US EARLY MORNING: US equity futures are higher ahead of CPI data, which is expected to tick higher in July

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  US PREMARKETS: US equity futures are up ahead of today’s July CPI data release, where headline inflation is expected to tick up on an annualised basis, while the annual rate of core inflation is expected to remain unchanged. While the data will be influential in shaping expectations for the September 20th FOMC meeting, analysts note that there are still further data releases due before then that could alter the Fed’s thinking. We have a primer on the data below. US Treasury yields are rising, with the 7s sector underperforming, but the magnitude of moves is not too significant yet. The Dollar Index is lower. Crude futures are trading with slight gains.


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  PRIMER - US CPI (13:30BST/08:30EDT): The consensus view looks for headline US consumer prices to rise +0.2% M/M in July (prev. +0.2%), though the annual rate is seen ticking up to 3.3% 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, these could reverse higher later in the year." In terms of trading the data, JPM provides five scenarios: (1) if CPI rises +0.4%+, the S&P 500 would fall 1.75-2.00%. "The market reaction here would drive bond yields higher, including the 10yr yield to a new 52-week higher." (2) If CPI rises +0.2% M/M, the S&P 500 would rise 0.25-0.5%; "While this would be positive, it may be a move that is faded as the market shifts its focus to Jackson Hole (Aug 24-26th) where it seeks to gain confirmation of the Fed’s rate hike intentions." (3) If CPI rises between +0.1-0.2%, JPM says S&P 500 would rise 1.0-1.5%; "A ‘mission accomplished’ outcome would mean earlier than expected rate cuts. Though it may be too soon to see this narrative emerge, consider that if we see consumer behaviour shift from Services back to Goods, then we may see an inflation undershoot more quickly given the deflationary impulse from China." (4) If CPI rises +0.2-0.4%, then the S&P 500 would fall between 1.0-1.5%; would give less credence to a disinflation narrative. (5) Finally, if CPI came in below 0.1%, JPM says the S&P 500 would rise 1.5-2%; "Another tail-risk outcome which has a wide range of outcomes. If we saw a negative MoM print, then think it strengthens narrative from the above bullet but until the bond market gains confidence that it knows the Fed has completed the hiking cycle the yield curve will remain inverted, in the front-end." The market current prices that the Fed is already at terminal, at between 5.25-5.50%; however, the Fed's economic forecasts have suggested that the central bank still has scope for another rate rise. Therefore, any hawkish outcome in the CPI data may help tilt market pricing to align more with the Fed's view. That said, there are still a number of key data releases ahead of the September 20th FOMC, with another jobs report and another CPI report due before then, leaving officials with plenty of room to continue assessing incoming data. Additionally, traders will want to hear the views of key Fed officials at Jackson Hole (August 26-28th), a forum which has previously been used to telegraph policy changes. (Newsquawk)

TODAY’S AGENDA:

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


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  EUROPEAN DAY AHEAD: The ECB's Economic Bulletin and final Italian CPI metrics for July are the only notable items on the docket.


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  NORTH AMERICA DAY AHEAD: Annualised US CPI is seen ticking higher in July, though the core annual rate is expected to be unchanged (see above for our primer). Weekly initial jobless claims are seen little changed in the August 5th week (consensus looks for 230k from 227k), while continuing claims for the week of July 29th are seen inching up to 1.71mln from 1.7mln. On the speaker's slate, Fed's Harker (2023) and Bostic (2024) are both due to speak in wake of the CPI data; both have recently suggested that they would be open to unchanged rates at the September confab. Elsewhere in central banks, Banxico is expected to hold rates at 11.25% today after recent comments from officials, but the rate is expected to be cut by the end of the year, so analysts will be looking for clues over timing.


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  US CORPORATE EARNINGS: Today's earnings docket includes BABA, RL and NWSA; Daily US Earnings Estimates here.


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  ENERGY: OPEC will release its Monthly Oil Market Report. The EIA's weekly NatGas storage change data is expected to show a build of 25BCF (prev. +14BCF).

EQUITY NEWS:

COMMUNICATIONS:

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  Disney (DIS) - Disney rose 2.2% in afterhours trade following results, which showed a smaller streaming loss, though Disney+ subscribers declined. On call, execs announced price hikes for streaming services, and will adopt measures to crackdown on password sharing. Sees subscribers rebounding in the next quarter. Q3 EPS 1.03 (exp. 0.96), Q3 revenue USD 22.33bln (exp. 22.49bln). Q2 Disney+ subscribers 146.1mln (exp. 154.8mln); ESPN+ subscribers 25.2mln (exp. 25.8mln); Hulu & Live TV subscribers 4.30mln (exp. 4.40mmln); total Hulu subscribers 48.3mln (exp. 48.7mln). Q2 media and entertainment distribution revenue USD 14.00bln (exp. 14.36bln), Q2 parks, experiences and products revenue USD 8.33bln (exp. 8.25bln). CEO said cruise ships were at 98% occupancy for Q4. On Disney+, said was focused on not just reducing the number of titles the company releases, but also the cost per title, while it also raises prices for streaming services by as much as 27%. Will launch Disney+ ad-supported subscription offerings in several countries across Europe and in Canada beginning November 1st. Ad-free Disney+ and Hulu bundle subscription will be available in the US from September. Will crack down on password sharing. Elsewhere, sold investment in DraftKings and recorded a USD 90mln gain.


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  Meta Platforms (META) - Meta has settled a lawsuit with Neural Magic, an AI startup that accused Meta of stealing its trade secrets, Reuters reports. Both companies have resolved the case on confidential terms, and it cannot be filed again.

TECH:

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  Nvidia (NVDA), Alibaba (BABA), Baidu (BIDU), ByteDance, Tencent (TCEHY) - China internet giants are rushing to order USD 5bln of Nvidia chips to power AI ambitions amid concerns over impending US export controls, FT reports. Baidu, ByteDance, Tencent and Alibaba have reportedly made orders worth USD 1bln to acquire about 100k A800 processors from Nvidia to be delivered this year. China companies have also purchased a further USD 4bln worth of graphics processing units to be delivered in 2024. Baidu employee says without the Nvidia chips, Co. can't pursue the training for any large language model. Sources note ByteDance has several generative AI products in development, including an AI chatbot codenamed Grace, adding that ByteDance has already stockpiled at least 10k Nvidia GPUs to support its ambitions. Sources at note Alibaba Cloud has also received thousands of H800 chips from Nvidia.


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  Samsung Electronics (SMSN) - Samsung announced the global launch of Galaxy Z Flip5, Galaxy Z Fold5, Galaxy Watch6 Series and Galaxy Tab S9 Series.


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  Sonos (SONO) - Rose 7.4% afterhours. Q3 EPS -0.16 (exp. -0.20), Q3 revenue USD 373.4mln (exp. 334.2mln). Exec noted a challenging environment, but remains on track to deliver FY23 guidance. Narrowed FY23 revenue outlook to between USD 1.64-1.66bln (exp. 1.64bln) from USD 1.625-1.675bln, and sees FY gross margins between 44.0-44.2% (prev. saw 44.3-44.8%), FY adj. EBITDA between USD 148-158mln (prev. 138-168mln).


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  Alarm (ALRM) - Added 14% afterhours following Q2 beat and raised guidance. Q2 EPS 0.49 (exp. 0.36), Q2 revenue USD 223.9mln (exp. 214.5mln). Sees Q3 SaaS and license revenue between USD 141.4-141.6mln. Lifts FY23 EPS outlook to between USD 1.69-1.73 (exp. 1.58), and raises FY23 revenue outlook to between USD 872.3-887.7mln (exp. 867.4mln)


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  AppLovin (APP) - Jumped 24% afterhours post-earnings, where it topped expectations and posted strong guidance. Q2 EPS 0.22 (exp. 0.07), Q2 revenue USD 750mln (exp. 724.3mln). Sees Q3 revenue between USD 780-800mln (exp. 741.4mln).


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  Avid Technology (AVID) - Private equity firm Symphony Technology Group will acquire Avid Technology for USD 1.4bln (USD 27.05/shr in cash, a 32% premium to the previous closing share price).


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  Genpact (G) - Fell 1.7% afterhours as sales missed expectations, and it lowered guidance. Q2 adj. EPS 0.72 (exp. 0.69), Q2 revenue USD 1.11bln (exp. 1.12bln). Exec said strong bookings momentum continued in Q2, expects FY bookings +25-30% driven by large deal and new logo wins. Lowers FY23 adj. EPS outlook to between USD 2.91-2.94 (exp. 2.94), and lowers its FY23 revenue outlook to between USD 4.59-4.64bln (exp. 4.65bln).


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  Trade Desk (TTD) - Slipped 3.5% afterhours despite a beat in Q2 and above-consensus guidance. Q2 EPS 0.28 (exp. 0.26), Q2 revenue USD 464.3mln (exp. 455mln). Sees Q3 revenue of at least USD 485mln (exp. 479.6mln). Analysts cited management's enthusiasm about improving advertiser sentiment, with early success in OpenPath displacing ineffective SSPs, though high valuations may be acting as a headwind for the stock.

ENERGY:

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  Chevron (CVX), Woodside Energy (WDS) - Chevron and Woodside Energy are in talks with unions to prevent strikes at Australian gas facilities providing 10% of global LNG, Reuters reports. Possible industrial action could raise gas prices in Europe, disrupt LNG exports, and create competition between Asian and European buyers, the report added.

INDUSTRIALS:

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  Norfolk Southern (NSC) - Norfolk Southern made some improvements after a train derailment and chemical spill in Ohio, but federal regulators found its safety culture lacking, ABC reports. The company's communication, employee-manager trust, and training were criticised in the report by the Federal Railroad Administration.


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  Thyssenkrupp (TKAMY) - Targets upper end of profit outlook after Q3 growth. Q3 revenue EUR 9.6bln (exp. 9.95bln), Q3 adj. EBIT EUR 243mln, Q3 net profits EUR 83mln. Expects 2022/23 net profit to at least break-even. Still plans spin-off solutions for Steel Europe, Marine Systems Divisions.


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  Rheinmetall (RNMBY) - Backs 2023 guidance as firm demand supported Q2 earnings. Q2 EPS 1.27 (prev. 1.21 Y/Y), revenue EUR 1.50bln (exp. 1.52bln).


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  Hapag-Lloyd (HPGLY) - Reiterated 2023 view, sees uptick in recent demand and freight recovery. H1 net EUR 2.90bln (prev. 8.65bln Y/Y), H1 EBIT EUR 2.56bln (prev. 9.07bln Y/Y), H1 revenue EUR 10bln (prev. 17bln Y/Y). CEO said that weaker demand and lower freight rates were having a noticeable impact on earnings, but was more optimistic than Maersk (MAERSKB DC) on container volumes (Maersk sees 2023 volumes -4% Y/Y, Hapag thinks it may end up around 0.0% Y/Y); added that transport volumes in last 10-12 weeks were slightly above the prior year, first signals that short-term rates are recovering in some areas. For FY23, expects slow recovery in demand for container transport due to inflation, with a significant increase in the supply of container vessel capacity.


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  Siemens (SIEGY) - Profits missed expectations, but seeing normalisation in demand. Q3 EUR 1.41bln (exp. 1.55bln), Q3 industrial business EBITDA EUR 2.75bln (exp. 2.93bln), Q3 revenue EUR 18.9bln (exp. 19.3bln). CEO sees weakness in China markets in the short-term, may continue for several quarters; not seeing customers moving out of China, but new investments are taking place outside of China.

MATERIALS:

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  Antofagasta (ANFGF) - Reported higher H1 profits, boosts shareholder payouts. H1 pretax USD 764.5mln (prev. 679.6mln Y/Y), revenue USD 2.89bln (prev. 2.53bln Y/Y). Cuts FY23 copper production view to 640-670Kt (prev. 640-670Kt).

CONSUMER:

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  Tapestry (TPR), Capri Holdings (CPRI) - Tapestry is discussing buying Capri Holdings, the parent company of fashion brands like Michael Kors, Versace, and Jimmy Choo, WSJ reports. The move aims to enhance competition against European giants like LVMH (LVMUY) and Kering (PPRUY), the report added. Capri is valued at USD 4bln, while Tapestry is valued at USD 10bln; WSJ said a deal might value Capri in the high single-digit billions, and an announcement is expected soon.


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  Wynn Resorts (WYNN) - Rose 1.6% afterhours following top- and bottom-line beats in Q2. Q2 adj. EPS 0.91 (exp. 0.59), Q2 revenue USD 1.60bln (exp. 1.54bln). Exec said Wynn Las Vegas and Encore Boston Harbor continue to perform well, generating a Q2 records for adj. Property EBITDAR at its combined North American properties. In Macau, execs said that the post-COVID recovery accelerated, with particular strength in our mass gaming, luxury retail and hotel businesses.

HEALTHCARE:

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  Illumina (ILMN) – Slipped 5.75% after results. Q2 adj. EPS 0.32 (exp. 0.02), Q2 revenue USD 1.176bln (exp. 1.16bln). Says H2 sales will be negatively impacted by a larger temporary decline in high throughput consumables as customers transition to Novaseq X. Exec said it expects H2 revenue to be negatively impacted by customers remaining more cautious in their purchasing, a more protracted recovery in China, and a larger-than-expected temporary decline in high throughput consumables as customers transition to the NovaSeq X. Lowers FY23 adj. EPS outlook to 0.75-0.90 (exp. 1.31, prev. 1.25-1.50), and lowers its FY23 revenue growth view to approximately 1% (prev. saw +7-10%).


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  Kenvue (KVUE), Johnson & Johnson (JNJ) - Kenvue will be added to the S&P 500 effective prior to the open on a date to be announced conditioned upon the successful completion of a voluntary exchange offer being conducted by S&P 500 & S&P 100 constituent Johnson & Johnson.


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  Novo Nordisk (NVO) - Lifts FY outlook after strong demand for weight-loss drug. H1 EPS DKK 17.41 (prev. 12.08 Y/Y), revenue DKK 108bln (prev. 83.3bln YY). Q2 Wegovy sales DKK 7.52bln (exp. 6.98bln). Says lower strength Wegovy doses remain restricted in US. Sees FY sales at constant FX +27-33%.

FINANCIALS:

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  Allianz (ALIZY) - Profits topped expectations in the quarter. Q2 net EUR 2.49bln (prev. 2.09bln Y/Y), Q2 operating profit EUR 3.78bln (prev. 3.52bln Y/Y), Q2 revenue EUR 39.6bln (prev. 37.4bln Y/Y).


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  Munich Re (MURGY) - Profit missed expectations, but it backed guidance. Q2 net EUR 1.15bln (exp. 1.23bln), operating profit EUR 1.57bln (prev. 2.25bln Y/Y). Affirms outlook.


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  Zurich Insurance (ZURVY) - Profits topped expectations in H1. H1 net USD 2.49bln (prev. 2.34bln Y/Y), H1 operating profits USD 2.72bln (prev. 3.74bln Y/Y).

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