Good Week For Banks

Good Afternoon. The Nasdaq and S&P 500 both hit all-time highs this week, thanks to multiple positive developments on the trade front and overall liquidity.

Below are the key things to note this week:

US-China Trade Deal:
In the continued progress on the trade front, China reported positive outcomes on the trade deal with the US. China will greenlight eligible export licenses under its control rules, while the U.S. will drop a range of existing restrictions in return.

Positive Week for Banks:

• eSLR Relief:
  The Federal Reserve took the next step to provide long-awaited relief for the supplementary leverage ratio requirements. The Fed proposed a significant overhaul of the amount of capital that large global banks need to hold in low-risk assets, such as Treasury securities, aimed at encouraging deeper participation in U.S. debt markets. Large U.S. global banks can expect as much as $6 trillion in additional balance sheet capacity and billions in freed-up capital under a Federal Reserve plan to relax leverage rules, Wall Street brokerages estimated on Thursday.

  

• Fed Stress Test Results:

  All 22 Banks Pass the Fed stress test, paving the way for more buybacks and dividends. “Large banks remain well capitalized and resilient to a range of severe outcomes,” said Michelle Bowman, the bank’s vice chair for supervision, in a statement. This will also help to increase the bank lending in the second half.
   

PCE Inflation Data:
The Fed’s preferred inflation gauge, the PCE index, rose 0.1% in May, bringing annual inflation to 2.3%. Core PCE came in slightly hotter at 0.2% for the month and 2.7% year-over-year, above expectations. Consumer resilience is showing some weakness — spending decreased by 0.1% and personal income declined by 0.4%. The annual PCE growth of 2.3% indicates that the effect of tariffs is still not evident in the data, suggesting that the impact is less than initially expected.

Conclusion:
All the above developments this week are good news for the equity markets.

• Improved bank lending post stress test results and possible eSLR relief will enhance overall liquidity, which is beneficial for markets and will also help bring down treasury yields.

• The subdued impact of tariffs on inflation, with continuous progress on trade deals, gives more confidence that the worst is behind us.

• The final confirmation will come if the soon-to-start earnings season pans out well.
  

For the week:

• The S&P 500 is up 3.44%, the Nasdaq is up 4.25%, and the Dow 30 is up 3.82%.

  

  Barchart

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Here is a summary of this week’s key economic releases:

Target Rate Probabilities for July 30th FOMC Meeting:

CME FedWatch

Trade Deal: The U.S. and China have confirmed a trade framework that eases tech curbs and resumes rare earth exports, according to China’s Ministry of Commerce. China will review export applications under control rules, while the U.S. will lift several restrictions on Beijing, the ministry said without providing details. Read

Major Win for AI: A federal judge ruled Anthropic didn’t violate copyright law by using purchased books to train its Claude AI, even without the authors’ permission. The decision applies narrowly to certain works and methods, but marks a courtroom win for fair use in AI training. Judge Alsup called the training “extremely transformative” under federal law. Read

Banks Pass The Fed Stress Tests: All major banks passed the Fed’s annual stress test, but this year’s version was less stringent than in the past. All 22 firms remained solvent and above the minimum thresholds even after absorbing $550 billion in hypothetical losses. Read

eSLR Relief: The Fed proposed easing eSLR rules for U.S. GSIBs, replacing the 3% floor + 2% buffer with a new threshold tied to 50% of the G-SIB Method 1 surcharge, bringing U.S. rules closer to Europe. Read

All Time High: The S&P 500 and Nasdaq hit record highs Friday, fueled by renewed AI optimism and hopes of looser monetary policy driving a rebound from a prolonged selloff. Read

FedEx Beat: FedEx warned of weaker-than-expected profits this quarter and pulled full-year guidance, highlighting the ongoing hit from Trump’s trade war. Read

Micron Beat: Micron forecasts Q4 revenue above Wall Street estimates, driven by strong demand for its HBM chips powering AI data centers. HBM sales jumped nearly 50% in Q3, with continued investment planned. Read

Paychex Mixed: Paychex beat estimates with a strong full-year outlook, but Q4 profits were impacted by its $4.1B acquisition of Paycor. Read

Nike Beat: Nike’s fiscal Q4 was weak but not as bad as expected. Sales dropped over 10% YoY, and the company flagged $1B+ in added costs from tariffs this year. Read