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

“A moment’s insight is sometimes worth a life’s experience.” — Oliver Wendell Holmes, Sr.

Overnight

U.S. hiring slows to 114,000 jobs in July WSJ

Weak economic data prompts stock selloff WSJ

U.S. 10-year yield sinks below 4% as investors pile into rate cut bets FT

U.K. central bank lowers key rate for the first time since 2020 WSJ

Russia frees WSJ reporter Evan Gershkovich as part of a broader, multi-country prisoner swap Semafor

Israel determines that its July airstrike had killed Hamas military chief and key planner of the Oct. 7 attacks; Mohammed Deif is the country’s third high-ranking enemy confirmed as eliminated in as many days WSJ

E.U. issues U.K. with list of demands if it wants a better relationship FT

Spirit Airlines trims workforce as quarterly loss widens WSJ

BA owner IAG restores dividend for first time since pandemic after beating forecasts FT

Defense group BAE lifts profit outlook after £15bn of new orders FT

VW and BMW chiefs warn on E.U.’s China EV tariffs amid falling profits FT

Rolls-Royce shares surge to record high as dividend reinstated FT

Intel to cut 15% of headcount, reports quarterly guidance miss; stock plummets CNBC

Snap stock tumbles 16% after earnings Barron’s

Apollo profits take a hit from derivatives to guard rate risk FT

Bond traders are fully pricing in three Fed rate cuts this year BBG

U.S. traders flock to an election-betting site they’re banned from BBG

Hedge funds embrace portable-alpha strategies to woo investors in tough fundraising climate BI

Amazon sales rise as cloud unit shows strength WSJ

Meta’s ad strength gives its AI spending some cover WSJ

Barclays lifts net interest income view after earnings beat expectations WSJ

BNP Paribas in exclusive talks for $5.52 billion deal for AXA’s investment-management arm WSJ

SocGen retail bank gloom overshadows equities trading bonanza FT

U.K.’s AI bill to focus on ChatGPT-style models FT

Maersk raises guidance for the third time since May on the back of Red Sea disruption FT

U.K. charges Glencore’s billionaire ex-head of oil over corrupt payments FT

Media groups seek a new profit model with AI FT

India’s $45 billion startup implosion puts tech future in doubt BBG

The H-1B visa lottery can be gamed, new data shows BBG

ExxonMobil almost walked away from a $1 trillion oil discovery in Guyana BBG

Jumbo blueberry grower gets $1 billion valuation in funding round BBG

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Equities sold off sharply with S&P 500 -1.4%, Nasdaq 100 -2.4% and Russell 2000 -3.2%. It was an ugly day for markets, and yet measures of panic selling were not that prevalent.

• It was not only equities that moved sharply. Bond yields fell, with the 10-year falling below 4% to 3.979%. The VIX surged, but only managed to reach 19.5, not the “20” typically seen as a sign of panic.
• Yet the most notable move is that the probabilities of a 50bp cut in Sept:
  – yesterday reached 29.9%
  – was 14.4% on 7/31, and so it has essentially doubled.
• There are several possible drivers behind the equity sell-off yesterday, and to us, it is not really clear what the important factors were, but here is what we saw.

Click HERE for more.

TECHNICAL

SPX and QQQ failed to break down meaningfully enough to think that markets have peaked out for the Fall. While the correlation briefly reversed yesterday, as bad news on the economy actually did prove to be bad news for the stock market, this has not been the trend all year. Bond yields accelerated lower on the dovish Fed, with the 2-year nearly having reached December 2023 lows and TNX now having retreated under 4.00%. Meanwhile, the U.S. Dollar looks to be next in line to break down to new monthly lows. Small-caps underperformed in recent days, but still look more attractive than Large-caps for outperformance over the next 3-5 weeks. Technology has had an abnormally large effect on SPX, but it’s the breakout to new highs in Healthcare, Industrials, and Financials strength that seems important to concentrate on. Overall, we don’t feel its right to be bearish, despite Thursday’s sharp drop, and will stay bullish barring a break of 5390.

Click HERE for more.

CRYPTO

In our latest video, we discuss how recent price action erased the “Trump Premium” and explore how we should consider the impact of election odds on prices moving forward.

Click HERE for more.

First News

A Ribbon in the Sea for Our Commerce. Concerns about debt, interest rates, geopolitical tensions, and cybersecurity tend to dominate the broad conversation in the financial sphere – and the global financial system does face numerous threats – but one often overlooked risk: the vulnerability of undersea cables, deserves greater attention, as the fragility of our physical internet infrastructure poses a significant danger to the integrity of global markets.

Contrary to popular perception of the internet as an intangible ‘cloud’, over 99% of global data traffic, including $10 trillion in daily financial transactions, relies on a network of submarine cables – critical infrastructure that is susceptible to damage from natural disasters, accidents, or deliberate attacks.

The consequences of cable disruption could be severe, potentially halting global market operations. While internet engineers routinely address ~200 cable faults annually, mostly due to accidents, the risk of more serious disruptions remains.

Financial authorities are beginning to recognize this threat. Following mysterious large-scale cable faults in 2008, the Federal Reserve collaborated with internet experts to establish the ROGUCCI initiative (Reliability Of Global Undersea Communications Cable Infrastructure) focusing on the reliability of undersea cable infrastructure. Since initial concerns were raised, the threat to undersea cables has escalated significantly. A 2010 report stemming from the Rogucci initiative spurred discussions at Goldman Sachs and other bulge-bracket firms. Later, a U.K. think-tank analysis, authored by then-MP Rishi Sunak, described cable network failure as an ‘existential threat’ second only to nuclear or biological warfare.

Recent developments have only intensified these worries. An updated Rogucci report indicates a shift from localized threats to the potential for large-scale, state-sponsored attacks. Russian leaders have openly discussed such tactics, while suspicious incidents like the Nord Stream pipeline sabotage and alleged interference with data cables in the Baltic region have raised alarms.

Something known as ‘seabed warfare’ is becoming a reality in the Euro-Atlantic region, with other areas potentially following suit. The Rogucci group emphasizes that the vulnerability poses a “clear and present risk” to the global financial system and Western national security. That said, it isn’t easy to meaningfully address the vulnerability of undersea cables. While the U.S. military explores defensive options, including preparing submarines for this terrifying seabed warfare, the Rogucci team argues that protecting the entire 1.4 million km network is impractical. Instead, they propose a resilience-focused approach, assuming eventual disruptions. The recommendations include a $5 billion investment to triple the repair ship fleet; the establishment of a centralized “National Gucci Command” (which concerns itself more with global undersea communications cable infrastructure than with stylish new sheriffs) to negotiate diplomatic agreements for traffic rerouting, manage privately-owned cables during crises, and prioritize critical data (e.g., SWIFT messages) over other traffic; and a $10 billion NATO investment in backup cables for added security.

At the same time, implementing these solutions faces several obstacles, namely:

1. The military-industrial complex has a preference for high-cost projects, e.g. submarines.

2. There is the chance of potential resistance from tech giants like Google to government control of cables.

3. Complications will most likely arise from joint U.S.-China ownership of many transoceanic cables.

4. Due to the invisible nature of the threat, there is a lack of a sense of urgency in the financial sector.

The Rogucci team is calling for coordinated government action, emphasizing that private enterprise alone cannot adequately address this issue.

Unfortunately, given our ability to rationalize away the existence of black-swan events and to discount the true likelihood that they will happen, it’s likely that serious action will only follow a major disaster. Perhaps the idea of Black Swans, popularized by Nassim Nicholas Taleb in his book The Black Swan: The Impact of the Highly Improbable, could be brought home in a more viscerally graspable manner by the idea of Murphy’s Law.

The vulnerability of undersea cables highlights our culture’s blindness vis-à-vis critical infrastructure. Recent incidents such as the CrowdStrike cybersecurity issue and Paris rail disruptions may be precursors of catastrophes that are not just likely to occur on an ‘off chance’, but are actually very much in the offing. And so, it we know that, what with the elevated risk of seabed warfare, something can go massively wrong with the security and integrity of undersea cables, we should assume that it will – and take bold steps to safeguard this crucial component of global communications and finance. FT