Good morning,
 
Yesterday was Fed Day and with it came some volatility. There was a little drama heading into the rate decision but at the end of the day the Federal Reserve left rates unchanged. After the unanimous decision in his first meeting the family Warsh looks for led to three dissenters who preferred a hike. Warsh implied that the market tightening of financial conditions inter-meeting, which he credited to the lack of forward guidance, was doing some of the Fed’s job for them, the initial read was dovish with yields, particularly the 2yr, moving lower (partially positioning-related) and equities rallying. However, 10 and 30y yields started to move higher during Q&A, when reporters began to zero-in on the inflation framework and “what are you waiting for” to hike rates. He didn’t provide any clarity and at times the statements seemed to be contradictory, leaving markets to price in additional uncertainty. The yield curve steepened significantly with the 30yr yield hitting a new YTD high and the highest level since 2007. In the final hour of equity trading the S&P 500 reversed ~130pts to close at session lows down ~1.5%. The momentum unwind continued with the AI capex beneficiaries getting hit the hardest. President Trump was also speaking in the final hour of trade re-iterating that the US was going to hit Iran hard. Oil prices ended the day up >5% with ICE Brent trading back above $90.
 
It’s a very busy morning chock full of earnings and important economic data while investors continue to debate yesterday’s rate decision. Shortly after the close the mega-cap tech earnings began to roll in and they were a mixed bag. Microsoft is the star (+10% pre-market). Sentiment was pretty negative coming in, but solid numbers pretty much across the board. Azure growth came in ahead of estimates up 45% on a constant currency basis and the company highlighted Copilot adoption. The Capex guidance was largely inline with estimates while the company seemed to highlight some flexibility in that spending while the CFO noted the company would be FCF positive next year. For Meta (-10%) headline EPS was a miss but ex-items the results were a touch ahead of estimates while Q3 rev guidance disappointed. FCF was better than expected though. The company increased the bottom end of its Capex guidance to by $5B to $130 - $145B, and Mark Zuckerberg pushed back on the idea of the company leasing out compute capacity, prioritizing focusing on the long-term strategy as opposed to short term monetization. There are too many other earnings reports to cover here but overall the results continue to be impressive. After yesterday’s afternoon sell-off, S&P futures have bounced back ~0.8% and are trading pretty much where we were ahead of the Fed rate decision.
 

 
 
We’re following up yesterday’s Fed Day with a big morning for economic data. Headline June PCE fell 0.1% m.m, as expected, and down from last month’s 0.5%. Core rose 0.1% a tick below the 0.2% consensus and also down from last month’s 0.3% growth. This is another coolish inflation print following the last CPI and PPI prints and adds credence to the Fed’s decision to keep rates unchanged yesterday. Q2 GDP rose 1.5%, below estimates and last month’s 2.1%. Higher imports were the main drag, pulling GDP down over 1%, while Consumer Spending was strong, growing 3.2% (up from 0.5% last quarter) and contributing 2.0% to the overall growth (so, more than the total 1.5% growth). Non-residential equipment fixed-investment rose 15.2%, only slightly lower than last quarter’s 15.8%. Residential fixed investment rose 1.5%, turning positive after five straight quarters of decline. Personal Income rose 0.2%, slightly below consensus while Personal Spending was inline at 0.3%. Jobless claims continue to remain low. The 2y is down another 3bp, following yesterday’s drop. Longer-tenor yields are about unchanged, taking a breather after yesterday’s sprint higher. The US Dollar Index is following the short end lower.
 

• US 2yr -3bps to 4.24%, 5yr -1bps to 4.39%, 10yr +0bps to 4.68%, 30yr +1bps to 5.21%
• USD index: -$0.14 to $100.59

Japan’s Nikkei closed up 0.7% but most of the market was down, with notable weakness across financials while hard-hit tech names saw a bounce - Advantest +11%, Kioxia +3%. SoftBank dropped 3%, following ARM’s negative earnings reaction yesterday (-8%, SoftBank owns most of ARM). The BOJ’s policy decision is tonight, with consensus calling for a hold. The Japanese government lowered its FY26 GDP growth estimate from 1.3% to 0.9%, mostly on Middle East factors. China’s markets were mostly lower except for a modest gain in the Hang Seng. Semis and other AI-related stocks were under heavy pressure (Z.AI -17%, SMIC -8%). Zhongji Innolight, the largest new listing in Hong Kong since 2019 (it’s also listed in Shenzhen), fell 2% in its Hong Kong debut. Over in South Korea, Samsung fell 1% on its earnings and SK Hynix dropped 6% but the KOSPI was down only 1%. Samsung noted it expects memory shortages to persist through 2028 and worsen in 2027. It also said its not conducting a review of an US ADR listing at this time. European markets are higher this morning. Financials are strong across-the-board, along with miners and industrial/manufacturing names. Tech leaders ASML and Infineon are up 3-4%. The BOE followed the Fed’s lead and kept rates unchanged, as expected.  German Q2 GDP was better than expected (0.9% y.y vs 0.6% consensus and 0.7% prior), as was the Euro Area overall. European economic sentiment also beat and improved from the prior month.
 

 
Crude is also taking a breather after yesterday’s run higher, down about 1% despite the US launching retaliatory strikes against Iran (which President Trump said would happen yesterday). Natural gas is lower as well. Metals are higher. Gold held $4000 yesterday and is back into its 20d ma ~$4075. It ended yesterday largely unchanged despite the jump in yields. Bitcoin is up about 2%, approaching $65K as the 50d continued to hold. Like gold it was largely unchanged despite the yield vol.  
 

 
 
Earnings:
After-market (Wed): ACR, AEM, AM, AR, ALKT, ARM, AWK, BHC, BHE, BNL, CHRW, CMG, CMTG, CNMD, COUR, CRK, CSL, CVI, CVLG, CVNA, CWH, EG, EIG, EQIX, EPR, ESS, ETD, FBRT, FCPT, FICO, FLS, FMC, FTNT, GFL, GKOS, GRBK, HLI, HOOD, HXL, INVH, KGC, LRCX, LXU, MAA, MAX, MC, META, MGM, MOD, MSFT, MTG, MTH, MX, NEU, NFG, NGVT, NPKI, NSP, OHI, PBI, PCOR, PEB, PFS, PFSI, PMT, PSA, QCOM, QTWO, RGR, RM, RSI, RYZ, Samsung, SBUX, SCI, ST, TDOC, TK, TNK, TYL, UAN, UIS, VICI, VTR, WHD
 
Pre-market: AAMI, ABEV, ADT, AG, AGCO, AOS, APD, APG, AVY, BAX, BBT, BC, BDC, BFLY, BIP, BLDR, BMY, BXMT, CFR, CI, CNK, CNX, CRH, CRS, CWT, DAR, DFIN, DSX, DTM, EME, EPD, EXC, FCN, FSS, FTI, GATX, GOOS, GPI, GVA, H, HGV, HII, HIPO, HNI, HSY, ICE, IDA, IP, JLL, KBR, KKR, KRG, LH, LNC, LTH, MA, MAIR, MCS, MICC, MLM, MO, MYE, NCLH, OWL, PBF, PHIN, PIPR, PWR, RACE, RAL, RES, SAH, SO, STNG, SXC, TEX, TNET, TRN, TT, TWI, VIRT, VLO, VRTS, WBX, WCC, XEL, XHR, XPO, YUM, YUMC
 
After-market: AAPL, ADC, AEE, AGM, AMH, AMZN, ATR, AJG, AX, BFAM, COIN, CPT, CS.CN, CNO, CTVA, CUZ, CUBE, DLB, DXC, DXCM, EMN, EIX, EGO, ES, FHI, FND, FET, GDDY, HR, HTGC, HUN, IR, ILMN, INGM, LYV, MTZ, MTD, MTX, MHK, MSA, MSTR, OLN, KWR, RDDT, RBLX, RYAN, SAFE, SNDR, SPXC, SYK, VALE, WU, WY
 
Economic Data:
US:

• PCE:  -0.1% / 3.7% m.m / y.y vs. -0.1 / 3.7% cons, prior 0.5% / 4.1%
  • Core-PCE: 0.1% / 3.3% m.m / y.y vs. 0.2% / 3.3% cons, prior 0.3% / 3.4%
• Personal Income: 0.2% vs. 0.3% cons., prior 0.7%
• Personal Spending: 0.3% vs. 0.3% cons., prior 0.7%
• Q2 GDP: 1.5% vs. 2.1% cons., prior 2.1%
• Initial Claims: 197k vs. 200k cons., prior 187k
• Continuing Claims: 1.782ml vs.  1.8ml cons., prior 1.796ml

Global:

• Spain CPI: 0.2% / 3.5% m.m/y.y vs. 0.2%/3.4% cons., prior 0.6%/3.2%
• EU Q2 GDP: 0.4% q/q vs. 0.2% cons., prior 0%
• EU Unemployment: 6.3% vs. 6.2% cons., prior 6.3%
• Germany Q2 GDP: 0.2% q/q vs. 0.1% cons., prior 0.4%
• Germany inflation: 0.8% / 2.8% vs. 0.7% / 2.7% cons., prior -0.3% / 2.3%
• BoE leaves rates unchanged 3.75%