US EARLY MORNING: Stock futures are lower; soft China PMI data, Kashkari warning; ISM ahead

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  SNAPSHOT: US equity futures are lower, bond yields are rising, the dollar is down, crude benchmarks are down. Fed 2023 voter Kashkari has pushed back on the notion of a Fed pivot, arguing there was still more work to be done on inflation, and backed 50bps rate hikes for the coming meetings, although warned 75bps might be appropriate depending on how incoming inflation data looks. Goldman Sachs’ analysts noted over the weekend that the S&P 500 had rallied to the highest since June 7th, amid dovish messaging from the FOMC and better than feared corporate earnings; the bank says that “despite the idiosyncratic earnings season, the recent rally has been defined by rising stock correlations and falling volatility,” and accordingly, says that S&P 500 return dispersion has therefore dropped to the 20th percentile since 1990, which creates a more difficult environment for stock-pickers. GS updated its own dispersion score framework, and said that the Communication Services and Consumer Discretionary sectors offered the best stock-picking opportunities, and identified MRNA, ENPH, SEDG, BBWI, and MOS as stocks with the highest dispersion scores. Elsewhere, China’s July manufacturing PMI data disappointed, highlighting the fragility of its recovery. In Europe, the tenor of final July manufacturing PMI data reinforces the cautious economic outlook; although there were trivial revisions higher for the Eurozone-wide and final German numbers, they both remain in contraction, and the attached commentary was hardly encouraging. Other data showed German retail sales disappointing in July.


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  DAY/WEEK AHEAD: The Week Ahead features key manufacturing and services ISM data and the monthly jobs report ­– both top tier releases with useful inflation components, which will again be of particular interest given the Fed has moved into data-dependent mode, while the headlines will be used to gauge the cooling economic temperature amid tighter monetary policy. On the energy front, OPEC and its partners meet on policy where policy will likely be kept steady, with some chance of a small  hike in output, sources have said. In central banks, the BoE, RBA, and BCB meetings stand-out. Geopolitical developments will also be eyed; the Chinese have been heavily warning House Speaker Pelosi to avoid a visit to Taiwan during her Asia tour, reiterating that the PLA would not sit idly by; some vague reports suggest Pelosi could make a visit on Tuesday, but these have not been officially confirmed. Full Week Ahead here. The highlight for the Day Ahead is the ISM Manufacturing report; full Day Ahead calendar here. This week’s key US corporate earnings report includes: ATVI on Monday; CAT, MAR, SPGI, GILD, ABNB, SBUX, AMD, PYPL, OXY on Tuesday; CVS, REGN, MRNA, BKNG on Wednesday; CI, LLY, BABA, COP, AMGN on Thursday; and EOG on Friday. Our full Weekly US Earnings Estimates can be accessed here.


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  Fed - 2023 voter Neel Kashkari (dove) told the NYT he was surprised by markets’ interpretation that the Fed would soon begin to back off. Kashkari said the FOMC was united in its determination to get inflation back down to 2%, and thinks the Fed will continue to do what it needs to do until it is convinced that inflation is well on its way back down to target, which he said was still “a long way away”. On the size of upcoming rate hikes, Kashkari said that it was too soon to make a call on September, but raising rates by 50bps at coming meetings seemed reasonable, unless inflation surprises to the upside and core inflation continues higher, which could push him to back 75bps rate hike calls. Ahead, Kashkari said the bar to lower rates was “very high”.


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  China - China NBS Manufacturing PMI (Jul) 49.0 (exp. 50.4, prev. 50.2), after just one month in expansion territory, highlighting the fragility of China’s recovery, UOB’s analysts said; the Non-Manufacturing PMI 53.8 (prev. 54.7), remaining in expansion for the second straight month as strengthening construction led by local government frontloading infrastructure spending offset weaker services activity index, UOB said. Meanwhile, the Final Caixin Manufacturing PMI for Jul was 50.4 (exp. 51.5, prev. 51.7). China is looking to boost consumption with ‘comprehensive measures’ aimed at helping its economic recovery, SCMP reported. China’s State Council said it was looking to expand demand by boosting property and car sales, as well as subsidising green energy products, as the service sector has been hit by the country’s COVID policies, threatening to derail its annual growth target of ‘around 5.5%’. Elsewhere, Hong Kong Financial Secretary said it must brace for a geopolitical “worst-case scenario,” with over 150 Chinese firms at risk of US delisting, SCMP reported, adding that Hong Kong had to make full preparations.

EQUITY NEWS:

INDUSTRIALS:

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  Boeing Company (BA) - FAA reportedly signs off on plan to address problems with Boeing’s 787 Dreamliner, a major step before the company restarts deliveries of the aircraft, WSJ reported citing sources. The report added that the first 787 delivery was expected within days. Separately, Boeing has made a new modified contract offer to St. Louis-area workers, delaying strike action planned for Monday, the WSJ reported. The International Association of Machinists and Aerospace Workers union, representing about 2,500 defense-plant employees, will Wednesday vote on the proposal.


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  Northrop Grumman Corporation (NOC) - Awarded a USD 3.29bln Missile Defense Agency contract to design, develop, test, and field the next Ground-Based Midcourse Defense (GMD) Weapon System (GWS) Programme.


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  Automakers - WSJ notes strong auto earnings and confidence from execs that demand for cars and trucks remain resilient in H2, and how an easing of supply-chain disruptions underpin profits in the coming quarters, adding that, customer-order backlogs, historically low dealership stock, and car shoppers paying higher prices for vehicles have led to a string of profitable quarters for most global car companies.


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  CNH Industrial (CNHI), Corteva (CTVA), Deere (DE), ICL Group (ICL) - Positively mentioned in Barron’s, which said world hunger was on the rise, and these companies had solutions.


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  3M Company (MMM) - Cautious mention in Barron’s, said that 3M was taking bold steps to turn around its stock performance, but investors should still be wary.

CONSUMER STAPLES:

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  Heineken NV (HEINY) - H1 revenue EUR 16.4bln (exp. 12.7bln), net profit EUR 1.27bln (exp. 1.21bln), operating profit EUR 2.07bln (exp. 1.95bln). Beer volume +7.6% growth, premium +10.2%. Said it expected significant inflationary pressure on cost base and ongoing business investment will continue and impact into H2 and 2023.


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  Ags Names - Falling prices for commodities like wheat and corn are set to slow consumer food price increases, WSJ reports, but added that economists warned it was too soon to declare victory, with ags markets remaining volatile as the war in Ukraine and unusually hot and dry weather in Europe and the US could bring new disruptions to food supplies.

CONSUMER DISCRETIONARY:

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  Luxury Watches (LUXE) - The collapse in cryptocurrency prices is easing supply of sought after luxury watches on the second-hand market, according to online-watch trading platform Chrono24, depressing prices for hard-to get-Patek Philippe and Rolex models, WSJ reported.


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  Retail (XRT) - Consumers are buying fewer discretionary goods and returning more, NYT reports, and to clear their shelves, retailers are selling to liquidators at steep discounts.

COMMUNICATIONS:

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  Meta Platforms Inc (META) - CEO Zuckerberg reportedly told staffers that Meta had planned for growth too optimistically, mistakenly expecting that a bump in usage and revenue growth during COVID lockdowns would be sustained, Reuters reported. CEO was responding to an employee question.

TECH:

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  Uber Technologies, Inc. (UBER) - India’s Economic Times reported that Ola CEO had met top Uber executives over a possible merger, leading Uber and Ola to issue a denial.


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  Semis (SOXX) - A WSJ editorial notes that the US is heavily investing in semiconductors, but so was the rest of the world, and the question was whether semiconductor companies choose America over other locations that have offered incentives and lower costs for years.


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  Samsung Electronics (SMSN) - Samsung has reassured markets over the competitiveness of its semiconductor business after a series of warnings from investors, analysts, and employees that the Korean company is losing its technological edge, FT reported.

FINANCIALS:

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  PayPal Holdings, Inc. (PYPL) - Indonesia on Saturday announced the blocking of search engine website Yahoo, payments firm PayPal and several gaming websites due to failure to comply with licensing rules, Reuters reported. However, following backlash on social media, Indonesia temporarily opened access to PayPal to allow users to access their money, a senior official said on Sunday.


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  JPMorgan Chase & Co. (JPM) - The bank has been assembling the pieces to launch a full-service travel business, WSJ reports. JPM bought a booking system, a restaurant review company and a luxury travel agent, is building its own airport lounges and a force of thousands of travel agents. The Journal said a new website will launch in the coming months, as the bank wants a bigger piece of the travel market, which has become an important spending categories for banks and credit card issuers.


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  HSBC (HSBC) - Rebuffs calls to spin-off Asia unit, announces higher profit goal, adds representatives of Ping-An to its board. Added that a demerger of Asia business would pose significant costs and material execution risks, and risked loss of access to USD clearing. Reported Q2 adj. pre-tax profit USD 5.97bln (prev. 5.56bln Y/Y), revenue USD 13.1bln (prev. 12.5bln Y/Y), says further buybacks unlikely this year. H1 PBT fell -15% Y/Y to 9.2bln, revenue decreased marginally to USD 25.2bln, but revenue outlook remains positive for 2022. Said customer activity levels were increasing in Hong Kong, and expects a pickup in H2 earnings. CEO said current results show value of the international strategy.


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  Deutsche Bank (DB) - An internal investigation shows that the bank breached regulatory rules and its own policy to enable clients to siphon from government revenues as part of the cum ex scheme, FT reported.


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  NatWest (NWG), (QLT LN) - The bank is reportedly considering a bid for Quilter, according to the Daily Mail. CVC, Bain and BC Partners are also said to have shown interest.

HEALTH CARE:

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  Arcutis Biotherapeutics, Inc. (ARQT) - FDA approves Arcutis’ ZORYVE (Roflumilast) cream 0.3% for the treatment of plaque psoriasis in individuals age 12 and older.

REAL ESTATE:

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  Opendoor Technologies Inc. (OPEN) – Positive mention in Barron’s; says Opendoor can weather a cooling housing market, and its stock price could double.

MATERIALS

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  Covestro (COVTY) - Reduces FY22 earnings outlook amid a significant further increase in energy costs and a weakening macro environment.. Sees EBITDA between EUR 1.7-2.2bln (exp. 2.23bln, prev. outlook 2.0-2.5bln).

ENERGY:

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  Talos Energy Inc. (TALO) - Talos in talks to acquire Bain Capital-controlled EnVen Energy for about USD 1bln, according to Reuters; TALO will also take on the debt of the US GoM operator, sources said.

UTILITIES:

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  Southern Company (SO) - CEO Tom Fanning plans to announce his retirement in the coming months, Bloomberg reported, and Southern Co. has launched a search for a replacement.


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  Utilities (XLU) - Barron’s makes positive mention of NextEra (NEE), AES Corp. (AES), Edison International (EIX), Entergy (ETR), Exelon (EXC), Fluence Energy (FLNC); argues that investors should not overlook the growth potential that could add some pep to an already attractive sector.

01 Aug 2022 - 09:32- CryptocurrencyData- Source: Newsquawk