US EARLY MORNING: Index futures are a little lower ahead of earnings from Big Banks

US PRE-MARKETS: US equity futures are slightly lower, Treasury yields are widening (short-end underperforms), while the Dollar Index is flat (sub-100.00). Equity futures are on course to book solid gains this week, amid a mix of cooling inflation dynamics combined with gauges which still suggest a solid labour market, giving rise to 'Goldilocks' framings of the US economy. Many desks are now also becoming more bullish, and are refocussing on the potential for US stocks to climb to all-time highs once again. Today, the narrative will be coloured by the health of the financial sector, with big banks on the slate to begin reporting Q2 earnings; we provide a primer below. 

PRIMER - US BANK EARNINGS: US bank reporting season gets underway today, with numbers due from JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC), BlackRock (BLK) and State Street (STT). JPMorgan's analysts, previewing bank earnings, say investors will be broadly focussing on five key themes: 1) Trends in investment banking; JPM predicts a challenging quarter for investment banks, expecting a decline in revenues. FICC revenues to drop more than equity revenues, but it expects forward-looking commentary to be slightly more optimistic given the emergent green shoots on the capital markets side despite M&A volumes remaining impaired. 2) Credit quality; JPM says quality is normalising, with a slight increase in net charge-off ratio is expected. Reserve builds for regional banks will be driven by office CRE exposure. 3) Trends in deposits; deposits are expected to stabilise after being a major focus last quarter. Small banks to see modest growth, while large banks to experience declining deposits. JPM looks for a shift towards interest-bearing deposits to continue. 4) How net interest margins are evolving; JPM says that higher deposit costs will contribute to a sequential decline in sector net interest margins in Q2. Loan and securities yields increase, but are outweighed by increased deposit costs. 5) Regulatory challenges; JPM says stress test results and Basel 3 finalisation are key. Liquidity stress and potential liquidity rule changes to be addressed. Questions arise on the impact on Global Systemically Important Banks regarding standardised risk-weighted assets, available for sale marks, and long-term debt for larger banks.

TODAY’S AGENDA:

• Our interactive calendar is available here; a pdf version can be downloaded here.


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  EUROPEAN DAY AHEAD: Eurozone trade data is the only notable item on the European calendar today. After the US close, Moody's may review Spain's sovereign ratings, while Fitch could review the ESM's ratings.


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  US DAY AHEAD: US import and export price data for June and the prelim University of Michigan sentiment survey for July will be eyed for further incremental updates on the inflation narrative (the latter contains consumer inflation expectations; the NY Fed’s equivalent this week noted a cooling in near-term inflation pressures). Bank reporting season gets underway today, with JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC), BlackRock (BLK) and State Street (STT) all set to publish Q2 numbers before the open; healthcare giant UnitedHealth (UNH) will also post numbers today. Earnings expectations can be found here. Weekly Baker Hughes rig count stats are due in the afternoon. On the speaker’s slate, Fed’s Goolsbee will be doing the media rounds in pre-market trade.


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  RECAP - APAC WRAP: Asia-Pac stocks mostly higher as Wall St's positive lead, where declining yields, and softer consumer inflation supported along with a still solid labour market encouraged investors. ASX 200 led by tech sector gains. Nikkei 225 flat on JPY strength and BoJ speculation. Hang Seng and Shanghai Comp. positive with gains capped despite PBoC support pledges. (Newsquawk)


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  RECAP - US WRAP: Stocks and bonds rise as cooling inflation and lower-than-expected PPI data support markets, while weekly claims data highlights a still solid labour market, giving rise to ‘Goldilocks’ framings of the US economy. Nasdaq led by tech giants GOOGL/GOOG and NVDA. Dollar tumbles, oil prices buoyed. Ripple posts multi-year highs after legal victory. (Newsquawk)

EQUITY NEWS:

CONSUMER:

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  Amazon (AMZN) - During Amazon's Prime Day, US online sales increased by 6.1% Y/Y to USD 12.7bln, Reuters reports; shoppers spent USD 6.3bln on the second day of the sale.


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  Soda Makers - WHO has classified aspartame, a sweetener used in diet sodas, as a possible carcinogen. However, it is considered safe for consumption within the recommended daily limit, based on human studies linking it to a type of liver cancer.


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  Nissan (NSANY), Renault's (RNLSY) - Nissan to invest around JPY 100bln in Renault's EV business 'Ampere', Reuters reports. The collaboration aims to strengthen the partnership between the two, and promote the development of EVs.


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  Tesla (TSLA) - Elon Musk's SpaceX company's valuation has reached around USD 150bln after existing investors sold shares in a secondary sale, according to CNBC. The sale does not involve raising new capital, and it is a regular practice for SpaceX to allow employees and shareholders to sell stock.


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  Tesla (TSLA) - Malaysian Prime Minister Anwar Ibrahim revealed that he had a call with Elon Musk to discuss Tesla's investment in Malaysia, including opening an office and charging stations, as well as SpaceX's satellite communications service, Starlink.


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  Las Vegas (LVS) - Morgan Stanley names Las Vegas Sands as its top pick in the gaming industry, raising its price target to USD 71. The company's investments in Macau and positive trends in Singapore position it well for recovery from the pandemic, MS said.


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  Sysco (SYY), Tyson Foods (TSN) - Tyson Foods, Perdue Farms, and other meat industry suppliers are opposing a plan that would allow litigation funder Carina Ventures to take over as the plaintiff in price-fixing cases against them. They question the legality of food distributor Sysco's agreement with Carina.


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  KB Home (KBH) - KB Home raises quarterly cash dividend from 0.15/shr to 0.20/shr.


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  Leslie's (LESL) - Preliminary Q3 adj. EPS seen between 0.39-0.41 (exp. 0.69), preliminary Q3 revenue USD 611mln (exp. 703.7mln), Q3 comparable sales -12%. CFO Steve Weddell to step down, Scott Bowman has been appointed CFO effective August 7th. Sees FY23 adj. EPS between USD 0.28-0.32 (exp. 0.77), and sees FY23 revenue between USD 1.43-1.45bln (exp. 1.6bln).


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  Funko (FNKO) - Funko's CEO Brian Mariotti will take a leave of absence, stepping down from his role. Michael Lunsford, a director on the board, will serve as interim CEO while the company searches for a new CEO. Mariotti will remain on the board.

TECH:

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  Microsoft (MSFT), Activision (ATVI) - FTC has asked an appeals court to halt the USD 69bln Microsoft-Activision deal while their challenge to the acquisition is pending. The FTC is concerned that completing the deal before the appeal is heard could harm their ability to provide effective relief if antitrust violations are found. A district judge previously rejected the FTC's request to extend the pause on the deal.


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  Jamf (JAMF) - Jamf Holding has acquired dataJAR, a UK-based managed services provider specialising in Apple and Jamf services. The acquisition aims to enhance Jamf's offerings and strengthen its collaboration with MSP partners in managing Apple devices. The terms of the deal were not disclosed.


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  Methode Electronics (MEI) - Methode Electronics has decided to discontinue its Dabir Surfaces business. Anticipates costs of between USD 1.5-3.5mln for severance and asset impairments, with most expenses occurring in the first half of FY24. The wind down process is expected to be completed by the end of FY24.


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  Samsara (IOT) - CEO Sanjit Biswas sold 89.8k shares on July 11th at a price of USD 27.698/shr.

COMMUNICATIONS:

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  Streaming Companies - Hollywood actors have joined screenwriters in strike action, as negotiators failed to come to an agreement over issues including remuneration for AI "digital doubles," the FT reports. The industrial action is the first joint strike between writers and actors since 1960.


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  Roblox (RBLX) - Roblox chief product officer Manuel Bronstein sold 14.5k shares on July 11th at USD 45/shr.

MATERIALS:

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  BHP Group (BHP), Fortescue Metals (FSUGY) - JPMorgan upgraded Fortescue Metals to Neutral from Underweight, and upgraded BHP Group to Overweight from Neutral.


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  Green Plains (GPRE), Shell (SHEL) - Green Plains has announced a technology collaboration with Shell's Equilon Enterprises. The collaboration aims to combine their technologies to create a new process for producing low-carbon ethanol, high-quality animal feed ingredients, and liberating Distillers Corn Oil.


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  Commercial Metals (CMC) - Commercial Metals Company has acquired EDSCO Fasteners, a provider of anchoring solutions for the electrical transmission market. EDSCO manufactures anchor cages, bolts, and fasteners used to secure transmission poles to concrete foundations.

INDUSTRIALS:

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  United Parcel Service (UPS) - A potential strike at UPS in the United States could cost over USD 7bln, according to an economic think tank cited by Reuters. Such a strike could disrupt deliveries, impact supply chains, and raise shipping costs, the study warns.


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  Lockheed Martin (LMT) - Lockheed awarded USD 100.04mln Navy contract modification for Hypervisor Technology Zero AN/SQQ-89A (V) 15 Surface Ship Undersea Warfare Combat Systems and spares.


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  Rocket Lab (RKLB) - Rocket Lab signs deal with Japanese Earth imaging company Synspective; to launch two Electron missions. This brings the total number of Electron launches contracted by Synspective to six, with Rocket Lab being the sole launch provider for their satellite constellation.

FINANCIALS:

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  Citigroup (C) - The Mexican government has lost interest in purchasing Citigroup's Banamex retail arm, and the US bank has chosen to pursue an IPO instead, Reuters reports. Grupo Mexico had previously considered acquiring Banamex for USD 7bln, but tensions between the conglomerate and the government derailed the deal.


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  Visa (V) - Officer Rajat Taneja sold 22.7k shares on July 11th for a total USD 5.45mln.


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  Crypto - XRP prices surged after a court ruling stated that the sale of XRP tokens is not considered an investment contract, according to Coindesk. XRP short traders faced significant losses, totaling USD 58mln, with Bybit, OKX, and Binance experiencing the most liquidations.

HEALTHCARE:

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  Roivant Sciences (ROIV), Roche (RHHBY) - Roivant Sciences is in discussions with Roche to sell an experimental drug for ulcerative colitis and Crohn's disease, WSJ reports. The deal, potentially valued at over USD 7bln, may be announced soon, but there is a possibility of other bidders, the report added.


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  Illumina (ILMN) - Illumina subsidiary Grail is being sued by three former female employees, who allege a toxic work culture characterised by sexual harassment, racial discrimination, and a hostile environment.


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  Acadia Pharmaceuticals (ACAD) - Acadia expands its licensing agreement with Neuren Pharmaceuticals, gaining rights to the drug trofinetide for Rett syndrome and Fragile X syndrome outside of North America. This strengthens Acadia's position as a global leader in treating these conditions.


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  Astellas Pharma (ALPMY) - Astellas' application for zolbetuximab, a new antibody treatment for certain types of stomach cancer, has been accepted for review by the European Medicines Agency. If approved, it would be the first targeted therapy available for these patients in Europe.


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  AptarGroup (ATR) - AptarGroup raises quarterly dividend +7.9% to 0.41/shr.


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  Elanco (ELAN) - Elanco's Seresto flea and tick collar has received safety approval and will continue to be registered by the EPA. The collar meets all safety standards and a stewardship program will be implemented. The American Veterinary Medical Association supports its registration.


• 
  Theseus Pharmaceuticals (THRX) - slides 70% in afterhours trade after it discontinued development of THE-630.

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