US EARLY MORNING: Equity futures are higher before US CPI data; BoC expected to hike rates 75bps

MARKET SNAPSHOT:

• ES +0.3%, NQ +0.4%, RTY +0.4%, YM +0.3%. Treasury yields are mixed, slightly lower in the short-end, slightly wider in the long-end, with major curve spreads showing ever so slight steepening. Dollar Index is flat, while crude benchmarks are up by over a buck. The price action has been skittish in Europe as traders await the key US CPI data for June, which will give colour on how the Fed will manage monetary policy at its July 27th meeting. We have included some remarks on CPI below; additionally, the BoC meeting this afternoon is expected to deliver a 75bps rate hike; our preview is here. Overnight, the RBNZ hiked the OCR by 50bps to 2.50% and the BoK raised its Base Rate by 50bps to 2.25%, both as expected. Looking ahead, highlights include US CPI, BoC Policy Announcement, speeches from BoC's Macklem and Rogers; US 30yr supply. Full Day Ahead here.

ECONOMY:

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  US Economy - IMF cut its US growth view to 2.3% for 2022 (prev. 2.9%), and lowered its 2023 estimate to 1.0% (prev. 1.7%).


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  US Economy - A White House memo said the economy appeared to be transitioning into a period of slower jobs and economic growth, adding that US economic data were not consistent with a recession in Q1 or Q2. The White House expects gasoline prices to decline in the weeks ahead.


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  Fed's Barkin (2024) - Barkin expects inflation to fall, but not immediately or predictably. Has seen early signals of supply easing in freight costs and reports of easier hiring. Barkin stated that the pace of Fed policy may be making markets 'skittish', and is reserving judgement on a 50bps or 75bps rate hike until the July 27th meeting.

US CPI PREVIEW (13:30BST/08:30EDT):

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  Expectations - Headline consumer prices are seen rising +1.1% M/M (prev. 1.0%) with the annual gauge rising to 8.8% Y/Y (prev. 8.6%). Core consumer prices are seen rising +0.6% M/M (prev. 0.6%), while the annual gauge of core consumer prices is seen easing to 5.7% Y/Y (prev. 6.0%)


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  Driving Factors - Credit Agricole, who are ranked in second place by Bloomberg for accuracy of short-term CPI forecasts, expects the rate of annual core consumer price growth to moderate to 5.7% Y/Y from 6.0% in May, but say that this will mostly be a result of favourable base effects vs June 2021. “Simply put, our impression is that core CPI peaked in March, while the peak in headline inflation could be now (June) or a bit later this year, depending on the volatile energy prices,” the bank writes, “we still expect a broad-based acceleration in US inflation in June – food, energy, core goods, services – with the exception of a few subcategories in core goods,” adding “that would mean the Fed has little reason to ease its fight against inflation at the current stage.”


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  Policy Implications - While the Fed is said to prefer the PCE measure of prices, a hot May CPI report saw the central bank opt to raise rates by 75bps, more than 50bps hike that it guided before it went into its pre-meeting blackout window (the May PCE data was not out, at that point). Accordingly, there will be a great deal of attention on the CPI data ahead of the Fed’s July 27th meeting. Currently, the market overwhelming expects that the central bank will raise rates by a 75bps increment, and the June CPI data is expected to cement that.


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  Beware The Fake News - Some social media users on Tuesday published a fake 'leaked' CPI report for June which showed inflation pressures rising sharply. This report has been debunked by US officials. Nevertheless, the skittish price action demonstrated the market's sensitivity to this data point, according to some analysts, highlighting that inflation themes will remain a core market catalyst even though markets are starting to understand the Fed's reaction function.

EQUITY NEWS:

COMMUNICATIONS:

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  Advertising Names - US appeals court struck down an FCC requirement that broadcasters check federal sources to verify sponsors' identities, Reuters reported.


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  Twitter, Inc. (TWTR) - Twitter officially sued Elon Musk, and asked a court to force him to honour his USD 44bln agreement to buy the company, after Musk this week announced he planned to terminate the deal, alleging Twitter had breached the merger agreement by not sharing sufficient information on fake accounts, FT reported. Twitter's lawyers said Musk’s claims were “pretexts and lack any merit,” and that Musk was trying to back out of the deal rather than “bear the cost” of the rout in tech stocks, FT said.


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  Meta Platforms, Inc. (META) - Facebook cuts hundreds of custodial jobs after ending contract with facility management vendor, CNBC reported. Meta cancelled a contract with facilities company ABM Industries in Menlo Park, California. More than 350 workers will lose their jobs this month, with the CNBC report noting that Facebook was facing slowing growth from its core advertising business.


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  Alphabet Inc. (GOOG) - Google has cut back its hiring plans for the rest of the year, and has reduced the allocated headcount given to some orgs, according to Business Insider has learned. The report added that the move was not a hiring freeze, but Google was likely to slow progress across some projects.

TECH:

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  Apple Inc. (AAPL) - Apple has ended its consulting agreement with former design leader Jony Ive, according to the NYT. The reports said that some Apple execs had questioned how much the company was paying Ive and had grown frustrated after several of its designers left to join Ive’s consultancy.


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  International Business Machines Corporation (IBM) - IBM's Red Hat announced Matt Hicks as its President and CEO; Hicks had previously served as Red Hat’s EVP of Products and Technologies, and succeeds Paul Cormier, who will serve as chairman of Red Hat.

INDUSTRIALS:

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  Spirit Airlines, Inc. (SAVE), Frontier Group Holdings, Inc. (ULCC), JetBlue Airways Corporation (JBLU) - Discovery Capital Management sent a letter to Spirit Airlines board, urging it to abandon its planned merger with Frontier and accept the more favourable proposal from JetBlue.


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  Airlines - US CDC will no longer require air passengers travelling to the US to show a negative COVID-19 test or documentation of recovery from COVID-19 before boarding a flight.


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  Fastenal Company (FAST) - Board declared a dividend of USD 0.31/shr, and authorised repurchases of up to 8mln shares in addition to the 2.2mln remaining under the previous authority.


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  Tesla, Inc. (TSLA) - The automaker is to lay off 229 employees at an office in San Mateo, California, and will then permanently shut the office, according to a filing. Staff at the office were working on Tesla's autopilot driver assistant system.


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  Rivian Automotive, Inc. (RIVN) - Is to reportedly brief staff on Friday regarding potential layoffs, and is also planning to suspend some programmes as part of a broader restructuring, Reuters reported citing an email from the CEO.


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  Rocket Lab USA, Inc. (RKLB) - Said its Electron launch vehicle is ready for lift-off with a national security mission for the US National Reconnaissance Office; scheduled to launch from Pad A at Rocket Lab Launch Complex 1 during a launch window opening on July 13th at 05:00 UTC.

HEALTH CARE:

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  Bayer Aktiengesellschaft (BAYRY) - A federal appeals court revived a lawsuit by a man claiming Bayer's Roundup weedkiller caused his cancer, Reuters reported. The court rejected Bayer's argument that federal law shielded it from state law claims, adding that stating that any cancer warning would be inconsistent with the label approved by the US EPA. Bayer disagreed with the ruling, and said it will consider its options.

FINANCIALS:

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  Crypto - Vermont financial regulators believe that Crypto lender Celsius Network “is deeply insolvent,” noting that the lender lacks the assets and liquidity to honor its obligations to account holders and other creditors, CoinDesk reported.


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  Credit Suisse (CS) - The bank has delayed an IPO of its real estate fund amid the current market turbulence.


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  KR & Co. L.P. (KKR), ANZ Banking Group (ANZBY) - ANZ is in talks with KKR-backed MYOB Group about an acquisition of the Australian accounting software business, Bloomberg reported. A deal has not yet been struck. MYOB could be valued at USD 2.7bln.


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  Invesco Ltd. (IVZ) - Preliminary month-end assets under management -4.2% M/M in June at USD 1.39tln. June saw net long-term outflows of USD 3.9bln, with AUM was negatively impacted by unfavourable market returns, which decreased AUM by USD 68bln.


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  AllianceBernstein (AB) - Month-end assets under management -5.8% M/M in June at USD 687bln, with the decline due to negative markets and modest firm-wide net outflows.


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  Franklin Resources, Inc. (BEN) - Preliminary month-end assets under management -4.6% M/M in June at USD 1.379tln, primarily reflecting the negative impact of markets and long-term net outflows.


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  Pinnacle Financial Partners, Inc. (PNFP) - Pinnacle Bank will make significant changes to its overdraft services programme by completely eliminating one fee, lowering another and introducing features to further reduce the total cost incurred by its clients.

CONSUMER STAPLES:

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  Target Corporation (TGT) - Target has begun carrying Bobbie brand infant formula, usually sold to consumers exclusively through via Bobbie's website, as the national shortage persists, Reuters reported.

CONSUMER STAPLES:

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  Victoria’s Secret & Co. (VSCO) - Announced a new corporate leadership structure, which will see the company streamlined; the new structure will unite the three lines of business (Victoria’s Secret, PINK, and Beauty) as a single organisation.

ENERGY:

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  Inventories - The API weekly inventory data reportedly showed Crude +4.7mln (exp. -0.2mln), Cushing +0.3mln, gasoline +2.9mln (exp. -0.4mln), distillates +3.2mln (exp. +1.6mln).


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  IEA OMR - 2023 demand 101.3mln BPD, +2.1mln BPD; led by strong growth in non-OECD countries. 2022 demand cut by 200k BPD, seeing a rise of 1.7mln to 99.2mln BPD.

13 Jul 2022 - 10:09- Fixed IncomeData- Source: Newsquawk