US EARLY MORNING: US equity futures are flat; bank earnings, US retail sales, CAD inflation ahead

US PREMARKETS: US equity index futures are trading around flat ahead of more key bank earnings due in the premarket, as well as retail sales data, industrial and manufacturing data, as well as Canadian inflation data. Monday's upside was supported by the NY Fed's manufacturing gauge for July, a Goldilocks report – which offset some of the concerns within the University of Michigan's July survey released last week that inflation could reaccelerate – offering some hope that the ISM surveys will paint a similar picture when they are released early August. It also appears that the street is becoming more constructive on the prospects that the US can avoid a hard landing: Goldman Sachs this week reduced its view of the probability of a US recession, while Bank of America's July Fund Manager Survey reveals that projections for a soft landing were much higher than hard landing – we talk about both in more detail below. Treasury yields are lower across the curve, and were given another boost after some uncharacteristically dovish comments from the ECB's Knot, which helped the Bund to rally. The Dollar Index is trading in the red. Crude futures are around flat ahead of inventory data due after the bell.

GS SEES LOWER CHANCES OF US RECESSION: Goldman Sachs says the economic narrative has now turned, and has lowered its estimate of the probability of a US recession in the next year to 20% from 25% due to data supporting confidence in managing inflation without a recession. GS says US economic activity remains resilient, but some deceleration is expected in the coming quarters due to slower income growth and reduced bank lending. Nevertheless, inflationary pressures are easing, with factors like lower used car prices, falling rent inflation, and labour market trends contributing to ongoing disinflation. The bank dismisses concerns about yield curve inversion, citing differences in the current cycle, including a lower term premium and a plausible path to Fed easing. GS looks for a 25bps rate hike at the July FOMC, but says that it might be the last of the cycle, with a cautious approach likely in subsequent meetings. Additionally, other major central banks are further from completing their tightening cycles. Expectations for rate hikes vary across different countries; many emerging market economies have already achieved a soft landing, allowing for potential rate cuts - Brazil and Chile, for instance, are expected to cut rates. On China, Goldman notes that sentiment has stabilised, but long-term challenges remain in geopolitics, property, and demographics. Also, Goldman says that valuations remain a challenge, but near-term news flow is expected to support risk assets, including positive earnings performance, favourable credit conditions, and a weaker dollar, while the oil market rally is seen continuing.

BOFA JULY FMS: BofA July Global Fund Manager Survey suggests sentiment remains bearish, with a net 60% of investors expect weaker global growth. There is the biggest underweight of commodities since May 2020. Cash levels ticked up to 5.3% from 5.1%. BofA Bull & Bear Indicator at the low level of 3.5; ex-the US, BofA says US tech, investor “fear” still greater than “greed,” while “Fearflation” is still positive for risk assets. On macro conditions, the survey finds that most fund managers expect a mild recession to have begun in Q4 2022 or Q1 2023, with 19% see no risks of recession before 2025. The fund manager projections for a “soft landing” were much higher than “hard landing”. Fewer are expecting a reacceleration in China GDP growth this year. On corporate profits, BofA says that EPS expectations are the least pessimistic since February 2022, with global EPS seen rising +0.5% over the next 12 months. On the impact of AI, 42% of fund managers surveyed see higher profits, 1% say more jobs, 16% say higher profits and jobs, while 29% said neither. On policy, the current regime of “loose fiscal-tight money” is the most extreme since 2008; fund managers see the biggest “tail risk” still as an inflation/policy mistake (45%), then credit crunch (18%, but vs 35% in April), Corporate Real Estate(40%) is seen as most likely catalyst for “credit event.” On asset allocation, BofA says there has been capitulation in commodities, with the sector now the most underweight since May 2020, and sees the largest 3-month decline since May 2013. BofA says that allocation to stocks is at a 7-month high, but a net 24% remain underweight relative to global benchmark. On crowded trades, BofA says “long Big Tech” (59%) is still the most crowded trade, then “long Japan” (14%). The bank notes a large short-cover in US stocks, and the first UW Eurozone YTD; biggest OW global industrials since February 2022; biggest drop in healthcare since Jan 2021. It adds that contrarians would go long commodities, banks, REITs & short tech, industrials, Japan.

TODAY’S AGENDA:

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


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  EUROPE: It's a thin calendar in Europe, with only the UK sale of GBP 2.5bln 2053 debt, and Germany's sale of EUR 6bln 2025 Schatz.


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  NORTH AMERICA: Fed's Vice Chair for Supervision Barr will speak on fair lending practices; his remarks will come amid reports that bank regulators will next week release plans for an overhaul of capital rules, with rules that will go beyond Basel standards for some large lenders. Barr is unlikely to comment on monetary policy given that the FOMC is in the blackout period ahead of its July 26th meeting. US retail sales are expected to see some growth in June (primer below). Elsewhere, manufacturing production and industrial output will be released ahead of the open, and Business Inventory data for May is scheduled to be published after the open. NAHB’s July housing market index is seen rising a little in July. In Canada, the annual rate of CPI is expected to have eased in June (primer below).


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  US CORPORATE EARNINGS: There are a few key financials on today's earnings docket, including: Synchrony Financial (SYF), PNC Financial (PNC), Bank of New York Mellon (BK), Bank of America (BAC), Morgan Stanley (MS), Charles Schwab (SCHW); elsewhere, Lockheed Martin (LMT) and JB Hunt (JBHT) are also on today's release slate. Our earnings and revenue expectations sheet can be accessed here.


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  ENERGY: After the US cash equity close, the API will release its weekly gauge of energy inventories. This week, the consensus expects headline crude stocks to draw by 2.3mln, distillates to draw by 0.1mln, while gasoline stocks are seen declining by 2.1mln.


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  PREVIEW - US RETAIL SALES (13:30BST/08:30EDT): US retail sales are seen rising 0.5% M/M in June (prev. +0.3%), while the ex-autos measure is seen increasing by 0.3% M/M (prev. +0.1%), and the Control Group is likely to rise 0.3% M/M (prev. 0.2%). Ahead, Credit Suisse expects retail sales to soften, with housing market weakness affecting sales of durable goods, like furniture, electronics, and appliances. The bank adds that tighter financial conditions, slowing income growth, and student loan debt will further impact consumption growth in the months ahead. (Newsquawk)


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  PREVIEW - CANADA CPI (13:30BST/08:30EDT): Headline CPI is expected to rise 0.3% M/M (prev. 0.4%), with the annual measure seen paring to 3.0% Y/Y from 3.4% in May. The BoC last week raised rates amid continuing concerns over inflation. The central bank believes that underlying price pressures have been more persistent than expected, with core inflation rates running at around 3.5-4.00% since September. It also alluded to strong consumer demand and tight labour market conditions, which have led to elevated wage pressures. It sees inflation remaining around 3% for the next year before returning to the 2% target in 2025. It warned that it will continue to monitor core inflation dynamics, inflation expectations, wage growth, and corporate pricing behaviour to assess if further action is necessary. (Newsquawk)


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  RECAP - WALL STREET (MON): US stocks were stronger, boosted by improved tech sentiment and the NY Fed's Empire manufacturing index. Nasdaq and Russell 2000 outperformed, while global cyclicals lagged due to disappointing Chinese GDP data. Ford (F) underperformed after announcing price cuts for electric F-150 Lightning models. Treasuries were flat, and the DXY softened. Consumer credit rejection rates increased, posing a potential headwind for spending. (Newsquawk)


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  RECAP - APAC (OVERNIGHT): Asian stocks were mostly lower, failing to sustain the momentum from Wall Street. ASX 200 was subdued as RBA Minutes noted a need for further tightening but acknowledged a considerable economic slowdown. Nikkei 225 initially advanced but later faded amid weakness in peers. Hang Seng and Shanghai Comp. declined, led by property stocks following Evergrande's poor results. US-China relations were in focus, with positive comments from US Climate Envoy Kerry and China's top diplomat Wang, but reports of proposed investment limits and new chip restrictions by the US created tensions. (Newsquawk)


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  REVIEW - RBA MINUTES: Minutes from the July meeting said that the Board considered holding rates steady or hiking by 25bps, and there was a strong case for both, but the Board judged arguments for holding steady were stronger. The Board agreed some further tightening may be required and would reconsider at the August meeting. The current stance of monetary policy was clearly restrictive, and would become more so. The minutes said that while domestic inflation has eased, service inflation is still high along with rents, energy and food, though it acknowledged that there were risks associated with waiting too long for inflation to return to the target. Analysts at Westpac believe that the RBA meeting minutes suggest the future direction of policy is uncertain. The bank notes that while there is a case for further tightening, the minutes also emphasised downside risks to the outlook. Westpac thinks the decision in August will be balanced, taking into account factors such as inflation, employment, and global trends. "Westpac continues to expect that slow progress in reducing inflation, which is likely to be apparent in the June quarter inflation report, and ongoing tightness in the labour market, particularly as job vacancies remain historically elevated, will make the case for further tightening well justified," though it added that "we cannot be unmoved by the strength of arguments put forward for the July decision to leave rates on hold, particularly new ones around the stance of policy, the shape of the yield curve and downside risks to the outlook."

EQUITY NEWS:

COMMUNICATIONS:

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  Activision (ATVI), Microsoft (MSFT) - The USD 69bln merger between Microsoft and Activision Blizzard is unlikely to close by the Tuesday deadline, Bloomberg reports. The companies do not intend to abandon the agreement, and will continue seeking regulatory approvals, with progress recently shifting in their favour, though UK regulators have expressed concerns about the deal. Elsewhere, The US FTC is evaluating its options after its Microsoft-Activision (ATVI) loss, which include pursuing fight in internal FTC court, pursuing parallel case before appeals court, pursuing both, or settle with MSFT and drop matter entirely, according to Reuters.


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  Activision (ATVI), Berkshire Hathaway (BRK.B) - Berkshire reported a 1.9% passive stake in Activision as of June 30th (prev. 6.7% in February).


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  Meta Platforms (META) - CEO Zuckerberg said he was 'very optimistic' about early Threads engagement, adding that the community has shown rapid growth and daily active users in the tens of millions. Zuckerberg said the focus was on improving the basics and retention before expanding the community.

TECH:

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  Chip Names - US to propose China investment limits by end-August with limits likely to not take effect until 2024, while US outbound investment curbs are focused on AI, chips and quantum computing, according to Bloomberg. Separately, US President Biden is weighing new curbs on chips and semiconductor-making devices, while Intel (INTC), Nvidia (NVDA) and Qualcomm (QCOM) CEOs are seeking to ease new restrictions.


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  Apple (AAPL) - Apple has been granted a 90-day hold on a ruling that would require it to change its rules on in-app payments, The Verge reports. The ruling, if enforced, would allow developers to direct users to third-party payment methods, impacting Apple's revenue. Apple is seeking Supreme Court review of the case.


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  Infosys (INFY) - Infosys has signed a preliminary contract with an existing client for AI and automation development work, worth an estimated USD 2bln over five years. Stifel said the contract boosts confidence that INFY can meet its FY24 revenue goals.


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  Dell Technologies (DELL) - Officer Allison Dew sold 329k shares for a total USD 18.18mln.


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  Wolfspeed (WOLF) - Wolfspeed has stated that its supply chain will not be affected by China's upcoming export restrictions on gallium and germanium. The company will continue to manage its supply chain to meet its needs.


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  Stratasys (SSYS), 3D Systems (DDD), Desktop Metal (DM), Nano Dimension (NNDM) - Stratasys plans to engage in discussions with 3D Systems regarding its revised acquisition proposal. Stratasys will conduct due diligence and negotiate terms, while remaining bound by its merger agreement with Desktop Metal. No final determination has been made, and Stratasys advises shareholders to reject Nano Dimension's partial offer.


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  Splunk (SPLK), Microsoft (MSFT) - Splunk and Microsoft are joining forces to enhance digital resilience. Splunk's security and observability solutions will be built on Microsoft Azure. Separately, Splunk also introduced 'Splunk Edge Hub' solution to analyse data from sensors, IoT devices, and industrial equipment.


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  Salesforce (CRM) - Chairman Marc Benioff sold 15k shares at USD 229.80/shr for a USD 3.45mln.


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  Shopify (SHOP) - SHOP downgraded at Evercore to Inline from Outperform, PT USD 69.00.


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  Wix (WIX) - Wix.com is launching the AI Site Generator and a suite of AI-powered capabilities to simplify website building and management for users.

CONSUMER CYCLICAL:

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  McDonald's (MCD) - Over 100 current and former McDonald's employees in the UK have accused the company of sexual assault, harassment, racism, and bullying, according to a BBC investigation, which uncovered numerous incidents, including groping and routine harassment of workers as young as 17. The UK equality watchdog is launching a hotline in response. McDonald's has apologised and acknowledged its failure to provide a safe and inclusive workplace.


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  Advance Auto Parts (AAP) - TRC Capital Investment Corporation has made an unsolicited "mini-tender" offer to purchase Advance Auto Parts shares. Advance Auto Parts is not associated with TRC and has no opinion on the offer, which seeks to acquire less than 5% of the company's shares.


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  Ross Stores (ROST) - Ross Stores has opened 27 new locations across different states as part of its expansion plans, aiming to reach a total of 2,900 'Ross Dress for Less' and 700 'dd's DISCOUNTS stores' in the future.


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  United Homes Group (UHG) - Jack Micenko named as President. Michael Nieri, who has been serving as President, will continue in his role as CEO and Chairman.

MATERIALS:

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  American Lithium (AMLI) - American Lithium has decided to defer the spin out of its Macusani Uranium Project and terminate the agreement with Friday's Dog Holdings. It believes it will be more valuable to continue advancing the project within American Lithium. Pilot operations and drilling expansion are planned.


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  Silvercorp Metals (SVM) - Silvercorp reported high-grade silver-lead discoveries from its drilling programme at the TLP mine in China. The programme targeted vein structures in different areas, including resource areas, production areas, and extensions of major veins.

INDUSTRIALS:

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  Raytheon (RTX), Northrop Grumman (NOC) - Raytheon and Northrop were awarded a DARPA contract for hypersonic weapons.


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  United Airlines (UAL), Boeing (BA) - FAA is investigating a United Airlines flight that lost an emergency evacuation slide before landing safely in Chicago; the jet was a Boeing (BA) 767.


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  AAR Corp. (AIR), United Airlines (UAL) - AAR Corp. has extended its airframe MRO services agreement with United Airlines until 2030. AAR will increase its capacity and add a new hangar to support the expanded maintenance commitments, creating job opportunities and revenue growth.

FINANCIALS:

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  US Banks - US Bank regulators are set to release their plans next week for a sweeping overhaul of capital rules, with the latest draft including requirements for large lenders’ residential mortgages that go beyond international standards, according to sources cited by Bloomberg.


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  BlackRock (BLK) - Saudi Aramco CEO Amin Hassan Ali Nasser joins BlackRock's Board. Bader Alsaad, Chairman of the Arab Fund for Economic & Social Development, will serve his term until 2024 but won't seek re-election.


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  Coinbase (COIN) - Chairman Brian Armstrong sold 28k shares for a total USD 2.88mln..

REAL ESTATE:

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  Digital Realty (DLR) - Digital Realty has formed a joint venture with GI Partners to sell a 65% stake in two stabilised hyperscale data centres in Chicago. Digital Realty will receive USD 743mln in proceeds, and retain a 35% interest while managing the operations.

HEALTHCARE:

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  Novartis (NVS) - Q2 core EPS 1.83 (exp. 1.67), Q2 revenue USD 13.6bln (exp. 13.2bln). Announces up to USD 15bln of share buybacks to be completed by the end of 2025. Raises FY earnings outlook due to strong sales; now sees core operating income up by low double digits (prev. high single digits). Shareholders to vote on Sandoz spin-off at September EGM.


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  Masimo (MASI) - Preliminary Q2 revenue seen between USD 453-457mln (exp. 553.2mln), healthcare revenue expected between USD 280-282mln, non-healthcare revenue seen between USD 173-175mln. Masimo plans to take cost-cutting measures in the second half of 2023 due to lower-than-expected second-quarter revenues. The company's healthcare business is performing well, but the premium and luxury categories in the consumer side are experiencing softness. Updated financial guidance will be provided in August.

18 Jul 2023 - 09:01- Research Sheet- Source: Newsquawk