US EARLY MORNING: Equity futures continue higher after solid earnings from AMZN, AAPL; traders will be watching key PCE And ECI data later today

SNAPSHOT: US equity futures are continuing to the upside, but are trading off the overnight highs. NQ 1.3%, ES +0.7%, RTY +0.4%, YM +0.2%. The Nasdaq-100 leads gains after index heavyweights AAPL and AMZN posted solid earnings reports after hours on Thursday. Bond yields are mixed, with shorter-dated maturities lower (by around 3bps) and longer-dated maturities higher (by 1-2bps), which is contributing to wider curve spreads. The Dollar Index is lower by around 0.5%; notably, the JPY is rallying heavily against the buck, with technical exacerbating diminishing rate differentials (which this week has moved in favour of the JPY); activity currencies and pockets of EMFX are taking advantage of the USD softness. Crude benchmarks are higher.

EARNINGS SUPPORT: While earnings season has been somewhat mixed, this week, there has been support from mega-cap tech giants like AAPL and AMZN, as well as MSFT earlier in the week, which is helping to ease fears over how high inflation and lower real earnings, combined with a surging USD amid a dimming growth outlook could threaten the earnings of these mega-caps, and by extension major indices given their large concentration. While US growth in Q2 followed Q1 into contraction, officials have been heavily emphasising that it is difficult to describe the US economy in recession when the labour market continues to add jobs (this narrative will be put to the test next week, with the pace of job gains expected to cool again). Nevertheless, the Fed is in now setting policy on a meeting-by-meeting, which is considered dovish given that they are not guiding hefty increment rate hikes. And with the downshift in growth and cooling in other macro indicators, rates traders are betting on a lower trajectory of the Federal Funds Rate than was expected when the June SEPs were published, or even last week; traders expect rates to peak between 3.00-3.25% vs the June SEP’s guiding that rates will rise to 3.75-4.00% next year, and expect the central bank will begin easing rates from around middle of next year, which will likely lead to more easier financial conditions, which traditionally supports stocks. But it may yet be too soon for this narrative; Capital Economics says “financial markets have taken the combination of Wednesday’s FOMC’s announcement and Thursday’s negative US GDP print as confirmation that policymakers will ease off their aggressive monetary tightening cycle before too long,” but the consultancy believes that “such hopes are premature,” and “some of this year’s dominant trends, notably the rise of the US dollar, will reassert themselves before too long,” arguing that the bond and equity rally seen in recent days (which it says mirrors past episodes when the Fed pivoted towards easier policy) will eventually falter, and the weakness in evidence for much of this year will resume.

DAY AHEAD: For today, there will be much attention on the PCE report for June (the monthly core rate is seen picking up to 0.5% M/M from 0.3%, though the annual measure is seen unchanged at 4.7%) and the Employment Cost Index for Q2 (expected to ease to 1.2% from 1.4% in Q1) – both have been flagged as key reports that the Fed monitors, and with the central bank in data-dependent mode, these will likely determine the tone of trading into the end of the week and month. For what it is worth, Treasury Secretary Yellen appeared to allude to the easing in inflation continuing when she made remarks on Thursday. Full Day Ahead here.

EQUITY NEWS: 

WEEKLY FLOWS: 

• BofA flow show revealed that equities saw their first week of inflows (week to July 27th) for six weeks (USD 5.6bln) with the regional breakdown showing inflows of USD 9.5bln in the US, USD 1.5bn out of Japan and USD 3.6bln out of Europe. From a sectoral standpoint tech’s outflow of USD 0.2bln was its largest in nine weeks whilst energy saw USD 1.3bln of outflows.

CONSUMER DISCRETIONARY:

• 
  Amazon.com Inc (AMZN) - Rose solidly in after hours trading following better than expected revenue, and upbeat guidance. Q2 2022 GAAP EPS -0.20 (exp. 0.13), Q2 Revenue 121.2bln (exp. 119.09bln); said pre-tax loss of USD 3.9bln included in non-operating expense form common stock investment in Rivian (RIVN). Q2 Operating income 3.32bln (exp. 1.57bln). Q2 Online net sales 50.86bln (exp. 51.81bln), Q2 Physical stores net sales 4.72bln (exp. 4.42bln); Q2 Third-Party seller services net sales 27.38bln (exp. 26.05bln); Q2 Subscription services net sales 8.72bln (exp. 8.81bln); CFO said Prime members had meaningfully increased spending since the start of the pandemic. AWS net sales 19.74bln (exp. 19.41bln), and CFO said he has seen longer and longer commitments from cloud customers. Q2 International net sales 27.07bln (exp. 28.8bln). Sees Q3 net sales 125-130bln (exp. 126.97bln). CFO said it saw a demand increase during the quarter, and it had a very strong June; When asked about Walmart (WMT) profit warnings, said Amazon did not notice a step down in June. CFO says fuel and inflation surcharge imposed on some merchants did not come close to covering the company's costs. On hiring, CFO said the company was questioning hiring plans, and is not likely to hire at the same pace as prior years.


• 
  Deckers Outdoor Corporation (DECK) - Rose over 5% after hours. Q1 EPS USD 1.66 (exp. 1.25), Q1 revenue USD 614.5mln (exp. 566.2mln). Exec said FY23 was off to a solid start. Raised its FY23 EPS outlook to USD 17.50-18.35 (exp. 17.98, prev. guidance range 17.40-18.00), and continues to see FY23 revenue between USD 3.45-3.5bln (exp. 3.5bln).


• 
  Yum China Holdings, Inc. (YUMC) - Q2 adj. EPS USD 0.20 (vs 0.42 Y/Y), Q2 revenue USD 2.13bln (vs 2.45bln Y/Y), Q2 SSS -16% Y/Y, KFC -16% Y/Y FXN, Pizza Hut -15% Y/Y FXN. Said it opened 53 net new stores during the quarter, with total store count rising to 12,170. Total system sales -16% Y/Y, with decreases of 15% at KFC, decrease of 14% at Pizza Hut (FXN) primarily due to SSS declines and temporary store closures. Q2 restaurant margin 12.1% (vs 15.8% Y/Y) due to sales deleveraging resulting from COVID-related disruptions. Exec said that in cities under lockdown, it was able to sustain operations with an extremely lean work force through community purchasing, simplified menus and packaged food products. Entering Q3, exec said it was seeing a gradual recovery, but the COVID situation remains tenuous with potential intermittent outbreaks; continues to expect the recovery of restaurant traffic to take time, and it will be uneven and nonlinear. On COVID specifically, exec said that the number of cases had increased significantly in July vs June; many cities across China tightened COVID curbs or undergone full, partial lockdowns, or district-based control measures as new clusters have emerged.


• 
  V.F. Corporation (VFC) - Q1 EPS 0.09 (exp. 0.13), Q1 revenue USD 2.26bln (exp. 2.24bln). Q2 Vans revenue -7% Y/Y, North Face revenue +31% Y/Y, Timberland revenue +8% Y/Y, Dickies sales -15% Y/Y. Maintains operating outlook for FY23. Sees FY23 EPS between USD 3.05-3.15 (exp. 3.34), and reiterated its FY23 revenue growth outlook of +7%. FY23 adj. gross margin expected to be "up slightly" (prev. guidance was for 'up approximately 50bps'); adj. operating margin seen around 13.2% (prev. guidance was for 13.6%).


• 
  EssilorLuxottica (ESLOY) - Revenue grows despite headwinds, margins also improve. H1 2022 revenue EUR 11.99bln (exp. 11.7bln), adj. Net Profit EUR 1.55bln (exp. 1.3bln), adj. Operating Profit EUR 2.2bln (exp. 2.02bln).


• 
  Mohawk Industries, Inc. (MHK) - Q2 EPS USD 4.41 (exp. 4.31), Q2 revenue USD 3.15bln (exp. 3.2bln). Exec noted sales grew in all segments, with the top line benefiting from price increases, adding that as the quarter progressed, the global economic environment became increasingly challenging, and it implemented additional actions to support performance; operating income was in line with its expectations, even as material, energy and transportation inflation remained a significant headwind and our translated results were impacted by the strengthening USD.

TECH:

• 
  Apple Inc (AAPL) - Apple topped revenue and profit expectations, and sees growth accelerating despite some softness; iPhone and iPad revenues were above expectations too. Q3 EPS 1.20 (exp. 1.16), Q3 Revenue 82.96bln (exp. 82.81bln). Q3 Greater China revenue -1.1% Y/Y at 14.60bln; Exec noted lower demand in some Chinese cities during lockdowns, said rebound from re-openings did not offset lockdowns. Q3 product sales: iPad USD 7.22bln (exp. 6.94bln), and it said Mac and iPad remain supply constrained; iPhone USD 40.67bln (exp. 38.33bln), CFO said it was seeing no demand slowdown for iPhones; Mac USD 7.38bln (exp. 8.7bln); Products revenue USD 63.36bln (exp. 62.44bln); Wearables, home and accessories USD 8.08bln (exp. 8.82bln), and it said that this unit was seeing demand weakness due to economy; Service revenue USD 19.60bln (exp. 19.75bln), and the company now has over 800mln paying subscribers; CFO expects services revenue to grow but decelerate from June quarter rates. Exec said it expects 6% hit from FX in current quarter. Ad sales were being hurt by economic environment in previous, and current quarter. Supply chain issues in June cost just under USD 4bln in sales. CFO did not providing revenue guidance on the conference call, sees a tax rate of 16% in the quarter, and sees gross margin between 41.5-42.5%. On hiring trends, CEO said it would continue to hire people and make investments during the downturn, but will be more deliberate.


• 
  Intel Corporation (INTC) - Profits and revenue missed expectations, and guidance was soft. Q2 adj. EPS USD 0.29 (exp. 0.70), Q2 revenue USD 15.3bln (exp. 17.92bln). CEO said FY22 adj. PC demand down to 310-325mln (prev. 350mln), and that the bulk of PC demand downward adjustment was from consumer, enterprise remains healthy. CEO said that with US CHIPS bill passed, it plans to move ahead with its Ohio factory. Sees FY 2022 revenue between USD 65-68bln (exp. 74.34bln, prev. 76bln), and said it expects 10% decline in 2022 PC TAM; cuts FY adj. EPS view to USD 2.30 (exp. 3.42, prev. 3.60); Q3 EPS seen at 0.35 (exp. 0.87), and Q3 revenue seen between USD 15-16bln (exp. 18.62bln). CFO expects revenue for Q2 and Q3 will track along the bottom end of the guidance range, but sees gross margin expansion in Q3.


• 
  KLA-Tencor Corporation (KLAC) - Q4 adj. EPS USD 5.81 (exp. 5.50), Q4 revenue USD 2.49bln (exp. 2.4bln). Sees Q1 adj. EPS between USD 5.70-6.80 (exp. 5.81), and sees Q1 revenue between USD 2.475-2.725bln (exp. 2.5bln).


• 
  Panasonic (PCRFY) - Profits hit by rising materials costs and China lockdowns. Q1 revenue JPY 1.97tln (prev. 1.79tln). Operating profit JPY 63.7bln (prev. 104.4bln).


• 
  Sony (SONY) - Profits rise above analyst expectations, but revised down FY operating profit view. Q1 group net profit +3% Y/Y at JPY 218.2bln, 22/23 net profit forecast -9.3% at JPY 800bln. Said China's smartphone market was not expected to recover this FY.


• 
  Siltronic (SLTCY) - Q2 sales EUR 442mln (exp. 399mln), Q2 EBITDA EUR 147mln (exp. 136mln), Net EUR 91mln (exp. 71mln). 3.00/shr


• 
  Eventbrite, Inc. (EB) - Fell 1% after hours following results miss and soft guidance Q2 EPS -0.20 (exp. -0.13), Q2 revenue USD 66.0mln (exp. 65mln). Paid ticket volume +37% Y/Y at 21.9mln on consumer demand and an uptick in larger-sized events. Sees Q3 revenue between USD 65-68 (exp. 73mln); Company expects sustained consumer demand for live events in Q3, influenced by the improving public health climate and consumer appetite for events. Exec said it was factoring in a cautious near-term view of creators' confidence to host events in light of shifting macroeconomic conditions including potentially inflation, labour shortages, interest rates, economic recession, and other factors.


• 
  Five9, Inc. (FIVN) - Surged over 10% following results. Reported Q2 adj. EPS of 0.34 (exp. 0.18), Q2 revenue USD 1894mln (exp. 180.1mln). Exec said growth continues to be driven primarily by the strength of its Enterprise business, where LTM subscription revenue grew +41% Y/Y. Sees Q3 adj. EPS between 0.31-0.33 (exp. 0.30), and sees Q3 revenue between USD 192.5-193.5mln (exp. 192.3mln). FY22 EPS now seen between USD 1.38-1.40 (vs prev. guidance of 1.22-1.24, exp. 1.22), and sees FY22 revenue betwen USD 780.5-782.5mln (exp. 772mln)


• 
  First Solar, Inc. (FSLR) - Q2 EPS 0.52 (exp. 0.23), Q2 revenue USD 621mln (exp. 604mln). Cut its FY22 EPS view to -0.25 to +0.25 (prev. guidance 0.00-0.60, exp. -0.04), but lifts its FY22 revenue outlook to USD 2.55-2.8bln (vs prev. guidance of 2.4-2.6bln, exp. 2.5bln); FY22 earnings guidance lowered due to legacy systems business asset impairment in Chile, and devaluation of JPY.

COMMUNICATIONS:

• 
  Roku, Inc. (ROKU) - Slid by over 25% in extended trading as results for Q2 disappointed and guidance for Q3 was weak. Q2 EPS -0.82 (exp. -0.68), and Q2 revenue USD 764mln (exp. 805.2mln). Exec said it was an economic environment defined by recessionary fears, inflationary pressures, rising interest rates, and ongoing supply chain disruptions. For H2, sees advertising spend to continue to be negatively impacted. Believes that consumer discretionary spend will continue to moderate, pressuring both Roku TV and Roku player sales. Accordingly, now sees Q3 revenue at approximately USD 700mln (exp. 902mln). Exec added that given the uncertainties and volatility in the macro environment, it is withdrawing FY revenue growth rate guidance.

HEALTH CARE:

• 
  AstraZeneca (AZN) - Topped profit and sales expectations in the quater, sees FY revenue up low twenties. Q2 revenue USD 10.6bln (exp. 10.5bln), Q2 EPS 1.72 (exp. 1.58). Confirms FY EPS guidance, FY revenue from COVID medicines anticipated to be broadly flat Y/Y. Interim dividend of 0.93/shr. Chair Johansson will retire April 2023, Demare appointed successor.


• 
  Pfizer Inc. (PFE), Moderna, Inc. (MRNA) - Biden administration expects to begin a COVID-19 booster campaign with retooled vaccines in September, since Pfizer and Moderna have promised that they can deliver doses by then, according to the NYT citing sources.


• 
  Edwards Lifesciences Corporation (EW) - Slipped almost 5% after hours. Q2 adj. EPS 0.63 (exp. 0.64), Q2 revenue USD 1.37bln (exp. 1.4bln). Sees Q3 adj. EPS between 0.58-0.66 (exp. 0.65), and sees Q3 revenue between USD 1.3-1.37bln (exp. 1.44bln). Said it sees FY adj. EPS towards the bottom of the USD 2.50-2.65 (exp. 2.56), and sees FY revenue between USD 5.35-5.55bln (exp. 5.7bln).


• 
  DexCom, Inc. (DXCM) - Tumbled 18.5% after it missed top- and bottom-line expectations for Q2, and provided soft guidance. Q2 EPS 0.17c (exp. 0.19), Q2 revenue USD 696.2mln (exp. 698.6mln). Sees FY22 revenue between USD 2.86-2.91bln (exp. 2.92bln)

MATERIALS :

• 
  Glencore (GLNCY) - H1 Copper Production -15% Y/Y at 510.2k/T, Zinc -17% Y/Y at 480.7k/T, -Nickel +21% Y/Y at 57.8k/T. Cuts FY outlook for copper production, sees 1,060 KT (+/- 30 KT); said geotechnical constraints due to Katanga's open pit, management of higher levels of acid-consuming ore, accounted for reduced copper guidance.


• 
  Celanese Corporation (CE) - Q2 adj. EPS USD 4.99 (exp. 4.56), Q2 revenue USD 2.5bln (exp. 2.4bln). Sees Q3 adj. EPS between USD 4.00-4.50 (exp. 3.95), with performance at the bottom end of the range reflective of the potential for additional modest demand softening as we progress through the quarter. Said Q3 order books look largely as expected, with some indications of softening demand including modest order deferrals and signals of normalising inventory levels at customers. Said that while it sees little first hand indications of dramatic demand deterioration, it is taking controllable actions to prepare ourselves to continue to generate strong cash flow and to swiftly pay down debt balances following the close of the M&M acquisition.


• 
  Eastman Chemical Company (EMN) - Q2 adj. EPS USD 2.83 (exp. 2.69), Q2 revenue USD 2.78bln (exp. 2.77bln). Exec said it was doing an "outstanding" job of implementing price increases to recover spread compression from significantly elevated costs of raw material, energy, distribution, and other inflationary pressures. Reiterates its FY22 EPS outlook of between USD 9.50-10.00 (exp. 9.80); expects to continue raising prices, particularly in its specialty product lines, in response to persistently high inflation.


• 
  Chemours Company (CC) - Rose 8.9% afterhours. Q2 adj. EPS USD 1.89 (exp. 1.43), Q2 revenue USD 1.9bln (exp. 1.84bln). Sees FY22 adj. EBITDA at the high end of its USD 1.475-1.575bln range, raises cash flow outlook to greater than USD 600mln.

ENERGY:

• 
  ENI (E) - Q2 Net Profit EUR 3.81bln (exp. 3.27bln), Operating Profit EUR 5.84bln (exp. 5.24bln), Production 1.578mln BOEPD (exp. 1.6mln). Group will enhance shareholders distribution by increasing 2022 buyback to EUR 2.4bln.

INDUSTRIALS:

• 
  Tesla (TSLA) - CEO Musk said inflation may be trending lower, adding that Tesla commodity prices were trending down rather than up.


• 
  L3Harris Technologies, Inc. (LHX) - Q2 EPS USD 3.23 (exp. 3.15), Q2 revenue USD 4.1bln (exp. 4.2bln). Sees FY22 EPS at low end of its USD 13.35-13.65 guidance range (exp. 13.37), and sees FY22 revenue at low end of its USD 17.3-17.7bln guidance range (exp. 17.2bln); organic revenue growth is seen rising between 1.0-3.0%.


• 
  Renault (RNLSY), Nissan Motors (NSANY) - Russia exit weighs on Renault H1, but upgrades its FY22 view; CEO Said it was ahead of schedule in turnaround plan; CFO Said market remains tough due to chip shortages. H1 revenue EUR 21.1bln (exp. 21.4bln), Operating Income EUR 939mln (prev. 362mln), Net EUR -1.36bln (exp. -0.65bln). FY22 Outlook: Confirms impact of semiconductor crisis at 300k vehicles. Nissan Q1 revenue JPY 2.14tln (prev. 2.01tln Y/Y). Net income 47.1bln (prev. 114.5bln Y/Y). Affirms guidance.


• 
  Hitachi (HTHIY) - Q1 2022 group net profit -69.6% Y/Y at JPY 37.16bln, 22/23 net profit forecast +2.8% at JPY 600bln.

CONSUMER STAPLES:

• 
  Unilever (UL) - Talks between the Unilever and Ben & Jerry's regarding an out-of-court settlement in dispute over the Israeli business have broken down, according to Reuters sources.

FINANCIALS:

• 
  Hartford Financial Services Group, Inc. (HIG) - Q2 adj. EPS USD 2.15 (exp. 1.52), Q2 revenue USD 5.4bln (exp. 5.5bln), Q2 book value per share (ex-AOCI) USD 52.12. Announced a new USD 3bln share repurchase programme.

29 Jul 2022 - 09:21- Research Sheet- Source: Newsquawk