Market 07/16: PPI Inflation Better Than Expected

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Trump: “No intention to fire Powell”

• This morning many media outlets including Bloomberg, NYT, CNBC cited White House sources saying Trump is preparing to fire Powell

→ Market tanks, yields rise, gold surges in 30 minutes after the news

• However, Trump later clarified he has no intention to fire Powell but if Powell is convicted of corruption in building the FED building, he would fire him

Steve still holds the same view:

• Firing Powell is bad, not good for the market, today's reaction shows clearly

• Trump will not fire Powell, this is a politically extremely bad move, not to mention economically

• This morning's articles show many signs of deliberately releasing information based on incomplete sources

→ Market immediately reverses, erasing all movement after Trump's confirmation

Israel bombs Syria

• Israel officially strikes 3 important targets in Syria:

  • Presidential Palace

  • Ministry of Defense

  • Joint Command Headquarters

• This action occurs as Syria continues its civil war against Druze in the South demanding independence

• Yesterday, Druze in Israel protested demanding government intervention

• Syria's new state has not done any provocative actions against Israel, even showing clear willingness to normalize relations by signing the Abraham Accords 

• Syria has not even officially protested Israel's occupation of Mount Hermon after President Assad was overthrown last year, with a direct view into the capital Damascus

• Israeli Prime Minister Netanyahu's corruption trial this morning was suspended midway

• Trump and the US government have called on Israel to stop intervening in Syria

Wholesale PPI inflation falls in June

• Both headline and core PPI lower than forecast

  • Headline PPI +2.3% YoY vs +2.5% forecast, lowest since Sep 2024

• Core PPI +2.6% YoY below +2.7% forecast, lowest since Mar 2024

Notably, both headline and core PPI +0.00% MoM below +0.02% forecast → Wholesale prices unchanged this month

• Services PPI deflates MoM

• Energy PPI deflates YoY

• Services prices -0.1% MoM in June, mainly from sharpest drop -0.9% MoM in transportation and warehousing services prices

• Crude materials prices +5.2% YoY → Input deflation ends

• Processed inputs also +2.5% YoY

→ Risks not gone yet, June PPI inputs down mainly due to services, affected by fuel prices and warehousing

FOMC Michael S. Barr somewhat opposes easing SLR

• Financial regulatory easing often makes banks more vulnerable and causes more severe crises

• Regulations must evolve with changes in the financial system

→ No issue yet but Barr, FED Supervision Vice Chair seems to think easing SLR is a bit too much

Mortgage applications decline, rates rise

• Mortgage applications -10.0% WoW, 30-year rate 6.82% vs 6.77% prior week

• Refinance volume -7.4%, purchase volume -11.8%

Industrial production rises in June

• Industrial production surges in June +0.3% MoM beating expectations +0.1% MoM, +0.73% YoY

• Manufacturing output +0.1% MoM beating expectations 0.0%, +0.8% YoY

• Industrial capacity utilization edges up 77.4% → 77.6%, still in downtrend but improving

→ A bit of hope that trade war is effective in stimulating domestic production, however not certain.

Oil inventories down, gasoline up

• Oil inventories -3.86 million barrels, larger draw than expected -0.552 million barrels

• Gasoline inventories +3.39 million barrels, above expectations 0.952 million barrels

• Strategic Petroleum Reserve SPR draws down for first time since 09/2023

• US oil production remains high despite continued rig count decline

→ Contrary to last week, showing energy demand not an issue but rig count plunge reaching alarming levels

House passes procedural vote on Crypto bills

For a bill to reach the House floor it must pass:

1. Committee Vote: 12 members from both parties

2. Procedural Vote: Full House or Senate, vote on procedure and rule debate, can override Committee Vote

3. Final Vote / Floor Vote: Official vote

3 bills being packaged related to Crypto:

• GENIUS Act (on stablecoin regulation)

• CLARITY Act (on classifying crypto as securities or commodities)

• Anti-CBDC Surveillance Act (on preventing central bank digital currency CBDC)

Vote on main procedural rule (procedural vote) yesterday failed 196-223 → 13 Republican representatives voted no

Trump successfully persuaded, today procedural vote passed 215-211

Trump says enough votes to pass all 3 tomorrow, however only House so far, still needs Senate.

Morgan Stanley

• Revenue: $16.8B, beat forecast $16.04B, +6% YoY 🟢

  • Equities: $7.6B, up from $7.0B last year

  • $3.78 billion $7.8B, +14% YoY

  • Investment Management: $1.6B, +12% YoY

• Revenue: $3.5B

• EPS: $2.13, beat forecast $1.97, +11% YoY 🟢

• $14.67 billion, beating $14.59 billion forecast, up +7% YoY 🟢 $2.35B, above expectations $2.19B 🟢

• Assets Under Management: $1.6T, +8% YoY

• Total Deposits: $389.38B, above estimate $379.12B 🟢

• 15.3% 15.2%

Bank of America: Consumer spending not an issue

• Revenue: $26.5B, below expectations $26.75B, -3% YoY 🔴

  • Consumer Banking: $10.8 billion, up +6% YoY

  • $5.9 billion, up +7% YoY Global Banking:

  • $5.7 billion, down -6% YoY Global Markets Services:

  • $6.0 billion, up +10% YoY FICC Trading:

    • $3.25 billion, up +16% YoY thanks to growth in macro assets Equities Trading:

    • $2.13 billion, up +9.6% YoY thanks to improved trading performance and more customer trading Earnings:

• Revenue: EPS:

• EPS: Net Interest Income:

• $14.67 billion, beating $14.59 billion forecast, up +7% YoY 🟢 Average Total Deposits:

• $1.97 trillion, up +3% YoY → by segment Average Loans:

• $1.13 trillion, up +7% YoY → by segment Irrecoverable Debt:

• $1.5 billion, up $73 million from Q1 2015 CET1 Ratio:

• 15.3% Paid $2.0 billion in dividends and announced dividend increase plan

• Repurchased $5.3 billion in shares

• CEO Brian Moynihan

• Consumers remain resilient, with healthy spending and asset quality

  • We have seen good momentum in our market businesses

  • Steve: “Good, don't like

right here though ER and CEO's comments show the economy is still fine.” Goldman Sachs: Steady business

Revenue:

• Revenue: Global Banking and Trading Services:

  • $10.12 billion Asset Management:

  • $3.78 billion Earnings:

• Revenue: EPS:

• EPS: CET1 Ratio:

• 15.3% Steve: “Overall

at this price quite high but ER of continues to confirm capital markets have no issues yet.” ASML: Cuts 2025 guidance, uncertain about 2026

Revenue:

• Revenue: €7.7 billion, +23% YoY, beat expectations €7.5 billion 🟢

• Lithography systems sold:

  • New: 67 units

• Used: 9 units

• Revenue: €2.3 billion, +4pp YoY

• EPS: €5.90, beat forecast €5.22, +47% YoY 🟢

• Gross margin: 54%, above expectations 51.9%, +2pp YoY 🟢

• Operating margin: 35%, +5pp YoY

• Orders: €5.5 billion, beat expectations €4.80 billion, -0.5% YoY 🟢

  • EUV: €2.3 billion

• Q3 2025 forecast:

  • Revenue: €7.4 billion - €7.9 billion, below estimate €8.2 billion 🔴🔴🔴

  • Gross margin: 50% - 52%

• 2025 forecast:

  • Revenue: +15% YoY

  • Gross margin: around 52%

• CEO Christophe Fouquet: Uncertain about demand in 2026

• Despite ASML's lack of optimism about economic and geopolitical developments, SoftBank and OpenAI still declare very strong AI demand and scale

• CapEx investments by major tech companies have increased very strongly since the AI trend emerged

Steve: “The uncertainty about demand for is not necessarily a warning for chip demand or in general but mainly due to the current supply chain system and technology lifecycle. selling tools to build and upgrade existing chip factories, and if there's no reason to or major customers build new chip factories or upgrade, then demand from this group will decline, not necessarily chip demand declining.”

Market: Went full circle back to the starting point

Light rotation of money flow today opposite to yesterday from semis to healthcare, energy, and consumer

Internals nearly balanced, market dipped after Trump firing Powell news but no panic at all. VIX popped but then fell back.

→ All went full circle back to the starting point

Overall, market dynamics remain quite clear:

• No current fear, no one hedging

• But because no one is hedging, if there's a shock, rush to buy hedges very quickly

• Sell put scenario every dip, suppressing VIX continues → don't know how long it will succeed

Market structure unchanged with SPX > 6200 maintaining bullish bias and call wall at 6300, though small.