US EARLY MORNING: Equity futures advance after a strong European open while yields curve flattens ahead of Fed speak and data

US EARLY MORNING: US equity futures are building on the gains seen Monday with outperformance in the Russell and Nasdaq so far, tracking the optimistic European open. It has been relatively quiet so far, although there has been some deal optimism regarding the MSFT/ATVI deal, where MSFT submitted a new deal for review to the UK CMA after the initial deal was blocked. On the flipside, S&P are now the latest to downgrade several US banks, following a similar move from Moody's earlier in August (more below). Focus in today's session sees earnings from Lowe's (LOW) and Medtronic (MDT), as well as Coty (COTY), Macy's (M) and Dick's Sporting Goods (DKS). While macro players will be eyeing remarks from Fed's Bowman, Goolsbee and Harker (primer below) alongside the Richmond and Philly Fed surveys and existing home sales. The Treasury curve is bull flattening after the surge in yields on Monday which took the 10yr yield to levels not seen since 2007. In FX, the Dollar is lower with DXY clinging onto 103 with upside in other FX majors, including EUR, GBP, JPY and the Antipodes. Gold prices are firmer thanks to the reversal in yields and softer Dollar, but silver is only seeing marginal gains. In energy, Crude is slightly softer but off recent lows with TTF nat gas holding just shy of EUR 40/mwh while US natgas tests WTD lows. Attention for energy traders remains on Australia LNG updates, the latest saw the Woodside Energy CEO note talks with gas workers remain constructive, despite increasingly bitter rhetoric. While in the US, the NHC announced Depression Nine has strengthened into Tropical Storm Harold, with heavy rains and tropical storms forcing winds over parts of South Texas later today, and we will be looking to see how much oil refineries have had to shut in as a result once it makes landfall. 

US RECAP: US stocks were mixed albeit predominantly firmer with big tech leading the strength in US indices despite the upside in US yields, while the small-cap Russell 2k underperformed. News catalysts were very light and therefore allowed more attention on the higher US neutral rate debate which was ignited by a WSJ/Timiraos article over the weekend although Timiraos later tweeted reasons why he believed that Fed Chair Powell is unlikely to speak about higher neutral rates at the Jackson Hole Symposium. SPX +0.69% at 4,400, NDX +1.65% at 14937, DJIA -0.11% at 34,464, RUT -0.18% at 1,856. Click here for a detailed summary.

TODAY'S AGENDA

There are quite a few highlights due in the US session today, including Fed speak from Governor Bowman (hawk) and Chicago Fed President Goolsbee (dove), both of whom are voters. Fed's Barkin (hawkish/neutral) is also set to speak. On economic data, the Philly Fed non-mfg business outlook survey is due at 13:30 BST / 08:30 EDT while the Richmond Fed survey is due at 15:00 BST / 10:00 EDT, alongside the existing home sales data. The interactive Newsquawk calendar is available here, or a PDF version is available here.

FED: After WSJ's Timiraos article spoke of a higher neutral rate over the weekend, we will be looking to the Fed commentary today to see if this is discussed, albeit Timiraos on Monday did issue a tweet thread on reasons why he believed Fed Chair Powell is unlikely to speak about higher neutral rates at Jackson Hole, primarily citing recent commentary from a slew of Fed officials. Nonetheless, the Fed is clearly in data dependent mode and some of the views among members are more mixed. Bowman has been a stand-out hawk since the last FOMC, repeating calls that additional rate hikes will be more likely so her remarks today will be key to see if she still holds that view after the July inflation figures and the latest NFP report. Goolsbee meanwhile has spoken several times since the latest Fed meeting, and is expected to repeat his familiar arguments that the Fed should start thinking about how long to hold rates at terminal, noting it is more important than the actual level. He also has noted the job market is cooling to a balanced level, while he is cognizant of monetary policy lags. Barkin is also cognizant of policy lags, but he notes that consumer spending is far from weak, and inflation remains too high, but said the July print was a good one and hope it is a sign. Nonetheless, these speeches come before the Jackson Hole at the end of the week with Fed Chair Powell due on Friday, with a Newsquawk Primer available within our week ahead note.

US BANKS: S&P Global cut credit ratings and revised its outlook for several US banks, including Associated Banc Corp (ASB) and Valley National Bank (VLY) on funding risks and a higher reliance on brokered deposits, according to Reuters. S&P also downgraded UMB Financial (UMBF), Comerica Bank (CMA) and Key Corp (KEY), citing large deposit outflows and prevailing higher interest rates. The downgrade of several banking names follows that of Moody's on Tuesday the 8th August, where it cut the ratings of 10 US banks by one notch and placed some larger banks on review for potential downgrades including BNY Mellon (BK), US Bancorp (USB), State Street (STT) and Truist Financial (TFC).

EARNINGS: We will get numbers from LOW, MDT, DKS, M and COTY on Tuesday, ADI and NVDA on Wednesday, and INTU and WDAY on Thursday (weekly earnings expectations are here). With the large majority of earnings completed (95%), overall 79% of S&P 500 companies are beating expectations, 5% have been in line and the remaining 16% have missed, according to Reuters/Refinitiv data. With attention today turning to Lowe's (LOW) numbers, the consumer cyclical sector has had similar earnings performance to the broader S&P with 79% of companies beating in the sector, 2% being in line, while 20% have missed. Nonetheless, the upside surprise within consumer cyclicals is the largest out of all sectors, showing a 19% upside surprise to analysts forecasts, vs the 7.8% surprise seen for the broader S&P.  The other earning highlight is Medtronic (MDT), and the health care sector has seen 92% of companies beat and just 7% miss expectations. 

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22 Aug 2023 - 09:30- Research Sheet- Source: Newsquawk

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