This Week

A fairly quiet weekend on the news front, which has been fairly uncommon over the past 2 months. The week ahead also starts off on the quiet side as far as known catalysts but picks up mid week with CPI/PPI. There’s of course the chance for trade war headlines at any point, particularly as the early July deadlines get closer. Sunday night futures reflect the lack of volatility entering the week, with the major indices looking basically unchanged from Friday’s close. More on the week ahead below, but first a check in on some stories from the weekend:

• Export Controls to Take Center Stage at U.S.-China Trade Talks (WSJ)

  • Export controls—a major concern for industries worldwide—are moving to the top of the agenda of trade talks between the U.S. and China on Monday. The trade war between Washington and Beijing has in recent weeks veered away from tariffs, focusing instead on each country’s restrictions on material or products the other side desperately needs.

• Westinghouse targets $75bn US nuclear expansion after Trump order (FT)

  • Westinghouse is in talks with US officials and industry partners about deploying 10 large nuclear reactors to meet the goals of President Donald Trump’s executive orders, which aim to unleash an American atomic energy renaissance. The Pennsylvania-based nuclear developer is one of a handful of western companies capable of designing and building large reactors, which typically have capacity to generate about 1,000MW of electricity, enough to power more than 500,000 homes.

• The U.S. Economy Is Headed Toward an Uncomfortable Summer (WSJ)

  • The U.S. economy, which weathered false recession alarms in 2023 and 2024, is entering another uncomfortable summer. Job growth held steady in May, with the economy adding 139,000 jobs. The unemployment rate has stayed in a tight range, between 4% and 4.2%, over the past year. Companies are freezing hiring and investment to deal with shifting tariff policies. ‘Even Trump doesn’t know what Trump will do next.’

• Despite Trade War, U.S. Drug Companies Turn to China for Key Cancer Treatments (Barron’s) 

  • The drug industry has spent months going along with the Trump administration’s efforts to move manufacturing and investment into the U.S., and to disentangle the U.S. and Chinese economies. A long list of big pharmaceutical firms have committed tens of billions of dollars to factories and research facilities in the U.S. U.S. drug companies are increasingly licensing experimental medicines from Chinese firms. The recent deals could be worth up to $25 billion.

• Yield Hunters Fuel a $331 Billion Wave of Emerging Bond Sales (Bloomberg)

  • Strong demand from yield-hungry investors is driving a surge in developing-world bond sales as borrowers race to secure financing ahead of any further wobbles in global markets. Since the beginning of the year, emerging-market governments and companies have sold $331 billion in debt denominated in hard currencies like the dollar and euro, according to data compiled by Bloomberg. That is the fastest pace in four years and already surpasses the total in the first half of 2024. Investors have fueled a broad rally in international assets amid questions about the long-standing dominance of US markets, which have sent the value of the dollar down. Bank of America Corp. and JPMorgan Chase & Co. both forecast that EM assets should gain with a declining dollar, while Societe Generale said local assets in developing nations are going through a “goldilocks” moment.

• Why Disney and Universal are investing billions into their theme parks (CNBC)

  • The Walt Disney Company and Universal, two of the biggest names in theme parks, are both undertaking historic expansions to their experiences businesses. Universal Orlando Resort in May opened the gates to Epic Universe, its fourth theme park at its flagship resort. Epic cost an estimated $7 billion to build, according to numbers provided by the University of Central Florida. Brian Roberts, Chairman and CEO of Universal parent company Comcast , called it the “single-largest investment Comcast NBCUniversal has made in its theme park business”.

Volatility expectations for this week are extremely low. The VIX finished Friday at its lowest level since February (16.80) and SPX at the money IV for Monday and Tuesday is close to 10. That picks up a bit on Wednesday for CPI but we’re talking 12-13IV, some of the lowest we’ve seen all year:

This Week’s Expected Moves:

• SPX/SPY: 1.4% (5900-6100)

  • QQQ: 1.8%

  • IWM: 2.2%

  • TLT: 1.7%

  • USO: 3%

Clearly the CPI/PPI combo on Wednesday and Thursday will garner the most attention, and markets are pricing the potential for the most volatility in the last three days of the week. But again, with the SPX closing at 6000 on the nose on Friday, traders are clearly expecting some level of consolidation here with that level potentially acting as a magnet for a few days at least. Apple’s WWDC is this week so look for some volatility for AAPL itself, but also on some of the news around other iOS dependent names.

Economic Calendar: 

• Monday 

  • 1pm Apple WWDC Keynote

• Wednesday

  • 8:30am - CPI

  • 2pm - US Monthly Budget Statement

• Thursday

  • 8:30am - PPI

  • 8:30am - Initial Jobless Claims

• Friday

  • 10am - UofM Consumer Sentiment

Earnings season is getting thin at this point but we do hear from both ORCL on Wednesday as well as ADBE on Thursday:

Earnings (with expected moves):

• Tuesday

  • After-hours: GME 10%

• Wednesday

  • Pre-market: CHWY 9%

  • After Hours: ORCL 7.5%

• Thursday

  • After Hours: ADBE 7%, RH 15%

The lack of volatility priced for this week may end up being somewhat self fulfilling, and it would make perfect sense for equities to perhaps consolidate at this level following such a steep climb. But we’ve recently seen a lot of volatility within the treasury and FX markets, and with inflation data being the remaining piece of the mixed economic puzzle of the past two weeks, it would not be inconceivable for options to be currently underpricing volatility for the second half of the week.

We’ve got a great week of content, stay tuned and get those questions in for the shows.

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