipment remains a key support for Chinese manufacturing exports,” said Hao Zhou, chief economist at Guotai Junan International Holdings. “With external demand holding up better than expected, policymakers face less urgency to launch aggressive stimulus.”

• “Without policy catalysts to stimulate domestic demand, exports will remain the primary growth driver in the second half of the year. But a growing reliance on high-tech shipments leaves the export outlook increasingly exposed to shifts in the global tech cycle and AI-related investment. Re-escalation in tensions in the Middle East also presents near-term downside risks.” — Eric Zhu

BBG - Germany’s government said the economy is showing signs of stabilizing even as renewed hostilities in the Middle East could yet derail an expected recovery in the second half.

• An agreement reached between the US and Iran aimed at easing the conflict, together with the subsequent decline in oil prices, has helped improve business and consumer sentiment, the Economy Ministry said in its monthly report published on Tuesday.

• The fighting in the Middle East prompted the government in April to halve its 2026 growth forecast to 0.5% from 1%, while lowering its 2027 projection to 0.9% from 1.3%.

• The ministry’s report said recent data point to a recovery in the second half of the year, provided energy-related pressures continue to ease. Output in manufacturing and construction increased modestly in April and May, led by construction, while industrial production also picked up. Carmakers, auto-parts manufacturers and energy-intensive industries including chemicals and metal products benefited from stronger demand.

Some international corporate highlights:

Europe/Asia economic highlights from Briefing.com:

• Germany's June WPI -0.7% m/m (expected 0.5%; last -0.6%); 4.9% yr/yr (last 5.9%)

• Swiss June PPI -0.3% m/m (expected -0.5%; last -0.4%); -2.1% yr/yr (last -1.8%)

• China's June trade surplus $125.62 bln (expected surplus of $119.50 bln; last surplus of $105.43 bln). June Imports 36.0% yr/yr (expected 24.0%; last 27.4%) and Exports 27.0% yr/yr (expected 18.2%; last 19.4%)

• Japan's May Industrial Production 0.1% m/m (expected 0.5%; last 0.5%) and Capacity Utilization 0.1% m/m (last -0.8%)

• Australia's July Westpac Consumer Sentiment 4.1% (last -2.9%). June NAB Business Confidence -5 (last -14) and NAB Business Survey 3 (last 3)

• New Zealand's Q2 NZIER Business Confidence 8% (last -4%)

• India's June WPI Inflation 9.87% yr/yr (expected 9.15%; last 9.68%)
  

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• US equity indices started the week lower as traders weighed another weekend of strikes and counterstrikes in the Mid-East, which continued into Monday and has seen traffic through the Strait of Hormuz slow again to a crawl, along with a selloff in semiconductor names which started in Asia and has made its way around the globe, as all detailed in the morning update.

• Oil would remain a key macro driver throughout the session with prices surging again after President Trump said the US was reinstating a blockade on Iranian shipping through the Strait of Hormuz (matching Iran’s statement that the Strait was closed over the weekend) and charging a 20% fee on cargo moving through the waterway (see post below). The front-month Brent contract settled +9.6% at $83.30, its largest one-day percentage gain since May 2020. Trump also said late afternoon the US would keep up attacks on Iran, saying in a radio interview that “we’re going to hit them very hard tonight, and we’re going to hit them hard tomorrow.”

• The jump in oil added to inflation and Fed rate hike concerns, with money markets pricing almost 50% odds of a July rate hike after Fed Governor Christopher Waller said officials may need to raise rates to tame price pressures (see more in subscriber section). Treasury yields rose across the curve, further pressuring equities.

• In addition, semiconductors remained under pressure throughout the session, with the PHLX Semiconductor Index falling 4.8% and now down more than 13% since the start of July. SK Hynix fell after Friday’s strong Nasdaq ADR debut, while Sandisk, Micron, Seagate, AMD, Intel, and other chip names also declined.

• The indices would end Monday near session lows. The S&P 500 fell -0.8%, the Nasdaq Composite led lower -1.6%, the Dow Jones Industrial Average slipped -0.3%, and the Russell 2000 fell -0.8%.

• The weakness in large technology and growth stocks didn’t though spread to the entire market with the market-weighted S&P 500 underperforming the equal-weighted S&P 500, which fell just -0.1%. Energy led advancing sectors by a wide margin, while defensive areas including Utilities, Consumer Staples, Health Care, and Real Estate also finished higher. Financials also rose despite weakness in several large banks ahead of Tuesday’s earnings reports.

• Attention now turns to Tuesday’s heavy calendar detailed in the subscriber section.

Some market commentary:

• “The market was almost feeling that the situation in the Middle East was concluded and so it was risk-on. What’s clear is that that’s not the case, so you’re seeing a lot more risk-off,” said Helen Jewell, international chief investment officer for fundamental equities at BlackRock Inc.

• “Markets are slightly more sensitive to the Iran headlines at the moment,” said Kenneth Crompton, head of rates strategy at National Australia Bank Ltd. in Sydney. “The market isn’t pricing a return to the conflict levels of March, but between the attacks that continued over the weekend and, secondarily, attacks on Russian refining capacity, there is a bit of wariness creeping back.”

• “The energy sector is once again in the limelight as the status of the Strait of Hormuz is driving price action in global markets,” said Ian Lyngen at BMO Capital Markets. “There is a growing sense that the situation is likely to get worse before it de-escalates.”

• “Uncertainty around the Middle East continues, but we think the AI wave is what will drive markets over the next few weeks, especially as earnings season kicks off,” said Sonu Varghese at Carson Group.

• “The ongoing swings in semiconductors has made it difficult for tech to mount a sustained push to the upside, and while the market has so far taken the breakdown of the US-Iran ceasefire in stride, escalating hostilities and rising oil prices won’t help the bullish cause,” said Chris Larkin at E*Trade from Morgan Stanley. “Headline inflation numbers are expected to cool this week, but the market may not get as much of a boost from good news if traders think oil is headed higher again,” noted Larkin.

• “The sharp selloff in Korean equities from the June peak is raising questions with some investors regarding the sustainability of the AI trade more broadly,” said Daniel Murray at EFG Asset Management. “With Middle East tensions rising again, this too has added to market consternation.”

• “I feel like there’s just a bit of rebalancing and a broader pullback in risk taking,” Brian Mulberry, chief market strategist at Zacks Investment Management said in a phone interview. “Underneath that, memory and semiconductor stocks have performed so well on both a year-to-date and trailing one-year basis that there appears to be a lot of profit-taking in addition to the broader de-risking rotation,” he added.

• “Despite concerns that hyperscalers may start to moderate AI-related capital spending, we expect capex plans to be reaffirmed and to rise through 2028. Why? Because there is tangible evidence that businesses benefit from AI adoption. Mentions of AI across all 11 sectors are up 98% YoY, reaching new highs,” Adam wrote to clients.

• “As long as the signals are mixed — an employment market that’s mixed, price signals that are mixed — I think the Fed does not move,” Elliot Hentov, chief macro policy strategist at State Street Investment Management said in an interview with Bloomberg TV. “The Fed needs more definitive data, and that could come next year, in a different form.”

In today’s Markets Update:

• A deeper look at Monday’s stock and sector breakdown, including renewed weakness in semiconductors, pressure on the megacap growth sectors, and rotation into Energy, defensive sectors, Financials, and Real Estate.

• A closer look at key company movers and corporate developments.

• Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.

• A look at the rates and Fed backdrop, including the move higher in Treasury yields, updated Fed hike expectations, Governor Waller’s market moving comments, and additional Fed-related commentary.

• A review of market breadth and participation, including increased stock dispersion, large individual winners and losers, Goldman’s momentum analysis, and the share of SPX stocks above their 200-DMAs.

• A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and the latest moves in volatility expectations.

• A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.

• A look at broader market commentary, including AI and semiconductor momentum, earnings expectations, strategist views on market leadership, BofA’s Hartnett, leverage/funding pressure, a resurgence of the carry trade, CPI expectations, ETF launches, economic indicators including jobs and freight demand, sentiment, and private credit.

• A look ahead to Tuesday’s calendar, including US economic data, Fed speakers, SPX earnings, and key ex-US data.

Read more

Iran and the U.S. again traded airstrikes over the weekend and into Monday, with Tehran targeting US facilities in multiple Gulf countries and declaring the Strait of Hormuz closed. However, the US disputed the claim, saying the key waterway was open to commercial traffic.

In terms of semiconductor shares, South Korean shares of SK Hynix Inc tumbled by a record 15% and heavyweight peer Samsung fell 11% after a report that earnings may trail lofty expectations. That rippled through to European and US semiconductor names with shares in Micron Technology down 4%, as were shares of SanDisk. Seagate Technology fell 3%, AMD and Intel 2%.

That was despite a strong earnings report from Taiwan Semiconductor Manufacturing Co, the main chipmaker for Nvidia and Apple, who reported a 36% jump in quarterly sales, meeting elevated expectations.

While it’s a very busy week, as I went through in the Week Ahead, we get a lighter day to start off with no major US economic data, and just two Fed speakers, in Governors Bowman and Waller (Waller always an interesting one, Bowman looks like she’s speaking about bank regulation).

[Note the International Update is below the US update]

Note on all charts the colored lines are daily moving averages (the average price over the given number of days):

20 = green
50 = purple
100 = blue
200 = brown

The middle panel is MACD = Moving average convergence/divergence line, a measure of momentum that compares longer term and shorter term momentum to gauge if a move is strengthening or weakening. This is probably my favorite individual indicator (it’s also the favorite of Katie Stockton, a very fine technician).

The bottom panel is RSI = Relative Strength Index (basically what it sounds like) = measures the strength of the move comparing gains to losses over the given lookback window (I use the standard 14 periods).

SPX futures (/ES): SPX futures -0.3%.

10yr Yield - testing last week’s highs.

DXY US dollar index - continuing its sideways trade over the past week, remains in uptrend.

US WTI crude - higher but remains under last week’s highs.

Gold futures (/GC) - remaining in range over past two weeks.

US copper futures (/HG) - trying to push through the 50-DMA.

US natural gas futures (/NG) - continuing to drop. Weakest since May.

Bitcoin futures - remaining in range over past month.

CNBC:

BBG:

Some pre-market company news from CNBC.

International Update:

Europe’s benchmark STOXX 600 as of 8.10 am ET was -0.1% continuing to stabilize for a third session after starting last week with a -2.7% drop from all-time highs.

Major European indices are also mostly near their flat lines amid ongoing Iran-related worries after reports of continued strikes over the weekend.

STOXX Europe 600: -0.1%, Germany's DAX: +0.1%, U.K.'s FTSE 100: -0.1%, France's CAC 40: +0.1%, Italy's FTSE MIB: +0.3%, Spain's IBEX 35: +0.2%.

The broad MSCI AC Asia Pacific Index was though lower by -1.8%, taking it to the lowest levels in nearly two months.

Major equity indices in the Asia-Pacific region were mixed to the start the week but South Korea's Kospi (-9.0%) dropped sharply, reaching its lowest level since early May, as SK Hynix fell more than 15.0% after its Friday debut in the U.S. Shares in Japan and China mainland also saw losses of around -2%.

Japan's Nikkei: -1.9%, Hong Kong's Hang Seng: +0.2%, China's Shanghai Composite: -2.1%, India's Sensex: +0.1%, South Korea's Kospi: -9.0%, Australia's ASX All Ordinaries: UNCH.

Traders pointed to fears of lower-than-expected earnings and a rotation into the company’s newly listed American depositary receipts, which surged 13% in their debut on Friday to explain the drop in shares of SK Hynix, Inc. Peer Samsung Electronics Co. dropped nearly 11%. Both stocks are down at least 30% from peaks last month.

• Foreign investors offloaded 1.7 trillion won ($1.1 billion) worth of Kospi shares Monday, which has seen an increasing number of large moves. There have been eight 4.9% or larger moves in just the last three weeks.

• A report from Korea Investment & Securities that projected SK Hynix’s operating profit for the latest quarter may trail consensus by 8% made the rounds in the trading community, hurting sentiment. The brokerage cited the chipmaker’s large share of revenue from high-bandwidth memory, where prices are rising more slowly than for conventional chips.

Some ex-US highlights:

RTRS - India rejected a quick trade agreement with the U.S. in recent talks and is holding out for a better deal as Prime Minister Narendra Modi draws confidence from ​new trading partners, eased economic risks and political gains at home, officials and analysts said.

• After months of talks, the two nations failed to finalise an interim trade agreement ‌during U.S. Trade Representative Jamieson Greer’s visit to New Delhi last month, despite expectations from both sides that a limited deal was within reach.

• There was no consensus because Washington did not offer assurances on New Delhi’s key demands: a tariff advantage over competitors such as China and no new U.S. levies after the deal, said an Indian government official aware of the talks. “Our position is clear - we don’t intend to rush into a deal that is not on favourable terms or compromise on red ​lines like ceding ground on agriculture,” the official said.

BBG - Growth in the euro zone is set to be weaker this year than previously predicted after hostilities in the Middle East resumed, economists say.

• Analysts cut their 2026 forecasts to 0.5% in a Bloomberg poll conducted July 3 to 8, according to the median of 56 estimates. That’s lower than the 0.7% anticipated last month, and the 0.8% projection in the European Central Bank’s baseline.

• Economists also cut their growth outlook for 2028, while keeping a projection for next year unchanged. Their median inflation forecast of 2.8% this year is slightly lower than last month after a sharp drop in oil prices that has since partly reversed, though it remains far above the ECB’s 2% target.

• Respondents expect policymakers to raise interest rates again in September, adding to June’s quarter-point hike. They anticipate the first rate cut one year later, in September 2027.

BBG - The yen weakened and Japanese government bonds extended losses after Reuters reported that Japan has no plans to overhaul the Government Pension Investment Fund’s asset allocation.

• The Japanese currency dropped as much as 0.4% to 162.36 per dollar. It pared back some of the losses after Chief Cabinet Secretary Minoru Kihara said the GPIF routinely undertakes an appropriate review of its portfolio and will make amendments if required.

• Speculation that the $1.8 trillion GPIF could shift more money into domestic assets gathered pace after Finance Minister Satsuki Katayama last week called on Japan’s large pension funds, including the GPIF, to increase investment at home. The remarks triggered gains in the yen and JGBs.

BBG - Andy Burnham, the UK’s presumptive next prime minister, is considering unveiling a bolstered budget later this year as allies and experts seek to persuade him to pursue a land tax, public control of utilities and a more ambitious devolution strategy.

• Burnham is on course to take over from Keir Starmer on July 20, with little known of the policies he plans to enact. That has led would-be advisers and ministers to jockey for jobs in his government and policy ideas as he itches to deliver rapid change while planning for his first months leading Britain.

• One idea Treasury officials are exploring, after preliminary talks with Burnham’s team, is to merge the annual budget — usually held in October or November — and the spending review set for departments, the Financial Times reported Sunday. They are typically held separately, though in her first budget in 2024 Chancellor Rachel Reeves also chose to set departmental budgets the year ahead in a bid to particularly boost education and health funding.

• Fast-tracking departmental spending decisions could allow Burnham to set his priorities going into a general election due in 2029 and set out a clearer path to channeling 3.5% of economic output to defense spending — something he’s promised to increase. But it would also pile pressure on his would-be Chancellor to produce an expanded document in mere months, when spending pressures in the years ahead remain uncertain.

BBG - The UK stock market is defensive and tilted to commodities, making it less appealing as geopolitical tensions abate, according to Citigroup Inc. strategists.

• The team led by Beata Manthey double-downgraded the country to underweight from overweight in their global asset allocation, preferring exposure to US and Japanese peers. Europe, excluding the UK, was kept at a neutral rating.

• “Although valuations remain attractive, the market’s defensive and commodity-heavy composition is less appealing in an environment where earnings growth and market leadership are broadening,” the team said of UK equities. “We continue to favor more cyclical opportunities elsewhere.”

• For Manthey and her team, the UK market “serves as an effective geopolitical hedge” within equity portfolios. The strategists said they still like some sections of the market, citing banks, basic resources and healthcare. “Given economic uncertainty, we prefer FTSE 100 over FTSE 250,” which is more domestically focused, they added.

Goldman on China food policy:

• President Xi has repeatedly framed food security as a core national interest, emphasizing that “the Chinese people’s rice bowl should be firmly held in their own hands.”

• Consistent with this objective, our equity analysts expect China’s food self‑sufficiency rising to the mid‑90% range by 2035, up from today’s low‑60% levels--implying that nearly all food consumed domestically would be produced domestically (Exhibit 8).

• Much of China’s grain production occurs on relatively high‑cost land relative to imports from Brazil and the US, implying a willingness to accept higher production costs in exchange for greater food security. India follows a similar approach of food security through minimum support prices for grains farmers, national fertilizer procurement programs, and strategic stockpiles.

Some international corporate highlights:

• Taiwan Semiconductor Manufacturing Co. reported a 36% jump in quarterly sales, meeting elevated expectations while signaling global demand for AI computing remains intact.

• The tech sector underperformed after SK Hynix Inc. plunged 15% in Seoul, fueling concerns about stretched valuations. ASML Holding NV and Infineon Technologies AG were among the benchmark’s biggest decliners.

• Volkswagen AG Chief Executive Officer Oliver Blume outlined a plan to eliminate as many as 50,000 more jobs globally as he attempts a far-reaching overhaul to reduce costs at Europe’s biggest carmaker.

• Seven & i Holdings Co.’s move toward selling a stake to SoftBank Corp. and PayPay Corp. signals a willingness to surrender some control over its future in return for the benefits of being allied with key strategic partners.

• Nippon Paint Holdings Co. has made multiple offers for Akzo Nobel NV’s decorative paints business in the past month, according to people with knowledge of the matter.

Europe/Asia economic highlights from Briefing.com:

• India's June trade deficit $30.43 bln (last deficit of $28.21 bln). June CPI 4.38% yr/yr (expected 4.30%; last 3.93%)

• New Zealand's June Performance of Services Index 50.6 (last 48.0)
  

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The Week Ahead

After a very light week, things pick up considerably next week.

In US economic data we’ll get our key inflation reports in June CPI, PPI, and import prices that build the foundation for the PCE prices index that comes at the end of the month. But we’ll also get another market moving report in June retail sales. In addition, the busy week also includes June industrial production, pending home sales (contract signings), housing starts, and NFIB small business sentiment, July NAHB home builder index and UMich preliminary consumer sentiment, and the normal weekly reports (ADP, unemployment claims, etc.).

Fed speakers will also pick up highlighted by Kevin Warsh presenting the semi-annual Monetary Policy Report to Congress (House Financial Services Committee Tuesday, Senate Banking Committee Wednesday). But he’s certainly not the only one, as we’ll get Governors Waller, Bowman, Barr, Cook, and Jefferson and regional Fed presidents Williams, Goolsbee, Musalem, Schmid and Logan, and there will probably be more. Finally, on Wednesday we’ll get the Beige Book prepared for the July FOMC.

Non-Bill (>1 year) Treasury auctions at least are off for the week. That said, on Friday we’ll get the questions for the Treasury Borrowing Advisory Committee, which will inform us on what Treasury is considering for auction sizes in the upcoming quarter.

But earnings reports dial up considerably with the unofficial start of Q2 reporting season with the big banks (five of them) on Tuesday. In addition to those (WFC, C, BAC, JPM, GS) other >$100bn in market cap reporters next week include MS, PGR, JNJ, PNC, BLK, BK, UNH, ISRG, PLD, NFLX, GE, ABT. We’ll also get some non-US heavyweights next week including TSMC and ASML.

In terms of Iran, I said last week:

it appears we’ve settled into a détente, which is nominally for 60 days but looks likely to extend beyond that (President Trump has already hinted at such), probably through the mid-term elections as the parties work through the significant number of issues that need to be resolved.

There are two things, though, which I am watching which could see things escalate: One is Iran pushing things beyond the current state of play (such as demanding tolls at the end of the current 60-day period as they have indicated they will do), the second is some sort of kinetic conflict which escalates beyond the “tit-for-tat” back and forth that we’ve seen thus far in the ceasefire, always a possibility when you’ve got rockets and drones flying back and forth.

And we actually saw both of those “two things” come into play over the past week (Iran trying to discourage use of the Omani passage through the Strait and the kinetic conflict escalating) but neither has so far passed either side’s “red lines,” so while we remain closer to a return to full-out conflict, we are still within the now stretched bounds of talks continuing.

That said, things continue to move in the wrong direction this weekend with strikes and counterstrikes continuing, Iran declaring that the Strait is closed “until further notice,” while the US Central Command denied that, saying the waterway was still open to all vessels and the US military is prepared to ensure freedom of navigation. Earlier in the week President Trump had ordered a Saturday deadline for Iran to declare the Strait open or face more bombing. “We bombed the hell out of them last night,” Trump said. “They’re very, very evil and sick people.” The WSJ reports “The scale of Saturday’s attack was much larger than previous rounds over the past week and was aimed at sending a message that the US will hold Iran accountable for attacking commercial ships, military officials said.”

So as I said four weeks ago “we’ll just have to see how things progress”. While odds on Kalshi that traffic through the Strait would normalize by Sept 1st had risen as high as 69% June 25th, that has dropped to 13% today (half of last week), the least since the start of the contract (although also with the least amount of time remaining).

Ex-US highlights from DB:

In addition to Chair Warsh’s semi-annual testimonies before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday. other events to watch next week will be the Bank of Canada’s decision on Wednesday and the Bank of Korea’s decision on Thursday (DB forecast a +25bp hike). In Europe, ECB officials’ appearances scheduled for next week will be among the last communications before they go into the quiet period ahead of the decision the week after next.

Looking at notable economic data releases, there will be the May monthly GDP in the UK on Thursday as well as Q2 GDP and June activity data due Wednesday in China. The trade balance figures for the country are due Tuesday. For China, our economists forecast real GDP growth to slow to 4.4% in Q2 from 5% in Q1. For June economic data, they see industrial production growth improving to 4.8% YoY and June exports growth coming in at 17% YoY. Retail sales are expected to rebound to 0.2% YoY and investment is expected to remain soft at -4.0% Ytd YoY.

Here’s their one-pager:

BoA’s cheat sheets:

In this week’s Week Ahead:

• An update on the continuing resilient economy, even if a bit less robust than a month ago, including the latest GDP trackers, the Dallas Fed Weekly Economic Index, Goldman’s Current Activity Indicator, BoA card spending, Redbook sales, consumer credit, housing, and thoughts from JPM’s Mike Feroli on the mid-year growth outlook.

• A Q2 earnings season preview, including current earnings and revenue expectations, sector-level estimates, profit margins, earnings revisions, analyst price targets, the bar for Q2 beats, and thoughts from Yardeni and FactSet on forward earnings.

• A closer look at the earnings setup beyond Q2, including expected contributions, 2026 and 2027 earnings expectations, and whether revisions are starting to cool from very strong levels.

• An update on valuations, including how rising earnings expectations have affected forward P/Es for the Mag-7, large caps, mid caps, and small caps.

• A breadth update, including the McClellan Summation Index, stocks above 20- and 200-DMAs, new highs minus new lows, equal-weight vs. cap-weight, small caps vs. large caps, and growth vs. value.

• A detailed positioning and flows section, including Deutsche Bank’s composite positioning work, discretionary vs. systematic positioning, EPFR equity and bond fund flows, BoA’s systematic flow estimates, CTAs, vol-control funds, risk parity, and buybacks.

• An update on leveraged ETF positioning, including the latest moves in SPX, Nasdaq-100, and single-stock leveraged ETF AUM.

• A look at retail positioning and options activity, including BoA private client allocations, put/call ratios, Vanda retail options insights, and Barclays’ reminder on seasonal retail flow patterns.

• An update on gamma from BofA and Tier1Alpha and volatility implications.

• A sentiment check, including AAII, AAII asset allocation, NAAIM, Goldman’s sentiment indicator, CNN Fear & Greed, BoA’s Bull & Bear Indicator, and Helene Meisler’s weekend poll.

• A seasonality update, including the second half of July, Jeff Hirsch’s Trump Presidency Seasonal Cycle, and July seasonal patterns.

• A rates and Fed section, including rate hike and inflation expectations, Goldman’s view on the path of policy, BoA’s case for three hikes, and the setup for Chair Warsh’s testimony.

• A wrap-up with some thoughts on the market backdrop moving forward including the shift from earnings expectations to earnings realization, some fading tailwinds, the AI trade, and whether the bull case remains intact.

Note: While I cannot post BoA charts on X, I include many in the Week Ahead.

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