US EARLY MORNING: US equity futures and Treasury yields are flat; docket is thin ahead of a busy week

US PREMARKET: US equity futures are trading around flat, Treasury yields are mixed but little changed, the Dollar Index is around neutral. APAC stocks were supported after officials have begun announcing stimulus measures to support the economy. European shares started more defensively amid corporate earnings and before key inflation data. The US day is thin, although events pick up later in the week, with a heavy earnings slate and key US data releases, including the ISM and jobs reports (see week ahead, below).

POLICY PIVOT: Morgan Stanley highlights positive sentiment around a possible US policy pivot, which it says is supporting valuations. It notes that earnings revisions have improved, particularly in sectors like Telecoms, Media, Banks, Consumer Durables, and Semiconductors. Equal-weight performance has lagged behind cap-weight performance for the S&P 500, but there are pockets of strength in Healthcare, Energy, Industrials, and Utilities. Its analyst sentiment tracker indicates strong readings for Utilities, Energy, and Financials. Also, its latest Consumer Pulse Survey shows increased optimism among consumers regarding the economy and household finances, with an uptick in spending intentions for the next six months, especially for international travel and dining out. Finally, MS says it is fielding many client queries about US company exposure to China, adding that Autos, Tech Hardware, Consumer Durables and Household & Personal Products have the highest foreign sales exposure to the world's second largest economy.

US FOCUS ON ROE: Goldman Sachs strategists note that US management focus on boosting ROE is one driver of the long-term pre-eminence of US equity returns. The bank says the S&P 500 has a history of performing better than other global stock markets, but despite this, investors have this year been selling US stocks and buying international equities hoping for better returns. The IT sector's significant weight and US executives' focus on improving ROE have contributed to the S&P 500's superior performance, and over the past decade, the S&P 500's ROE increased more than other global markets. Although US stocks have higher P/E ratios, lower global valuations are due to lower ROEs and historical returns, the bank says. Meanwhile, for Europe, the GS says that Q2 earnings have been as expected for most companies, but there were more negative surprises for STOXX 600 ex-financials. Only 30% of companies beat consensus estimates by more than 2%, which is lower than usual, and this occurred despite negative revisions and weaker sentiment leading up to the earnings season. Positive surprises led to cautious market reactions, while negative surprises were penalised more than usual, GS observes.

JPM NOW FAVOURS GROWTH OVER VALUE: JPMorgan believes the US 10yr yield has peaked at 4.2% despite recent attempts to go higher, and expects bond yields to decrease in H2, which should favour Growth over Value stocks, and lead to a potential underperformance of Eurozone equities vs the US. The bank says lower yields are being driven by disinflation and the risk of policy mistakes, adding to the curve's inversion. In H2, yields may fall due to softening services activity, labour market weaknesses, and China's deflation and contracting manufacturing. This could impact equities negatively. JPMorgan has reversed its view from last year, favouring Growth over Value stocks, and expect Eurozone equities to underperform the US if bond yields decline further. They say defensive stocks and duration plays may be more favourable in H2 as the Fed might be at the end of its rate hiking cycle. Sectors like Staples and Healthcare may lead after the last Fed hike.

TODAY’S AGENDA:

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


• 
  EUROPEAN DAY: The ECB’s survey of monetary analysts will be released in the morning. Eurozone flash HICP metrics for July are expected to show a cooling in the annual rates of inflation. Eurozone GDP is expected to register growth in Q2, though the annual measure is seen paring.


• 
  NORTH AMERICAN DAY: Chicago PMI data, and the Dallas Fed manufacturing index are the only releases of note. In afternoon trade, the Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending will be released, and later, the Treasury will publish its quarterly financing estimates ahead of Wednesday’s quarterly refunding announcement. On the speaker’s front, Fed’s Goolsbee (voter) will give an interview to Yahoo Finance.


• 
  US CORPORATE EARNINGS: Today's slate is quiet (see here); this week will see numbers published from CAT, MRK, PFE, UBER, SBUX, AMD on Tuesday; CVS, QCOM, PYPL on Wednesday; CI, COP, AMZN, AMGN, GILD, ABNB, SYK, AAPL, BKNG on Thursday; our weekly earnings estimate sheet is here.


• 
  WEEK AHEAD: Highlights include US jobs report, BoE, RBA and PMI data; our full weekly briefing can be accessed here.


• 
  OVERNIGHT APAC TRADE: APAC stock markets had a mostly positive end to the month, after positive momentum from Wall Street, while China's efforts to support its economy and mixed official PMI data also contributed to the positive tone. The Australian ASX 200 index slightly declined due to weakness in consumer and financial sectors. The Japanese Nikkei 225 index rose above 33,000 points due to a weaker currency and the Bank of Japan's new flexible approach. In China, the Hang Seng and Shanghai Composite indexes were higher amid optimism about stimulus measures, details of which will be announced over the course of the European morning. (Newsquawk)


• 
  CHINA PMI/STIMULUS: China's official manufacturing PMI stood at 49.3 in July (exp. 49.2, prev. 49.0), the non-manufacturing at 51.5 (exp. 53.0, prev. 53.2), leaving the composite at 51.1 (prev. 52.3). Analysts said policy support was needed to prevent China’s economy from slipping into a recession, not least because external headwinds look set to persist for a while longer. And in wake of the data, the government announced new steps to boost consumption and major cities pledged measures to support the property market. China will announce further details on stimulus packages over the course of the European morning.


• 
  EUROPEAN OPEN: Despite the positive performance on Wall Street on Friday, and APAC stocks mostly gaining on China stimulus hopes, European equities start the last trading session of the month on the back foot. Earnings have been in focus: Heineken (HEIA NA) cut its profit outlook; Banks are in focus amid reports that the European stress tests showed three of the 70 lenders failed to meet capital requirements (names of these banks were not disclosed); miners and China proxies have been in focus amid stimulus talk. This morning, data from Germany showed retail sales fell -0.8% M/M in June (prev. +0.4%), and the annual measure pared to -1.6% Y/Y (exp. -2.6%, prev. -3.6%). German import prices fell -1.6% M/M in June (exp. -0.7%, prev. -1.4%), and the annual rate worsened to -11.4% Y/Y (exp. -10.7%, prev. -9.1%). Also in the morning, traders will focus on flash European inflation data, which are expected to show the annual rates of HICP cooling. (Newsquawk)

EQUITY NEWS:

HEALTHCARE:

• 
  Johnson & Johnson (JNJ) - A judge ruled that JNJ cannot use a unit's bankruptcy case to force cancer victims to drop lawsuits and accept a USD 8.9bln settlement related to talc products, Bloomberg reported. The company plans to appeal the decision.


• 
  Johnson & Johnson (JNJ) - Janssen requested FDA approval to expand the use of EDURANT to treat HIV-1 infection in children weighing 10 kg or more. A similar application has been submitted to the EMA for use in Europe.


• 
  Kenvue (KVUE), Johnson & Johnson (JNJ) - Directors and executives of Johnson & Johnson may not buy or sell company shares from August 15-28th due to a potential "blackout period" related to an offer to exchange shares with Kenvue.


• 
  Abbott (ABT) - Director Daniel Starks sold 50K shares on July 27th for a total USD 5.69mln.


• 
  Moderna (MRNA) - Director Noubar Afeyan sold 15K shares on July 26th for a total USD 1.81mln.


• 
  Regeneron Pharmaceuticals (REGN) - Regeneron presented positive two-year results from the PHOTON trial, comparing aflibercept 8 mg to EYLEA Injection in diabetic macular edema patients. Aflibercept showed non-inferiority and maintained extended dosing intervals with similar safety to EYLEA.


• 
  Apellis Pharmaceuticals (APLS) - Updated on its review of rare retinal vasculitis events in patients using SYFOVRE; found no indication that product quality or manufacturing caused these events. Separately, Apellis presented data from a study showing the long-term efficacy and safety of SYFOVRE, an FDA-approved treatment for age-related macular degeneration.

TECH:

• 
  Apple (AAPL) - Apple's Screen Time controls for parents to restrict their children's device usage are not working properly, WSJ reports. Changes made by parents often don't stick, and restrictions may not apply as intended, causing concerns for monitoring kids' screen time. Apple is aware of the issue and is working to improve the situation.


• 
  Semiconductor Stocks - Global chipmakers are optimistic about the end of the semiconductor supply glut, but demand outside the AI industry remains weak due to economic challenges, a Reuters analysis showed. PC and smartphone markets are slowly recovering, but overall chip demand is still affected by the oversupply. China's slow recovery also hinders the chip industry's outlook.

COMMUNICATIONS:

• 
  Manchester United (MANU), Adidas (ADDYY) - The World's greatest football club Manchester United and German sports apparel maker Adidas have announced renewal of their partnership for an additional 10 years, with MANU getting a minimum cash guarantee of GBP 900mln.


• 
  Disney (DIS) - Disney has hired former executives Kevin Mayer and Tom Staggs to advise CEO Bob Iger on dealing with the company's TV businesses, FT reports. The two were once seen as potential successors to Iger, but left when their chances diminished. Mayer played a key role in Disney's streaming strategy, and Staggs held various roles, including CFO and COO. Elsewhere, a Florida judge denied Disney request to dismiss a lawsuit by an oversight district, making it difficult for Disney to pursue its own case against Governor Ron DeSantis, Reuters reports. The oversight district wants to void "backroom deals" that favour Disney. Separately, Disney received a positive mention in Barron's; the newspaper said it is time to buy the stock, arguing that the company's 'magic will return' amid a renewed focus on lower costs, and doing what it does best.


• 
  Live Nation (LYV) - The DoJ may sue Live Nation and Ticketmaster for antitrust violations by the end of the year, alleging they are using their power unfairly in the live music industry, Politico reports. A successful case could result in the company being split up.


• 
  Twitter (Private) - Elon Musk's company X (formerly Twitter) plans to keep its headquarters in San Francisco, marked by a giant glowing "X" logo on the roof, which has made some residents and city officials unhappy with the display due to its apparently intrusive lights. Musk's decision to keep X in San Francisco may signal a positive development for the city, which has faced challenges after the pandemic, Reuters said.


• 
  Warner Bros. Discovery (WBD), Comcast (CMCSA) - "Barbie" and "Oppenheimer" remained dominant at the box office in their second weekends, with "Barbie" earning USD 93mln, Variety reported. Despite two Hollywood strikes affecting the exhibition industry, the movies' ticket sales only declined 43% from their debuts. "Barbie" had the seventh-biggest second weekend in history.


• 
  Fox (FOX), Flutter (PDYPF) - Fox and Flutter are shutting down their Fox Bet online wagering business on August 1st. Flutter will keep the customer database and market-access agreements, while Fox retains rights to the Fox Bet brand and the option to acquire a stake in FanDuel.

CONSUMER:

• 
  Walmart (WMT) - Walmart paid USD 1.4bln to buy out Tiger Global's shares in Indian e-commerce giant Flipkart. The deal valued Flipkart at USD 35bln and gives Walmart more access to the growing digital consumer market.


• 
  Heineken (HEINY) - The world's second largest brewer by profits saw H1 2023 results with higher revenue, though lower net and operating profit growth. It cut its 2023 profit forecast after weakness in Asia; now expects operating profit growth (ex-items) to be between zero and a mid single-digits (prev. saw mid- to high-single-digits growth).


• 
  Toyota Motor (TM) - Toyota plans August-October quarter global output increase of 11% Y/Y to 2.68mln, according to the Chubu Keizai newspaper.


• 
  Costco (COST) - Positive mention in Barron's; the newspaper said the stock was on a tear, and was still worth owning.


• 
  British American Tobacco (BTI) - The new CEO of British American Tobacco rejected a shareholder's suggestion to move its listing from London to New York, The Times reports. CEO believes it's not a priority, and too simplistic. Many companies are considering New York for higher valuations and more capital.


• 
  Barnes & Noble (BNED) - Barnes & Noble has reached a refinancing agreement with stakeholders and partners to improve its financial position. The agreement extends debt maturity and explores various strategic options, including potential capital raises, divestitures, or a sale.

MATERIALS:

• 
  BHP (BHP) - The world's largest miner expects India's growing steel industry to boost its coal business significantly, FT reports. Around 40% of BHP's metallurgical coal is now going to India, and the country's increasing steel production is driving demand.


• 
  Glencore (GLNCY) - Glencore is in advanced talks to buy out its partner, Pan American Silver, in Argentina's Mara copper project. Bloomberg reports that the miner is close to finalising a deal to acquire Pan American Silver's 56% stake, and a deal could be announced as soon as next week.


• 
  Sigma Lithium (SGML) - Sigma Lithium, a miner producing metal for EV batteries, is in talks with potential buyers, Reuters reports. The company aims to consider options that align with its shareholders' social sustainability values. The discussions come amid a lithium supply shortage.

INDUSTRIALS:

• 
  Trucking Stocks - Giant Yellow has shut down operations due to debt and union issues. With 30k jobs at risk, it's the biggest collapse in the trucking industry, WSJ reports. Customers have turned to other companies, lessening the overall impact.

FINANCIALS:

• 
  Big Banks - Banks developing global standards on accounting for carbon emissions have voted to exclude two-thirds of emissions linked to their capital markets businesses from their carbon footprint, Reuters reports. Environmental advocates argue banks should take full responsibility for emissions from activities financed through bonds and stock sales. The decision is not mandatory and will impact banks' carbon-neutrality targets.


• 
  BlackRock (BLK) - CEO Larry Fink sold 20.2K shares on July 26th for a total USD 15.0mln.


• 
  Coinbase (COIN) - The SEC asked Coinbase to stop trading all cryptocurrencies except bitcoin before suing them, FT reports. The case considers some cryptocurrencies as securities, showing the SEC's intent to have more control over the crypto market.

REAL ESTATE:

• 
  CRE - Commercial real estate investors and lenders are concerned about the future of their investments as remote work and online shopping become more common, reducing the demand for office spaces and malls, Reuters reports. The value of properties may take longer to recover, leading to potential losses for landlords and lenders.

31 Jul 2023 - 09:30- EquitiesData- Source: Newsquawk