The S&P ended nearly flat. The Nasdaq slipped. Chips fell hard too. Software rallied. The split that defined the second quarter carried straight into the first session of Q3.

Warsh spoke at the ECB forum in Portugal alongside Lagarde, Bailey, and Macklem. He said inflation risks have eased since the last meeting and that AI could expand the productive capacity of the economy with huge implications for monetary policy.

Treasury yields pulled back after that AI comment. That pullback is the story. The market heard a Fed chair hint that productivity might solve the inflation problem without hikes.

Warsh refusing to guide markets is his stated policy now. The AI productivity comment is the closest thing to a signal he offered. If he genuinely believes AI expands supply and cools inflation, the September hike case weakens. Watch Thursday's jobs report for the next real input.

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Before becoming Fed chair, Warsh repeatedly argued it would be a mistake to hike into an AI-led productivity boom. His reasoning is that if AI expands the economy's capacity to produce goods and services, inflation can fall even as growth stays strong. You do not need to slow the economy down when the supply side is expanding.

He raised that argument again at the ECB forum. He said AI could have huge implications for monetary policy and that strong productivity-led growth is not something the Fed fears but something it embraces. The 2-year Treasury yield, which tracks Fed expectations most directly, fell after those comments.

This is the Greenspan playbook. In the 1990s, Greenspan held off on hiking despite a booming economy because he believed the tech revolution was expanding productive capacity. He was right. Warsh is betting the same logic applies to AI. 

Salesforce (CRM) and Workday (WDAY) report in late August as the first real test of whether AI is translating to operating leverage rather than just capex spending. Those prints are the specific near-term confirmation or breakage of the productivity thesis. If AI revenue is showing up as margin expansion, Warsh's argument gets institutional backing. If the software layer is spending on AI faster than it earns from AI, the productivity thesis becomes hard to defend before the September meeting.

Duration got a quiet green light from Warsh's AI comments. If the productivity argument takes hold inside the Fed, rate hike odds fall and long-duration names recover. Rate-sensitive names are the most direct beneficiary if this view wins the July debate.

Meta (META) surged nearly 10% after reports that the company plans to sell its excess AI computing power to outside customers, the same model Amazon (AMZN) used to turn its internal cloud into AWS, which now generates nearly $130 billion in annual revenue.

CoreWeave (CRWV) and Nebius both fell sharply on the news. Meta entering the cloud market means the neocloud companies that raised billions to rent AI compute now face competition from the most powerful AI builder in the world with surplus capacity to offload.

Here is the irony. Meta's entry validates that AI computing demand is enormous and that hyperscalers have actually built more than they immediately need. But it also means independent AI cloud companies have a competitor that does not need to turn a profit from the compute business to justify building it.

Meta moving into cloud computing is simultaneously bullish for AI demand broadly and bearish for neocloud companies specifically. The specific instrument-spread to track is the hyperscaler cohort of Meta, Amazon, Microsoft (MSFT), and Alphabet (GOOGL) against the neocloud cohort of CoreWeave and Nebius. That spread is the cleanest expression of who has structural pricing power in AI compute going forward.

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Private sector hiring came in at 98K jobs in June against a 117K estimate. That follows May's 122K. The direction is down for the second straight month. Service jobs drove most of the gain. Goods-producing employment barely moved.

On the same day, Iran delegates did not show up for the Qatar talks Trump had announced. Peace talks that markets spent the last two weeks pricing as steadily progressing just stalled publicly. Oil reversed its gains and fell below $69.

These two stories together set up Thursday's jobs report as more consequential than it might otherwise be. A soft jobs number with stalled Iran talks gives the Fed's doves real ammunition heading into the July meeting. A strong jobs number removes that cover entirely.

ADP at 98K previews the possibility of a jobs miss Thursday. The consensus is 114K. Below 90K and the hike debate shifts dramatically. Above 140K and September becomes live again. Position before 8:30am Thursday rather than reacting after.

Bloom Energy (BE) expanded its Brookfield AI power deal from $5 billion to $25 billion, a fivefold increase. This is the physical AI infrastructure trade in its purest form. Every data center needs electricity. Bloom sells fuel cells. The expansion confirms AI power demand is locking in decade-long contracts.

General Mills (GIS) surged 8% after cutting prices on its products finally drove customers back. CEO Jeff Harmening said the company is done investing in pricing and will now push protein, fiber, and bold flavors for growth. A branded consumer staples company admitting it overpriced products and reversing course is exactly what the value consumer needed to see.

Kroger (KR) agreed to buy Giant Eagle for $1.65 billion, expanding into Ohio, Pennsylvania, West Virginia, Maryland, and Indiana. The grocery turf war is accelerating. Walmart, Publix, and Ahold are all encroaching on Kroger's territory. The response is scale. The grocers are doing what every other sector is doing: consolidate or get squeezed.

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Thursday's jobs report lands at 8:30am and then markets close Friday for Independence Day. One print separates this week's positioning from a four-day weekend during which anything can happen in the Middle East. 

Warsh's AI comments softened yields. A strong jobs number reverses that. A weak one confirms it. Markets have roughly 18 hours to decide which scenario to price.