US EARLY MORNING: Equity index futures are flat; US CPI data today is expected to show a cooling of annual price pressures

US PREMARKETS: US equity futures are trading with modest gains ahead of today’s CPI data, which is expected to a show a cooling in the annual rates of inflation. Treasury yields are narrowing, with the short-end outperforming. The Dollar Index is flat. Headline consumer prices are expected to rise by 0.3% M/M in June (prev. +0.1%), although the annual rate is expected to cool to 3.1% Y/Y from 4.0%; the core measure of inflation is expected to rise 0.3% M/M (slightly softer than the prior pace of +0.4%), while the annual rate of core inflation is seen cooling to 5.0% Y/Y from 5.3%. Analysts say that the easing of annual core inflation would be a welcome development for the Fed. Hopes of cooler inflation were supported this week in wake of the Manheim data on used car prices, while a New York Fed Consumer Expectations Survey also alluded to cooling inflation dynamics, with expectations of near-term inflation falling to the lowest since April 2022. Both these prints helped to offset some of the fears seen in wake of last week’s US jobs data, where the rate of annual average earnings ticked up unexpectedly. Meanwhile, today’s CPI data itself is likely to show declines in the volatile used auto prices component after a period of strong increases, while other goods categories are likely to have minimal inflation. Analysts also expect that services inflation including shelter will continue to inch lower, while some - like analysts at Credit Suisse - say that the ex-shelter measure may come in slightly below 0.3%. CS is slightly below consensus in looking for core inflation to rise 0.2% M/M; it says that a reading in-line with its estimates would represent the lowest run rate for core inflation in 22 months, and the first time core inflation has been broadly in-line with target over that period. The bank cautions that the decline is likely to be exacerbated by volatile components, which could reverse higher later in the year, but nonetheless, this would be encouraging for the Fed after months of disappointment.

TODAY’S AGENDA:

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


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  EUROPE DAY AHEAD: On the data slate, final Spanish inflation numbers for June are expected to be unrevised. On the speaker's docket, ECB chief economist Lane will speaking on macro, money and financial frictions.


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  US DAY AHEAD: The focus is on the US CPI data, where analysts expect the rates of annual headline and core inflation to cool (see above for our primer). Weekly MBA mortgage applications data is also due in premarket trade. There is a lot of Fedspeak today: Fed's Barkin (2024) will speak on inflation in wake of the data release, Fed's Kashkari (2023) will speak on banking solvency and monetary policy, Fed's Bostic (2024) will speak on financial payments, while the Fed's Mester (2024) will speak at a FedNow event. The Senate Banking Committee will later vote on the nomination of Kugler and Cook for full-terms, and Jefferson for the role of Vice-Chair. For CAD focussed traders, the BoC is expected to fire another 25bps rate hike today (our preview is below).


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  PREVIEW - BOC RATE DECISION (15:00BST/10:00EDT): After a five month ‘pause’, the consensus looks for the Bank of Canada to lift interest rates by 25bps for the second straight meeting in July, taking it key rate to 5.00%. Governor Macklem and Senior Deputy Governor Rogers will deliver their post-meeting press conference an hour after the decision. Full Newsquawk preview here.


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  ENERGY: The DoE will release its weekly energy inventory report; the API equivalent reported showed headline crude stocks building by more than expected at +3.0mln (exp. +0.5mln), although Cushing stocks drew down by -2.2mln; gasoline inventories posted a surprise build of +1.0mln (exp. -0.7mln), as did distillate stocks at +2.91mln (exp. -0.3mln).


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  RECAP - APAC (OVERNIGHT): Asia-Pacific stocks were mixed as investors exercised caution before the release of crucial US inflation data. The ASX 200 gained, driven by commodity-related sectors benefiting from rising prices. However, the Nikkei 225 dropped due to a stronger yen and disappointing Machinery Orders data. The Hang Seng rose on tech strength, while the Shanghai Composite saw a slight decline as investors remained cautious ahead of key events, despite positive loan and financing data from China. The RBNZ maintained rates, as expected (see below). (APAC Market Wrap)


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  RECAP - RBNZ RATE DECISION: RBNZ maintained its Official Cash Rate at 5.50%, in line with market expectations, and affirmed its stance that the OCR should continue to be set at a restrictive level for the foreseeable future. The current level of interest rates is effectively curbing spending and alleviating inflationary pressure, in line with their projections and requirements. The central bank acknowledged that inflation remains at an elevated level, but expressed confidence that by keeping interest rates restrictive for an extended period, consumer price inflation will eventually return to the target range of 1-3%. It anticipates a decline in inflation within the target range by the second half of 2024, and expects core inflation to decrease as capacity constraints gradually ease. Notably, the bank highlighted that monetary conditions have continued to tighten and emphasised that New Zealand's monetary policy reached a more restrictive level earlier than in many other economies. Overall, the decision and its assessment of current economic conditions aligned with economists' expectations. Analysts at Westpac maintained their view that the OCR will be raised by +25bps in August, stating that there wasn’t enough data since the May Statement to significantly shift the RBNZ’s strong view for a protracted period of unchanged rates. "However, the month ahead will see some key information in the form of the June quarter CPI and Labour market report that should tell us more on the persistence of core inflation pressures and the strength of the labour market, and hence prospects for falling GDP through the second half of this year," the bank writes, "partial indicators suggest the labour market has not cracked yet, and this raises the potential that the RBNZ will need to upgrade its growth forecasts for this year, which will add some upside risks to the inflation outlook and would lengthen the already protracted period over which inflation will take to return to the target range."


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  RECAP - WALL ST. (TUE): Tuesday's trading session was characterized by thin and choppy activity in both stocks and bonds, as the lack of catalysts contributed to a void in the market. US equities initially faced selling pressure, particularly the NDX, but rebounded later in the session. Treasuries traded within a range, with 2-year yields rising and 30-year yields declining. (US Market Wrap)

STOCK NEWS:

TECH:

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  Microsoft (MSFT), Activision (ATVI) - The US FTC is considering appealing a judge's ruling against blocking Microsoft's USD 69bln acquisition of Activision Blizzard, Bloomberg said. A judge found that the FTC failed to prove the deal would harm competition, but the FTC may file an appeal on Wednesday.


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  Microsoft (MSFT) - Microsoft and KPMG announce multi-year cloud and AI expansion. KPMG plans to invest billions in Microsoft's cloud and AI services, expecting significant growth opportunities and improved client engagements.


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  Nvidia (NVDA), SoftBank (SFTBY) - SoftBank-backed chip designer Arm Ltd is in talks with Nvidia to secure the company as an anchor investor for its upcoming New York listing, according to the FT. One source said Nvidia wanted to invest at a price that put Arm’s total value at USD 35-40bln, while Arm wants to be valued closer to USD 80bln. Arm hopes to bring in investors to support its IPO and alleviate SoftBank's stake.


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  Salesforce (CRM) - According to BofA, Salesforce's recent price hikes could result in a 1-2% boost to cRPO (contracted remaining performance obligations) in H2 2023. BofA notes that Salesforce update marks the first price increase in seven years, and demonstrates its pricing power as a leader in enterprise applications.


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  SoftBank (SFTBY) - SoftBank is considering a US listing for its PayPay payments business, Reuters reports. SoftBank sees higher valuations generally achieved by tech names listing for IPO in New York rather than Tokyo, it added.


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  VMware (VMW), Broadcom (AVGO) - EU regulators are expected to approve Broadcom's USD 69bln acquisition of VMware, FT reports; Broadcom's concessions to ensure compatibility with rivals' hardware have satisfied EU competition authorities. However, the deal is still under scrutiny in the US, UK, and China.


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  Applied Materials (AMAT) - CLO Teri Little sold 10k shares on July 7th at USD 142/shr.


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  Splunk (SPLK) - CEO Gary Steele sold 9.6k shares on July 7th for a total USD 1.0mln.


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  C3.ai (AI) - Director Richard Levin sold 12k shares on July 7th for a total USD 504k.

COMMUNICATIONS:

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  Disney (DIS) - Disney is exploring options for its Star India business, including a joint venture or sale, due to the challenges of the streaming transition, WSJ reports. The company acquired Star India as part of the USD 71.3bln deal with 21st Century Fox in 2019, aiming to expand its streaming business globally. Star India includes broadcast and streaming rights for popular Indian Premier League cricket matches and operates the Hotstar streaming service.


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  Pearson (PSO) - Citi expects positive results from Pearson's first half earnings report, which could boost the company's shares. They have opened a "30-day positive catalyst watch" and maintain a Buy rating on the stock.

CONSUMER:

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  Coty (COTY) - Kim Kardashian is reportedly in discussions to repurchase the minority stake in her beauty company, SKKN by Kim, that she had sold to Coty, WSJ reports. The sale price is yet to be determined, and the deal is not finalised. SKKN offers a range of skincare products, and was valued at USD 1bln when Coty acquired a 20% stake three years ago.


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  Nike (NKE), Dynasty Gold (DYG) - Canada's ethics watchdog is investigating allegations that Nike Canada and a gold mining company benefited from Uyghur forced labour in China, BBC reports. Nike denies any current ties to the accused companies, while the mining company says the allegations surfaced after they left the region.


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  Stellantis (STLA) - Warned 29,000 owners of 2003 Dodge Ram pickups to immediately stop driving pending repairs, after a person was killed when a Takata air-bag inflator exploded.

ENERGY:

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  Energy Inventories - API weekly energy inventory data reportedly showed headline crude stocks building by more than expected at +3.0mln (exp. +0.5mln), although Cushing stocks drew down by -2.2mln; gasoline inventories posted a surprise build of +1.0mln (exp. -0.7mln), as did distillate stocks at +2.91mln (exp. -0.3mln).


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  Tullow Oil (TUWOY) - Reported its H1 trading update, where total revenue came in at USD 800mln. Tullow produced averaged 53 KBOEPD, with guidance remaining unchanged at 58-64 KBOEPD. Planned ten shutdown is underway, seeking to improve gas handling and support reduced flaring. Commercial terms for long-term gas sales agreement are under discussion with Government of Ghana.


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  Noble (NE) - Noble initiates quarterly dividend of 0.30/shr.

INDUSTRIALS:

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  UPS (UPS) - Teamsters criticised UPS for underpaying and overworking its employees in response to a Twitter thread by the company about the benefits of part-time work. The union said if UPS fails to deliver better wages for part-time staff, there would be no other option than for the union to withold labour, and urged UPS to fulfill its obligations within 20 days.


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  Lockheed Martin (LMT) - Lockheed Martin awarded USD 99mln Navy contract to provide required lethality and survivability modernisation to littoral combat ship integrated tactical trainers.


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  Cummins (CMI) - Cummins raises quarterly dividend +7% to USD 1.68.shr (prev. 1.57/shr), increasing its quarterly dividend for the 14th consecutive year.


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  Terex (TEX) - Terex raises dividend +13% to 0.17/shr, a second dividend increase this year following the +15% boost in February, which brings its the total dividend hike this year to +31%.


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  Copart (CPRT) - Co-CEO Jayson Adair sold 300k shares on July 7th for a total USD 26.5mln.


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  Seaboard (SEB) - Bresky Group proposed that Seaboard repurchase at least USD 600mln of its own shares. A special committee of independent directors will evaluate the proposal and any other capital return options suggested by the Bresky Group.

MATERIALS:

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  Rio Tinto (RIO), Sumitomo (SSUMY) - Rio Tinto and Sumitomo Corporation will collaborate on building a hydrogen plant in Gladstone to reduce carbon emissions from alumina refining. The project received funding and aims to demonstrate the viability of using hydrogen in the refining process.

HEALTHCARE:

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  CVS Health (CVS) - Patients relying on CVS' Caremark for their drug benefits faced significant delays in processing their prescriptions, leaving them without medications, WSJ reports. CVS Health said it has resolved the issue but may experience temporary delays as they clear the prescription backlog.


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  Illumina (ILMN) - Illumina is expected to receive a fine from EU merger officials for closing its deal with Grail before obtaining regulatory approval, Bloomberg reports. The fine could be up to 4% of its revenue, and Illumina has already set aside funds to cover a potential maximum fine of 10%. The EU's order for divestment will come later this year, BBG said, and Illumina plans to appeal the fine.


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  Incyte (INCY) - Phase 3 TRuE-AD3 study showed positive results for ruxolitinib cream in children with atopic dermatitis. The study met its primary endpoint, and demonstrated a consistent safety profile. Incyte plans to discuss the data with regulatory agencies for further steps.


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  Silk Road Medical (SILK) - Shares slipped almost 20% after hours following CMS filing a proposed decision regarding coverage for a specific procedure involving stenting.

FINANCIALS:

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  Money Market Funds - Money-market funds may be spared from "swing pricing" regulations as the US SEC concludes rules to prevent rapid outflows during financial crises, Bloomberg reports. While other fees will still be imposed, the reprieve comes after calls for stricter regulations following market turmoil during the pandemic. BBG said the reprieve would mark a significant victory for the likes of JPMorgan's (JPM) asset management unit, State Street (STT) and Federated Hermes, which have opposed the measure, claiming that it would drive up investor costs and lead to a significant decrease in institutional money-market funds’ assets. The SEC is scheduled to hold a meeting to finalise the rules on Wednesday at 10am, the report added.

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