US EARLY MORNING: Risk off! Yields climb on hawkish central bank repricing, hawkish Waller to speak later; Italian politics exacerbates yield moves; US banks to begin reporting Q2 numbers

SNAPSHOT:

• 
  EQUITIES: US equity futures are lower; YM -1.0%, ES -1.2%, NQ -1.3%, RTY -1.3%. Asia-Pac stocks traded with cautious gains; the European start has been negative, with Italian politics exacerbating the downside in EGBs, amid concerns of a potential collapse of the government. Despite trading lower, US equity futures are resilient in the face of the slide in fixed income markets. US players are shifting their focus onto the start of bank reporting season, with JPMorgan and Morgan Stanley due to report numbers before the market open.


• 
  BONDS: Treasury yields are bear-flattening, with yields higher by 6-7bps. The implied probability of the Fed lifting rates by 100bps has risen to 65% after Wednesday's hotter-than-expected CPI data, and larger-than-expected rate hike by the BoC -- both these events has helped engineer a hawkish shift in G10 central bank rate pricing.


• 
  FX: The Dollar is being supported by yield dynamics, and as such, USDJPY breached the 139.00 level, opening the door to 139.50 (high from September 1998!). Other rate-sensitive FX is also succumbing to the Buck's strength.


• 
  ENERGY: Crude futures have taken a hit as the Dollar advanced; geopolitical dynamics are in focus as Treasury Secretary Yellen meets G20 FinMins and President Biden continues his tour of the Middle East.


• 
  DAY AHEAD:   PPI data for June will be eyed from the inflation point of view; weekly initial jobless claims are due; Italian politics is in focus amid threats of a government collapse, which could complicate the ECB's approach to anti-fragmentation; the hawkish Fed Governor Waller is due to make remarks in the late US morning. Full Day Ahead here. 

US CORPORATE EARNINGS:

• US corporate earnings for 14th July include JPM, MS; Full Daily US Earnings Estimates here.


• 12:00BST/07:00EDT: JPMorgan Chase & Co (JPM) earnings (preview)


• 12:30BST/07:30EDT Morgan Stanley (MS) earnings (preview)


• 
  Bank Earnings - Heading into the bank reporting season, execs were generally constructive on Net Interest Income trends in Q2, supported by higher rates and rebounding loan growth; Net Interest Margins are seen slightly higher. Trading revenues will be in focus, with some suggesting support could come via volatility in FICC markets, although investment banking revenues could be pressured, and fee income may be impacted by higher mortgage costs. As has been the case in the pandemic era, loan loss reserves, and commentary about these trends going forward, will be key in shaping expectations ahead.

ECONOMY:

• 
  Treasury Secretary Yellen - The Treasury chief stuck to the Biden administration line, stating that US inflation remained unacceptably high, and bringing it down was the administrations top priority. She also stuck to the party line on Russia (it has no place at the G-20), and on China (pushing China to finalise debt restructuring plans for distressed developing nations). 


• 
  July FOMC - Money markets now imply a 60%+ chance that the Fed will lift rates by 100bps on July 27th - this probability was below 3% prior to the June CPI report released Wednesday.


• 
  Fed's Beige Book - Economic activity expanded at a modest pace on balance, since mid-May. However, several Districts reported growing signs of a slowdown in demand and contacts in five Districts noted concerns over an increased risk of a recession.


• 
  Fed's Mester (2022) - Fed does not need to make a decision on rates now, but added inflation was too high and the CPI report was uniformly negative. Mester has not seen convincing evidence that inflation has peaked, expects the Fed will need to go beyond neutral. The risk of recession had increased, but the Fed must lower inflation.


• 
  Fed's Barkin (2024) - Declined to say if he favours 75bps or 100bps rate hike at the July FOMC, said he's more concerned about achieving positive real interest rates.


• 
  Fed's Bostic (2024) - Said everything was in play when asked about the possibility of a 100bps July rate hike. Said that the June inflation report suggested that inflation's trajectory was not moving in a positive way.


• 
  Fed's Daly (2024) - Said her most likely posture was for a 75bps rate hike in July, but added that 100bps is within the range of possibilities.


• 
  Fed nominee Barr - Secured enough votes in the Senate for confirmation as Fed Governor.


• 
  Italian Politics - The administration has returned to the brink of collapse after the 5-Star party threatened to boycott a confidence vote over what it deems to be insufficient cost-of-living aid package, and its boycott could result in the collapse of Draghi’s government, and potential elections, as other parties have indicated that they would not serve in the coalition if 5-Star exited. Talks are reportedly ongoing to try and avoid the confidence vote. Bund-BTP yield spreads have widened to back above 220bps, which will also be noted by ECB officials as they prepare their anti-fragmentation tool, although some analysts have suggested that what we are seeing from Italy at the moment could be framed as a fundamental reason for BTPs coming under pressure. One option, short of fresh elections, could be for PM Draghi to ask President Mattarella to allow him to attempt to form a new government without the 5-Star party; as this would allow the 5-Star to stick to its principles without collapsing the government that it retains overall confidence in (opposing just the crisis package), and for Draghi to enhance his credibility within the political sphere.

GEOPOLITICS:

• 
  Iran - President Biden said he would use force to stop Iran from getting a nuclear weapon, according to The Telegraph. Separately, a US intelligence report warned that Iran may attempt to assassinate former President Donald Trump, Mike Pompeo or other former senior officials in revenge for the death of General Soleimani in 2020, according to the Daily Mail.


• 
  Russia - Turkey Defence Minister announced a deal with Russia, Ukraine, and the UN which targets a resumption of Ukrainian grain exports, and includes the formation of a coordination centre for the export of grains, according to SCMP.

EQUITY NEWS:

TECH:

• 
  Semis - US Commerce Secretary Raimondo said lawmakers were moving to carve off USD 52bln in semiconductor chips manufacturing subsidies from a larger bill on boosting US competitiveness with China, Reuters reported, and could potentially be done this month.


• 
  Taiwan Semiconductor Manufacturing Company Limited (TSM) - Q2 net profit +76% (exp. +64%) at TWD 237bln (exp. 219bln). Q2 revenue TWD 534bln (prev. 372bln Y/Y). Q2 operating income TWD 262bln (prev. 145bln Y/Y). Gross margin for the quarter was 59.1% (exp. 58.2%), operating margin was 49.1%, and net profit margin was 44.4%. In the second quarter, shipments of 5-nanometer accounted for 21% of total wafer revenue; 7- nanometer accounted for 30%. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 51% of total wafer revenue. Expects some capex this year to be pushed into next year due to tool supply issues. Sees Q3 revenue between USD 19.8-20.6bln in dollar terms (exp. 19.41bln), sees Q3 gross margin between 57.5-59.5% (exp. 58.2%). Says it will face challenges from rising global inflation costs; excess inventory in chip supply chain will take a few quarters to rebalance, sees capacity remaining tight this year. Sees capacity utilisation remaining healthy in 2023, adding that long-term chip demand remains firmly in place.


• 
  Intel (INTC) - Intel has told customers it will raise prices on a majority of its microprocessors and peripheral chip products later this year, citing rising costs, according to Nikkei. Increases have not been finalised, likely to range from a minimal single-digit increase to over 10% or 20% in some cases, according to sources.


• 
  Alphabet Inc. (GOOG), SoftBank Group Corp. (SFTBY), Advanced Micro Devices, Inc. (AMD) - Google Cloud announced its first Arm-based VMs, following AWS with its Graviton instances, and Azure which also recently launched Arm VMs, TechCrunch reported, adding that while AWS built its own custom chips, Google Cloud is following Azure’s lead by using chips from Ampere. These new VMs will join Google Cloud’s line of Tau VMs; this line launched almost a year ago, using AMD Milan processors.


• 
  Workday, Inc. (WDAY) - Workday has made an official entry into the US federal government market fter being granted FedRAMP authorised status at the moderate security impact level.

COMMUNICATIONS:

• 
  China Names - SEC Chair Gensler said he has no confidence over the US and China deal on auditor access.


• 
  Netflix, Inc. (NFLX), Microsoft Corporation (MSFT) - Netflix named Microsoft as its partner for its ad-supported service, CNBC reported, after announcing in April that it was planning to roll out an ad-supported tier. Netflix will report earnings next Tuesday, and has previously warned that it expects to lose 2mln in the quarter.


• 
  Twitter, Inc. (TWTR) - Twitter is not planning company-wide layoffs, but could implement restructuring and organisational changes, according to a filing. Twitter also said it was losing workers at a slightly higher rate than in normal economic times, but attrition is in line with current tech industry trends, The Hill reported. Twitter had planned to offer packages to retain employees, and had asked Elon Musk to agree to programmes that had been approved by the Board, but Musk had not provided his consent to implement these programmes.


• 
  InterActiveCorp (IAC) - Dotdash Meredith total revenue -23% Y/Y in June (prev. -10% Y/Y in May); revenue was impacted by softening advertiser demand, site migrations delays, sales force integration. Angi Inc. June total revenue +27% Y/Y in June (vs prev. +24% Y/Y in May); Angi saw accelerating growth in June driven by its Ads and Leads business, as the supply/demand dynamic normalises following the negative impact from the pandemic over the past two years, as well as continuing to lap the March 2021 rebrand.


• 
  Deutsche Telekom (DTEGY) - Will sell a majority of its towers business to Brookfield and DigitalBridge for an enterprise value of EUR 17.5bln.


• 
  Ericsson (ERIC) - Reported Q2 2022 adj. operating profit SEK 7.4bln (exp. 8.01bln), Q2 revenue SEK 62.5bln (exp. 61.5bln), Q2 gross margin 42.1% (prev. 43.4%), Q2 operating margin 11.7% (prev. 10.6% Y/Y).

MATERIALS:

• 
  Eldorado Gold Corporation (EGO) - Announced improved Q2 preliminary production; Q2 Total Gold Production 113,462oz (vs Q1 93,209oz, vs 116,066 in Q2 2021). 2022 YTD total gold production 206,671oz (vs 227,808 Y/Y), maintains FY consolidated production guidance for gold at 460–490k.

INDUSTRIALS:

• 
  Tesla, Inc. (TSLA) - AI director Andrej Karpathy announced he was leaving the automaker. Notes that in his five years, the Autopilot has graduated from lane keeping to city streets, and he looks forward to seeing the "exceptionally strong" Autopilot team continue that "momentum."


• 
  Panasonic Corporation (PCRFY), Tesla, Inc. (TSLA) - Said it plans to build a USD 4bln battery plant in Kansas to manufacture lithium-ion batteries for EVs; will be the world’s largest EV battery plant, TechCrunch said, larger than the Gigafactory it operates with Tesla in Nevada. Aims to begin producing a high-capacity batteries for Tesla in early 2024.


• 
  Volkswagen (VWAGY) - Brand CEO is cautiously optimistic on H2 production.


• 
  United Continental Holdings, Inc. (UAL) - United Airlines and its pilots' union are to renegotiate contract after last deal faced opposition, CNBC reported.


• 
  Lockheed Martin Corporation (LMT) - The Pentagon said that the US had successfully tested two Lockheed Martin hypersonic missiles recently, amid growing concerns Russia and China have had more success developing their own hypersonic weapons, Reuters reported.


• 
  Raytheon Technologies Corporation (RTX) - Was awarded a USD 353.9mln Army contract.

ENERGY:

• 
  Occidental Petroleum Corporation (OXY), Berkshire Hathaway Inc (BRK.B) - Berkshire this week purchased another 4.3mln shares of Occidental for around USD 250mln, raising its stake to 19.2% (prev. 18.7%), or around USD 10.4bln, according to a filing.

FINANCIALS:

• 
  Crypto - Troubled crypto lender Celsius Network filed for Chapter 11 bankruptcy protection in the US.


• 
  Tradeweb Markets Inc. (TW) - Thomas Pluta appointed President; will join as President-elect in October, become President in January. Current President Billy Hult succeeds Lee Olesky as CEO, who will retire as previously announced. Reiterates FY22 CapEx view between USD 62-68mln, and reiterates adj. expenses view between USD 620-655mln.


• 
  TimkenSteel (TMST), Prudential Financial, Inc. (PRU) - TimkenSteel to purchase a group annuity contract from The Prudential Insurance Company of America to settle approximately USD 250mln million of the company's approximate USD 800mln in US pension obligations under the TimkenSteel Corporation Bargaining Unit Pension Plan.


• 
  Washington Federal, Inc. (WAFD) - Q3 EPS USD 0.91 (exp. 0.77), Q3 NII USD 151.7mln (vs 128.6mln Y/Y), Q3 provision for credit losses USD 1.5mln (vs -2.0mln Y/Y), Q3 NIM 3.22% (vs 2.82% Y/Y).


• 
  Horace Mann Educators Corporation (HMN) - Sees Q2 EPS at -0.15 at the midpoint (exp 0.75), sees FY 2022 core EPS at USD 2.20 at the midpoint (exp. 3.38). Q2 catastrophe losses are seen between USD 44-47mln. Reiterated that it began to see higher near-term auto and property loss costs because of inflation, which is also affecting the settlement of claims from recent accident years that remain open because of pandemic-related systemic delays.

CONSUMER DISCRETIONARY:

• 
  Hugo Boss (BOSSY) - Raises FY22 outlook as momentum further accelerates in Q2; FY EBIT view EUR 285-310mln (prev. 250-285mln), FY sales view EUR 3.3-3.5bln (prev. 3.1-3.2bln).


• 
  Swatch (SWGAY) - Reported H1 2022 revenue of CHF 3.1bln (prev. 3.39bln Y/Y), H1 EBIT CHF 503mln (exp. 509mln), H1 adj. net CHF 320mln (prev. 270mln).


• 
  Playtech (PYTCY) - TT Bond Partners does not intend to make an offer for Playtech amid challenging market conditions.

CONSUMER STAPLES:

• 
  Walgreens Boots Alliance, Inc. (WBA) - Walgreens raises its quarterly dividend +0.5% to 0.48/shr; annual dividend raised by 1c to USD 1.91/shr.


• 
  Reckitt Benckiser Group plc (RBGLY) - Enfamil maker Reckitt on Wednesday afternoon flew 65 tonnes of baby formula to Chicago from its plant in Singapore, aiming to end a months-long shortage in the US by late summer, Reuters reported citing a senior executive.

HEALTH CARE:

• 
  Novavax, Inc. (NVAX) - US FDA authorises emergency use of Novavax COVID-19 vaccine; Health officials hope Novavax's more traditional COVID-19 shot will appeal to unvaccinated Americans, Fox reported.


• 
  Bayer (BAYRY) - Is to sell its men's health product Nebido to Grunenthal for a transaction value of up to EUR 500mln.


• 
  Theravance Biopharma, Inc. (TBPH), Royalty Pharma plc (RPRX), GlaxoSmithKline plc (GSK) - Theravance to sell all of its units in Theravance Respiratory Company (representing its 85% economic interest in the sales-based royalty rights on worldwide net sales of GSK's Trelegy Ellipta) to Royalty Pharma for over USD 1.5bln in potential total value. The transaction includes an upfront cash payment of approximately USD 1.1bln.


• 
  Azenta, Inc. (AZTA) - Sees Q3 adj. EPS between USD 0.08-0.12 (exp. 0.11), and sees Q3 revenue at USD 133mln (exp. 143.5mln), sees annual organic growth +6%, after adjusting for approximately 3 percentage points of currency impact.


• 
  Molina Healthcare, Inc. (MOH) - Will acquire My Choice Wisconsin for approximately USD 150mln.

REAL ESTATE:

• 
  Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) - In response to allegations made by Muddy Waters Capital, Hannon Armstrong issued a statement that it believes that its accounting is fully compliant with GAAP and SEC regulations, is an accurate representation of its financial performance.

14 Jul 2022 - 09:45- Fixed IncomeResearch Sheet- Source: Newsquawk