US EARLY MORNING: Geopolitical tensions weigh on equity futures as US House Speaker set to arrive in Taiwan, ignoring China's warnings

SNAPSHOT: US equity futures are lower, with tensions around House Speaker Pelosi’s visit to Taiwan souring sentiment, and keeping equities cautious overnight and in early European trade. YM -0.3%, RTY -0.4%, ES -0.5%, NQ -0.6%. Treasury yields are lower by 3-6bps, with the belly outperforming, while major curve spreads are little changed, but biased towards narrowing. The Dollar Index is up. Crude benchmarks are lower.

RECESSION RISKS: JPMorgan strategist Marko Kolanovic notes that the S&P 500 has seen its second sharpest P/E de-rating of the past 30 years, which he says exceeds the typical compression seen during prior recessions. “While the current equity multiple is in-line with the historical median, we believe it is better than fairly valued given the shift in industry mix to higher quality companies,” Kolanovic, adding that “although the activity outlook remains challenging, we believe that the risk-reward for equities is looking more attractive as we move through 2H,” and “historical downgrade cycles also suggest the worst for EM equity EPS and returns is likely behind us.” Kolanovic has been more constructive on the outlook for equities than some of his peers in the strategist community. Goldman Sachs explains the recent upside as a function of a ‘friendly real regime’ as real rates reset lower; it notes that US 10yr real rates are almost back to zero, while breakevens are moving higher - an environment tends to be the best for risky assets performance, GS says, and has favoured some long-duration equities - while the beta of equities to US 10yr yields has turned positive, particularly for growth indices. However, GS warns that the market might have been too complacent too soon in fading recession risks on expectations of a more accommodative monetary policy stance. “We think markets will be vulnerable to hawkish surprises - if inflation continues to struggle to re-set - and growth surprises - if the slowdown in activity results in a more prolonged/deeper downturn.” Goldman’s strategists think that “from here sharp moves higher in US yields will likely have to rely on an improvement in growth sentiment.”

DAY AHEAD: The Fed’s dovish 2023 voter Charles Evans will host a breakfast conversation with reporters, and traders will be listening carefully for any clues where he may think that the Fed is due to pivot policy more dovishly; his fellow dovish peer Kashkari leaned back on this notion over the weekend, suggesting that the Fed had a lot more to do on inflation, and Kashkari said he was surprised by markets’ interpretation that the Fed would soon begin to back off. The hawkish voter James Bullard will also deliver remarks today. The stateside data docket is generally benign though features the weekly RedBook, JOLTs data for June, as well as the NY Fed’s household debt and credit report. Full Day Ahead here. The earnings slate for the day includes CAT, ETN, MAR, SPGI, GILD, ABNB, SBUX, AMD, PYPL, OXY. Full Daily US Earnings Estimates here. On the geopolitical front, House Speaker Pelosi’s visit to Taiwan is causing a diplomatic incident, and the Chinese have vowed retaliation, further souring relations between the world’s two largest economies, and threatening escalation at an inopportune time.

EQUITY NEWS:

COMMUNICATIONS:

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  Activision Blizzard Inc (ATVI), Microsoft Corporation (MSFT) - Q2 adj. EPS USD 0.48 (exp. 0.48), Q2 revenue USD 1.64bln (exp. 1.58bln), Q2 net bookings USD 1.64bln (exp. 1.58bln), Q2 MAUs -12% Y/Y at USD 361mln (exp. 341.6mln). Exec said that even in a challenging economic environment, with so many companies announcing hiring freezes and layoffs, development headcount +25% Y/Y. Reiterates will release a new Call of Duty, World of Warcraft, and new Overwatch content later this year.


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  Activision Blizzard Inc (ATVI), Sony Group Corporation (SONY), Microsoft Corporation (MSFT) - Sony believes Xbox owning Call of Duty ‘could influence users’ console choice’, VGC reported, citing regulatory documents, which revealed the PlayStation firm’s thoughts on the Activision Blizzard acquisition by Microsoft.


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  Meta (META) - Board appoints Javier Olivan as COO; Sheryl Sandberg will continue as an employee through September and after that date, will continue to serve as a member of the board.


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  Pinterest (PINS) - Q2 adj. EPS USD 0.11 (exp. 0.14), Q2 revenue USD 665.9mln (exp. 665.5mln); MAUs -5% Y/Y to 433mln (exp. 429.1mln). Sees Q3 revenue growing in the ‘mid-single digits’ region (exp. USD 713.5mln), which takes into account slightly greater FX headwinds than in Q2; expects Q3 2022 adj. operating expenses to grow ‘low double digits’ Q/Q, and for the FY, there is no change to its expense outlook of growth in the range of 35-40% Y/Y. Separately, Elliott Investment Management released a statement saying that Pinterest was a highly strategic business with significant potential for growth, and its conviction in the value-creation opportunity at Pinterest has led it to become the Company’s largest investor, adding that CEO Bill Ready was the right leader to oversee Pinterest’s next phase of growth.


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  Twitter, Inc. (TWTR) - Twitter is testing a feature that lets users see how many times a user tweets per month, according to TechCrunch. Some users have already gained access to this feature. Twitter spokesperson said it was part of an ongoing experiment aiming to learn how providing more context about the frequency of an account’s Tweets can help people make more informed decisions about the accounts they choose to engage with.


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  Sinclair Broadcast Group, Inc. (SBGI) - Has entered into agreements with two top Korean Broadcast networks, Korean Broadcast System (KBS), and Munhwa Broadcasting Corporation (MBC) to collaborate on the development and implementation of NextGen Broadcast in both Korea and the US.

TECH:

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  Apple Inc. (AAPL) - Apple is being sued in a class action suit, proposed by French app developers including Figaro and L’Equipe and Le Geste app developers, accusing Apple of violating US antitrust law by overcharging them to use its app store, according to a Reuters report. Separately, Apple has abandoned its mask requirement for most of its corporate workers, according to The Verge.


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  Intel Corporation (INTC) - Fitch affirms Intel credit rating at A+; Outlook revised to negative.


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  Oracle (ORCL) - Oracle has started to lay off employees in the US as part of its plan to lay off thousands, according to The Information.


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  Amkor Technology, Inc. (AMKR) - Q2 EPS 0.51 (exp. 0.48), Q2 revenue USD 1.51bln (exp. 1.52bln). Sees Q3 EPS between 0.82-1.02 (exp. 0.80), and sees Q3 revenue between USD 1.88-1.98bln (exp. 1.79bln).


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  Lattice Semiconductor Corporation (LSCC) - Q2 EPS USD 0.42 (exp. 0.40), Q2 revenue USD 161.4mln (exp. 158mln). Sees Q3 revenue between 161-171mln (exp. 161.4mln).


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  Nutanix, Inc. (NTNX) - Names Andrew Brinded Chief Revenue Officer, succeeds Dominick Delfino, who has stepped down to pursue a new opportunity at another technology company. Sees FY22 revenue at or above high end of USD 1.535-1.555bln range (exp. 1.55bln); Revenue, ACV billings and adj. gross margins expected to be at or above the high end of the respective prior ranges, adj. operating expenses are expected to be in line with prior ranges.


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  Sanmina Corporation (SANM) - Q3 adj. EPS USD 1.30 (exp. 1.11), Q3 revenue USD 2.02bln (exp. 1.88bln). Sees Q4 adj. EPS between 1.27-1.37 (exp. 1.15) and Q4 revenue between USD 1.95-2.05bln (exp. 1.91bln).


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  SS&C Technologies Holdings, Inc. (SSNC) - Announced a USD 1bln share repurchase programme.


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  Varonis Systems, Inc. (VRNS) - Q2 EPS -0.33 (exp. -0.01), Q2 revenue USD 111.5mln (Exp. 111.3mln). Sees Q3 EPS betwen 0.05-0.06 (exp. 0.06), and sees Q3 revenue between 123-125.5mln (exp. 124.3mln). Varonis sees FY22 EPS 0.19-0.22 (exp. 0.17), reiterates FY22 revenue view USD 485-490mln (exp. 487.9mln).

INDUSTRIALS :

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  A.P. Moller-Maersk (AMKBY) - Q2 revenue USD 21.7bln (exp. 19.7bln), adj. EBIT USD 8.9bln (exp. 7.2bln); strong results driven by the continuation of exceptional market situation within Ocean. FY22 guidance revised upwards: adj. EBIT seen at USD 31bln (exp. 27.5bln, prev. 24bln), adj. EBITDA seen at USD 37bln (exp. 33bln, prev. 30bln); guidance is based on a gradual normalisation in Ocean taking place in Q4. Congestion in global supply chains leading to higher freight rates has continued longer than initially anticipated.


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  L3Harris Technologies, Inc. (LHX) - Awarded a USD 3bln US Special Operations Command contract for the support of Armed Overwatch.


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  Avis Budget (CAR) - Q2 adj. USD EPS 15.94 (exp. 11.17), Q2 revenue USD 3.24bln (exp. 3.18bln).


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  Woodward, Inc. (WWD) - Q3 EPS 0.64 (exp. 0.91), Q3 revenue USD 614mln (exp. 623.4mln). Sees FY22 EPS between 2.55-2.75 (exp. 3.25), and FY22 revenue seen between USD 2.35-2.4bln (exp. 2.4bln).


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  Stellantis (STLA) - US DoJ said FCA was sentenced in connection with conspiracy to cheat emissions tests and ordered to pay a fine of USD 96.1mln and a forfeiture money judgement of USD 203.6mln.


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  Siemens Gamesa (GCTAY) - Q3 2022 revenue EUR 2.44bln (prev. 2.70bln Y/Y). Q3 EBIT EUR -343mln (prev. -151mln). Cuts FY22 revenue growth guidance. Q3 order intake EUR 3.5bln (prev. 15bln Y/Y). Group’s performance in Q3 was impacted by higher costs, mainly linked to component failures and repairs. The company is said to be mulling cutting around 9% of its work force, according to Reuters sources.


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  Bouygues (BOUYY) - H1 revenue EUR 18.58bln (prev. 17.4bn Y/Y), operating profit EUR 448mln (prev. 551mln Y/Y), net EUR 147mln (prev. 408mln).

HEALTH CARE:

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  DaVita Inc. (DVA) - Q2 EPS USD 2.30 (exp. 2.09), Q2 revenue USD 2.93bln (exp. 2.93bln). Reiterates FY22 adj. EPS outlook between USD 7.50-8.50 (exp. 7.87), and reiterates its FY22 FCF view to USD 0.85-1.1bln.


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  Henry Schein, Inc. (HSIC) - Appoints Trinh Clark to a new position of “Chief Global Customer Experience Officer” and Leigh Benowitz to the new position of “Chief Global Digital Transformation Officer”.


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  Fresenius (FSE) - Q2 sales EUR 10.0bln (prev. 9.25bln Y/Y). Net EUR 450mln (prev. 474mln).

ENERGY:

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  BP (BP) - Q2 adj. net profit USD 8.45bln (exp. 6.73bln), adj. EPS USD 0.4358 (exp. 0.3450). BP announced a further USD 3.5bln share buyback. Has announced a 10% increase in its quarterly dividend to 6.006 cents per ordinary share. Continues to expect to have capacity for an annual increase in the dividend per ordinary share of around 4% through 2025.


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  Diamondback Energy, Inc. (FANG) - Q2 EPS USD 7.07 (exp. 6.58), Q2 revenue USD 2.77bln (exp. 2.43bln); raises share repurchase authorisation to USD 4bln.


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  Duke Energy Corporation (DUK) - Brian Savoy to succeed Steve Young as CFO.


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  Northern Oil and Gas, Inc. (NOG) - Lifts quarterly dividend +32% to 0.25/shr.


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  Williams Companies, Inc. (WMB) - Q2 adj. EPS 0.40 (exp. 0.37), Q2 revenue USD 2.49bln (exp. 2.72bln). Raises FY22 adj. EBITDA outlook to USD 6.1-6.4bln (prev. guidance was 5.9-6.2bln).


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  Transocean Ltd. (RIG) - Q2 EPS -0.10 (vs -0.17 Y/Y), Q2 revenue USD 722mln (exp. 692mln). Announced a USD 321mln contract for ultra-deepwater drillship ‘Deepwater Conqueror, and announced a USD 915mln contract for ultra-deepwater drillship Petrobras 1000.

CONSUMER CYCLICAL:

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  Leggett & Platt, Incorporated (LEG) - Q2 EPS 0.70 (exp. 0.70), Q2 revenue USD 1.33bln (exp. 1.33bln). Lowers FY22 EPS outlook to USD 2.65-2.80 (prev. guidance 2.70-3.00, exp. 2.72), and lowers its FY22 revenue outlook to USD 5.2-5.4bln (prev. guidance 5.3-5.6bln, exp. 5.3bln). Guidance lowered to reflect macroeconomic uncertainties including impacts of inflation, tightening monetary policy, and softening consumer demand continuing through the back half of the year; expects solid demand in industrial and automotive end markets to partially offset softer consumer markets.

CONSUMER STAPLES:

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  Estee Lauder (EL) - Estee Lauder reportedly in talks to buy Tom Ford, deal that could be worth over USD 3bln, according to the WSJ.


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  Unilever PLC (UL) - Ben & Jerry’s and parent Unilever said talks had broken down to resolve their dispute over the sale of the ice cream maker’s Israeli business, which would allow its products in the occupied West Bank, Reuters reported.

MATERIALS:

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  Mosaic Co (MOS) - Q2 adj. EPS USD 3.64 (exp. 4.03), Q2 revenue USD 5.40bln (exp. 5.65bln); authorises USD 2bln share buyback.


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  Univar Inc. (UNVR) - Q2 adj. EPS USD 1.00 (exp. 0.91), Q2 revenue USD 3.02bln (exp. 2.95bln). Sees FY22 adj EBITDA between 1.04-1.08bln (vs 797.7mln Y/Y), Q3 adj. EBITDA seen between USD 240-260 (vs 210.9mln Y/Y).


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  Covestro (COVTY) - Q2 revenue EUR 4.70bln (prev. 3.96bln), Q2 EBITDA EUR 547mln (prev. 547mln). Affirms Q3 and FY22 EBITDA guidance.


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  Fresnillo (FNLPF) - H1 revenue USD 1.26bln (prev. 1.47bln Y/Y). EBITDA USD 459.1mln (prev. 747mln Y/Y). Net USD 141mln (prev. 308.4mln. Gold production -27.9% Y/Y. On track to meet its silver production guidance.


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  Rio Tinto (RIO) - Rio has completed the sale of Cortez Gold for USD 525mln.

FINANCIALS:

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  Toronto-Dominion Bank (TD) - Toronto-Dominion Bank is close to a more than USD 1bln deal to buy investment bank Cowen Inc., according to the WSJ citing sources.


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  Charles Schwab (SCHW), Toronto-Dominion Bank (TD) - Charles Schwab repurchases USD 1bln of shares held by TD Bank Group.


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  Aflac Incorporated (AFL) - Q2 adj. EPS USD 1.46 (exp. 1.28), Q2 revenue USD 5.4bln (exp. 4.79bln).


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  HSBC (HSBC) - Activist shareholder Ken Lui is reportedly convening a group to push for the spinoff of the bank’s Asia unit, according to Bloomberg.


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  Generali (ARZGY) - H1 gross written premiums EUR 41.9bln (prev. 38.1bln Y/Y), operating profit EUR 3.14bln (prev. 3.0bln), net EUR 1.40bln (prev. 1.54bln). Authorises a EUR 500mln share buyback.

REAL ESTATE:

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  SBA Communications Corp (SBAC) - Q2 EPS USD 0.64 (exp. 0.90), Q2 revenue USD 652.0mln (exp. 626.45mln). FY Revenue view 2.56bln-2.60bln (exp. 2.51bln), and FY22 AFFO/shr seen between USD 11.87-12.24 (exp. 11.98).


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  Simon Property Group Inc (SPG) - Q2 FFO/Shr USD 2.91 (exp. 2.90), Q2 revenue USD 1.28bln (exp. 1.21bln).

02 Aug 2022 - 09:31- EquitiesResearch Sheet- Source: Newsquawk