US EARLY MORNING: Quiet start to the week; thin calendar today, but key US inflation data out later this week

US PRE-MARKETS: It was a slow weekend for news. US equity futures are trading higher, with the NDX leading the upside after four days off losses (capped off by a disappointing earnings report from Apple). Treasury yields are widening, with the short-end underperforming; the Treasury will be issuing upsized 3s, 10s and 30s this week, and inflation data towards the end of the week is also coming into focus. The Dollar Index is a little above flat. Today's highlights include employment trends for July, consumer credit for June, and Manheim's auto index; Fed's Bostic (2024) will deliver remarks again, as will Fed Governor Bowman (voter) who on the weekend said that more rate hikes will likely be needed, and that the Fed should remain willing to raise rates at a future meeting if data indicates progress on inflation has stalled. Earnings reports are today due from HSIC, VTRS, TSN, PARA, SWKS, LCID, CTRA, OKE, CE.

WHAT'S NEXT IN GLOBAL MACRO: Morgan Stanley notes that the pandemic recession in early 2020 marked a shift toward fiscal policy dominance, where government spending played a big role. It predicted that this approach, including measures like "helicopter money" during emergencies, would cause higher inflation. This strategy helped the economy during lockdowns, leading to more government spending in 2021 and record money supply growth. Inflation finally appeared due to money flowing into the real economy. The Federal Reserve reacted by tightening policy, but this dependence on fiscal policy is a concern. The note suggests that the economy grew faster than expected due to fiscal policies, reducing recession risks. Yet, concerns have arisen over high government spending, which could impact bond markets, equity valuations, and potentially lead to resumed earnings declines. Last week, Fitch downgraded the US credit ratings citing fiscal deterioration over the coming three years, as well as repeated down-the-wire debt ceiling negotiations that threaten the government's ability to pay its bills. Last week, we also saw the US Treasury announce increased coupon sizes at upcoming auctions this quarter, triggering a spike higher in yields, and this week's sale of upsized 3s, 10s, and 30s may provide some insight about how investor concerns over fiscal dynamics and larger issuance is being digested.

CPI DATA THIS WEEK: For the most part, Fed officials have continued to threaten further rate hikes if inflation does not show continued progress towards its policy target. This week, US CPI data (Thursday) and PPI data (Friday) will offer a progress report. The consensus view looks for US consumer prices to rise +0.2% M/M in July (prev. +0.2%), though the annual rate is seen ticking up to 3.2% Y/Y from 3.0%. The core rate of inflation is also expected to rise +0.2% M/M, matching the pace seen in June, with the annual rate of ore inflation seen unchanged at 4.8% Y/Y. Credit Suisse says the rise in annual headline inflation will likely be driven by unfavourable base effects and modestly higher gas prices, but services inflation should continue to decline. "Shelter inflation now appears to be easing with the expected 12-month lag from measures of new rents and house prices," the bank notes, adding that it expects a further gradual decline, with hotel prices contributing negatively; that said, it still sees the monthly run rate of shelter prices to remain above target nonetheless. Ex-shelter, it expects services inflation of +0.3% M/M. Used auto prices are also seen falling for a second straight month, as alluded to in the recent Manheim data, which CS says typically leads used autos CPI by a couple of months. "A reading in-line with our expectations would represent the second consecutive month that monthly core inflation has been broadly in-line with the Fed’s target," Credit Suisse writes, "to some extent, negative contributions from volatile components are still driving the decline, but these could reverse higher later in the year." The bank thinks that after this print, CPI inflation is likely to look increasingly encouraging for the Fed. 

TODAY’S AGENDA:

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


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  EUROPEAN DAY: The data slate is quiet, with the Sentix Index for August due; the street looks for small downside. On the speaker's front, BoE chief economist Pill will speak at a virtual Q&A following last week's rate decision.


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  NORTH AMERICAN DAY: Employment trends for July and consumer credit for June are the highlights on a quiet calendar. Manheim's auto index will also be released, ahead of Thursday's CPI report. Fed's Bostic (2024) will deliver remarks again, as will Fed Governor Bowman (voter) who on the weekend said that more rate hikes will likely be needed, and that the Fed should remain willing to raise rates at a future meeting if data indicates progress on inflation has stalled.


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  US CORPORATE EARNINGS: Today's US corporate earnings highlights includes HSIC, VTRS, TSN, PARA, SWKS, LCID, CTRA, OKE, CE; our Daily US Earnings Estimates sheet is here. This week, we are due to get reports from UPS, LLY, DUK, ZTS, TDG on Tuesday; TTD, DIS, ILMN on Wednesday; BABA on Thursday; our Weekly US Earnings Estimates sheet is here.


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  WEEK AHEAD: US CPI data on Thursday and PPI data on Friday are the highlights on the data calendar.  China inflation stats and trade data, UK GDP, rate announcements from Banxico and the RBI are also due this week. Our weekly briefing can be accessed here.

EQUITY NEWS:

LABOUR MARKETS:

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  LA Public Workers Strike - Thousands of Los Angeles city workers, including sanitation workers, mechanics, and engineers, plan to strike for 24 hours on Tuesday due to alleged unfair labour practices, LA Times reports. This strike coincides with other organised labour activities in the city and across the US.


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  Work From Home - President Biden is urging Cabinet officials to increase in-person work for their teams this fall as the COVID-19 pandemic eases, WaPo reports. The move is aimed at returning to normal work patterns and improving service.


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  Zoom (ZM) - Zoom wants employees within 50 miles of an office to work in-person at least two days a week on a hybrid schedule, Fox reports. The company believes this approach supports innovation and customer support through their own technologies.

COMMUNICATIONS:

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  Meta Platforms (META) - Meta's Threads service will soon have a web version and improved search function, Engadget reports. The additions address user requests and aim to enhance the desktop experience. The platform gained popularity quickly but faced criticism for lacking features.


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  Warner Bros. (WBD) - The "Barbie" movie has now made over USD 1bln at the global box office, with USD 459mln in North America and USD 572mln internationally - the first billion-dollar film directed solely by a woman. "Barbie" achieved this in just 17 days, making it Warner Bros.' fastest film to reach this milestone.

TECH:

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  Alphabet (GOOG) - A federal judge narrowed the antitrust case against Google, brought by state attorneys general and the DoJ, ahead of the trial. The judge rejected a legal argument but allowed other claims, preserving the core of the case against Google, whose search dominance is under scrutiny, WSJ reports.


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  Apple (AAPL) - Apple is hiring experts in generative AI for iPhones and iPads, FT reports. It seeks to develop technology like large language models for creating text, images, and code. The focus is on mobile use, aiming to catch up with rivals in AI advancement.


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  Big Tech - The tech industry faced a downturn but rebounded in Q2, with major companies like Meta (META), alphabet (GOOG), Microsoft (MSFT), and Amazon (AMZN) showing strong performance, NYT writes. However, the lack of significant innovation highlighted the need for fresh ideas, it added, and tech giants are now looking to invest in AI to revitalise their products.


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  Taiwan Semiconductor Manufacturing Company (TSM) - TSMC plans to keep its core operations in Taiwan, despite global expansion efforts, NYT reports. TSMC is a vital player in the semiconductor industry, and faces pressure to build production facilities outside Taiwan due to geopolitical concerns. Chairman Mark Liu told the NYT that it was difficult to replicate its Taiwanese operations elsewhere, and also highlighted the importance of its relationship with the US government. Separately, TSM to issue an unsecured bond for a total of TWD 15.9bln, proceeds to expand fab operations and construct new facilities.

FINANCIALS:

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  Berkshire Hathaway (BRK) - Berkshire Hathaway swung to a profit in Q2, announcing Q2 earnings of USD 10.043bln billion, up 6.6% from Y/Y. Net income reached USD 35.91bln (vs a USD 43.62bln Y/Y). The performance was driven by increased insurance underwriting and investment income. However, its energy and freight railroad companies (BHE and BNSF) saw a decrease in Y/Y earnings. BRK gained around USD 26bln from its investments, with its sizable stake in Apple contributing significantly. Berkshire reduced its stake in Chevron (CVX). Berkshire's cash reserves grew to almost USD 150bln, and share buybacks slowed as the stock climbed to a record high.


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  US Regional Banks - US regional banks continue to rely on government financing, including FHLB, despite improved share prices and positive Q2 earnings, FT reports. FHLBs provided around USD 880bln in loans by June, down from the previous quarter's peak but significantly higher than 2021-end.


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  Wells Fargo (WFC) - A Wells Fargo glitch that caused direct deposits to disappear from some customers' accounts has been resolved, CNN reports. The issue was caused by a technical glitch and was not related to cybersecurity. Only a limited number of customers were affected.


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  Natwest (NWG) - The bank has begun looking for successors for ex-CEO Dame Alison Rose and a permanent appointment only once chair Howard Davis is replaced, FT reports.


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  Santander (SAN), Lloyds (LYG) - The banks are facing a GBP 1bln UK lawsuit over practices that pushed customers towards more expensive finance options, City AM reports.


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  UBS Group (UBS) - The Swiss bank plans to break up its global Technology, Media and Telecommunications group and appoint new heads, Reuters reports. Elsewhere, around 80% of Credit Suisse investment banking staff in Hong Kong will be laid off as part of integration with UBS, with layoffs starting this week.

MATERIALS:

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  Aluminium Manufacturers - Atlanta-based aluminium rolling and recycling company Novelis reported lower net sales and net income for the first quarter of their fiscal year due to decreased aluminium prices and lower product shipments. The company mentioned strong demand for premium automotive sheet but also acknowledged challenges in certain markets.

INDUSTRIALS:

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  RTX Corporation (RTX) - Cautious mention in WSJ of its Pratt & Whitney unit; says airlines worldwide are temporarily reducing flights and routes to inspect Pratt & Whitney jet engines due to a recall, affecting around 137 engines on Airbus (EADSY) planes. This issue could cost the aerospace company RTX billions and impact airlines' operations and growth plans.


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  Boeing (BA) - Boeing awarded USD 145.7mln Navy contract against a previously issued basic ordering agreement, providing for the Increment Three Block Two engineering and manufacturing development capabilities upgrades to include the fleet release 300 and other hardware and software upgrades for aircraft trainers.


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  Textron (TXT) - Textron awarded USD 241.4mln Navy contract for procurement of LCAC 100 Class material and non-recurring activities for five future Ship to Shore Connector Landing Craft Air Cushion 100 Class craft.


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  Yellow Corp (YELL) - The US trucking company has filed for Chapter 11 bankruptcy due to substantial debt from mergers and tense union negotiations, Reuters reports. The company's CEO expressed disappointment over its closure after nearly 100 years in business.

ENERGY:

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  Saudi Aramco - CEO said its mid-to-long term view remains unchanged; Aramco also intends to increase gas production capacity to meet domestic demand growth. Sees Q2 Caepx at USD 10.46bln (vs. USD 8.74bln in Q1).


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  US Gas Prices - Rising US fuel prices are causing concern in Washington as President Biden aims for re-election while promoting a strong economy and lower inflation, FT reports. Increased petrol costs, driven by global crude price rises, could impact consumer confidence and approval ratings. Saudi Arabia's extended oil production cuts and price increase contribute to the situation.


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  Chevron (CVX) - Warren Buffett's Berkshire Hathaway reduced its stake in Chevron (CVX) by USD 1.4bln in the quarter, and the stake is now valued at USD 19.4bln.


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  BP (BP/ LN) - Plans unsubsidised UK wind farms with 214 turbines for 3.4mln homes.

HEALTHCARE:

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  Biogen (BIIB), Sage Therapeutics (SAGE) - The FDA has approved Zurzuvae (zuranolone), the first oral medication for postpartum depression (PPD) in adults.


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  Eli Lilly (LLY) - Positive mention in Barron's, which notes its stock has risen +23% in 2023 due to positive trial results for its Alzheimer's drug and successful weight-loss drugs. The pharma's upcoming earnings report is expected to show sales growth of 17% and EPS growth of 58%, driven by strong performance of its obesity drugs. Analysts believe that if the report confirms this growth, the stock could rise further, even though its valuation is high.


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  Pfizer (PFE) - Cautious mention in WSJ, which notes it initially benefited greatly from the pandemic, with its Covid vaccine, but as the pandemic's impact waned, sales of these products dropped significantly, causing a dip in overall sales and a 31% decline in shares this year. The loss of patent protection for some key products and challenges in new drug launches are contributing to Pfizer's struggles, WSJ adds, adding that the company's strategy to focus on higher-growth prescription drugs has faced hurdles as market demand for some products has been softer than expected.


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  GSK (GSK) - Arexvy, the first respiratory syncytial virus vaccine for older adults has been approved in Canada.


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  Bayer (BAYRY) - Spending within the US on soliciting individuals with Roundup claims increased by 33% from May to June, FT said.


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  Fresenius SE (FMS) - Fresenius Kabi and Formycon securs US licence date for Ustenkiumab biosimilar candidate. Is subject to regulatory approval and settlement grants an entry date for FYB202 in US no later than April 15, 2025.

CONSUMER:

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  Stellantis (STLA) - Stellantis is creating a budget-friendly electric vehicle priced under EUR 25,000, to rival Renault's Dacia Spring, Bloomberg reports.The automaker also intends to launch a Citroen e-C3 EV, produced in Slovakia, to compete against affordable EVs like Dacia Spring.


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  Lucid Group (LCID) - EV company Lucid lowered prices of its Air luxury sedans by up to USD 12,400 in response to increased competition in the US EV market, influenced by Tesla's pricing strategies, Reuters reports. The Air Pure now costs USD 82,400, while the Touring and Grand Touring versions are priced at USD 95,000 and USD 125,600, respectively.


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  Nike (NKE) - Barron's is positive on Nike as challenges like excess inventory and high costs are improving. Barron's says that Nike's strong brand, innovation, and potential in the direct-to-consumer market are seen as strengths, and say that the stock is a buy.


• 
  Copart (CPRT) - Online car auctioneer Copart approved a 2-for-1 stock split, MarketWatch reports. The split will double the number of outstanding shares to about 960mln.

07 Aug 2023 - 09:30- Research Sheet- Source: Newsquawk