Rise and shine everyone.

Yesterday’s pressure on tech stocks seems to be reversing today, after a tougher Asian session. Tokyo Electron fell a further -10% after yesterday’s -7%. TSMC reported earnings, and that’s led to some optimism, particularly in chip stocks. TSMC beat EPS by $0.07, beat on Revenue and revenues rose 34.6% year/year to $20.82 bln vs the $20.33 bln FactSet Consensus. They guided Q3 revenue in-line but, raised their 2024 outlook on Revenues citing stronger demand.

The price action yesterday was likely an overreaction. True, that we’re coming up on a window of weakness in the markets, starting right about now until about mid-late August but, I would presume the correction to be more orderly and not as drastic as we saw yesterday.

Japanese equities closed lower, as exporters were lower on stronger Yen. The Yen continued to gain in early trading before reversing after Japan reported an unexpected trade surplus. Former BOJ Director Hayakawa also said that he doesn’t see a rate hike in the meeting, adding to some of that pressure.

The ECB’s rate decision is today at 8:15 am ET. There’s not much going on there, after the first cut last month. But, the market will likely be looking for signs of when the next cut may come and the pace of cuts. It’s unlikely that they will make any specific comments on the pace but, they may hint at the timing of the next cut.

US Equity Futures are looking better as we said earlier, but the Dow and Russell 2000 continue to remain in the red. US Yields are marginally higher across the board, along with precious metals. Copper and Oil are pulling back. Bitcoin is closing in on 65k.

Netflix reports tonight.

Charts of the Day

Here’s one way to look at spreads - we look at the spread between CCC (serious Junk) Bonds vs B-rated bonds.

According to BofA, this is the widest divergence since the dot-com bubble. CCC bond yields have risen drastically, but B-rated bond yields have actually declined. Again, it’s that K-shaped situation, where the bottom of the market is actually starting to show signs of severe distress. The issue with distress situations such as this is that it doesn’t take long for it to catch on. I’m not saying there’s an imminent negative credit event on the horizon, but more that things are not as rosy as they seem and we’re seeing parts of the market come under pressure. So, let’s think twice before “investing” in lower-grade companies because they seem cheap.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)