Market 07/18: Job data continues to deteriorate

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Initial jobless claims hit the highest level since 8/2023

• Initial jobless claims last week reached 243,000, higher than the expected 229,000 and sharply up from 223,000 the previous week

  • The pre-seasonally adjusted figure is 279,000 claims

  • The adjusted figure is still the highest since 08/2023

• Continuing claims hit 1.867 million, sharply up from 1,847 million last week

  • This figure is the highest since 11/2021

• Jobless claims surge in Texas due to Hurricane Beryl impact

Although the impact of Hurricane Beryl in Texas is not insignificant, continuing claims and new claims in California still show a strong fracture in the job market.

Pressure from within the Democratic Party may force Biden to drop out

• After the failed assassination attempt on former President Trump and Biden's recent "not good" interviews, Trump's odds of winning have stabilized at 63% in casinos

• Yesterday President Biden said he would drop out "if he encounters health issues" and just a few hours later Biden announced he had COVID-19

• Last night, many media outlets reported that the top figures in the Democratic Party have asked Biden to drop out, including Nancy Pelosi and former President Barrack Obama

If Biden drops out, Kamala Harris will replace Joe Biden as the Democratic Party's Presidential nominee. Current data shows Kamala is not a candidate trusted by many voters, with approval at 38.4% and disapproval at 50.4%.

• However, due to election finance laws, only Kamala can use the money donated by people to the campaign.

• Additionally, with Trump's winning odds quite high, few other candidates will risk running this year and will wait until 2028.

European Central Bank holds rates as expected, waiting for FED to act together in September

ECB statements:

• Continue to follow data

  • “continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.”

• No certainty on any interest rate decisions

  • “The Governing Council is not pre-committing to a particular rate path.”

• Most components of inflation were flat or slightly down in June

  • “most measures of underlying inflation “were either stable or edged down”

• Wage inflation remains high as corporate profits with domestic prices may still be high next year

  • “domestic price pressures are still high”… impact of high wage growth "buffered by profits"

Overall, this is what the market expected so EUR didn't move much after the decision. ECB seems to wait for FED and continue quarterly rate cuts (i.e. in September)

New information on the assassination attempt on former President Trump raises many concerns

In yesterday's Senate hearing, the Secret Service provided the exact timeline of the perpetrator's actions as follows:

5:10PM - Perpetrator flagged as suspect

5:30PM - Perpetrator seen with gun rangefinder

5:52 - Perpetrator seen on rooftop by U.S. Secret Service agent

6:02 - Trump takes the stage

6:12 - Perpetrator fires first shot

Huge questions remain about the 20 minutes between 5:52 and 6:12 why there was no reaction from the Secret Service.

• Today we received more information that police had a sniper on duty right inside the building the perpetrator used to assassinate Trump

• Local police notified the Secret Service in advance that they didn't have enough people to station on the rooftop

The internal investigation is still ongoing.

Economic data continues to point towards recession

• Leading economic index fell -0.2% in June, less than expected -0.3% but still in downtrend since Feb 2022

  • CB LEI has accurately predicted 6/7 recessions since inception in 1967

• 346 large companies bankrupt in first 6 months, highest in 14 years since 2008 crisis bottom

  • 55 of them in retail sector showing weakening consumer spending

  • Note this figure only considers companies with over $10 million in assets or debt

• President Biden's administration may forgive another $1.2 billion in student debt soon.

  • Total $168.5 billion for 4.76 million people

Earnings reports: United Airlines, TSMC

United Airlines: Beats expectations but still slowing

• Q2 Revenue $14.9B +6% YoY in line with estimates

• Operating margin -3.65% YoY to 13.1% beat 12.5% est

• EPS $4.14, -18% YoY but +5% above expectations

Overall, market expectations for UAL were quite low due to disappointing earnings from DAL, so in this report UAL beat market expectations but still shows slowing air travel demand.

TSM: Beats estimates but still can't go green

• Revenue +40% Y/Y $20.8B ($0.7B beat).

• Gross margin 53% (-1pp Y/Y).

• Operating margin 43% (+1pp Y/Y).

• Capex $6.3B.

• EPADR $1.48 ($0.06 beat).

3nm and 5nm chips account for 15% and 35% of revenue

• Raised full-year revenue forecast by 1.6% and profit by 4.4%

TSM earnings clearly show investors' topping-out sentiment for semis. Strong double beat and raised guidance but still can't go green. TSM remains a good company but current valuation seems a bit high per market view.

Market: Volatility returns in ER season

Both last week and early this week, funds sold tech and bought energy stocks but no strong signs that retails have given up

Volatility returns to market today with signs of Dispersion continuing, creating an 'uneven' state in the market with tech breaking, banks retreating, and money continuing to flow into energy

Structurally, SPY 560 / SPX 5620 is risk off level, below that SPX neutral. This is the early morning SPX pullback level.

QQQ also held the 480 put wall

IWM currently successfully defended 220 gamma flip

Overall, all indices are right at support levels, if they continue down we'll enter risk-off state. Today's internals still neutral-to-slightly bearish with low liquidity and no panic yet. Most selling volume is money rotation.