US EARLY MORNING: Equity futures are adding to gains following June's soft CPI data

US PRE-MARKETS: US equity futures are gaining in premarket trade, with gains being led by the duration sensitive Nasdaq-100, which is being supported by lower yields (lower across the curve this morning, with the short-end outperforming) in wake of the softer than expected June CPI data, which has seen market pricing for further rate hikes diminish. The market still thinks that the Fed will hike in July, and they were always sceptical that the central bank would add another hike later this year (which the FOMC's staff economic projections had pencilled in). At pixel time, the market's expectation of terminal is around 5.36% in November vs 5.42% before the release of the CPI data. The impact on equities has been marked; Goldman Sachs notes that the SPX is now 3% higher than where it was when the Fed began its rate hikes, adding that "for first time in 2023, we are currently being asked by multiple clients if we think the S&P 500 is now on track to clock an all-time high before year end," and its strategist John Flood certainly thinks this is possible, stating that "I am going with a yes on this."

EARNINGS SEASON BEGINS: S&P 500 Q2 aggregated blended earnings are forecast to fall -6.4% Y/Y in Q2 (and -0.9% Q/Q), while revenue is forecast to fall -0.8% Y/Y (but rise +0.6% Q/Q), according to Reuters, which notes that the last time both earnings and revenue Y/Y growth declined in the same quarter occurred in Q3 2020. Q1 earnings season showed resilience, with a growth rate of +0.1%, turning positive after starting at -5.1%. That dynamic has only happened eight times since 2002. But despite the positive Q1, Q2 growth expectations have been downgraded by analysts at a slower pace compared to previous quarters, Reuters notes. Negative Q2 EPS pre-announcements outnumber positive ones, and annual growth expectations have been lowered by 2.5ppts. Under the bonnet, energy is negatively impacting the overall assessment; ex energy, earnings growth is seen to be negative for the fifth consecutive quarter. Industrials continue to show positive growth, while sectors like Tech and Materials are expected to have negative growth. Given that inflation is dominating the macro narrative, there will once again be focus on company margins, which have declined for six quarters, but then rose to 11.2% in Q1; the expectations for Q2 show a slight decline to +10.9%, with the Energy sector seeing the largest decline in margin expectations, while Tech saw an increase. FY net margin estimates for FY23 and FY24 are 11.1% and 11.7% respectively. Analysts at Goldman expect companies will be able to meet the low bar set by consensus. “Negative EPS revisions for 2023 and 2024 appear to have bottomed and revision sentiment has improved,” the bank says. GS says the key areas traders will be focusing on include: (1) ability of firms to maintain margins as inflation recedes, (2) impact of bank stress on credit and lending, (3) potential uses of AI, (4) status of the US consumer. Its estimates for 2023 EPS remain above consensus, forecasting USD 224 vs consensus USD 220, but the bank continues to view the 2024 consensus for EPS growth (of +11%, at USD 244) as too optimistic - it thinks that EPS will grow by around 5% for FY23 to USD 237.  

TODAY’S AGENDA:

• Our online calendar can be accessed here; a pdf version is here.


• 
  EUROPEAN DAY AHEAD: The pace of Eurozone industrial production is expected to cool in May, with the annual gauge likely to slip into negative territory. With an ECB rate hike in July fully expected, the release of the ECB’s June meeting minutes will be closely watched for clues on whether the central bank will lift rates in September (our primer is below). On the supply front, Italy will sell EUR 8.5-10bln of 2026, 2030, 2038 and 2049 debt.


• 
  PRIMER - ECB MINUTES: The ECB Minutes will be closely watched for any signs of a potential September hike, with a July hike wholly expected by markets, as pricing currently infers an 88% chance of a 25bps hike and 12% for a 50bps move. To recap the June meeting, the ECB delivered another 25bps hike to the Deposit Rate, taking it to 3.5%. The decision to raise rates was once again premised on the judgement that inflation “is projected to remain too high for too long”. Going forward, policy decisions will continue to follow a data-dependent approach and be taken on a meeting-by-meeting basis. Perhaps the main takeaway from the initial announcement came via the accompanying macro projections which saw upgrades to headline and core inflation for 2023 through 2025 with the core 2025 print expected above-target at 2.3%. From a growth perspective, 2023 and 2024 forecasts were revised lower by 10bps. Elsewhere, the GC confirmed that it will discontinue reinvestments under the asset purchase programme as of July 2023. At the follow-up press conference, when questioned on whether the GC expects to keep raising rates, Lagarde replied that there was still “more ground to cover” and that the ECB is not done on hikes. Note, Lagarde again refused to comment on where she saw the terminal rate. Since the June meeting, Bloomberg sources suggested the ECB is set for a “tough debate” next month over whether a possible September rate hike is needed. Meanwhile, at the ECB Sintra Forum (26-28th June), GC members largely kept the door open for a September hike, whilst refraining from telegraphing a terminal rate and keeping a data-dependent approach. On that front, EZ CPI for June was mixed vs expectations, with the core Y/Y rate narrowly topping forecasts (6.8% vs 6.7%), although headline and super-core both printed 0.1ppts under expectations. (Newsquawk)


• 
  US DAY AHEAD: Weekly initial jobless claims data will be framed in the context of this week’s reports which allude to cooling inflation dynamics: if the labour market data tilts negatively, some analysts suggest that it could trigger growth concerns, and add to bets that the Fed will be done with rate hikes following another +25bps move in July. PPI data will help add further colour to the inflation narrative, where both the annual rates of both headline and core PPI are expected to ease. On the speaker’s front, Fed’s Daly (2024) will appear on CNBC, and Fed Governor Waller (voter) will address Money Marketeers of NYU. On the supply front, the Treasury concludes its bond sales for the month with an USD 18bln sale of 30s, while it will also announce the sizes for next week’s 20yr auction and 10yr TIPS.


• 
  US CORPORATE EARNINGS: Earnings are due today from PepsiCo (PEP), Progressive (PGR), Conagra (CAG), Delta Air Lines (DAL), Cintas (CTAS), Fastenal (FAST); earnings expectations can be accessed here.


• 
  ENERGY: OPEC’s MOMR will be released today; saw it lower its 2023 US crude oil production forecast due to extended output cuts by OPEC+, and crude prices are expected to rise, with Brent crude reaching USD 80/bbl in Q4. Global oil demand was projected to increase, and the US will use a record amount of natural gas for electricity generation. Elsewhere, weekly NatGas inventory storage change data are due.


• 
  RECAP - CHINA TRADE: China’s trade surplus widened to USD 70.62bln in June (exp. 74.8bln, prev. 65.81bln), as imports declined to -6.8% Y/Y (prev. -4.5%), and exports fell to -12.4% Y/Y (prev. -7.5%). Exports fell by the most since March 2020, hitting a six-month low, with analysts suggesting that the global downturn in goods demand continues to impact. Import volumes were relatively stable by comparison. Looking ahead, analysts at Capital Economics say exports are anticipated to decline further before recovering, while imports are expected to increase due to fiscal stimulus and recovering international travel.


• 
  RECAP - UK GDP: The GDP growth data May showed a cooling in growth dynamics, although was a little better than expected. The UK registered 0.0% growth in 3m/3m terms (exp. -0.1%, prev. 0.1%); the monthly stat was -0.1% M/M in May (exp. -0.3%, prev. +0.2%), while the annual measure was -0.4% Y/Y (exp. -0.7%, prev. 0.5%). Pantheon Macroeconomics argued that the figures indicate that the economy is sluggish, and the anticipated recovery has not materialised. It said the extra public holiday for the King’s coronation had a limited impact on GDP. Construction output declined due to higher interest rates, while warm weather led to a drop in energy supply sector output. The impact of public sector strikes faded, and increases in health, education, and public administration sectors boosted GDP growth slightly. Looking ahead, Pantheon says that the economy is expected to gain some momentum in H2, primarily driven by increased household spending, and as real disposable income is projected to rise, supported by declining energy prices and stabilizing goods prices. However, PM says that the impact of mortgage refinancing and households rebuilding savings may limit the growth of household expenditure. Additionally, higher borrowing costs could lead to downturns in business and residential investments.

EQUITY NEWS:

TECH:

• 
  Microsoft (MSFT), Activision (ATVI) - FTC to appeal a court order that allowed Microsoft to buy Activision Blizzard for USD 69bln. The judge ruled in favour of Microsoft, stating that the merger won’t harm competition and will provide more consumer access to Activision’s content. The FTC now needs the Ninth Circuit Court of Appeals to issue an emergency stay to extend the existing temporary restraining order that is set to expire at 11:59PM PT on July 14th, The Verge said, adding that it was not clear if the appeals court would even rule before the deal deadline on July 18th, potentially leaving the door open for Microsoft to close the Activision Blizzard deal on Monday or Tuesday without a restraining order in place.


• 
  Nvidia (NVDA), Recursion Pharmaceuticals (RXRX) - Chipmaker Nvidia plans to invest USD 50mln in Recursion to accelerate the training of AI models for drug discovery. Recursion will use Nvidia’s cloud platform, and Nvidia may license the models through its generative AI cloud service for drug discovery.


• 
  Google (GOOG) - Google Play updated its policies to allow blockchain-based games and apps that involve tokenised digital assets like NFTs. However, apps must be transparent about the assets and cannot promote earning from playing or trading. Gambling restrictions also apply.


• 
  Apple (AAPL) - Apple TV+ received a record-breaking 54 Emmy Award nominations across 13 original titles. It is now the third most Emmy-nominated network since its launch.


• 
  Cirrus Logic (CRUS) - Cirrus Logic is cutting around 5% of its global workforce due to market conditions and the cancellation of a planned product. The company aims to improve efficiency and expects to incur charges related to the job cuts in the second quarter of fiscal year 2024.


• 
  ViaSat (VSAT) - An unexpected event during reflector deployment may affect the performance of ViaSat-3 Americas satellite. ViaSat is reviewing the situation and considering options like satellite redeployment to minimize the impact. No disruption to customers or existing coverage has occurred.


• 
  Atlassian (TEAM) - Director Enrique Salem sold 10k shares on July 10th at a price of USD 168.13/shr.


• 
  UiPath (PATH) - Director Rich Wong sold 56.5k shares on July 11th for a total USD 1.02mln.

COMMUNICATIONS:

• 
  Disney (DIS) - CEO Bob Iger’s contract has been extended for two more years until the end of 2026, as Iger generates success in transforming Disney and driving growth. The extension allows time for a smooth transition to a new CEO while ensuring shareholder interests.


• 
  AT&T (T) - Subject to an Alphaville piece regarding its debt dynamics; article notes that AT&T’s debt, more than USD 130bln, is more than what many countries owe. They also have hidden debt, recently revealed due to a change in accounting. This hidden debt comes from a financial arrangement called supply-chain finance, where AT&T pays its suppliers early but at a slightly reduced amount. FT says that the key problem for investors trying to get to grips with companies’ use of supply-chain finance has been the lack of disclosure.


• 
  Meta Platforms (META) - Meta is set to launch a commercial version of its AI model, allowing businesses to create custom software using the technology, FT reports. It aims to compete with Microsoft-backed OpenAI and Google in developing generative AI, offering open-source models that rival closed-source ones.


• 
  Sony (SONY) - Sony plans to invest around USD 2.13bln in gaming research and development, focusing on live services games and “extended reality,” Nikkei reports. This investment constitutes about 40% of its total R&D spending and surpasses spending in electronics and semiconductors.


• 
  Roku (ROKU) - Roku and FreeWheel have formed a partnership to develop solutions that maximize the value of streaming TV for advertisers and publishers. The collaboration aims to enhance TV streaming and comes at a significant time when streaming TV surpasses broadcast and cable viewership.


• 
  IMAX (IMAX) - Imax plans to pay USD 124mln to gain full ownership of Imax China, its subsidiary overseeing business in Greater China. Imax’s wide-screen technology remains popular, especially for local-language films, despite Hollywood’s struggles during the pandemic, Variety reports.


• 
  T-Mobile (TMUS) - Consumer Group President Jon Freier sold 15k shares on July 10th for a total USD 2.1mln.


• 
  Lionsgate (LGF.A) - Lionsgate has filed a Form 10 to separate its Studio and Starz units into two independent companies, pending approval from the Board of Directors, shareholders, and regulatory authorities.

CONSUMER:

• 
  General Motors (GM) - The NHTSA is expected to soon decide on General Motors’ request to deploy up to 2,500 autonomous vehicles annually without human controls, Reuters reports. The decision revolves around determining if computer-driven vehicles need to meet human-driver safety standards.


• 
  Amazon (AMZN) - NLRB found that Amazon violated labour laws by refusing to negotiate with a union representing employees at a New York warehouse, CNBC reports. The agency is seeking remedies and ordering Amazon to bargain in good faith and compensate employees for the lost opportunity to negotiate.


• 
  Tesla (TSLA) - Tesla is reportedly in talks with the Indian government to establish a car factory in the country with a capacity of up to 500k EVs per year, Reuters reports. The company also aims to use India as an export base for the Indo-Pacific region. Separately, Elon Musk has launched his new AI startup called xAI, aimed at understanding the true nature of the universe. The team includes experts from various organisations.


• 
  Carrefour (CRRFY) - Announced an acquisition of Cora and Match banners at EUR 1.05bln valuation.


• 
  Watches of Switzerland (WOSG) - FY PBT GBP 155mln (exp. 161mln), adj. EBIT 165mln (exp. 176mln), adj. EBITDA 201mln (exp. 234mln).


• 
  Swatch (SWGAY) - H1 revenue CHF 4.02bln (exp. 3.85bln), net income CHF 498mln (exp. 395mln), EBIT CHF 686mln (exp. 568mln). Sees excellent growth opportunities in H2 in local FX for all regions/price segments.


• 
  MillerKnoll (MLKN) - Q4 adj. EPS 0.41 (exp. 0.39), Q4 revenue USD 956.7mln (exp. 945.6mln). Sees Q1 adj. EPS between USD 0.18-0.24 (exp. 0.40), and sees Q1 revenue between USD 880-920mln (exp. 927.3mln). Said it enters FY24 with consolidated backlog of USD 698mln. FY24 adj. EPS seen between USD 1.70-2.00 (exp. 1.81), and sees FY24 revenue “slightly lower” Y/Y.


• 
  JD.com (JD) - JD.com launches Yanxi large language model and AI development computing platform.


• 
  Ralph Lauren (RL) - CEO Patrice Louvet sold 9.3k shares on July 10th for a total USD 1.16mln.


• 
  KB Home (KBH) - CFO Jeff Kaminski sold of 108k shares on July 11th for a total USD 5.54mln.


• 
  Abercrombie & Fitch (ANF) - CEO Fran Horowitz sold 120k shares on July 10th for USD 35.42/shr.

FINANCIALS:

• 
  Carlyle Group (CG), McDonald’s (MCD) - McDonald’s China owners Carlyle Group and Trustar Capital plan to raise USD 4bln by partially exiting McDonald’s operations in Hong Kong and mainland China, Bloomberg reported. They are approaching GIC and Mubadala Investment for the deal, aiming to finalise it in the Q4.


• 
  Coinbase (COIN) - Coinbase Wallet has introduced a messaging feature powered by the XMTP protocol, allowing users to securely connect, send payments, and have private conversations within the crypto community. The feature is initially available to select users.


• 
  AllianceBernstein (AB) - June prelim AUM stood at USD 691bln (vs USD 670bln at end-May). Said that market appreciation and firmwide net inflows drove the increase.


• 
  Franklin Resources (BEN) - June prelim AUM stood at USD 1.43tln (vs 1.4tln at May-end).


• 
  Invesco (IVZ) - June prelim AUM stood at USD 1.54tln (+3.4% M/M).


• 
  HSBC (HSBC) - HSBC is expanding its green finance and bond teams in China to meet rising demand. Chairman Mark Tucker met with regulatory officials in Beijing to support the bank’s growth plans, including tapping into China’s USD 3.9tln fund market.


• 
  Cboe Global Markets (CBOE) - CEO Edward Tilly sold 8K shares on July 10th for a total USD 1.09mln.

ENERGY:

• 
  NextDecade (NEXT), TotalEnergies (TTE) - NextDecade has given the go-ahead for Phase 1 of its Rio Grande LNG project in Texas. The USD 18.4bln project, financed by various partners, will construct three liquefaction trains with a total capacity of 17.6mln tons per annum. TotalEnergies is one of the Phase 1 investors in the Rio Grande LNG project, and aims to secure a portion of the cash flows generated during the operation of the liquefaction trains.


• 
  Weatherford (WFRD), Petrobras (PBR) - Weatherford secured a five-year contract from Brazil’s Petrobras to enhance subsea intervention and commissioning capabilities.


• 
  Aker BP (AKRBY) - Q2 revenue USD 3.29bln (exp. 3.229bln), Q2 EBITDA USD 3.00bln (exp. 2.85bln), Q2 EBIT USD 2.25bln (exp. 2.37bln), Q2 net income USD 397mln (exp. 547mln), EPS 0.63 (exp. 0.825).

MATERIALS:

• 
  BASF (BASFY) - Q2 EBIT EUR 1bln (Prev. 2.3bln YY), Q2 revenue EUR 17.3bln (Exp. 19.3bln). Cuts FY23 revenue view to EUR 73-76bln (prev. 84-87bln), and cuts FY23 EBIT outlook to between EUR 4.0-4.4bln (Prev. 4.8-5.4bln) due to lower prices and volumes.

INDUSTRIALS:

• 
  Balfour Beatty (BAFYY) - Balfour Beatty has been awarded a USD 320mln contract to build a new state prison in Georgia. The facility will support 3,000 inmates and provide various services.


• 
  Ryder (R) - Ryder boosts quarterly dividend by +0.09 to 0.71/shr.

HEALTHCARE:

• 
  Eli Lilly (LLY) - Eli Lilly expects second-quarter financial results to include acquired In-Process Research and Development charges of around USD 97mln, impacting EPS by USD 0.09. The results are subject to finalisation and may differ from preliminary estimates.


• 
  Roche (RHHBY) - Positive Phase III results for Ocrevus twice a year 10-miinute subcutaneous injection in patients with MS.

UTILITIES:

• 
  PG&E (PCG) - Newswires note a 50mln share block trade, with the price range of USD 17.20-17.80. Morgan Stanley is acting as sole book runner for the offering.

13 Jul 2023 - 09:30- Research Sheet- Source: Newsquawk