Good morning,
 
Yesterday was a choppy session with major indices ending the day slightly lower, largely shrugging off the continued deterioration in Iran. Oil prices continued to push higher with ICE Brent trading in the mid-$90’s adding to inflation concerns. 2/5 yr Treasury yields hit new YTD highs as futures are now pricing in a one in three chance that the Federal Reserve hikes rates next week. It was another busy day of earnings which at a high level have continued to be solid but have been met with a mixed response given elevated expectations. Software was an area of particular weakness as Pegasystems was the most recent company to highlight the impact of AI on its results (IGV -3%). Headlines related to the continued demand from the private frontier model companies helped to keep a bid in semis and AI infrastructure stocks. Utilities was the best performing sector up >2% with IPPs leading to the upside. Materials and energy stocks were also higher as commodities rallied broadly.
 
After a busy evening of tech earnings futures were pointing to a modestly lower open however, they have accelerated to the downside over the last hour as markets are now reflecting a risk off tone. ICE Brent is now approaching $100 after Houthis fired at ships in the Red Sea. Treasury yields are pushing to new YTD highs up ~5bps across the curve. It was a very busy 24 hours of earnings. Alphabet earnings were strong, but investors are focused on the FCF burn and increase Capex guidance which is weighing on other hyperscalers. In many cases tech is suffering from very high expectations. In general, industrial earnings were pretty solid.  S&P futures took a sharp leg lower after breaking back below the 50d ma now down ~1%.
 

 
Earnings recap -
 

• Tech - Semis - results in general are solid but very high expectations. Investors punishing hyperscaler spending. Software mixed
  • Alphabet (-5%) - Company had pretty strong results with Cloud a standout. Revenues for the unit were up >80% y/y ahead of street estimates. Search was about inline. Margins were a bit weaker than expected. Investors have focused on the $15B increase Capex budget to $195B - $205B and free cash flow which was down nearly $6B.
  • Tesla (->5%) - missed on the bottom line, FCF was -$1B (vs. -$3.6B est). Optimus on track for production later this year while Robotaxi in 7 cities. FSD subscriptions +>50% y.y
  • Service Now (+5%) - solid results pretty much across the board
  • IBM - had already negatively pre-announced and cut guidance
  • TXN  (-5%) - company beat and raised but stock off on high expectations. Management highlighted strong demand across industrial, automotive, and data center markets, signaling robust industry momentum.
  • STM (down over 15%) - results about in line with estimates but fall short of high expectations.
• Healthcare - Results are mixed. DGX, MEDP, TMO & WST all beat & raise with stocks up >5%. MOH solid numbers but lower on Marketplace headwinds. CYH down>10% after cutting guidance.
• Industrials -
• Defense LMT/RTX both beat and raise up ~5%
• Airlines - modestly lower companies have highlighted pretty strong demand but that is being offset by higher fuel costs
• Other transportation also pretty solid (CSX/KNX)
• Other - HON, URI, ALLE all beat and raise - DOV mixed

 
This morning’s claims came in better than expected falling to 187k from 210k last week with continuing claims ticking below 1.8ml. Treasury yields are moving to the upside up ~5bps across the curve. 10yr yields have joined 2/5yr hitting a new YTD high. The USD index is pushing back over $101.
 

• US 2yr +5bps to 4.36%, 5yr +5bps to 4.46%, 10yr +5bps to 4.71%, 30yr +4bps to 5.19%
• USD index: +$0.35 to $101.31

 
Global markets were mixed overnight. Markets in Asia closed mostly higher helped by the Alphabet Capex guidance and note that most of these markets were closed before oil prices really began to accelerate to the upside. In South Korea GDP was stronger than expected up 3.7% y/y. The Kospi was up 4.4%, the two memory giants were up a similar amount but there was very broad based strength. SK Hynix is reportedly a potential partner for the Intel Ohio fab project. The Nikkei ended slightly higher with strength in tech and financials. After yesterday’s Bloomberg there continued to be speculation that the BOJ could hike rates more aggressively than markets currently expect. However, this is not helping the Yen which has weakened to 163.50¥/$. European indices opened lower and had traded in a pretty tight range before taking another leg lower with US markets now down ~1%. The ECB left rates unchanged as expected. The press conference just started. Markets currently expect the central bank to hike again in September.
 

 
Oil prices are up >5%. After rallying yesterday metals are under pressure. Gold and silver are off 2% and 4% respectively while copper outperforms falling 1%. Ag is mostly higher. Yesterday Republicans released the updated 616 page Clarity Act Bill. Democrats are pushing back suggesting the updates on ethics don’t go far enough. Bitcoin and Ethereum are both pulling back around 2%.
 

 
Earnings:
After-Market: AVB, CCI, CSX, EQR, FAF, FULT, GGG, GL, GOOGL, GTY, IBM, KALU, KNX, LBRT, LUV, MEDP, NOW, OII, PKG, RJF, RNR, RS, SANM, SLG, SON, TCBI, TSLA, TXN, WEX, WH
Pre-Market: AAL, ACI, ALLE, AMP, BFH, BX, CLF, CMCSA, COCO, DGX, DOV, DOW, FCX, HBAN, HOG, HON, LAZ, LMT, NDAQ, NSC, ORI, PCG, POOL, R, ROP, RTX, SNA, TMO, TMUS, TSCO, UNP, VC, VLY, WST
After-Market: ABCB, APPF, ASB, BYD, DLR, INTC, KN, LAZ, MOH, MXL, NEM, OVV, REXR, RNG, SAM, SAP, SCHL, SLM, URI, VRSN
 
Economic Data:
US:

• Initial Claims: 187k vs. 212k cons., prior 208k
• Continuing Claims: 1.796ml vs. 1.81ml cons., prior 1.805ml
• 10:30 Natural Gas Inventories

Global:

• China FDI: -5% prior -8.6%
• Australia Employment: 76.3k vs. 15k cons., prior 43.9k
• Australia Unemployment Rate: 4.4% vs. 4.4% cons., prior 4.4%
• EU Car Registrations: 13.6% prior 3.2%
• ECB Rate Decision: Unchanged as expected