A daily market update from FS Insight — what you need to know ahead of opening bell

“I’ve got to admit it’s getting better. It’s a little better all the time.” — Paul McCartney

Overnight

Consumer prices in the US fell in June for the first time since the start of the Covid-19 pandemic CNN

A violent rotation from Big Tech into small cap stocks followed the surprisingly benign June U.S. inflation report RT

Dollar/yen pair plunges ~2% amid suspicion and reports that Japanese authorities used the opportunity of a weaker dollar to intervene to buy yen RT

Hit by tech swoon and yen spike, Japan’s Nikkei skids 2.5% while other tech-heavy Asian bourses, in South Korea and Taiwan, fall sharply RT

Futures stall as big banks set to kick earnings into high gear RT

June price drop may shorten the Fed’s last mile on inflation RT

German inflation confirmed at 2.5% in June RT

Cook says Fed would respond if unemployment starts to rise more quickly RT

Anti-patent bill unanimously passes Senate Axios

IRS says $1B collected in past-due taxes from millionaires CNBC

SEC suggests stablecoin not securities by not pursuing Paxos case Fortune

CDK Global, roiled by a cyberattack last month, may have paid a $25 million ransom to hackers to get crucial-to-U.S.-auto-industry car-dealership systems back online CNN

Revealed: nearly all AT&T cell customers’ call and text records covering May 1 to October 31, 2022 exposed in a massive breach CNN

Dollar General will improve safety protocols in stores and pay $12 million in penalties in a sweeping settlement with the Department of Labor CNN

SoftBank buys Graphcore, AI chip maker, for ~$600M Nippon

Tesla delays robotaxi event from Aug. to Oct. YF

Elon Musk’s X hit by E.U. charges over blue checkmarks WSJ

X is building a ‘dislike’ button for downvoting replies TC

Scientists want the Paris Olympics to dump Toyota’s Mirai as an official car CNN

Tractor Supply once warned climate change and a lack of diversity would hurt business, but now it’s ignoring those risks CNN

Anger mounts in southeast Texas as crippling power outages and heat turn deadly CNN

U.S., Germany foil Russian plot to assassinate CEO of arms manufacturer sending weapons to Ukraine CNN

What it’s like to go to summer camp in North Korea CNN

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Nine companies are reporting this week. Of the 23 companies that have reported so far (5% of the S&P 500):

• Overall, 78% are beating estimates, and those that “beat” are beating by a median of 3%.
• Of the 18% missing, those are missing by a median of -1%.
• On the top line, overall results are beating estimates by a median of 1% and missing by a median of -1%, and 43% of those reporting are beating estimates.

Click HERE for more.

TECHNICAL

U.S. Equity indices look to have begun some minor consolidation, which we expect should prove short-lived in duration and scope before turning back to new highs. The miss in CPI on Thursday looked to be a specific catalyst for both U.S. Dollar and Yields turning down sharply, and declines in both look likely in the weeks and months to come. Equal-weighted SPX has begun to show some strength over the last week, and needs to be watched for evidence of a breakout, which would be a convincing sign that a broad-based rally had gotten underway. At present, it’s difficult to make the call for any sort of meaningful equity peak, as the correlation remains quite strong between Treasuries and equities, and Thursday’s breakdown is meaningful in TNX. Overall, while a 2-3 day pullback is certainly possible and might be overdue on some accounts, we are skeptical that SPX gets under 5450 while QQQ has strong support near 485, which makes this an attractive risk/reward.

Click HERE for more.

CRYPTO

On balance, macro conditions have moved in our favor thus far in early Q3. We have received soft jobs numbers and softer ISM reports, and cooler inflation figures, which have sent rates and the DXY lower. Unfortunately, the mere reveal of imminent sales from the German BKA and the solidification of the Mt. Gox disbursement timeline were not enough to put a bottom in for bitcoin.

German BKA

The actual movement of coins from German wallets caused massive selling from market participants. It is important to note that it wasn’t necessarily a simple supply/demand mismatch that caused the drawdown, but rather a hit to market psychology during a rather illiquid time. As shown in the chart below, the Germans started moving their coins to partner exchanges during the week of July 4th, which is intuitively a much less liquid week for all assets as many Americans are away from their desks. This sparked fear in the market, leading traders to close out positions, resulting in cascading liquidations across derivatives markets.

Fast forward to this week, and we have since rebounded considerably from the drawdown to $53.5k, as the market has absorbed the selling of the German coins quite seamlessly. This rebound occurred despite the Germans selling much more BTC than they did the week prior. In fact, on Monday alone, they sold twice as much BTC as they did all of last week. This is likely because traders were back at their desks, markets were once again liquid, the market was deleveraged, and the fear of the Germans selling had already been priced in.

Click HERE for more.

First News

Cool September Rain. A rate cut come September may not be the magic elixir some investors are after, but Americans seeking relief from high borrowing rates will take it – and they might not have to wait much longer.

In a first since the early months of the pandemic, U.S. consumer prices fell in June. Fresh data yesterday revealed that consumer prices dropped 0.1% from May, meaning that, on an annual basis, June inflation cooled to 3% last month from 3.3% in May.

The welcome slowdown in inflation has led to investor jockeying in their bets on the Fed’s rate-cutting timeline. Per the CME FedWatch Tool, Wall Street’s expectations for a September rate cut shot up to ~93% from 73% the day before.

Fast-rising housing costs have been the single largest driver of inflation over the past year, accounting for 62% of the CPI’s increase. After June finally delivered the relief that Washington and Wall Street had been expecting at some point this year – with shelter inflation, measured at an annualized rate, dropping to 2.1% in June from 4.9% in May, which brought it on par with 2019 – some think a September rate cut should be a done deal, with some economists updating their base case to reflect a rate cut in September, citing the mix of June inflation and jobs data.

The Fed hiked interest rates in 2022 to tame whac-a-mole inflation, and has held them steady since, at the current 23-year high since last July.

The U.S. economy added 206,000 jobs in June, lower than a downwardly revised tally of 215,000 jobs in May, and the unemployment rate topped 4% for the first time since November 2021. New applications for unemployment benefits have also notched higher numbers recently. Thursday’s data, coupled with a cooling though resilient labor market, is an encouraging sign that the Fed will be able to fulfill its dual mandate of keeping prices stable and unemployment levels low, while beginning to easing rates in September.

True to form, Fed Chair Jerome Powell gave zero hints about when the central bank could start cutting rates during his congressional testimony earlier this week, but did let in a thin shaft of light by acknowledging that inflation had moderated and that the labor market is “strong, but not overheated” – a departure from as little as a few months ago, when inflation seemed to be reaccelerating while the jobs market remained, as it were, too resilient.

As the Fed parses more and more data before convening in September, some economists fret that if the Fed doesn’t cut rates by then, cracks could begin to deepen in the labor market. Investors, who are known to fret more consistently than do economists, are concerned that the U.S. economy could weaken dangerously even before then. CNN, Semafor

Thin Film of Good News. Going into the weekend, our readers may like to know that a comprehensive study examining the top 200 science-fiction films from each decade since the 1950s reveals a significant transformation in the genre. While the core themes remain consistent – 73% of 1950s films and 76% of 2010s films featured existential threats – the settings and outcomes have shifted dramatically. In the 1950s, 12% of the films were set in the future, 11% depicted post-apocalyptic worlds, and 77% concluded with protagonists solving the problem and improving their world. In contrast, in the 2010s, 30% took place in the future, 43% portrayed dystopian futures, and 85% ended on a positive note. The trend suggests that while modern sci-fi explores darker scenarios, it also offers more optimistic resolutions. Essentially – lower lows, but higher highs. In other words – fewer reasons to fret. Pudding