US EARLY MORNING: Nasdaq futures weighed by TSLA and NFLX; semiconductor TSM warns on China as it gives cautious outlook; weekly jobs data, Philly Fed, more earnings ahead

US PREMARKETS: US equity index futures are around flat, but the Nasdaq-100 is in the red after downside in the share prices of Tesla (TSLA) and Netflix (NFLX), which both dropped after hours following their results. The Nasdaq is also facing the headwinds of lower Treasuries, with yields up across the curve as the belly underperforms. The Dollar Index is not taking advantage of higher yields just yet, trading around flat. Crude futures are trading a little better than unchanged, perhaps being supported by this week’s inventory draws rather than succumbing to the downbeat macro mood. This morning’s narrative has been dominated by earnings: Stateside, Tesla (TSLA) fell after its CEO suggested further price cuts could be seen amid uncertain macro conditions; Netflix (NFLX) fell as revenue missed expectations, though subscriber growth was solid. In Asia, TSMC (TSM) profits fell by less than analysts feared, but its outlook was cautious, and it added that China's recovery was weaker than anticipated, while on AI, it said that demand was good, but not enough to offset weaker overall end-market demand. In the tech sector, IBM (IBM) fell after a revenue miss. Ahead, US data and earnings will continue to be in focus; weekly initial jobless claims data coincides with the BLS July jobs data survey window, while the Philly Fed manufacturing gauge will be eyed in the context of the better-than-expected NY Fed manufacturing survey earlier in the week. Today’s earnings slate includes BX, JNJ, MMC, PM, ABT, FCX, CSX, ISRG, SAP. EMFX traders will note central bank decisions from the CBRT (500bps hike expected) and the SARB (unchanged expected).

TODAY’S AGENDA:

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


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  DAY AHEAD: Weekly US initial jobless claims and continuing claims data - the former coinciding with the window for the July BLS employment situation report - are seen little changed in the week. The US Philly Fed manufacturing survey will be eyed after the improvement in the Empire survey earlier in the week, which bodes well for the ISM report due early August. Existing home sales are seen paring a touch in June, while the leading index is seen posting another decline June. In Europe, flash consumer confidence for July is seen little changed. In EM central bank activity, Turkey's CBRT is expected to hike rates by 5ppts to 20.00%, while South Africa's Reserve Bank is seen keeping rates unchanged at 8.25%.


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  SUPPLY: Spain will sell between EUR 5.5-6.5bln of 2026, 2028, 2039 debt; France will sell between EUR 11-12bln of 2026, 2028 and 2029 debt, as well as EUR 1.75-2.25bln of 2034 linkers. The US Treasury will auction USD 17bln of 10yr TIPS, and we will also get the announcement for next week's 2s, 5s, 7s and 2yr FRN.


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  ENERGY: The EIA is expected to report a natgas stock build of 48BCF this week (vs 49 last week). WTI August 2023 Futures will expire today.


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  US CORPORATE EARNINGS: It is a busy corporate earnings slate, with highlights including: BX, JNJ, MMC, PM, ABT, FCX, CSX, ISRG. Our Daily US Earnings Estimates sheet can be accessed here.

STOCK NEWS:

COMMUNICATIONS:

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  Netflix (NFLX) - Q2 EPS 3.29 (exp. 2.86), Q2 revenue USD 8.19bln (exp. 8.29bln); Q2 streaming paid net additions +5.89mln (exp. +2.07mln). Streaming paid memberships +8% Y/Y at 238.4mln (exp. 234.5mln). Sees Q3 revenue around USD 8.5bln (exp. 8.67bln), and sees Q3 EPS at 3.52 (exp. 3.23), while Q3 streaming paid net additions are expected to be similar to Q2. Exec said that revenue in each region where paid sharing was launched was now higher than pre-launch, with sign-ups already exceeding cancellations. Is now rolling out paid sharing to almost all of remaining countries. Said it anticipates at least USD 5bln in FCF for 2023 (prev. at least 3.5bln), adding that updated FY FCF expectation reflects lower cash content spend than expected due to timing of production starts and ongoing strikes. It also sees substantial positive FCF in 2024. Elsewhere, it is confident that, over time, it can develop advertising into multi-billion dollar incremental revenue stream. Exec said crackdown on shared passwords will have a gradual financial impact, and most revenue growth this year was from new members, adding that NFLX will raise prices in the future.


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  Activision (ATVI), Microsoft (MSFT) - Microsoft and Activision filed a motion to the US FTC asking for a case against the planned acquisition to be withdrawn.


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  Liberty Global (LBTYA), Telenet Group (TLGHY) - Liberty Global acquires 93.23% of Telenet Group after a takeover bid. A subsequent acceptance period will allow remaining shareholders to accept the offer.


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  Social Media - TikTok allows Europe to access research software and opens ip paid ad database to comply with EU rules.

TECH:

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  Taiwan Semiconductor Manufacturing Company (TSM) – The world’s largest chipmaker reported a smaller than expected decline in profits as the AI boom compensated for a slump in smartphone demand, Bloomberg said. Q2 net profit -23% at TWD 181.8bln (exp. 172.5bln), Capex TWD 8.17bln (prev. 9.94bln). In USD terms, Q2 EPADS 1.14 (exp. 1.08), revenue USD 15.68bln (exp. 15.49bln); sees Q3 revenue between 16.7-17.5bln (exp. 19.1bln), Operating Margin 38-40% (exp. 41.3%), Gross Margin 51.5-53.5% (exp. 53.6%). Cuts 2023 revenue guidance, now sees down around 10% in USD terms (vs. prev. guidance for a decline by mid-single digits). Exec said China's economic recovery was weaker than what it thought it would be. On AI, said that demand is good, but it is not enough to offset weaker overall end-markets due to macro weakness.


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  International Business Machines (IBM) - Q2 operating EPS 2.18 (exp. 2.01), Q2 revenue USD 15.48bln (exp. 15.57bln); software revenue +7.2% Y/Y at USD 6.61bln (exp. 6.35bln), consulting revenue +4.2% Y/Y at USD 5.01bln (exp. 5bln), infrastructure revenue -15% Y/Y at USD 3.62bln (exp. 3.88bln). Still sees revenue at constant currency +3% to +5% (exp. +2.89%), and still sees free cash flow about 10.5bln (exp. 9.65bln).


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  Nvidia (NVDA) - Tesla CEO Musk said the automaker expects use both Nvidia (NVDA) and Dojo, adding that it will take Nvidia hardware 'as fast as they will deliver to us'.


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  Nokia (NOK) - Q2 revenue EUR 5.71bln (exp. 5.89bln), EPS 0.05 (exp. 0.07), EBIT EUR 474mln (exp. 553mln), Gross Margin 38.2%. Cuts FY23 sales outlook to EUR 23.2-24.6bln (exp. 25.57bln, prev. 24.6-26.2bln). Saw a significant decline in North American operators' investments. Said a decline in fixed networks was driven by fixed wireless access and modest inventory management. Said that it was some sequential improvement visible into Q4.


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  Alphabet (GOOG) - Google is testing an AI tool, Genesis, to create news content for media outlets, NYT reports. Some view it as helpful for journalists, while others find it unsettling and disregarding the effort behind accurate news production.


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  Dell Technologies (DELL) - Dell is to acquire Moogsoft, an AI company for smarter monitoring in IT operations. This helps Dell improve AIOps for its products and "multicloud by design" plan. The deal will be done in Q3.


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  Arista Networks (ANET) - COO Anshul Sadana sold 13,504 shares on July 17th at USD 170.0489/shr.


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  HubSpot (HUBS) - Executive Chair Brian Halligan sold 8,500 shares on July 18th at USD 556.69/shr.

CONSUMER:

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  Tesla (TSLA) - Q2 adj. EPS 0.91 (exp. 0.82), Q2 revenue USD 24.93bln (exp. 24.48bln). Quarterly profitability negatively impacted by: increase in operating expenses driven by Cybertruck, AI and other large projects; reduced asp due to mix and pricing. Quarterly profitability positively impacted by: growth in vehicle deliveries (despite margin headwind from underutilization of new factories), lower cost per vehicle, which includes lower raw material costs and IRA credit, gross profit growth in energy business as well as services & other. Cybertruck remains on track to begin initial production later this year at Gigafactory Texas; is now testing Cybertruck vehicles around the world for final certification and validation. Remains committed to smoothing deliveries throughout the quarter by reducing the percentage of vehicles delivered in the third month. Does not expect a meaningful increase in weekly production run rate in Shanghai factory. Continues building capacity for cathode production and lithium refining in the US. CEO Musk said that Q3 production will decrease slightly, expects use both Nvidia (NVDA) and Dojo, while it is open to licencing full self driving software and in early discussions with a major OEM. Will increase spending on AI. Increased 4680 cell production in Texas by 80% in Q2 over Q1. Is continuing to see improvement in commodity costs. Says demand has roughly tracked production, and Tesla would have to lower vehicle prices if macro conditions do not remain stable. Elsewhere, the NYT reports that Tesla is looking to double the production capacity of its Grunheide plant to 1mln EVs year.


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  Amazon (AMZN) - DoJ said Amazon agreed to injunctive relief, and USD 25mln civil penalty for alleged violations of children's privacy law relating to Alexa.


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  Las Vegas Sands (LVS) - Q2 adj. EPS 0.46 (exp. 0.43), Q2 revenue 2.54bln (exp. 2.39bln). Reinstates dividend at 0.20/shr.

MATERIALS:

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  BHP (BHP) - Q4 WAIO iron ore output 72.7mln tons (prev. 71.7mln tons Y/Y), copper output 476.2k tons (prev. 461.8k tons Y/Y), nickel production 22.0k tons (prev. 18.8k tons Y/Y). Says it finished the year with a strong Q4. Sees FY24 WAIO iron ore output at between 250mln-260mln tons and at 282mln-294mln tons on a 100% basis. Sees FY24 copper output at 1,720-1,910 kt.


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  Anglo American (NGLOY) - Q2 production update: copper production +56% Y/Y, Iron ore production +9% Y/Y, Steelmaking coal +28% Y/Y, Rough diamond -5% Y/Y.


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  Alcoa (AA) - Q2 adj. EPS -0.35 (exp. -0.52), Q2 revenue USD 2.68bln (exp. 2.69bln). Still sees aluminum shipments 2.50-2.60mln metric tonnes. Still sees alumina shipments 12.7-12.mln metric tonnes. Exec noted that it saw lower pricing in Q2, expects to see improvement in Q3 as the Alumina and Aluminum segments are both forecast to have reduced costs for raw materials and production.


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  Steel Dynamics (STLD) - Q2 EPS 4.81 (exp. 4.79), Q2 revenue USD 5.08bln (exp. 5.57bln), Q2 adj. EBITDA USD 1.17bln (exp. 1.18bln), Q2 ferrous shipments 1.52mln T (exp. 566,888 T), Q2 nonferrous shipments 279.8mln pounds (exp. 333.1mln), Q2 steel fabrication shipments 177,819 T (exp. 179,589), Q2 cash flow from operations 807.8mln (exp. 848.1mln). Exec said it remains confident that market conditions are in place for domestic steel consumption to be solid, as order entry activity continues to be strong across all businesses. Thinks North American steel consumption will increase in the coming years, while demand for lower-carbon emission, US produced steel products coupled with lower imports will support steel pricing.


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  Axalta (AXTA), XPO (XPO) - Axalta CFO Sean Lannon will leave the company, and Carl Anderson will take over the role starting August 14. Anderson has experience in industrial and automotive finance, arrives from XPO.

INDUSTRIALS:

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  United Airlines (UAL) - Q2 adj. EPS 5.03 (exp. 4.04), Q2 revenue USD 14.18bln (exp. 13.91bln). Q2 capacity +17.5% Y/Y, Q2 TRASM -0.4% Y/Y, Q2 CASM -4.0% Y/Y, CASM-ex +2.0% Y/Y. Sees Q3 adj. EPS between 3.85-4.35 (exp. 3.67), and sees Q3 revenue up 10-13% Y/Y. Raises FY adj EPS guidance to USD 11.00-12.00 from 10.00-12.00 (exp. 9.80).


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  AAR Corp. (AIR) - AAR won approval to build a 114,000 sqft. facility at Miami International Airport, increasing capacity by 33% and creating over 250 jobs. Miami-Dade County will reimburse the USD 50mln cost.


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  Equifax (EFX) - Q2 EPS 1.71 (exp. 1.67), Q2 revenue USD 1.32bln (exp. 1.33bln). Cuts FY revenue guidance midpoint to USD 5.30bln (exp. 5.33bln) reflecting negative impact of the weaker mortgage market and loss of high margin mortgage revenue.


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  Lockheed Martin (LMT) - Lockheed awarded a USD 220.8mln Army contract to develop, integrate, manufacture, test, and deliver Indirect Fire Protection Capability-High Energy Laser prototype weapon systems.

ENERGY:

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  Kinder Morgan (KMI) - Q2 adj. EPS 0.24 (exp. 0.24), Q2 revenue USD 3.50bln (exp. 4.55bln). Lifts quarterly +2% to 0.2825/shr.

UTILITIES:

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  Southwest Gas Holdings (SWX) - Julie Williams steps down as COO of Southwest Gas, takes on a new role as Senior VP of Continuous Improvement and Optimisation.

FINANCIALS:

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  Bank of America (BAC) - Bank of America lifts quarterly cash dividend to 0.24/shr (prev. 0.22/shr).


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  Discover Financial (DFS) - Q2 EPS 3.54 (exp. 3.67), Q2 loans USD 117.9bln (exp. 116.57bln), Q2 deposits USD 98.99bln (exp. 97.19bln), Q2 net charge-offs USD 924mln (exp. 765.1mln), Q2 NII USD 3.18bln (exp. 3.21bln), Q2 net income 901mln (exp. 929.8mln). Said it will pause share buybacks. Is seeing positive early results from relaunch of cash back debit programme.


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  Payment Stocks - Tencent (700 HK) said it was to open Weixin pay merchant network to Visa (V), Mastercard (MA), Discover Global Network (DFS) and JCB.


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  Zions (ZION) - Q2 EPS 1.11 (exp. 1.09), Q2 deposits USD 74.32bln (exp. 68.49bln), Q2 net interest margin 2.92% (exp. 2.87%), Q2 net charge offs 13mln (exp. 15.1mln), Q2 non-interest income 189mln (exp. 159.1mln).


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  Deutsche Bank (DB) - The bank has been fined USD 186mln by the Federal Reserve for making insufficient progress in addressing prior shortcomings flagged by the regulator.

HEALTHCARE:

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  Recursion Pharmaceuticals (RXRX), Nvidia (NVDA) - Recursion CEO and CFO to appear on a Needham analyst call today to discuss the recently announced Nvidia deal, and the inclusion of Recursion's platform on Nvidia's BioNeMo.


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  Catalent (CTLT) - Elliott Investment Management has reportedly built a significant stake in Catalent, and wants changes in the drugmaker's board, WSJ Reports. Catalent has faced challenges recently, including financial losses and operational issues.


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  Pfizer (PFE) - Data showed Pfizer's GBS6 vaccine generates strong immune responses in pregnant women, potentially protecting infants from GBS disease. The vaccine will move to Phase 3 development.

REAL ESTATE:

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  Crown Castle (CCI) - Q2 adj. FFO/shr 2.05 (exp. 2.00), Q2 revenue USD 1.87bln (exp. 1.86bln). Sees FY Adj. FFO/Shr USD 7.54 (exp. 7.64). Lowers FY23 AFFO outlook to 7.54 (prev. 7.63, exp. 7.64).


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  SL Green Realty (SLG) - Q2 FFO 1.43 (exp. 1.33), Q2 revenue USD 221.1mln (exp. 165.9mln).

20 Jul 2023 - 09:01- Fixed IncomeData- Source: Newsquawk