US EARLY MORNING: US equity futures are lower, Treasuries are bid; EURUSD knocking on the door of parity

SNAPSHOT:

• 
  Risk off: APAC stocks were mostly negative after the weak performance across global counterparts. European equities started on the defensive, mirroring the caution from the overnight session. US equity futures are lower by around 0.6%, Treasury yields are lower by 5-7bps, the dollar is gaining (EUR has been flirting with parity, but has not yet breached the level to the downside), crude futures are red. The reason for the caution is familiar: COVID concerns in China (China closed the Wugang City for three days due to one COVID case), as well as other well known themes like energy prices, inflation (US CPI later this week), tighter monetary policy, while corporate earnings reports this week are expected to show margin pressure, and result in analysts downgrading forward projections.


• 
  Day Ahead - Highlights include German ZEW, US NFIB, US RedBook; API Energy Inventories, OPEC MOMR, EIA’s STEO; Fed's Barkin, BoE's Bailey, BoE's Cunliffe; US to sell 10yr notes, Germany to sell 2024 Schatz, UK to sell 2032 Gilt. Full Day Ahead calendar here.


• 
  Earnings - PEP are the only major US corporate releasing earnings today. Daily US earnings estimates here. Our Q2 US earnings season primer can be accessed here.

ECONOMY:

• 
  Inflation - The White House said US CPI data for June was expected to be "highly elevated," citing gas prices.


• 
  Economy - Treasury Secretary Yellen said the US economy remains very strong despite inflation and a fall in Q1 GDP.


• 
  Fed's Bullard (2022) - Said the solid US economy can handle rising rates, reiterated support for a 75bps rate hike in July, doesn't believe the economy has been in a recession.


• 
  Fed's Bostic (2024) - US economy can withstand a 75bps rate increase in July, current policy remains accommodative, monthly readings on inflation not as encouraging as he'd have liked.


• 
  Semis, USD, China - US Commerce Secretary Raimondo said the US Chips Act will ultimately pass congress, has made huge progress in the last fortnight. Raimondo is not concerned about the USD strength, is focused on inflation. Added China could reciprocate a potential US tariff easing.


• 
  COVID - US is reportedly preparing to extend its COVID health emergency on Friday, according to Bloomberg.

GEOPOLITICS:

• 
  NatGas - Russian Finance Minister supports Gazprom's proposal to sell LNG for roubles, according to a Vedomosti interview.


• 
  Russia, Iran - US National Security Adviser Sullivan said Iran was preparing to provide Russia with several hundred drones, preparing to train Russian forces to use them. Sullivan said nothing was on the table regarding lifting the ban of selling weapons to Saudi Arabia.

CONSUMER CYCLICAL:

• 
  The Gap, Inc. (GPS) - Gap fired CEO Sonia Syngal after two-and-a-half years, with rising costs and deepening discounts threatening to wipe out this quarter’s operating profit, Bloomberg reported. Chair Bob Martin will assume the CEO role on an interim basis. Sees Q2 revenue to decline in the approximately high-single digit range, relatively in-line with its prior expectations. Gap said it continues to navigate margin headwinds and still expects to incur an estimated USD 50mln of transitory incremental air freight expenses in the quarter, as well as inflationary costs on raw materials and freight. Gap has taken a more aggressive approach to assortment balancing resulting in increased promotional activity during the quarter, which it expects will have a negative impact on gross margin. Gap now sees Q2 adjusted operating margin percentage to be zero to slightly negative.


• 
  Compagnie Generale des Etablissements Michelin (MGDDY) - CEO said production has been hit by supply issues.


• 
  Allego NV (ALLG) - Announced Q2 performance metrics; utilisation rate 9.0% (vs 4.6% Y/Y), equating to 4.5 sessions per ultra-charger per day. On a sequential basis vs Q1, utilisation increased to 9.0% from 7.5%.

CONSUMER STAPLES:

• 
  PriceSmart, Inc. (PSMT) - Q3 EPS 0.62 (vs 0.73 Y/Y), Q3 revenue USD 1.03bln (vs 895.3mln Y/Y), Q3 net merchandise sales +16.5% to USD 999mln (vs 857.5mln Y/Y), Q3 FX fluctuations impacted net merchandise sales by USD -19.1mln Y/Y. Q3 warehouse clubs in operation were (vs 47 Y/Y). Comp net merchandise sales +12.8% Y/Y.


• 
  Pernod Ricard (PRNDY) - Has reportedly put its new Indian investments on hold amid a dispute regarding imported liquor valuations; Pernod noted a big strain on business from "ever-lasting litigation."

COMMUNICATIONS:

• 
  Warner Bros. Discovery, Inc. (WBD), Amazon.com, Inc. (AMZN) - The two are in talks on restarting a distribution agreement for Amazon to sell Warner’s HBO Max along with its Prime Video service, Bloomberg said, with a deal to resell the HBO Max streaming service potentially coming later this year. The report said Warner would only cut a deal if Amazon agreed to some additional terms, such as sharing data about viewer behavior. Bloomberg noted that if the two came to an agreement, it would reverse a move that happened only last year.


• 
  Box Office - Theatre operators say moviegoers are spending more on premium tickets and concessions, CNBC reported, and the summer box office season in the US and Canada is down just 12% vs the summer before the pandemic. The report added that there is expected to be a lull in new movies between August and October, but theatre owners were optimistic about blockbuster titles due before the end of the year.


• 
  Take-Two Interactive Software, Inc. (TTWO) - Rockstar reportedly once intended to release Red Dead Redemption 2 for PlayStation 5 and Xbox Series X/S, but has since shelved plans to do so, according to Video Games Chronicle. The report also adds that sources with knowledge of Rockstar’s plans said it had temporarily parked the remasters to fully focus on Grand Theft Auto 6.


• 
  Dave & Buster's Entertainment, Inc. (PLAY) - Announced a series of executive appointments to form a new leadership team. The announcement follows Dave & Buster's  recent acquisition of Main Event Entertainment, Inc., which was completed in June.


• 
  GameStop Corp. (GME) - GameStop launched its long-awaited debut for its online NFT marketplace as it hunts for growth in digital-fuelled turnaround, CNBC reported. The platform is open to the public for beta testing, and allows users to connect their own digital asset wallets including the recently launched GameStop Wallet.

TECH:

• 
  Microsoft Corporation (MSFT) - Microsoft cut some jobs as it realigns its business groups and roles after the close of its FY in June, Bloomberg reported. MSFT plans to keep hiring for other roles and finish the current FY with increased headcount. The lay offs affected less than 1% of its 180k workforce.


• 
  Alibaba Group Holding Limited (BABA), Tencent Holdings Limited (TCEHY), JD.com, Inc. (JD), Pinduoduo Inc. (PDD) - Goldman Sachs downgraded Tencent to Buy from Conviction Buy, PT HKD 503 (prev. 559); downgraded JD.com to Buy from Conviction Buy, lowering its price target to USD 89 (prev. 98); Goldman kept its Buy rating on Pinduoduo and its USD 95 PT; Goldman Sachs raised Alibaba's price target to USD 167 (prev. 163), maintained Buy rating.


• 
  Riot Blockchain, Inc. (RIOT) - Says both ISS and Glass Lewis recommend voting for a proposal to increase the number of authorised shares of common stock, authorised for issuance.


• 
  Clarivate Plc (CLVT) - Clarivate announced the retirement of CEO Jerre Stead and appointment of Jonathan Gear as new CEO.


• 
  Cohu, Inc. (COHU) - Narrowed its Q2 revenue outlook to between USD 216-218mln (prev. guided USD 205-221mln, exp. 214mln). Exec said Q2 ending backlog expected to be approximately USD 342mln, substantially shipping over the next three quarters. Gross margin expected to be in-line with Q2 non-GAAP guidance. Expect Q2 ending cash balance to be approximately USD 368mln.


• 
  E2open Parent Holdings, Inc. (ETWO) - Q1 adj. EPS 0.07 (exp. 0.05), Q1 revenue USD 160.4mln (exp. 160.4mln). Lowers FY23 revenue outlook to between USD 672-680mln (exp. 682.8mln, prev. guided range USD 681-689mln), and lowered its FY23 gross margin outlook to 68-70% (prev. guided 69-71%), which includes -50bps impact from FX. Affirms FY23 adj. EBITDA outlook of USD 217-223mln.

ENERGY:

• 
  Exxon Mobil Corporation (XOM), Chevron Corporation (CVX) - US said 14 companies had been awarded contracts for the latest sale of oil from the Strategic Petroleum Reserve, Reuters reported. Chevron, ExxonMobil and Valero will be among the firms to take delivery of crude oil between August 16th and September 30th; the latest sale had offered up to 45mln bbls of oil, but companies bought only about 39mln bbls.

MATERIALS:

• 
  BASF SE (BASFY) - Q2 operating income topped analyst expectations, as it passed on higher raw material costs and benefited from a strong dollar. Prelim Q2 2022 net income EUR 2.09bln (exp. 1.41bln), adj. EBIT EUR 2.34bln (exp. 2.1bln), Q2 revenue EUR 23.0bln (exp. 21.7bln). Reaffirms FY22 guidance "for the time being"; exec said Q2 was mainly driven by higher prices.


• 
  Anglo American (NGLOY) - Anglo announced first production of copper concentrate from its Quellaveco project in Peru, a major milestone as Quellaveco nears completion ahead of receiving final regulatory clearance for commercial operations to begin.

INDUSTRIALS:

• 
  Frontier Group Holdings, Inc. (ULCC), Spirit Airlines, Inc. (SAVE), JetBlue Airways Corporation (JBLU) - Frontier has declined to further raise its bid for Spirit Airlines, potentially drawing curtains on its months-long bidding war with JetBlue Airways, Reuters said.


• 
  Fluor Corporation (FLR), New Fortress Energy Inc. (NFE) - Fluor announced that it was awarded a full notice-to-proceed contract by New Fortress Energy Inc., for the engineering, procurement and fabrication management of the NFE Fast LNG 2 project. The project is a nominal 1.4mln tonnes per annum LNG gas treating and liquefaction plant to be placed on fixed offshore platforms. Fluor will book the undisclosed reimbursable contract value in Q2.

HEALTH CARE:

• 
  Laboratory Corporation of America Holdings (LH) - Labcorp has formed a strategic partnership with MD Anderson Cancer Center Foundation Spain to increase access to early phase oncology clinical trials.

FINANCIALS:

• 
  Pershing Square Tontine Holdings, Ltd. (PSTH) - Investor Bill Ackman, who had raised USD 4bln in the biggest-ever SPAC, is to return the sum after failing to find a suitable target company to take public through a merger, Reuters reported, adding that it was a major setback for Ackman, who had initially planned for the SPAC to take a stake in Universal Music Group last year.

UTILITIES:

• 
  Electricite de France (ECIFY) - The French government is expected to pay more than EUR 8bln for the nationalisation of EDF; will announce the terms of EDF tender offer before the August holidays as it wants deal completed by Autumn, Reuters said. Separately, EDF CEO said achieving profitability in 2022 would be very difficult.

12 Jul 2022 - 09:30- EquitiesResearch Sheet- Source: Newsquawk