A day with some significant data in the US ahead of even more important US jobs data tomorrow:

• Weekly initial jobless claims came in right on the screws for the jobless claims and the continuing claims. Both showed some softening but it was minor
• Q2 labor costs came in much better than expected 1.6% versus 2.6% expected. That is good news if the one quarter is not a fluke. Nevertheless for a data dependent Fed, lower labor costs are good for slower inflation and slower spending to.
• ISM services index came in at 52.7 versus 53.0 expected although it was mixed with some growth signs, but employment slowed. Inflation from price paid increased too.

A summary of the report showed:

• The employment index was 50.7, down from 53.1. Good for tight labor.
• The new orders index was 55.0, slightly down from 55.5. Growth in spending
• The prices paid index increased to 56.8, up from 54.1, potentially indicating rising inflation.
• The new export orders were 61.1, a slight decrease from 61.5 but high
• Imports stood at 52.3, down from 54.6.
• The backlog of orders was 52.1, up significantly from 43.9, indicating a rise in demand.
• Inventories were at 50.4, down from 55.9, potentially suggesting tighter supplies.
• Supplier deliveries were at 48.1, slightly up from 47.6.
• Inventory sentiment was 56.6, up from 54.0.

Comments from various sectors suggest an environment of steady and stable business with ongoing concerns around inflation, supply chain stability, and hiring difficulties amid economic uncertainties. The rise in the prices paid index may reflect increasing gasoline prices. Overall, while there are signs of economic recovery, challenges remain, particularly around supply chains and labor markets.

Richmond Fed President Barkin spoke and was hopeful for slower growth and inflation. He underscored a range of significant economic concerns and predictions. He expressed concern over the high rate of inflation, while also indicating some optimism regarding last month’s inflation reading, which he described as ‘good’ and hoped it signaled a positive trend. He clarified that the objective is not to cause a recession but to reduce inflation. In the event of a recession, he suggested it might be less severe and cause less labor market dislocation than might otherwise be expected. Looking forward, he anticipates that further economic slowing is ‘almost surely on the horizon’. Despite current weakening trends, he asserted that consumer spending is ‘far from weak’. He acknowledged that attempts to address inflation have resulted in ’mini-recessions’ in several industries. Interestingly, he stated that economic dislocation caused by the pandemic has been among the factors preventing a full-scale recession so far.

Other central bank news came from the BOE who raised rates by 25 basis points. The consensus was for 25 bps, but there also was some who thought another 50 bps was warranted. Overall, BOE Baileys comments were thought to be a bit dovish. More specifically:

• He anticipates inflation to drop to approximately 7% in July and further decrease to around 5% by October. This prediction is influenced by a more gradual decline in energy prices in comparison to the Euro Zone. While food and drink inflation seems to have peaked, Bailey mentioned the decrease in food price inflation has been slower than expected due to global factors, including minor effects from Russian restrictions on grain exports. It remains unclear how quickly non-energy prices will decrease, and persistent strength in service price inflation could indicate ongoing high inflation.
• On monetary policy, Bailey acknowledged the evident influence of a higher bank rate, stating that the BOE will evaluate the most fitting path for rates based on evidence, and balance risks accordingly. He dismissed the necessity of a 50 basis point rate increase at the moment, reiterating the BOE’s approach is evidence-driven and has no preset course for interest rates.
• Concerning the labor market, Bailey emphasized that the status of the labor market and wage rates significantly affect the economy. He observed that recent pay growth is notably above the Bank’s May forecast, implying that secondary impacts of wage inflation might take longer to dissipate.
• Regarding economic growth and resilience, Bailey noted that projections for economic activity have weakened since May, with some unexpected downturns in June but also signs of recovery. He recognized the resilience of the economy, evident in the historically low unemployment rates. Bailey was careful not to describe the impact of the policy as “painful” and expressed optimism in achieving the expected path without a recession.

Overall, there is a softening of the terminal rate for the BOE after the meeting and comments.

In the forex market, the JPY is ending the day as the strongest of the major currencies while the NZD is the weakest. The USD is ending the day marginally lower, but the EUR, GBP, CAD, AUD and NZD all had up or down changes of 0.15% or less on the day. The dollar fell -0.53% vs the JPY and -0.31% vs the CHF accounting for most of the USDs decline today.

A look at other markets as the day comes to a close shows:

• Crude oil rose sharply by $2.26 or 2.84% to $81.75. The high for the day reached $81.86. The low was at $78.69. Recall yesterday, the inventory data for the week showed a huge drawdown yet the price moved lower. Not today. Saudi Arabia also announced that they would continue with their voluntary 1 million barrel per day production cut.
• Spot gold is little changed at $1934.40
• Spot silver is down -$0.13 or -0.56% at $23.57
• Bitcoin is trading marginally higher from early New York levels are $29,284. It was trading around $29,150 at the start of the New York session

In the US debt market, yield continued their move to the upside especially out the curve, with the 10-year moving closer to the 2022 high yield of 4.335% (end of October levels)

• 2 year yield 4.887%, -0.4 basis points.
• 5-year yield 4.295%, +5.4 basis points
• 10-year yield 4.183%, +10.05 basis points
• 30-year yield 4.302%, +1.3 basis points

The 2 – 10 year spread has narrowed its inversion to -70 basis points. It was as inverted as -109 basis points on July 3. The 2 – 30 year spread widened to -58.5 basis points after being as inverted as -109 basis points on July 6.

When the US stock market the major indices close marginally lower:

• Dow industrial average -66.63 points or -0.19% at 35215.90
• S&P index -11.52 points or -0.26% at 4501.88
• NASDAQ index -13.74 points or -0.10% at 13959.17

In after hours, the major earnings releases showed more BEATS (on top and bottom lines) vs MISSES (with a miss on top or bottom or both lines). There were 10 BEATs, and 3 MISSES

Apple Inc (AAPL) – BEAT

• EPS: 1.26, expected: 1.19
• Revenue: $81.80 billion, expected: $81.69 billion
• Apple shares are trading at $189.59 down -0.67%

DraftKings Inc (DKNG) – BEAT

• EPS: -0.17, expected: -0.25
• Revenue: $875 million, expected: $760 million
• shares are trading up 9.34% $32.79

Microchip Technology Inc (MCHP) – MISS

• EPS: 1.21, expected: 1.64
• Revenue: $2.29 billion, same as expected
• Shares are trading down 4.49% $85.50

EOG Resources Inc (EOG) – BEAT

• EPS: 2.49, expected: 2.32
• Revenue: $5.57 billion, expected: $5.31 billion
• shares are trading down 0.71% $130.75

Block Inc (SQ) – BEAT

• EPS: 0.39, expected: 0.36
• Revenue: $5.53 billion, expected: $5.1 billion
• Shares are trading down -3.87% at $70.70

Coinbase Global Inc (COIN) – BEAT

• EPS: -0.42, expected: -0.77
• Revenue: $0.663 billion, expected: $0.63 billion
• shares are trading down -1.13% at $89.72

Fortinet Inc (FTNT) – MISS

• EPS: 0.38, expected: 0.34
• Revenue: $1.29 billion, expected: $1.3 billion
• shares are trading down -17.25% at $62.69

Airbnb Inc (ABNB) – BEAT

• EPS: 0.98, expected: 0.76
• Revenue: $2.48 billion, expected: $2.42 billion
• shares are trading down -1.35% $138.98

Stryker Corp (SYK) – BEAT

• EPS: 2.54, expected: 2.38
• Revenue: $5 billion, expected: $4.82 billion
• shares are trading up 2.68% at $283

Gilead Sciences Inc (GILD) – MISS

• EPS: 1.34, expected: 1.64
• Revenue: $6.60 billion, expected: $6.44 billion
• shares are trading up 0.69% at $76.05

Amazon.com Inc (AMZN) – BEAT

• EPS: 0.65, expected: 0.35
• Revenue: $134.4 billion, expected: $131.5 billion
• Amazon shares are trading up 6.73% $137.52

Amgen Inc (AMGN) – BEAT

• EPS: 5.00, expected: 4.49
• Revenue: $6.99 billion, expected: $6.68 billion
• shares are trading up 0.4% at $231.62

Booking Holdings Inc (BKNG) – BEAT

• EPS: 37.62, expected: 28.80
• Revenue: $5.5 billion, expected: $5.17 billion
• shares are trading up 12.68% at $3200

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