Today
Stock futures are moving higher this morning following last week’s tech-led selloff, with semiconductor stocks rebounding as investors shifted their focus to upcoming Big Tech earnings. Results this week from Alphabet and Tesla are expected to test whether massive AI-related capital spending is translating into meaningful earnings growth. Sentiment towards tech stocks has turned more cautious following last week’s selloff in semiconductors, with markets needing more evidence that massive AI investments are translating into stronger earnings and cash flow. Investors are also assessing the latest developments in the Middle East, as the conflict between the U.S. and Iran continued to escalate over the weekend. While the U.S. continued to carry out airstrikes while Iran maintained attacks on U.S. regional assets, investors are taking some comfort that diplomatic efforts by regional mediators appear to be proceeding.
Cooling. Inflation in Canada slowed to 2.8% in June, coming in below expectations as lower gasoline prices helped ease headline inflation. The Bank of Canada’s preferred core inflation measure also fell below 2% for the first time in nearly six years. The softer report suggests that, despite ongoing geopolitical pressures on energy markets, broader inflation remains contained as underlying economic slack offsets price pressures. The data supports the BoC’s view that inflation is moving back toward target and reduces the immediate need for additional interest rate hikes, although policymakers are likely to remain cautious given uncertainty surrounding energy markets.
Investors this week will also focus on the ECB, who are widely expected to keep interest rates unchanged on Thursday, while signalling that a 25 bps rate hike remains on the table for their September meeting. Economists believe policymakers will use the additional time to assess inflation, economic growth, and the impact of renewed Middle East tensions on energy prices before deciding whether further tightening is necessary. While most expect the deposit rate to peak at 2.5%, the outlook remains data dependent, with easing inflation and any improvement in geopolitical conditions potentially allowing the ECB to avoid another rate increase.
The UK gets a new PM more often than I get my oil changed. Andy Burnham officially took office as the U.K.’s prime minister, pledging to restore political stability and rebuild confidence after a decade of frequent leadership changes. Succeeding Keir Starmer, Burnham emphasized making the government more effective and signaled a focus on long-term stability as his new administration begins. Investors will watch closely for further details on his policy agenda, especially around fiscal policy, economic growth, and energy strategy, including accelerated North Sea oil and gas developments. Markets have been reassured by his expected choice of a more moderate finance minister, although concerns remain that higher public spending could pressure U.K. government bonds if fiscal policy becomes more expansionary.
Growing dispersion in U.S. equities is prompting some hedge funds to bet on a reversal, as individual stock volatility has climbed to multi-year highs while overall S&P 500 volatility and stock correlations remain unusually low. Rather than using the traditional dispersion trade, which benefits from large moves in individual stocks, some investors are positioning for a macro-driven market shock that would cause stocks to move more in unison, making index volatility outperform single-stock volatility. While AI-related sector rotation and earnings have fueled the current environment of elevated stock-specific moves, some strategists believe the extreme divergence has created an attractive risk-reward opportunity for a rebound in market correlation if broader economic or geopolitical events begin driving the market.
Corporate insiders in the U.S. sold $77.6 bln of company stock during the first half of the year, the second-highest level in more than two decades, and 20% above the same period last year. A recent report also found that insider buying was lower than usual for the same period. The elevated level of selling suggests many executives believe current equity valuations are stretched, even as the S&P 500 has gained about 10% YTD. Although insider selling can reflect personal financial planning rather than negative business outlooks, the imbalance between selling and buying may signal increased caution among those with the closest knowledge of their companies, especially as concerns over elevated AI-related valuations grows.
No Messi magic this time. Spain won its second FIFA World Cup title yesterday with a 1-0 extra-time victory over Argentina. The decisive goal came from Ferran Torres after Argentina was reduced to 10 men following Enzo Fernández’s late red card. Spain held possession the majority of the game, while Argentina struggled to generate meaningful attacking chances in what is expected to be Lionel Messi’s final World Cup appearance. The victory capped a dominant tournament for Spain, attracting a global audience with some estimates pointing to 1.8 bln viewers. Even if you aren’t into soccer football, there may have been something for you, with the game being introduced by Tom Cruise and a halftime performance which featured Madonna, BTS, Shakira, and Justin Bieber, marking a memorable end to the game’s biggest event.
Diversion:
Getting out of a jam
