US: Trump Remarks To White House Correspondents' Dinner Underway Shortly

The S&P(ESU6) range overnight was 7404.25 - 7496.50, SPX closed -0.10%, Asia is trading around 7469, +0.55%. The market has bounced strongly on the back of some much better than expected earnings from Micron, taking the sting out of what has been a painful few days for the AI trade. While the market continues to hold above 7250-7300 the bulls still technically remain in control. Is this one-off result enough to turn sentiment around on its own ? This price action will give the Bulls some confidence as the dip once again holds. Support in the ESU6 contract is back toward 7400 which held overnight and then the pivotal 7250-7350 area. I will be watching to see if this bounce is anything more than an opportunity to fade as Month and Quarterly-End supply approaches.   

• EndGame Macro on X: “The AI story can be real and still become financially dangerous. That is the nuance. AI demand is real. Cloud growth is real. Data center demand is real. The need for chips, memory, power, cooling, and networking is real. But markets do not only care whether a technology is real. They care whether the return on capital justifies the spending.”
• “That is where the pressure starts. If these companies are forced to spend more and more just to stay competitive, their old free cash flow advantage shrinks. Buybacks become less powerful. Valuations become more sensitive to earnings misses. Investors start asking how much cash has to be consumed before AI proves it can pay for itself.”
• “This chart(Fig.1) is saying AI is expensive. The hyperscalers are moving from asset light cash machines toward capital intensive infrastructure platforms. That shift changes the valuation debate. The market will now separate companies that can turn AI capex into high margin revenue from companies that are simply spending to keep up.
• “The dangerous point comes when investors realize the spending is no longer optional, but the revenue still is.”  https://x.com/onechancefreedm/status/2069906126045405600?s=20
•  The S&P 500 Index Average True Range(ATR) for the last 10 Trading days:  105 Points

Fig 1: Hyperscaler Free Cash Flow

Source: MNI - Market News/@Hedgeye/BBG/JPMAM

Fig 2: S&P 500 Index Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

In post-Tokyo trade, JGB futures closed sharply stronger, +25 compared to settlement levels, after US tsys finished with benchmark yields 5-11bps lower.

• WTI broke below round number support at $70 as tankers left the Gulf improving the crude supply outlook. Progress on a US-Iran deal and movement through the Strait of Hormuz has seen oil prices fall close to 20% this month.
• Chip stocks drew renewed selling ahead of Micron reporting fiscal third quarter earnings after the close. However, Nasdaq 100 futures are ~2% higher after-market after a strong Micron earnings outlook.
• MNI BRIEF: BOJ's Ueda Sees Rate Rises, No Pace Or Timing Hint. Bank of Japan Governor Kazuo Ueda said Wednesday that the BOJ will continue raising the policy interest rate and adjusting the degree of monetary accommodation as underlying inflation moves closer to the Bank's target. However, Ueda did not provide guidance on the timing or pace of future rate increases.
• "Sanae Takaichi unveiled a plan to invest 370 trillion ($2.3 trillion) over 14 years for Japan's economic development, including massive spending on AI and semiconductors as well as defense, space and shipbuilding." - BBG
• Today, the local calendar will see Weekly International Investment Flow, Leading/Coincident Index, Dept Sales and Machine Tool Orders data alongside 20-year supply and a speech from BOJ Tamura.

TYU6 is dealing at 110-00, flat from closing levels in today’s Asia-Pac session.

• Cash bonds finished near session bests, with benchmark yields 5-11bps lower and the curve flatter.
• The early impetus was Pres Trump saying Iran would not charge tolls for the Strait of Hormuz passage. Whether free passage comes to fruition (not to mention Iran nuclear site inspections) remains to be seen.
• WTI broke below round number support at $70 as tankers left the Gulf improving the crude supply outlook. Progress on a US-Iran deal and movement through the Strait of Hormuz has seen oil prices fall close to 20% this month.
• Chip stocks drew renewed selling ahead of Micron reporting fiscal third quarter earnings after the close. However, Nasdaq 100 futures are ~2% higher after-market after a strong Micron earnings outlook.
• New home sales pulled back sharply in May, again nearing the lowest levels of the last decade (ex-pandemic). With the latest 7.3% drop to 580k SAAR (+3.2% expected), following a 5.7% fall in April, only January's 576k prevented it from being the lowest sales figure since September 2022.
• Cash bonds had pared gains after the thirteenth consecutive tail: $70B 5Y note auction (91282CQX2) drawing 4.200% high yield vs. 4.190% WI; 2.35x bid-to-cover vs. 2.34x prior (2.32x 5-auction avg).