The Morning Call
7/8/26
The
Market
Technical
Tuesday in the
charts.
Summary:
A triple-whammy
of tanker attacks in the Strait of Hormuz (and
Iranian sanction
waivers revoked) and a priced-for-perfection
Samsung (sold despite smashing earnings) triggered higher
oil prices and bond yields (NYFRB inflation expectations higher too)
and lower stock prices respectively today. The dollar jumped
higher (GBP lower), slamming gold lower (with bitcoin giving up early gains). Stocks
were the odd one out today (until the late headlines below hit), decoupling
(higher) from oil & bond yields (higher). When the waiver headline hit,
everything moved together again...
Geopolitical risk isn’t going away...
But,
as Goldman's Rich Privorotsky notes, the bigger point, though, is the
divergence between crude and products.
Brent trades like the market
is well supplied, while diesel and gasoil cracks keep making new highs.
Refining capacity remains
tight and every disruption tightens product markets more than crude.
At some point cheap crude gets pulled higher by
expensive products.
As
Privorotsky concludes, "I struggle to see oil breaking
materially lower from here… although I’ve been early on that call
before."
Rate-hike expectations
lifted on the day after NYFRB inflation expectations hit a
three year high and then oil's spike raised further inflation anxiety...
Tuesday in the
technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
The character of
the Market has changed noticeably.
Summary:
An extension of the bull market is justified by the durability of
the US economy, superb earnings growth and unrelenting household sponsorship. However,
set against that, tensions are growing within the market - in the form of a
more complicated AI narrative and an accumulation of speculative leverage. Taken
together, while the primary trend remains higher, I expect the path
will be both wider and bumpier over the next several months. Therefore
- and this hasn’t changed much in the past month - my recommendation is
to stay in the saddle, but to simplify your portfolio to
the highest conviction components, and to buy downside insurance when
it intermittently goes on sale.
Wednesday morning
setup. Markets are on the backfoot this morning with equity futures and macro
credit under pressure, bond yields spiking, the USD higher, and oil
jumping after President Trump thrust geopolitical risks back into focus
by declaring the ceasefire between the US and Iran to be over calling
it “a waste of time” after the US launched strikes against Iran in
response to attacks on ships transiting the Strait of Hormuz. As of
8:00am, S&P 500 futures slid 0.7% and Nasdaq futures slumped 1%
dragged lower by memory and chip stocks after the latest kinetic
volley. The latter takes place in the context of mixed tech trade in Asia
with the Hang Seng Tech Index up 5%, whilst the South Korean Kospi lost 5.4%.
Pre-market semis and Mag7 are being sold as Energy and Staples are the two best
sectors; everything else is flat to down. The drawdown in momentum and the
broader AI infrastructure trade (~85% correlation between these two cohorts)
remains heavily in focus, with the GS High Beta Momentum basket (GSPRHIMO) now
surpassing -20% over the past 5 days. This morning, global price action is
pointing towards “more of the same” with the primary Momentum tone-setters
(Hynix -6% in Korea, SNDK -6%, MU -5%) lower across the board. Brent
crude advanced 5% to around $78 a barrel while WTI breached $75/bbl (+6%)
before declining as the Energy complex leads commodities higher. Precious
metals are getting hit with mixed bids to Ags and Base metals. Treasury yields
are up around 2-3bps across the curve (10Y yield rising to 4.56%) with the
market needing to digest a $39bln 10 year note auction ahead of the FOMC
minutes. USD is higher. Higher energy prices feed into inflation
expectations and Fed minutes this afternoon take on added significance in the
tighter-lipped Warsh era. Gold fell and the dollar wavered.
Fundamental
Headlines
The
Economy
US
Weekly mortgage
applications declined 2.2% while purchase applications were down 0.6%.
The July small
business optimism index was reported at 45.5 versus consensus of 45.0.
International
Other
The latest Q2
nowcasts. (These estimates are being impacted by a large net exports number; so
it is not as negative as it appears)
https://www.capitalspectator.com/q2-gdp-expectations-cool-but-some-economists-arent-worried/
A weak but improving economy.
https://bonddad.blogspot.com/2026/07/scenes-from-june-jobs-report-weak-but.html
US recession risk dashboard.
https://econbrowser.com/archives/2026/07/us-recession-risk-dashboard
A review of Q2 US auto sales.
Iran
Overnight news. (Finally, some cojones, I think.)
Monetary
Policy
An
argument for not raising rates.
http://scottgrannis.blogspot.com/2026/07/jobs-growth-picking-up-bit.html
Fiscal
Policy
The great thing
about tax cuts is not more money for taxpayers but less money for the
government.
Senate defense
bill allows government investment in private companies. (the defense department has never been able
to pass an audit accounting for its own spending. Now we are allowing it to buy into US companies? Oh, yeah, that’s a winner.)
AI
Overnight news.
South Korean
stocks have entered a technical bear market as investors raise concerns about
the long-term prospects of the AI chipmakers that have driven a world-beating
rally. The Kospi index is down more than 20 per cent from its record high in
June after slipping more than 5 per cent on Wednesday.
The AI rotation
trade is gathering pace in Asia as investors pull money from chipmakers and
hunt for cheaper ways to play the technology boom. Investors are rotating into
one of Asia's most unloved markets, with Alibaba Group Holding Ltd. and Tencent
Holdings Ltd. rising after the Kospi Index was pushed to a technical bear
market.
Nvidia’s stock is
the cheapest it’s been since before the AI boom, after losing roughly $1
trillion in market value in under two months.
The sell off in
the Goldman High Beta Momentum (GSPRHIMO) has now surpassed 20% over 5 days,
exceeding short term expectations for a summer slump in the factor. This
magnitude of sell off at such velocity has not been seen since 2020 when the
stay-at-home vs go outside narrative shifted meaningfully towards reopening. It
is notable that the current drawdown does not have the same strength of
catalyst. Fingers have pointed towards SK Hynix raising and META cloud
business.
New technology doesn’t replace labor; it
creates new forms of it.
https://lawliberty.org/the-lump-of-labor-fallacy-in-the-age-of-ai/?mc_cid=b37f2cf8a3
Token unmaxxing.
Summary:
The
Wall Street Journal reporting that across Silicon Valley, top
artificial-intelligence companies such as OpenAI, Anthropic and others desperate to win business are
ramping up discounts. The WSJ goes on to note that the offers from growing
AI-sales armies at companies such as OpenAI and Anthropic are so rich that some
early-stage startup founders say they won’t need to raise money as soon as they
expected, and others have been able to play AI companies off one another. Startups
have received offers that in some cases amounted to more than $3 million in
credits from multiple companies for cloud computing and tokens, the
central units used to measure and charge for AI usage, founders say. That is
the size of the median U.S. seed round, according to PitchBook.Semianalysis, an
AI-infrastructure data and consulting firm, recently published research showing
how heavily the companies are subsidizing power users.Subscribers to
Anthropic’s Claude Max plan, which costs $200 a month, are able to burn tokens
worth $8,000 in their usage-based plans administered through an application
programming interface, or API, which allows them to integrate Anthropic’s
technology into their products. Maximum use of OpenAI’s ChatGPT Pro 20x plan,
which also costs $200 a month, can burn tokens worth $14,000. All of which
come back to what Goldman Sachs one-delta desk head, Rich Privorotsky, has been
warning about for months - that the growing capabilities of cheaper (mostly
Chinese) models is raising serious doubts about the frontier-model-makers'
massive CapEx projections (and with that the entire AI ecosystem stack).
Investing
How not to get
fooled by randomness.
https://www.safalniveshak.com/how-not-to-get-fooled-by-randomness-in-investing/
Good vibes are
masking a reset in the Market.
https://giftarticle.ft.com/giftarticle/actions/redeem/97b66970-c2c3-48af-8724-f4515028fc9e
S&P valuation based
on trailing dividend.
https://politicalcalculations.blogspot.com/2026/07/how-investors-maintained-order-in-s-500.html
Your investment return
expectations are twice reality.
The bond market’s measure
of expected inflation and real growth.
https://www.axios.com/2026/07/07/inflation-iran-bond-market-rates
Private equity for
everyone is getting out of hand.
China buys the
most gold since 2023.
Summary:
China’s central bank bought more gold in June, extending the longest buying
streak since at least 2015 and underscoring a commitment to diversifying its
reserves despite volatility in bullion prices. Bullion held by
the People’s Bank of China rose by 480,000 troy ounces to 75.44 million ounces
last month, according to data released on Tuesday. The purchase is the biggest
since October 2023, and brings the buying streak to 20 months.
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