Five Things You Need to Know to Start Your Day: Americas

Good morning. Banks, airlines and exchanges have been disrupted after Microsoft reported an outage. Hopes are growing the Fed will cut inter [View in browser]( [Bloomberg]( Good morning. Banks, airlines and exchanges have been disrupted after Microsoft reported an outage. Hopes are growing the Fed will cut interest rates in September. And President Biden faces unprecedented pressure to drop out of the 2024 election race. Here’s what you need to know — [Morwenna Coniam]( Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Global outage [Computer systems failed]( across the globe on Friday, taking down services at airlines, banks and the London Stock Exchange after a widely used cybersecurity program crashed and Microsoft separately reported problems with its cloud services. Cybersecurity firm CrowdStrike warned customers its Falcon Sensor threat-monitoring product was causing Microsoft’s Windows operating system to crash. It was unclear what triggered the issues, which coincided with disruptions of Microsoft’s Azure cloud and 365 office software services. Stocks slump Global equities fell and US futures were mixed as a pullback in megacap technology stocks threatened to escalate amid the widespread technical disruption. Microsoft shares dropped , though it said it had resolved the cloud-services outage that was blamed for disrupting flights and banks, and Crowdstrike slid as much as 14% in premarket trading. Shares in major airlines including United and Delta also fell.   Netflix subscribers Netflix shares are also poised to open a little lower, despite the[streaming service saying it added more customers than analysts expected]( in the second quarter, extending its lead over rivals. The firm also raised estimates for annual sales and profit margins. Still, the company said subscriber gains will trail last year’s 8.76 million and its third-quarter outlook was slightly weaker than expected. Rate cut hopes Hopes are growing the Federal Reserve will [cut interest rates in September]( as officials become increasingly confident price stability is in sight. They’ve laid the groundwork for the coming move in speeches over recent weeks, and Chair Jerome Powell will likely flag it more explicitly after a policy meeting on July 30-31. While not quite a done deal, Powell and his colleagues are also determined not to squander the chance of a soft landing for the US economy, which is showing at least a few signs of losing steam. Biden under pressure President Joe Biden faces unprecedented [pressure to drop out of the 2024 election race](, with much of Washington — including top Democratic allies — seeing his exit as inevitable. Still, Biden and his campaign continue to insist the president — who is isolating with Covid — is completely committed to remaining in the race. Meanwhile [Donald Trump officially accepted the Republican nomination]( in a speech to the Republican National Convention, calling for unity, tax cuts, and an end to foreign wars, before swerving into immigration rhetoric and America-first messages. What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - [These are the airlines and airports]( worst affected by the global tech outage - Europe’s heatwave [spreads to France]( - Five key takeaways from [Trump’s speech](at Republican Convention - [Zombie mall king]( Jamie Salter has bought and revived dozens of bankrupt retailers, now he’s going after bigger game - Texas’ biggest pension fund to pull almost [$10 billion from private equity]( And finally, here's what Justina’s interested in this morning Before yesterday, we had six straight days of rotation from large-caps into small. In quant terms, those were the best six days for the Dow Jones market-neutral size index (which shows the performance of going long small- and short large-caps in sector-neutral terms) since November 2020, when a post-Covid future suddenly burst into view with the announcement of the Pfizer vaccine. Just like that time, there are some straightforward fundamental reasons for this rotation. Small-caps are more indebted (especially if you compare them to cash-rich Big Tech), so stronger expectations that the Fed will cut rates are especially helpful. (There's also some chatter that the higher odds of a Trump presidency have also helped the rotation, since he stands for deregulation and fiscal expansion, but I think it's clear the Fed signal is probably the biggest driver.) The shift was probably also intensified by how stretched the mega-cap trade was before that. At its bottom last week, the Russell 2000 was trading at the lowest versus the S&P 500 since 1999. Then the domino effect happened. The Russell 2000 ETF (IWM) had a few days of strong inflows. In options, the Russell 2000's implied volatility shot up and skew flattened. Meanwhile, hedge funds cut their exposure by the most since November 2022 in cumulative notional terms, the Goldman Sachs prime brokerage team wrote in a note on Wednesday -- probably a sign they were positioned the other way. It made sense that the rotation took a breather yesterday and looks set to reverse further today. Don't forget that in the prolonged small-cap downturn we heard a lot about the [structural drags]( on the sector: falling profitability and more debt as a whole. Some people attributed this to the growing pool of private capital buying out the most attractive firms or enabling some to stay private for longer. If you're a flows kinda guy/gal, you can also blame it on the singular investor focus on large-caps. The prospect of a rate cut without imminent risk of a recession was always going to help small-caps, as it did (briefly) late last year, but will it be enough to overcome all these longstanding issues? Justina Lee is a cross-asset reporter based in London.  Follow Bloomberg's Justina Lee on X [@Justinaknope](. [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Five Things to Start Your Day: Americas Edition newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](