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. 

EQUITY NEWS

TECH

• 
  Microsoft (MSFT) / Activision (ATVI) - The UK CMA announced that Microsoft has submitted a new deal for review after the original deal was blocked, triggering a new Phase 1 probe into the new restructure deal. Under the new deal, Microsoft will not acquire cloud streaming rights to all current and future Activision games released during the next 15 years. MSFT believes the UK CMA review can be completed before the 90-day extension of the ATVI deal expires. 


• 
  Ubisoft (UBSFF/UBI FP) announced it has signed a deal for streaming Call of Duty and other Activision Blizzard games over the next 15 years once the Microsoft (MSFT)/Activision (ATVI) deal is complete.


• 
  Zoom Video Communications Inc (ZM) Q2 2023 (USD): Adj. EPS 1.34 (exp. 1.05), Revenue 1.14bln (exp. 1.11bln) Sees Q3. adj. EPS USD 1.07-1.09 (exp. 1.03) Sees Q3 revenue USD 1.12bln (exp. 1.12bln) Raises FY Adj. EPS forecast to USD 4.63-4.67 from 4.25-4.31 (exp. 4.32) Raises FY revenue forecast to 4.49bln-4.50bln from 4.47bln-4.49bln (exp. 4.48bln).  The beats and guidance raise saw ZM +4% in after-hours trade.


• 
  Apple (AAPL) - Forthcoming iPhone models will reportedly be more costly, according to DigiTimes citing industry sources, who are less optimistic about shipments for the year.


• 
  TSMC (TSM/2330 TT) affirmed its FY23 revenue is to decline 10% in USD terms, according to DigiTimes.


• 
  IBM (IBM) unveiled WatsonX generative AI capabilities to accelerate mainframe application modernisation.


• 
  SoftBank (SFTBY/9984 JT) - Co. unit Arm Holdings filed for a US IPO in which it applied to list on the Nasdaq under "ARM". Arm said it will not receive any proceeds from the sale of ADSs by the selling shareholder and all net proceeds from the sale of ADSs in this IPO will go to the selling shareholder. Furthermore, SoftBank said it does not expect that the IPO will have a material effect on its consolidated results or financial position and Arm will continue to be a consolidated subsidiary of the Co. following the IPO.


• 
  SS&C Tech (SSNC) raised its quarterly dividend 20% to USD 0.24/shr. 


• 
  Fabrinet (FN) Q4 23 (USD): EPS 1.86 (exp. 1.80), revenue 656mln (exp. 641mln). Q1 EPS view 1.83-1.90 (exp. 1.86), revenue view 650-670mln (exp. 657mln). It also extended its share buyback programme up to an additional USD 47.6mln. 

ENERGY

• 
  Woodside Energy (WDS AT) CEO said that demands of unions at Australian LNG facilities are focused on working conditions, certainty and wages, and added that we have been spending a lot of time listening and trying to really understand the key areas of concern. The CEO also added "it takes two to tango" and we are proceeding with goodwill and respect, but also have a duty to the shareholders.

INDUSTRIALS

• 
  Boeing (BA) is close to securing a new order of 787-10 Dreamliner widebody jets from Qantas (QAN AT) in which the air liner could announce the first order of aircraft as soon as this month, according to Reuters citing industry sources.


• 
  BHP (BHP/BHP AT) earnings disappointed with a drop in profits and revenue while it noted China's demand for iron ore in the medium term is expected to be lower than today.


• 
  Newmont (NEM) received clearance from Australia's competition regulator to acquire Newcrest Mining (NCM AT).
  


• 
  Nordson (NDSN) Q3 23 (USD): Adj. EPS 2.35 (exp. 2.32), revenue 649mln (exp. 666mln). Narrows FY23 EPS view to 8.90-9.05 (prev. 8.90-9.30, exp. 9.06). 


• 
  Lockheed Martin (LMT) was awarded a USD 347mln Navy contract modification.

HEALTH CARE

• 
  Teva (TEVA) announced it has settled price fixing charges with the US DoJ; and co. is to pay USD 225mln over five years.

CONSUMER DISCRETIONARY

• 
  Amazon (AMZN) was added to the best ideas list at Wedbush; PT USD 180/shr. Wedbush believes Amazon's backdrop is strengthening with improving or stabilising growth across eCommerce, advertising, and web service verticals, noting it believes Amazon's core business has been underappreciated in recent quarters. 

CONSUMER STAPLES

• 
  Coty (COTY) (ahead of earnings) has expanded its long-term license agreement with Marc Jacobs that will bring Marc Jacobs Beauty into its portfolio.


• 
  Kenvue (KVUE) is to replace Advance Auto Parts (AAP) in the S&P 500 at the open on 25th August 2023. 

FINANCIALS

• 
  Charles Schwab Corporation (SCHW) announces cost cutting measures including job cuts (unspecified amount), to save USD 500mln annually, but a one time cost of USD 400-500mln.


• S&P joins Moody's in cutting US banks amid a tough environment with Keycorp (KEY) and Comerica (CMA) among the five banks cut by S&P.

REAL ESTATE

• 
  Iron Mountain (IRM) was upgraded to Outperform from Sector Perform at RBC Capital; PT USD 68 (prev. USD 58). 

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