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

“To err is human, but contrition felt for the crime distinguishes the virtuous from the wicked.” — Vittorio Alfieri

Overnight

Financial stocks lift S&P 500 to fresh record WSJ

Oil prices finish lower after Hurricane Beryl seems to leave energy infrastructure largely unscathed MW

In southeast Texas nearly 2 million homes and businesses remain without power and air conditioning in the wake of storm Beryl’s deadly, destructive landfall CNN

BP shares dip after warning weak refining will hit Q2 profit RT

President Biden signed a bipartisan bill aimed at speeding up nuclear power development Semafor

Hung parliament in France complicates policymaking, says S&P as it warns of another rating cut, with French yields lower than Spanish ones RT

Wall Street points to potential inflationary impacts of Trump 2.0 MW

Why Trump 2.0 might be good for investors FT

China to invest $800B in creaking electricity grid to speed up green transition Semafor FT

CVS, UNH, and Cigna unbowed by critical FTC report on pharmacy benefit managers Barron’s

Eli Lilly plans to close its all-cash $3.2 billion acquisition of Morphic Therapeutics, focused on treatment of IBS and other GI issues, in September PE

Aramco bets on enduring power of gasoline with investment in Horse Powertrain, a Renault-Geely JV FT

Venture chill hits early-stage climate investment Axios

Microsoft and Occidental sign carbon credit deal to help offset AI energy surge FT

A16z leverages 20,000+ GPUs, roughly as many as Elon Musk’s xAI uses to train the Grok LLM, to win AI deals by renting them to startups in exchange for equity TI

Family offices of the ultra-rich shed privacy with activist bets BBG

U.K. pension plans overpay £1.5bn in fees to fund managers FT

Coffee prices set to rise even higher, warns Italian roaster Lavazza FT

Shein to launch €200mn fund to tackle fashion waste as it awaits IPO approval FT

A Chinese battery factory in Michigan may be in trouble as U.S. national-security regulators add dozens of sites across the country to a restricted list NYT

E.U., U.S. tariffs could boost Chinese EV sales in Africa Semafor

Temasek to prioritize U.S. deals and stay cautious on China FT

Nike’s new chief runs into trouble as turnaround efforts falter FT

Bets against Apple, Nvidia, and Tesla stock are blowing up Barron’s

White-shoe law firm Sullivan & Cromwell to screen job applicants for participation in anti-Israel protests NYP

The European country playing off the U.S., Russia, China, and Europe FT

The strange resilience of NATO and the E.U. FT

Exclusive Ivy League social clubs are desperate for members WSJ

At SpaceX, Elon Musk’s own brand of cancel culture is thriving BBG

Elon Musk’s X stalls at 250M daily users while Threads plays catch-up PCM

Europe’s year-long space-launcher crisis is over as Ariane 6, Europe’s first new heavy-lift rocket in ~30 years and a challenger to SpaceX, lifts off FT WSJ

Earth’s gravity knocked pyramid-size asteroid off course during recent ultra-close flyby, NASA images reveal LS

Saudis warned G-7 over Russia seizures with threat of debt sale (specifically French debt) BBG

Moscow court orders in-absentia arrest of Alexei Navalny’s widow FT

Rich people freeze themselves, and fortunes, for future revival BBG

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

The most consequential inflation data point will be June Core CPI, released on Thursday at 8:30am ET. The Street is looking for +0.20% Core CPI MoM and this is a break from the Street’s pattern of looking for +0.30% for each of the last 7 months. In our view, a print below +0.25% MoM would be positive.

• The most important thing to look for is how the Fed reacts to a likely soft inflation report. Powell has noted that risks to the economy are now two-sided, meaning the risk of staying too tight (weak economy) matters as much as fighting inflation. In fact, he stated this in his annual appearance before the U.S. Senate Banking Committee:
  “the latest data show, that labor market conditions have now cooled considerably from where they were 2 years ago and I wouldn’t have said that until the last couple of readings… and deciding what to do with it in a way that manages both of those risks”

Click HERE for more.

TECHNICAL

Tuesday failed to bring about much change in near-term trends in U.S. Equities from a broader index level, and until price can retreat to violate last week’s lows (approximately 5446 in ^SPX 0.97% ), it’s right to continue to expect higher Equity prices as well as higher Treasury prices (anticipating a pullback in Treasury yields).

There looks to be important resistance directly above over the next 4-6 trading days, which might lead indices higher into next week’s expiration ahead of late-July weakness. This would align with July seasonality and might bring about some consolidation in late July, ahead of yet another runup into late August/early September.

Click HERE for more.

CRYPTO

In our latest video, we discuss last week’s price action, examining the role that market liquidity and psychology played in the drawdown. We also discuss the remaining supply overhang risk and highlight the key events to watch for the rest of the week.

Click HERE for more.

First News

Five Year Plan Says… In an effort to buttress the swooning yen, Japan’s giant government pension investment fund (GPIF) may be moving tens of billions of dollars from foreign stocks and bonds – which together make up a little more than half of the fund – into domestic ones. The 245.98 trillion yen / $1.53 trillion (as of end-March) fund went abroad in the 2010s in search of returns it couldn’t get at home, but is expected to reverse course as its leaders start their once-every-five-years strategy review. Its $800 billion accumulation of foreign investments is a break-in-case-of-emergency fund. As one analyst told the Wall Street Journal, “that moment is now,” as the yen hits its weakest level since the 1980s.

Speaking of five-year plans, a stereotypical dictum in a 1930 Soviet newspaper would read: “The [five-year] quota is law, making it is your obligation, surpassing it is an honor!”

It’s too bad that the ‘now’ moment comes as the GPIF, reaping the fruits of an active management strategy, has posted a record gain of 45.4 trillion yen / $282.5 billion for the fiscal year ending in March. WSJ

Maturing Monetary Theory?MMT, despite the “T” in its name, is not a unified body of genuine, falsifiable economic precepts (i.e. an economic theory) but rather a pseudo-theory whose core precepts are immune to being written down in comprehensible usable form, and whose predictions and recommendations tend to be dispensed by a core of movement leaders, reminiscent of the way the predictions and recommendations of Leninism-Stalinism (of five-year-plan fame) once were. These recommendations, or policy prescriptions, tend to involve having the U.S. government do more and more deficit spending, essentially ad infinitum, without having to pay the piper.

The ideas of MMT (to the extent that such ones exist) are rooted in things like functional finance and Post-Keynesian macroeconomics, which long ago split off from the mainstream, yet the MMT crowd, while dismissing the Fed’s role, has not come up with a clear and obviously workable idea for how to stem inflation.

MMT seems to be more a political manifesto than a genuine economic theory, expounded by those who believe in the righteousness – and affordability – of unlimited government spending to achieve idealistic ends. On the one hand, MMT scholars have opened a large crack in the ‘but how do we pay for it?’ line of defense to economic policies by propounding a liberating narrative of a society in which well-being, abundance, and social justice are finally possible for everyone – a society that should feel capable of spending to achieve its goals to the extent that there are resources available to fulfill them. In other words, if you want to build a road and you have asphalt and construction workers, then borrow freely and build it. Want to feed children free lunches? Have food and cafeteria workers – will feed children.

Now, more mainstream economic models also tend to deal only in real variables – asphalt and construction workers, food and cafeteria workers – and it is those models’ failure to attend to financial constraints of any kind that made them blind to the factors that caused the Great Recession.

The private sector shows that it’s not all rainbows and unicorns when things must be built. Elon Musk famously decided to start SpaceX when he realized that rockets could be constructed, and flown to space to ferry astronauts and deliver much needed payloads, with the raw materials alone: engineers’ brains, the metals needed to build the rockets and engines, and rocket fuel. Yet he still needed financing, and SpaceX almost went down without ever taking off precisely for lack of funding – all because, as a private company, it did not have the essentially unfettered access to capital that sovereign governments do. And yet it seems that there is (at least a theoretical) limit to what big governments can borrow – even in the minds of MMT proponents.

In a recent interview, MMT creator Warren Mosler, a 75-year-old retired hedge fund manager living in the Virgin Islands, made the stunning declaration to the effect that the U.S. is doing way too much deficit spending, with the American economy choking on a toxic mix of high debt levels and a historically large deficit. A 7% deficit as a share of gross domestic product at a time when the U.S. economy is not in recession, warns Mosler, “is like a drunken-sailor level of government spending.”

His concern is that, with government debt levels super-high, raising interest rates (or keeping them high) raises (or abets) inflation. And yet high interest costs are less a function of current deficits and more a function of the total size of the accumulated U.S. national debt, built up, seemingly in line with MMT orthodoxy, over decades. In other words, the interest payments Mosler & Co. are worried about stem from the very policies in line with what his party’s party line has encouraged for so many years.

In other words, the deficits don’t matter idea that is core to MMT was never based on any deep understanding – or even theory – of how the economy works, but seems rather to have been a rather cavalier bet that inflation would never return and interest rates would never go up. Let’s plan to revisit that in five years to see whether it works out better then. NoahPinion