Stock indexes are now sitting at the highest levels they've been all year. Big bank earnings resume today with Bank of America and Morgan Stanley reporting before the market opens. Several midsize and regional financial institutions also release results today, including BNY Mellon, Charles Schwab, Interactive Brokers Group, PNC Financial Services, Pinnacle Financial Partners, and Western Alliance.

Wall Street investors are highly anxious to see how much pressure these smaller institutions are experiencing after strong deposit outflows earlier this year, as well as demand from customers to pay higher rates. J.B. Hunt and Lockheed Martin also report earnings today.

On the economic data front, investors are anxious to see June Retail Sales today with economists expecting a modest increase of about +0.5% versus May. Retail Sales growth has been on the rebound since April following two months of contraction that raised alarms about an imminent recession, as investors thought consumer spending might be slowing.

Bulls on the other hand believe the ongoing inflation slowdown and still strong job market will continue to support consumer spending, which accounts for nearly three-quarters of US economy. In fact, average hourly real-wages in both May and June finally surpassed inflation after two years of strong wage gains was basically erased by surging prices.

Bears, warn that strong consumer spending runs the risk of keeping inflation elevated and the Fed keeping rates higher for longer. Meaning signs that consumer spending is on the rise could convince the Fed that even more steam needs to come out of the labor market in order to prevent inflation from reigniting.

The Fed's next policy meeting is just a week away (July 25-26) and most still expect they will hike by +25 basis-points but many suspect this might be the last one for some time.

The Fed doesn't meet again until September 19-20 and bulls believe inflation data between now and then will sink even lower. There are some concerns that the end of the Black Sea grain deal could send food prices soaring again but that would not have much impact on the inflation gauges that the Fed prefers, which are the "core" reads that strip out food and energy. Other key data today includes Industrial Production, Business Inventories, and the Housing Market Index.

Investors Pulling Money Out of Some Funds on the Rally: Cathie Wood’s flagship exchange-traded fund has rallied more than 50% this year. Investors are using that as an opportunity to get out. They have pulled a net -$717 million from the ARK Innovation ETF over the past 12 months, according to FactSet. That exodus marks a notable shift for a fund that had consistently drawn investor cash since its 2014 inception. Once the largest actively managed ETF with nearly $30 billion in assets under management, the fund has shrunk to roughly $9 billion, mostly due to investment losses. Source WSJ

Morgan Stanley Warns Commercial Real Estate Prices Are Still Expected to Crater: Commercial real-estate prices have been heading lower in the wake of the pandemic and the Federal Reserve’s inflation fight, but the bulk of the pain still looks poised to come, according to Morgan Stanley analysts. Prices for apartment buildings, offices properties and retail centers were pegged at about 8%-14% lower in May from peak levels, or less than Morgan Stanley’s initial estimates. But the worst for property owners looks yet to come, according to Morgan Stanley’s REIT research team led by Ronald Kamden. The team reiterated its call for a 27.4% peak-to-trough price drop for all commercial property types through the end of 2024. That compares with a 34.9% drop roughly 15 years ago during the global financial crisis, but also a subsequent period in which prices rose nearly 150% through the pandemic, according to Morgan Stanley data. BofA Global researchers led by Alan Todd also said that pressure in the office sector could “spill over” into other property types, including hotels and retail, by making refinancing more difficult. Source MarketWatch

More Oil Sales Move to Non-Dollar Currencies: Oil has been priced in dollars for decades, one of the few predictable relationships in a commodity market that can be very volatile. But there’s a shift under way in some countries that is reducing the dollar’s dominance. The most prominent country that has shifted sales away from the dollar is Russia, which accounts for about 10% of oil production, according to J.P.Morgan analyst Natasha Kaneva. Russian oil no longer flows to Europe or the U.S., because of sanctions related to Russia’s invasion of Ukraine, and an increasing amount of its oil has gone to India and China. Other countries that have been sanctioned by the U.S. have also shifted the currencies they use. Venezuela, which has the most oil reserves in the world, started using the Chinese yuan or the euro for its oil trades following the imposition of U.S. sanctions. Overall, about 20% of the world’s oil is now being sold at discounted prices because of sanctions, Kaneva estimates. Much of that trade has moved away from the dollar, or at least has the potential to do so. The shift is important for several reasons. Oil has long traded in an inverse relationship to the dollar. When the dollar gets stronger, oil tends to get weaker, on the margin. But that relationship has begun to wane. The decline of the dollar does not appear to mean a new currency will become the clear leader in the oil trade. No one alternative currency appears to be taking its place. Instead, prices are being denominated in several local currencies. Source Barrons

Proliferation of AI Could Lead to New Financial Regulations: Wall Street’s top regulator says the proliferation of artificial intelligence means governments will probably have to overhaul regulations to maintain global financial stability. Regulators must grapple with challenges posed by the burgeoning technology, according to US Securities and Exchange Commission Chair Gary Gensler. He also reiterated that the agency’s staff was weighing whether new rules were needed. Gensler says the issues surrounding AI have taken on a new importance with recent advances in the tools, which he called “the most transformative technology of our time.” On a more micro level, companies need to be aware of how their use of AI may implicate securities rules, he said. In particular, publicly traded companies should be wary of misleading investors through their corporate statements and disclosures about the risks and opportunities AI might bring, he said. Financial advisers and brokerages are also facing the prospect of a crackdown on conflicts of interest in using AI to steer clients toward products, he said. The SEC is planning to begin considering new rules on the issues as soon as this fall. Source Bloomberg

Americans Still Have More in the Bank Than Before the Pandemic: Despite a year when inflation pushed prices to new heights, Americans are still better off now than before the pandemic, with nearly +10% to 15% more in their bank accounts than in 2019, new checking and savings account data shows. However, households are rapidly spending down that extra cash they’d socked away during the pandemic. Median account balances are at their lowest levels in roughly three years and have dropped as much as -41% from their peak in April 2021, when Americans were flush with government stimulus money and tax returns, according to a JPMorgan Chase Institute analysis of the bank accounts of 9 million Chase customers. Taken together, the data helps explain the big mystery behind how the U.S. economy has managed to avoid a recession that many economists had forecast: Consumers, supported by a strong labor market, have been able to keep spending despite inflation and a sharp rise in borrowing costs. Researchers say households are beginning to settle back into pre-pandemic spending and saving patterns. In the decade between the Great Recession and the pandemic, bank accounts were “very consistent,” said Wheat of the JPMorgan Chase Institute. “There was a lot of stability — and that’s the pattern we’re starting to see again.” Source Washington Post

US Gasoline Demand Growing: Many inside the trade like to keep an eye on US gasoline demand. As you can see in the chart below from the EIA, US demand is now running ahead of last year at this time by +6%. Earlier in the year we were running behind last year's demand. Many of the bulls argue that this is a clear sign the economy is improving and the US consumer is still doing well. Let's keep in mind, prices at the pump are much lower

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