Mag7 Earnings, Commodity Tailwinds, and Japanese Yen Futures

Top things to watch this week

The Economic Calendar:

MONDAY: Empire State Manufacturing Index (7:30a CT), NOPA Crush Report (11:00a CT), Jerome Powell Speaks (11:30a CT), Mary Daly Speaks (3:35p CT)

TUESDAY: Import/Export Prices (7:30a CT), Retail Sales (7:30a CT), Redbook (7:55a CT), Business Inventories (9:00a CT), NAHB Housing Market Index (9:00a CT), Retail Inventories (9:00a CT), Adriana Kugler Speaks (7:30a CT)

WEDNESDAY:  MBA Mortgage Applications (6:00a CT), Building Permits (7:30a CT), Housing Starts (7:30a CT), Thomas Barkin Speaks (8:00a CT), Industrial Production/Capacity Utilization (8:15a CT), EIA Petroleum Status Report (9:30a CT), Christopher Waller Speaks (8:35a CT), Fed Beige Book (1:00p CT)

THURSDAY: Jobless Claims (7:30a CT), Philly Fed Manufacturing Index (7:30a CT), EIA Natural Gas Report (9:30a CT), Lorie Logan Speaks (12:45p CT), Fed Balance Sheet (3:30p CT)

FRIDAY: John Williams Speaks (9:40a CT), Baker Hughes Rig Count (12:00p CT), Raphael Bostic Speaks (12:00p CT)

Key Events:

• Traders will watch Chair Powell’s speech for more interest rate cut clues.
• Markets are now pricing a good chance of two 25-basis rate cuts by December.
• Earnings season is in full swing, with Bank of America, Blackrock, Morgan Stanley, Johnson & Johnson, and Netflix among notable reports.
• We are expecting more details on the Trump assassination attempt.
• The Republican National Convention starts in Milwaukee, Wisconsin.
• FOMC speakers this week are Powell, Daly, Kugler, Waller, Logan, and Bowman.
• Lite economic schedule with Retail Sales, Housing Data, and Q2 corporate earnings reports.
• We are looking ahead to FOMC on Jul 30th and the upcoming Fed speaker blackout.
• We are monitoring a possible Biden replacement.

POLITICS & MARKET CORRELATION

Prediction market odds have shifted sharply in favor of a Trump re-election this November and now stand at roughly 68%, compared with 40% to 50% for most of the year.

How does this shift affect trader’s views? Trader’s questions have centered on three levers: tariffs, tax and fiscal policy, and regulation.

Large tariff increases would likely boost stocks with domestic revenues and supply chains vs. internationally-exposed peers. Tax and spending plans need more specifics before being translated into trades. Regulatory policy under the Trump administration is likely a positive for big tech.

STOCK INDEX FUTURES

How about a little rotation? The Russell 2000 small caps outperformance of the Nasdaq-100 was the rotation trade traders were waiting for. For the week, the Russell 2000 traded higher by +6.11%, and the Nasdaq-100 closed down by -0.27%.

Thursday’s move in the Russell 2000 was a six-standard deviation event that “should” happen every 506,000,000 days. However, don’t get too excited; these are only statistics.

A few catalysts we are monitoring:

• Pre-election summers are generally muted periods, with +/- 2% returns in the past, and this will likely be the case again.
• FOMC policy promises to be spicier, however, as the Fed might wistfully look for a chance to cut – and not find it. Look at that stable CPI and solid employment; why cut at all?
• NVDA and other Nifty Five stocks are well past ludicrous valuations, but bull markets can carry valuations well beyond ludicrous.

INTEREST RATE FUTURES

The June CPI report offered encouraging signs, with core inflation dipping below forecasts to a three-year low of 3.3%—moderation in previously troublesome categories like services and shelter added to the positive sentiment.

Federal Reserve officials echoed this optimism. St. Louis Fed President Musalem highlighted the report’s encouraging aspects, while San Francisco Fed President

Daly expressed relief. Chicago Fed President Goolsbee called the data “excellent news” suggesting inflation is back on track towards the Fed’s 2% target.
However, Chair Powell’s comments regarding the Fed’s pace of rate cuts were intriguing. By saying the Fed can “take its time,” the market is unsure if this implies a pause in rate hikes or the possibility of further tightening.

Source: CME FedWatch

MAG7 EARNINGS WARNING

Tech bull warning from notable tech analyst Dan Niles ahead of Mag7 earnings. He thinks last Thursday’s tech wreck was a warning sign of what could occur if there are any earnings disappointments among the Mag7.

“He plans to be very conservative in positioning the day the members of the Mag7 report. He believes a rising mismatch exists between the capex spent on AI and the resulting revenues being generated.”

COMMODITY FUTURES

A compelling case for long positions in certain commodities given the current economic climate and potential future Fed actions.

Here’s a breakdown of the key points…

Tailwinds for Commodities:

• Fed Cuts: The market anticipates upcoming Fed rate cuts, which have historically led to increased investor interest in commodities in the following year, especially during soft landings (economic slowdown without recession). They point to the 1995 soft landing, where commodities outperformed other asset classes.
• Elevated Inflation: Even with a potential soft landing, inflation is expected to remain high. Commodities perform well in inflationary environments as their prices often rise with inflation.
• Geopolitical Uncertainty: Due to ongoing geopolitical tensions, gold, a traditional safe-haven asset, is seen as particularly attractive.

Commodity Sub-Group Highlights:

• Gold: Some traders are bullish on gold due to the combination of Fed cuts, central bank demand, and its role as a hedge during geopolitical instability.
• Energy: The energy sector is viewed favorably due to its tight supply-demand dynamics in the late cycle.
• Base Metals: A recent pullback in base metals creates a good entry point for investment, considering potential scarcity driven by late-cycle factors.

ENERGY FUTURES

The oil bears might be getting roasted. Time spreads flash a “buy” signal, whispering tales of a tight market.

Refineries are flat-out slammed, bidding up barrels like crazy to keep the product flowing.

This backwardation is music to our ears, confirming analyst reports about a looming supply deficit. Buckle up, shorts; the ride might get bumpy.

Natural gas futures—what a rollercoaster. They held strong against Hurricane Beryl, a real trooper. But then that bearish inventory report dropped them like a ton of bricks. Producers can’t resist cranking up production, flooding the market, and pushing prices down.

U.S. DOLLAR FUTURES & JAPANESE YEN FUTURES

The Japanese yen futures surged last Thursday, fueled by a surprise drop in US inflation data and short covering.

This marked the yen’s biggest one-day gain since late 2022. The data showed the lowest consumer price index reading in over three years, triggering a sell-off in the US dollar.

Yen futures contracts rallied, pushing the exchange rate to 0.006400 yen per dollar.

Traders have been on high alert for more yen intervention from Japanese authorities as they try to prop up its ailing currency.

Some analysts suspect Japanese authorities may have intervened to accelerate the yen’s rise, but there’s no confirmation. This move comes amidst ongoing worries about the weak yen and potential future intervention by Japanese officials.

BITCOIN FUTURES

Bitcoin has recently experienced one of its least volatile three-month periods ever, despite ongoing signs of weakness. This lack of price movement can be frustrating for traders.

However, similar periods of low volatility have occurred throughout past halving cycles. Significant price breakouts and increased volatility have historically followed these periods.

For long-term investors, the current situation may not be a cause for concern.

Asset class performance sheet

These performance charts track the daily, weekly, monthly, and yearly changes of various asset classes, including some of the most popular and liquid markets available to traders.

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