Good morning,
 
Yesterday US equities began the week by continuing the uninspired, summertime action we saw last week. Things turned more negative as the day went on. Oil rose and the long-end of the treasury curve sold off. The Iran situation seems no closer to resolution, if not deteriorating. The ceasefire ended yesterday with no extension agreed to, Iran said it was shifting posture from defensive to “fully offensive” and Trump threatened to bomb Oman if it gets the way. The S&P ended down 0.5% but the equal-weight (-0.8%) lagged. The Russell 2000 outperformed modestly. AI infra, chips and related groups were among the best performers but the megacaps/hyperscalers lagged (MSFT, META down 3-4%). Energy led overall with oil’s gain.
 
S&P futures weakened throughout the overnight session and are a little above their worst levels as we approach the open. Semis, memory and /storage names are under pressure with many down ~5% in the pre-market, reversing yesterday’s strength (DRAM +5%). Fabrinet is down over 10% after earnings, triggering some of the weakness, especially around optical names. Home Depot is trading up about 2% after beating estimates and reaffirming guidance. The company “saw broad based demand across the business as customers continued to engage in smaller projects.” The company is also rolling out its same-day Express delivery service nationwide. Klarna (-20%) beat estimates though Gross Merchandise Volume (GMV) and revenue guidance was lowered, driven by FX and softness in Europe. US volumes guidance looks unchanged. The market is heading into OpEx on Friday, followed by Nvidia earnings and Warsh/Jackson Hole next week, which then puts the mid-terms in the crosshairs.
 
 

 
Treasury yields are up about 1bp across the curve. Lots of focus on the long end with the 30y finally trading back above 5.3% after yesterday’s move. Housing starts were lower than expected and fell from last month, reaching near a 5-year low. However Building Permits rose after 2 straight months of declines. Import prices declined for a second straight month, though they are still up 5.9% y/y and fuel imports (-7%) were the reason for the decline. Ex-fuel, import prices rose 0.4% m/m. Computer/electronic product manufacturing import prices rose 1.2% m/m (9.4% y.y).
 

• US 2yr +1bps to 4.19%, 5yr +1bps to 4.39%, 10yr +1bps to 4.74%, 30yr +1bps to 5.32%
• USD index: -$0.01 to $99.52

Europe is mostly lower thought the UK is marginally higher (oil stocks, pharma +ve). Tech (ASML -3%, Infineon -5%) miners, industrials lagging while energy, retail are leading. German and EU ZEW surveys were better than expected and improved from last month. The Nikkei fell 2.5% overnight. Despite the strength in US semis and memory, Japanese peers fell (Advantest -5%, Kioxia -8%). Softbank is planning a $6B retail-focused bond offering, which would be the largest retail-targeted debt offering ever in Japan according to reports. Japan’s life insurers are now sitting on nearly $200B in unrealized bond losses due the fall in JGBs. In light of that, the 5y JGB auction was relatively strong. India’s NSE, its largest exchange, is seeking to IPO at ~$55B, which would make it the largest ever Indian IPO and the latest blockbuster new listing globally. Mainland China and Hong Kong were marginally higher. Alibaba rose 4% while Baidu rose about 1% on earnings. While global yields rising China is one major exception. Its 10y yield hit a one-year low as economic data continues to be weak.
 

 
Brent is slightly higher, consolidating yesterday’s gains. Metals are modestly lower with yields ticking higher and Dollar Index trying to break through 99.5. Bitcoin is slightly lower and Ag is trading broadly higher.   
 

 
After-Market: FN, FLXS
Pre-Market (Tues): AS, BIDU, HD, KLAR
After-Market (Tues): JKHY, KEYS, LZB, MRCY, TOL, ZTO
 
Economic Data:
US:

• ADP weekly employment: 9.5K vs prior 8.25K
• Housing Starts: 1.239M vs 1.35M cons, prior 1.427M
• Permits: 1.443M vs 1.37M cons, prior 1.374M
• Import Prices m.m: -0.4% vs 0.1% cons, prior -0.3%
• Export Prices m.m: -1.3% vs 0.2% cons, prior -0.7%
• NY Fed Services activity: 0.5 vs prior 8.7   
• 9:15am Industrial Production
• 10:0am Pending Home Sales
• 4:30pm API crude inventories

Global:

• Germany ZEW Current Conditions: -61.1 vs -69.5 cons, prior -77.6
• Germany ZEW Expectations: 34.2 vs 30 cons, prior 26.3
• Europe Expectations: 31.4 vs 25.4 cons, prior 23.4  
• UK Unemployment: 4.9% vs 4.8% cons, prior 4.9%