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

“The law of unintended consequences is the only real law of history.” — Niall Ferguson

Over the Holiday

Keir Starmer becomes Britain’s new PM after Labour wins a historic majority of 170+ seats FT

The U.K.’s general election on Thursday was a chance for 144,000 Hong Kongers to flex their electoral muscle under a new visa scheme Semafor

Iran holds runoff presidential vote pitting hardline former negotiator against reformist lawmaker TH

A geothermal energy startup signed a deal to provide power for the equivalent of 350,000 homes in Southern California Semafor

High-speed rail from L.A. to Bay Area wins final environmental approval BB

SoftBank’s $10 billion-plus plan to get into the AI race centers on power and chips TI

Amazon to build $1.3 billion top-secret cloud for Australia’s government WSJ

Smith & Nephew shares surge as activist Cevian Capital reveals 5% stake MW

Investor group raises Macy’s buyout offer, again WSJ

Saks owner to buy Neiman Marcus, with help from Amazon WSJ

Wages are rising at small firms, but employment isn’t WSJ

The FTC loses in court again, this time on non-competes WSJ

India’s ‘passion for gold’ fades as prices hover near record high FT

Portugal to reintroduce tax breaks for skilled foreigners FT

European central bankers warn of risks to region’s economy FT

E.U. takes aim at China’s Temu and Shein with proposed import duty FT

Blackstone snaps up ‘circular’ private equity credit risk FT

Utility stocks are Wall Street’s secret backdoor to AI Semafor

Hyundai and LG build Indonesia’s first battery-cell factory, a $1.1 billion plant Semafor

Musk has quit $25,000 EVs, but his rivals haven’t TI

Car prices are declining; buyers aren’t seeing it WSJ

Only the Fed can rekindle America’s love for carsWSJ

BMW hopes to be a steady hand amid EV uncertainty WSJ

E.U. confirms tariffs on Chinese-made EVs WSJ

Netflix, Disney ask Canadian appeals court to stop proposed tax on streaming revenue WSJ

Former Brazilian President Jair Bolsonaro indicted for money laundering Semafor

House Republican support grows for corporate tax increase, threatening key part of Trump’s economic legacy Semafor

Kenyan protesters are using AI in their anti-government fight Semafor

OpenAI to join Washington lobbying group BSA | The Software Alliance Semafor

Build-your-own pizza restaurant Mod taps advisers to explore bankruptcy WSJ

Hale Kale Ave Caesar: The ubiquitous salad turned 100 yesterday Semafor

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

• Fed fund futures would likely price in more cuts than the 1.8 currently expected by year-end. Recall, before the May jobs report (released June 7), this figure was 1.4 and surged to >2.0 in the days after the report. This is just a guess, but we expect the number of cuts to rise to >2.0 on the back of a softish jobs report.
• On balance, we believe this is positive for stocks, the primary reason being the Fed’s framework would shift from balancing growth vs inflation, to one where disinflationary factors would become more prominent. At Sintra, Powell even noted that the U.S. economy is on a disinflationary path – and this arguably makes it easier for the Fed to cut, as hawkish arguments weaken.
• The opposite argument is that this is a “bad news is bad news” if labor markets are weakening. But our counter to this is that it is the fact that the Fed has kept rates restrictive that is slowing the economy (and high rates were due to inflation, not an over heated economy). In other words, this can be unwound with Fed easing. Companies have been cautious for the past 2.5 years, ever since the Fed embarked on the most aggressive hiking cycle in history. Thus, there are fewer signs of poor incremental returns on capital. In fact, the massive de-rating of commercial real estate is an example of return outlook changing with lower rates.

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TECHNICAL

The rally to SPX-5650-5750 seems to be underway, as large-cap Technology continues to press higher, as FSLR 0.19% , NVDA 1.98% , AVGO 6.33% , and ENPH 8.53%  all stoked gains of more than +3.5% within the sector SPDR Technology ETF, XLK 1.44% .

U.S. Dollar and Yields both dropped sharply during Wednesday’s shortened session, as economic data missed expectations, coming in disappointing yet again.

Overall, we expect that our cycle composite, along with early July bullish seasonality, should provide a further runway for gains into mid-July.

Thereafter, we suspect that some consolidation/selling pressure might finally be required following a stellar run-up.

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CRYPTO

Paxos has received approval from the Monetary Authority of Singapore (MAS) to issue stablecoins in Singapore under full compliance of the country’s stablecoin framework. Paxos’ new entity, Paxos Digital Singapore, will operate as a Major Payments Institution (MPI) and offer digital payment token services. Only 19 companies have full MPI licenses in the region, and Singapore now represents Paxos’ third domicile where it’s eligible to issue stablecoins, along with the USA and UAE. In addition to announcing the approval, Paxos has disclosed that it is partnering with DBS Bank to support cash management and custody services. DBS is Southeast Asia’s largest bank by assets and is recognized as one of the safest banks in the region. The global regulatory framework for stablecoin issuers continues to develop, as yesterday Circle became the first MiCA-compliant company EU stablecoin issuance, and now Paxos has cleared similar regulatory hurdles in Singapore.

Robinhood, a retail trading platform, hopes to offer crypto futures in its U.S. and European markets. Leveraging its acquisition of crypto exchange Bitstamp, Robinhood (HOOD1.74%) hopes to add the functionality once the deal closes, although that’s not expected until next year. Robinhood also reportedly wants to launch CME-based futures for Bitcoin and Ethereum. Crypto derivatives are a larger market compared to spot trading, with May derivatives volume on centralized exchanges totaling $3.69 trillion compared to $1.57 trillion in spot volume. Robinhood is aware of the derivatives preference among users, as equity options accounted for 47% of Robinhood’s Q1 transaction-based revenues, compared to equity spot volume only accounting for 12%. Beyond derivatives trading, Robinhood’s acquisition of Bitstamp should enhance the number of tradable crypto assets on the platform and allow them to expand into institutional product offerings, including lending and staking.

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First News

The Real Reason Why Bill Ackman Got Out of Activist Investing. The SEC’s Universal Proxy Card (UPC) system, implemented in August 2022, has unexpectedly favored corporate management over activist investors in director elections.

Shareholders used to choose between management’s or activists’ entire slates, but now all nominees appear on a single ballot for individual selection. As a result, activist-nominated directors won just 11% of targeted seats in 2023, down from 65% in 2022, while total activist-won seats dropped 31% globally in the first half of 2023 compared to 2022.

The implications of this are at least trifold, as the focus has shifted from campaigns to individual nominee qualifications, with shareholders predominantly taking management’s side, while gamesmanship and marketing tactics in elections have taken a nosedive.

Despite causing anxiety among some board members, the UPC system is seen as a more appropriate method for board selection, even though it hasn’t benefited activists, as anticipated. Axios

One Word: Recycling. A quarter-hour-long chemical process could make old clothes recyclable to help reduce the “growing mountain of waste” created by the fast-fashion industry. Surprisingly, given the synthetics content of many textiles – and hence the recycling potential – less than 1% of textiles are currently recycled. Most old clothes end up incinerated or in a landfill, Nature reports. The rub is that many fabrics are mixed, and mechanical recycling struggles to separate them into useful parts. The new technique uses a catalyst activated by heat to break the long molecular chains of both natural and synthetic fibers into smaller, easily reusable chemical units.

Scientists hope it could allow 88% of clothing worldwide to be recycled, which is a good thing, given that shipping volumes from Chinese shopping apps such as Temu and Shein – which are hardly offering fine fabrics on the order of silk and wool – have recently begun to change the overall air cargo market, eating up space in the cargo holds of airplanes and sending air-freight prices sky-high. Prices out of the manufacturing hubs in China are up 40% year over year; exports out of Hong Kong International Airport were up 30% y-o-y in May. Air freight has historically ferried small, expensive electronics and perishables – think iPhones and caviar – but the shopping apps’ newfound popularity has sent the spot rate to ship cargo out of South China to the U.S. up to $5.27 per kilogram, double the value in 2019. MIT, WSJ