US EARLY MORNING: New month starts on a cautious footing; ISM manufacturing report and JOLTs data ahead, along with some key corporate earnings

US PRE-MARKETS: US equity futures are a touch below neutral, Treasury prices are mixed (front-end slightly higher, long-end slightly lower), while the Dollar Index is up a little. Overnight in APAC trade, China Caixin PMI data disappointed expectations, while the RBA kept rates unchanged (it was always going to be a close decision, but consensus expectations were slightly tilted towards a hike). The European day has begun on a cautious footing ahead of final PMI data out of the bloc, while the region was also digesting some key earnings reports (see here). The focus of the US day will be on the July ISM manufacturing report, as well as the June JOLTs data; there are a few notable corporate earnings also due today, including MPC, MAR, CAT, MRK, PFE, UBER, MO, SBUX, AMD.

PREVIEW - ISM MANUFACTURING (15:00BST/10:00EDT): The ISM manufacturing headline is expected to improve slightly, but remain sub-50.0, with the consensus forecasting 46.8 from the prior 46.0. S&P Global’s PMI data alluded to an improvement in manufacturing conditions in July, with operating conditions deteriorating at a slower pace, owing mainly to steady production and fewer declines in new orders. However, manufacturers reduced input purchases and inventories as demand remained weak, leading to improved supplier delivery times. Cost-cutting efforts were also evident amid muted domestic and international demand.

TIGHTER FINANCIAL CONDITIONS: The Fed's latest Senior Loan Officer Opinion Survey indicates that credit conditions remain unusually tight, despite the fading banking crisis, indicating a potential slowdown in business lending and consumer credit amid rising interest rates, and while the residential mortgage market offers some hope, weak demand remains a concern. Lending standards for commercial real estate loans have slightly improved, but standards for business loans reached a new cyclical high, which Capital Economics says is historically associated with recessions. It notes that Commercial and Industrial lending has been declining, and the survey suggests the rate of contraction will worsen in the second half of the year, potentially affecting the rebound in business investment. CapEco says rising interest rates are making banks hesitant to lend to households, tightening standards for credit cards, auto loans, and consumer loans. The residential mortgage market shows some improvement due to rising home prices and homebuilder sentiment. However, weak mortgage demand persists as current rates are significantly higher than the fixed rates obtained by many households in recent years.

HEDGE FUND DE-GROSSING: Hedge funds are taking a cautious stance amid ongoing economic and policy uncertainty. According to a Bloomberg report, hedge funds are “throwing in the towel” and reducing risks because the markets have this year become highly uncertain and volatile. Pro managers are cutting their positions on both bullish and bearish bets. This shift in sentiment comes after the S&P 500 surged almost continuously since October 2022, defying many forecasters’ predictions. Hedge funds now face challenges due to the market’s relentless rally. As the economy performed better than expected and the Federal Reserve fought inflation aggressively, stocks surged, leading to short-covering and chasing gains by fast-money managers. However, this has now resulted in a “capitulation” among some hedge funds, leading to the de-grossing. The report warned that rules-based funds, with high net leverage, may face significant selling pressure in case of market disruptions. 

TODAY’S AGENDA:

• An interactive calendar can be accessed here; a pdf version can be downloaded here.


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  EUROPEAN DAY: Final PMI data for July are expected to be unrevised for the Eurozone, France, Germany, UK. Germany unemployment seen steady in July. UK to sell GBP 4bln of 2025 debt.


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  US DAY: ISM manufacturing seen improving at the headline level, but still expected to remain sub-50.0 (see above for preview). JOLTs seen paring in June to 9.62mln from 9.82mln. Elsewhere, June construction spending data, and the weekly RedBook data are due. Fed’s Goolsbee (2023) will speak again on Tuesday.


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  US CORPORATE EARNINGS: Today’s highlights include: MPC, MAR, CAT, MRK, PFE, UBER, MO, SBUX, AMD. Our full Daily US Earnings Estimates can be accessed here.


• 
  ENERGY: After the US close, the API weekly inventory report will be released. This week, crude stocks are expected to draw 0.9mln, distillates are seen building 0.8mln, while gasoline stocks are expected to draw down by 1.4mln.

EQUITY NEWS:

TECH:

• 
  Western Digital (WDC) - Q4 adj. EPS -1.98 (exp. -2.01), Q4 revenue USD 2.70bln (exp. 2.53bln). Sees Q1 Adj. EPS at a loss of 1.80-2.10 (exp. loss 1.47). Sees Q1 rev. USD 2.55bln-2.75bln (exp. 2.69bln)


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  Lattice Semiconductor (LSCC) - Q2 EPS 0.52 (exp. 0.51), Q2 revenue USD 190.1mln (exp. 188.0mln). Sees Q3 revenue between USD 187-197mln (exp. 192.2mln), and sees Q3 gross margin 70.5% +/- 1%.


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  Monolithic Power (MPWR) - Q2 EPS 2.04 (exp. 2.80), Q2 revenue USD 441.1mln (exp. 440.3mln). Sees Q3 revenue between USD 464-484mln (exp. 473.5mln).


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  Palantir Technologies (PLTR) - Palantir will help the Defense Information Systems Agency (DISA) and commercial licensees work together better in using the 3450-3550 MHz spectrum band. They'll use Palantir's software platform for coordination.


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  Nexi (NEXXY) - Q2 EBITDA EUR 436.1mln (exp. 434.7mln), Q2 operating revenue EUR 835.3mln (exp. 835.3mln). Affirms FY23 guidance.


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  DoubleVerify (DV) - Q2 EPS 0.07 (exp. 0.06), Q2 revenue USD 133.7mln (exp. 133.3mln). Q3 revenue seen between USD 135-141mln (exp. 138.3mln). FY23 guidance left unchanged, revenue seen between USD 557-569mln (exp. 563.5mln). To buy Scibids Technology SAS, a global leader in AI-powered digital campaign optimization, for USD 125mln in cash and stock.


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  Amkor (AMKR) - Q2 EPS 0.26 (exp. 0.21), Q2 revenue USD 1.46bln (exp. 1.48bln). Sees Q3 EPS between USD 0.36-0.53 (exp. 0.59), Q3 revenue seen between USD 1.73-1.83bln (exp. 1.78bln).


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  Arista Networks (ANET) - Q2 adj. EPS 1.58 (exp. 1.44), Q2 Revenue USD 1.459bln (exp. 1.38bln), Q2 adj. Gross Margin 61.3%. Sees Q3 revenue between USD 1.45-1.50bln (exp. 1.4bln). Exec said it was aiming for at least double digits growth next year.


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  ZoomInfo (ZI) - Q2 EPS 0.26 (exp. 0.23), Q2 revenue USD 308.6mln (exp. 310.9mln). Approves new USD 500mln buyback. Sees Q3 EPS between 0.24-0.25 (exp. 0.25), and sees Q3 revenue USD 309-312mln (exp. 325.8mln). FY23 EPS seen between USD 0.99-1.00 (exp. 1.00), lowers FY23 revenue outlook USD 1.225-1.235bln (exp. 1.28bln).


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  Instructure (INST) - Q2 adj. EPS 0.19 (exp. 0.19), Q2 revenue USD 131.1mln (exp. 129.1mln). Sees Q3 revenue between USD 132-133mln (exp. 132.1mln).  FY23 revenue seen between USD 524.0-528.0mln (exp. 525mln).


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  Sanmina (SANM) - Q3 adj. EPS 1.55 (vs 1.26 Y/Y), Q3 revenue USD 2.21bln (vs 2.02bln Y/Y). Sees Q4 adj. EPS between 1.47-1.57 (exp. 1.51), sees Q4 revenue between USD 2.1-2.2bln (exp. 2.23bln).


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  Varonis (VRNS) - Q2 EPS 0.01 (exp. 0.02), Q2 revenue USD 115.4mln (exp. 119.3mln). Sees Q3 EPS between 0.02-0.03 (exp. 0.09), and sees Q3 revenue between USD 123.5-127mln (exp. 133.4mln). Lowers FY23 EPS outlook to 0.21-0.23 (exp. 0.32), and lowers FY23 revenue view to USD 497-503mln (exp. 515.9mln).

CONSUMER:

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  Diageo (DEO) - FY23 adj. operating profit GBP 5.25bln (exp. 5.33bln). Raises dividend +5% to GBP 0.4917/shr. Ahead, expects FY24 operating environment challenges to persist with continued cost pressure. Sees delivery of medium-term guidance of organic net sales between 5-7%, continues to see FY24 capex between USD 1.3-1.5bln. Says cash flow will grow in FY24.


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  Yum China (YUMC) - Q2 EPS 0.47 (exp. 0.39), Q2 revenue USD 2.65bln (exp. 2.64bln). Exec said that even though same-store sales remained below 2019 levels, Q2 revenue increased, and operating profits rose 26% vs pre-pandemic levels in 2019


• 
  Toyota Motor (TM) - Q1 net JPY 1.31tln (prev. 736.8bln Y/Y), Q1 revenue JPY 10.6tln (prev. 8.49tln Y/Y). Maintains FY 23/24 group-wide retail sales forecast at 11.38mln vehicles.


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  Aston Martin (ARGGY) - To undertake share placing, providing gross proceeds of roughly GBP 210mln; to facilitate early redemption of group's existing second line split coupon notes due 2026. Expects to invest GBP 2bln over next five years (2023-2027) as it invests in long-term growth and its transition to electrification.


• 
  J&J Snack Foods (JJSF) - Q3 EPS 1.92 (exp. 1.52), Q3 revenue USD 425.8mln (exp. 443.1mln). Exec said gross margin initiatives were starting to gain momentum, is seeing cost inflation stabilise for most ingredients, except for sugar/sweeteners and mixes.


• 
  British American Tobacco (BTI) - CEO calls for government to subject vaping and other tobacco alternatives to "better regulations".

FINANCIALS:

• 
  HSBC (HSBC) - Q2 pre-tax profit USD 8.8bln (exp. 7.96bln), revenue USD 16.7bln (exp. 15.9bln). Announces up to USD 2bln share buyback. Continues to expect to have substantial distribution capacity going forward. Agreed on revised terms for the sale of French retail banking operations, now expects to complete in early 2024. CEO said they are investing equally across China. Said UK was a good environment to operate a global bank.


• 
  NatWest Group (NWG) - Nigel Farage has said Coutts has offered to reinstate his personal and business accounts.

REAL ESTATE:

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  AvalonBay (AVB) - Q2 core FFO/shr 2.66 (exp. 2.60), Q2 SS total revenue +6.2% to USD 636.9mln, SS Residential rental revenue increased +6.3% to USD 629.9mln. Sees Q3 core FFO/shr 2.55-2.65 (exp. 2.62). Sees FY23 core FFO/shr between 10.46-10.66 (exp. 10.49), and sees FY23 Same Store residential revenue up 5.5-6.5% Y/Y.


• 
  Cushman & Wakefield (CWK) - Q2 adj. EPS 0.22 (exp. 0.17), Q2 revenue USD 2.4bln (exp. 1.92bln). Exec said transactional markets remained under pressure during the quarter.


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  SBA Communications (SBAC) - Q2 AFFO/shr 3.24 (exp. 3.14), Q2 revenue USD 678.5mln (exp. 677.3mln). Raises FY23 AFFO/shr outlook to USD 12.80-13.16 (exp. 12.68) from 12.55-12.91; raises FY23 revenue outlook to USD 2.7-2.8bln (exp. 2.71bln).


• 
  Vornado (VNO) - Q2 AFFO/shr 0.72 (exp. 0.64), Q2 revenue USD 472.4mln (exp. 440.3mln). NYC office leasing volume 279K (vs 777K in Q1).

ENERGY:

• 
  BP (BP) - Q2 revenue USD 48.5bln (exp. 47.8bln), EPS 0.15 (exp. 0.20). Will conduct a further USD 1.5bln share buyback (lower than the prior buyback of USD 2.1bln in Q2 and USD 1.75bln in Q1). Boosts Q2 dividend +10% to 7.270 cents. Expects oil prices in Q3 to be supported by seasonal demand and the OPEC+ production restrictions; expects industry refining margins to remain above historical average levels. Expects the risk of an earlier than normal seasonal fill of European gas storage in Q3 to continue to weigh on European gas and Asian LNG prices absent disruptions to supply. In the US, Henry Hub gas prices expected to find support from coal-to-gas switching in the power sector.


• 
  Shell (SHEL) - Reportedly resumes Nigeria oil field sale talks to local firm, Bloomberg reports.


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  Diamondback Energy (FANG) - Q2 adj. EPS 3.68 (exp. 3.98), average production 263.1mln BPD; adj. FCF of USD 1.26bln. Raises dividend to USD 0.84/shr. Sees 2023 net production of 435-445k boe/d. Sees 2023 net oil production of 26-262k bpd.


• 
  Eversource Energy (ES) - Q2 EPS 0.04 (exp. 0.91), Q2 revenue USD 2.63bln (exp. 2.94bln).

INDUSTRIALS:

• 
  Daimler Truck (DTRUY) - Q2 adj. EBIT EUR 1.43bln (prev. 1.43bln), Q2 revenue EUR 13.9bln (prev. 12.1bln Y/Y). Said order intake was down since it has not yet opened order books for next year, including in the US. Sees a drop in performance in Q3 for Trucks Asia q/q. Sees a continuous recovery of European coach market.


• 
  United Parcel Service (UPS) - Teamsters union said workers at UPS voted to endorse tentative agreement reached on July 25th. All rank-and-file UPS Teamsters will have a chance to vote on ratification from August 3-22nd.


• 
  Woodward (WWD) - Q3 EPS 1.37 (exp. 0.99), Q3 revenue USD 801mln (exp. 698.7mln). Exec said Aerospace and Industrial businesses were improving, output is increasing. Industrial further benefited from increased on-highway natural gas truck production in China. Environment remains dynamic. Sees FY23 EPS between 4.05-4.25 (exp. 3.61), and FY23 revenue between USD 2.85-2.9bln (exp. 2.8bln).


• 
  Regal Rexnord (RRX) - Q2 adj. EPS 2.56 (exp. 2.46), Q2 revenue USD 1.77bln (exp. 1.8bln). Exec said it saw healthy growth in the majority of its businesses that were not subject to temporary destocking headwinds. Lowers mid-point of its FY23 guidance, now sees FY23 adj. EPS between 10.20-10.60 (exp. 10.63) from 10.20-11.10. Exec said guidance tweaked on higher depreciation expense, in part related to the Altra transaction, and higher net interest expense tied to higher benchmark interest rates. Added that the high end of the range comes down to reflect its lower confidence in the pace of recovery in certain PES and Industrial segment end markets in H2.


• 
  Republic Services (RSG) - Q2 adj. EPS 1.41 (exp. 1.32), Q2 revenue USD 3.73bln (exp. 3.73bln). Sees FY23 revenue between USD 14.775-14.850bln (exp. 14.9bln).


• 
  Trex (TREX) - Q2 EPS 0.71 (exp. 0.53), Q2 revenue USD 356.5mln (exp. 318.5mln). Q3 revenue seen between USD 280M-290mln (exp. 264.2mln). Sees FY23 revenue between USD 1.04-1.06bln (exp. 1.05bln).


• 
  Huntsman (HUN) - Q2 EPS 0.22 (exp. 0.30), Q2 revenue USD 1.6bln (exp. 1.7bln). Exec said business activity remained under pressure, though it saw demand fundamentals in many core markets stabilise, albeit at a lower level Y/Y.


• 
  Fluor (FLR) - Fluor JV received USD 700mln contract from Texas Department of Transportation for the I-35 Northeast Expansion South Project in San Antonio. Construction starts in 2024, ends in 2028.


• 
  Avis (CAR) - Q2 EPS 11.01 (exp. 9.44), Q2 revenue USD 3.12bln (exp. 3.2bln). Exec said summer travel continued to be robust, with elevated peak period demand and seasonally improved pricing.

MATERIALS:

• 
  Rio Tinto (RIO) - CEO says focusing on small bolt on buys and not big acquisitions, adding that the miner was looking at a number of possible lithium interests.


• 
  Fresnillo (FNLPF) - H1 net USD 351mln (exp. 364.7mln), H1 revenue USD 1.34mln (prev. 1.32mln Y/Y). H1 silver production +1.4% Y/Y, H1 gold production +5.4% Y/Y. Revises FY23 capex lower from USD 630mln to 555mln. Other FY23 guidance unchanged.


• 
  Covestro (COVTY) - Q2 EBITDA EUR 385mln (prev. 547mln Y/Y), Q2 revenue EUR 3.72bln (exp. 3.9bln). Does not anticipate an economic recovery in the remainder of the year. Affirms FY23 Guidance.

HEALTHCARE:

• 
  CVS Health (CVS) - CVS is to cut 5,000 jobs in cost-cutting push, according to the WSJ.


• 
  GSK (GSK) - FDA approves new use for jemperli plus chemo; safety and tolerability profile for jemperli plus carboplatin and paclitaxel was generally consistent with known safety profiles of individual agents. Marketing authorisation application is also under review by EMA.


• 
  BioMarin (BMRN) - Q2 adj. EPS 0.54 (exp. 0.23), Q2 revenue USD 595.3mln (exp. 595.2mln). Lifts FY23 adj. EPS outlook to USD 1.85-2.10 (exp. 1.02 ) from 1.80-2.05, backs FY23 revenue outlook between USD 2.375-2.500bln (exp. 2.46bln). Consensus is for FY23 EPS $1.02.


• 
  Emergent BioSolutions (EBS) - Emergent BioSolutions won a 10yr contract worth up to USD 704mln from BARDA to develop, manufacture, and supply Ebola virus disease treatment Ebanga.


• 
  Hologic (HOLX) - Q3 adj. EPS 0.93 (exp. 0.89), Q3 revenue USD 984.4mln (exp. 962.6mln). Sees Q4 adj. EPS between USD 0.80-0.87 (exp. 0.87), Q4 revenue between USD 910-950mln (exp. 951.1mln). Narrows FY23 EPS outlook to between USD 3.87-3.94 (exp. 3.91) from 3.75-3.95, lifts FY23 revenue outlook to between USD 3.995-4.035bln (exp. 4.02bln) from 3.925-4.025bln.


• 
  Incyte (INCY), Replimune (REPL) - Replimune and Incyte will work together on a clinical trial to study how their products, RP1 and INCB99280, can be used together to treat high-risk skin cancer. The trial will begin in early 2024.


• 
  Tenet Healthcare (THC) - Q2 adj. EPS 1.44 (vs 1.48 Y/Y), Q2 revenue USD 5.08bln (vs 4.64bln Y/Y). Q3 adj. EPS seen between 0.94-1.28, and Q3 revenue seen between USD 4.9-5.1bln. FY23 adj. EPS seen between 5.18-6.03, and FY23 revenue seen between USD 20.1-20.5bln.

01 Aug 2023 - 09:30- Data- Source: Newsquawk