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“The most difficult thing is the decision to act, the rest is merely tenacity.” – Amelia Earhart
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures are looking to close out a negative week on a high note. S&P 500 futures are up 0.3% while the Nasdaq is on pace for a slightly smaller gain of 0.25%. Lower oil prices have provided a boost, with WTI trading below $90. The weakness in oil also has treasury yields pulling back slightly. Gold is fractionally higher, while Bitcoin trades modestly higher at just above $65K.
In Asia, stocks were lower across the board, taking most indices in the region into the red for the week. South Korea’s KOSPI fell 5.7%, pushing its weekly performance into the red with a decline of nearly 2%. There was a time when a 5% move in the KOSPI made headlines, but that’s almost become the norm lately. In economic news, the biggest headline out of Asia was Japan’s June CPI, which rose 0.3% versus forecasts of 0.4%.
European stocks have ignored the overnight weakness in Asia, as they move higher across the board. The STOXX 600 is up 0.4%, led higher by Germany (0.9%) and Spain (0.8%). Flash PMI readings for July have generally been stronger than expected, and Retail Sales in the UK surprised to the upside.
In the US today, we’ll get our own round of flash PMIs for the manufacturing and services sectors at 9:45, and then we’ll close the data week with New Home Sales at 10 AM.
As investors come to question how the future direction of the AI trade will play out, shares of Oracle (ORCL) have recently found themselves out in the cold after a period of being right in the middle of the cool kid club. The stock consistently rallied in the first two years of the bull market after the launch of ChatGPT. Around a year ago, though, the stock’s rally went into overdrive with shares more than doubling on strong earnings and announcing several high-profile cloud computing deals, including a massive one with OpenAI. Last September, the company announced that it had secured signed contracts totaling more than $450 billion.
As fast as the stock rallied, though, it gave up those gains nearly as quickly as the company has embarked on enormous amounts of cap ex to build the infrastructure necessary to fulfill its outstanding contracts. That has sucked up all the company’s cash flow and forced ORCL to take on enormous amounts of debt. If ORCL’s contracts are honored, the short-term pickup in cap ex should pay off, but a lot of that depends on OpenAI, of which the company has $300 billion in outstanding contracts. In some respects, ORCL has become a call option on OpenAI.
A look at a one-year chart of ORCL shows the recent weakness in more detail. The stock has lost more than half of its value relative to its highs from a year ago, and even after bouncing in the spring, it is down sharply since the start of June. At yesterday’s close of just over $120, shares were trading at a relatively important support level.
Since that June high, ORCL’s persistence of declines has reached some historic proportions. On a rolling five-week (25 trading days) basis, the stock was recently positive on only 20% of trading days. In other words, it declined on 20 of the prior 25 days. Since 1990, it has only reached that level of consistency to the downside in a handful of periods, with the most recent being back in early 2022.
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