US EARLY MORNING: US equity futures are red, continuing the downside; Treasury yields lower. ADP jobs data, and quarterly refunding announcement ahead

US PREMARKET: US equity futures are trading in the red, continuing the downside seen on Tuesday, following soft data, higher yields, while Fitch Ratings’ downgrade of the US is also said to be driving some caution; analysts are generally of the view that the downgrade will have little market impact (see below for more). Treasury yields are narrowing, amid the caution, with yields in the 5yr part of the curve outperforming. There are key data releases today, by way of ADP jobs data for July, which will help shape expectations of how the BLS nonfarm payrolls data will look when it is released on Friday. The Treasury’s quarterly refunding will gain attention, with the estimates released Monday alluding to record September quarter issuance; the subsequent press conference may focus on some of Fitch’s commentary on the US, where the CRA sees a fiscal decline over the next three years. The Dollar Index is a little above flat. Crude futures are higher, despite the softer risk tone, with the API inventory data on Tuesday reportedly showing a monster drawdown in headline crude stocks, ahead of today’s more widely followed DoE weekly energy inventory data. 

US DOWNGRADED AT FITCH: Fitch downgraded US long-term ratings to 'AA+' from 'AAA', with a stable outlook. Fitch cited increasing debt, weak governance, and anticipated fiscal decline over 3 years, leading to debt standoffs. Goldman Sachs said the downgrade mainly reflects governance and medium-term fiscal challenges, but does not reflect new fiscal information, adding that the move should have little direct impact on financial markets as it is unlikely there are major holders of Treasury securities who would be forced to sell based on the ratings change. Former Treasury Secretary Summers, a Democrat, said Fitch's decision was "bizarre and inept," and the US economy was stronger than expected. Allianz' chief economic adviser Mohamed El-Erian said Fitch's decision was "strange", and was more likely to be dismissed than have a lasting disruptive impact on the US economy and markets. Capital Economics said that the announcement was not a complete surprise given that Fitch hinted at such a move during the recent debt ceiling standoff, and had a long-standing negative outlook on its AAA rating, adding that it echoes the decision by S&P to cut its own US rating from AAA to AA+ in the aftermath of the 2011 debt ceiling standoff; Moody’s still has the US at AAA, but has maintained a negative outlook. (Newsquawk)

GOLDMAN SAYS FADE CYCLICALS: Goldman Sachs notes that US cyclical stocks, which are sensitive to economic cycles like manufacturing and consumer spending, have outperformed defensive stocks by 16ppts since May. This year's rally has seen varying performance within cyclical sectors, with autos doing best and consumer durables performing poorly. Nevertheless, GS says the strong performance has raised questions about whether the trend will continue; it argues that historical data shows that after similar rallies, cyclicals tend to have limited gains over the following year. Economic growth plays a key role, and if it slows down, defensive stocks perform better, while cyclicals do well if growth remains strong. The bank has told its clients that while some further gains are possible, the main part of the cyclical rally might be over, and suggested fading the cyclical rally.

TODAY’S AGENDA:

• 
  EUROPEAN DAY: The European day is thin for scheduled data releases. Germany will sell EUR 1.3bln of 2038, and EUR 0.8bln of 2036 debt.


• 
  NORTH AMERICAN DAY: The ADP national employment gauge for July is expected to see a moderation in the rate of job additions to 189k from 497k; the data will provide a preview ahead of Friday's BLS jobs data. The MBA weekly mortgage applications data is due in the pre-market. The Treasury will publish its quarterly refunding estimates in the pre-market; on Monday, the Treasury released estimates which lifted its view for federal borrowing this quarter as it addresses a deteriorating fiscal deficit and keeps replenishing its cash buffer. It said it now estimated net borrowing for July-September at USD 1tln (vs its prior estimate of USD 733bln in May) - that would be a record for the September quarter.


• 
  US CORPORATE EARNINGS: Today's highlights include CVS, HUM, EMR, SHOP, QCOM, EQIX, MCK, OXY, PYPL. Our Daily US Earnings Estimates note can be accessed here.


• 
  ENERGY: The DoE will release its weekly energy inventory report; on Tuesday, API data reportedly showed headline US crude stocks drawing -15.4mln (exp. -1.4mln), Cushing -1.8mln, gasoline -1.7mln (exp. -1.3mln), distillates -0.5mln (exp. +0.1mln).

EQUITY NEWS:

TECH:

• 
  Advanced Micro Devices (AMD) - Q2 adj. EPS 0.58 (exp. 0.57), Q2 revenue USD 5.36bln (exp. 5.31bln). Q2 data centre revenue USD 1.32bln (exp. 1.4B), Q2 gaming revenue USD 1.58bln (exp. 1.62bln), Q2 client revenue USD 998mln (exp. 840.9mln). Sees Q3 revenue approximately USD 5.7bln +/- USD 300mln (exp. 5.82B), and sees Q3 adj. gross margin to be approximately 51%. Exec said AI engagements increased by more than seven fold in the quarter, as multiple customers initiated or expanded programmes supporting future deployments of Instinct accelerators at scale. Said it made strong progress meeting key hardware and software milestones to address the growing customer pull for data centre AI solutions, on-track to launch and ramp production of MI300 accelerators in Q4.


• 
  Paycom (PAYC) - Q2 adj. EPS 1.62 (exp. 1.59), Q2 revenue USD 401.1mln (exp. 398.1mln). Announced the launch of 'Everyday' which allows users to get paid on a daily basis. Expands employee-guided payroll solution into Canada. Sees Q3 revenue between USD 410-412mln (exp. 412mln). Sees FY23 revenue between USD 1.715-1.717bln (exp. 1.7bln).


• 
  SoftBank (SFTBY) - SoftBank's Arm unit is reportedly targeting a USD +60bln valuation in its September IPO, Bloomberg reports.


• 
  SolarEdge (SEDG) - Q2 EPS 2.62 (exp. 2.52), Q2 revenue USD 991.3mln (exp. 992.3mln). Sees Q3 revenue between USD 880-920mln (exp. 1.05bln). Exec said that the US residential solar market was seeing headwinds related to higher interest rates.

COMMUNICATIONS:

• 
  Electronic Arts (EA) - Shares slipped afterhours following the publication of earnings, where guidance was light. Q1 2024 EPS 1.47 (exp. 1.02), Q1 revenue USD 1.924bln (exp. 1.59bln), Q1 net bookings USD 1.58bln (exp. 1.59bln). Sees Q2 net bookings between USD 1.70-1.80bln (exp. 1.81bln), and sees Q2 adj. EPS between 1.10-1.30 (exp. 1.50). For FY24, still sees revenue between USD 7.30-7.70bln (exp. 7.6bln), and still sees adj. EPS between 6.35-6.95 (exp. 6.88).


• 
  Pinterest (PINS) - Q2 adj. EPS 0.21 (exp. 0.12), Q2 revenue USD 708mln (exp. 699.4mln), Q2 ARPU 1.53 (exp. 1.54). US and Canada MAUs 95.0mln (exp. 94.0mln), RoW MAUs 246.0mln (exp. 242.1mln), Europe MAUs 124.0mln (exp. 126.8mln). Sees Q3 revenues in the high-single-digits (exp. +7.7%).


• 
  Match Group (MTCH) - Q2 EPS 0.49 (exp. 0.45), Q2 revenue USD 844mln (exp. 811.4mln). Q2 total payers 15.63mln (exp. 15.86mln), Q2 revenue per payer ran 17.41 (exp. 17.25). Expects initial pricing for Tinder's high-end membership experience to be substantially higher than Tinder’s current offerings. Sees Q3 revenue USD 880mln (exp. 863mln). Sees Q3 Tinder direct revenue growth of close to 10% Y/Y. Sees Q3 Hinge direct revenue growth to further accelerate Y/Y.


• 
  Lumen (LUMN) - Q2 adj. EPS 0.10 (exp. -0.35), Q2 revenue USD 3.66bln (exp. 3.67bln). Reiterates FY23 adj. EBITDA outlook of between USD 4.6-4.8bln.

CONSUMER:

• 
  Starbucks (SBUX) - Sales fell a little short in the quarter, while comps were mostly light, but the China performance was encouraging. Q3 adj. EPS 1.00 (exp. 0.95), Q3 revenue USD 9.20bln (exp. 9.29bln), Q2 comparable sales +10% (exp. 11.1%); Q2 North America comparable sales +7% (exp. 8.25%), US comp sales +7% (exp. 7.7%), international comps +24% (exp. 24.1%), China comps +46% (exp. 41.8%). Ahead, it expects average weekly sales growth in China of low to mid-single digits resulting in similar size comps growth for Q4. It is narrowing FY23 earnings growth outlook from the low end of 15%-20% to growth of 16%-17%. Expects pricing trends to moderate as it enters the final quarter.


• 
  VF Corp (VFC) - Q1 EPS -0.15 (exp. -0.11), Q1 revenue USD 2.10bln (exp. 2.07bln). The North Face brand saw revenue growth +12%, Vans brand revenue growth -22%. Keeps FY EPS view unchanged at 2.05-2.25 (exp. 2.08), but now sees FY24 revenue modestly down to flat (prev. saw flat to up slightly) reflecting ongoing weakness in its wholesale business, and a longer than anticipated turnaround for Vans FCF.


• 
  Hugo Boss (BOSSY) - Boosted its outlook after reporting EBIT beats in Q2. Q2 EBIT EUR 121mln (exp. 113mln), Q2 revenue EUR 1.03bln (exp. 1.00bln). Raises FY23 EBIT view to between EUR 400-420mln (prev. 370-400mln), while revenue now seen between EUR 4.1-4.2bln (prev. 4.0bln), sees sales growth of 12-15%, and double-digit growth across all brands, regions and channels.


• 
  O-I Glass (OI) - Q2 EPS 0.88 (exp. 0.83), Q2 revenue USD 1.89bln (exp. 1.84bln). Exec notes more challenging macro conditions, though it saw favourable net price realisation. Said higher earnings are expected to reflect strong net price and continued solid operating and cost performance, while shipment levels will likely be down Y/Y reflecting softer consumer demand in several markets and categories. Q3 results are also expected to reflect higher costs due to temporary production curtailment to align supply with demand as well as higher interest expense. Sees Q3 adj. EPS between 0.68-0.73 (exp. 0.64), and narrowed its FY23 adj. EPS outlook to between 3.10-3.25 (exp. 3.17) from 3.05-3.25.


• 
  Caesars Entertainment (CZR) - Posted top and bottom-line beats: Q2 EPS 4.26 (exp. 0.33), may not compare; Q2 revenue USD 2.90bln (exp. 2.87bln). Q2 Las Vegas same store net revenue -1.2% Y/Y to USD 1.13bln (exp. 1.11bln), Q1 regional same store net revenue +0.4% Y/Y to USD 1.46bln (exp. 1.47bln).


• 
  Elf Beauty (ELF) - Q1 EPS 1.10 (exp. 0.56), Q1 revenue USD 216.3mln (exp. 184.0mln). Boosts FY24 EPS outlook to USD 2.19-2.22 (exp. 1.83), and FY24 revenue to USD 792-802mln (exp. 729mln).


• 
  Camping World (CWH) - Q2 adj. EPS 0.73 (exp. 0.78), Q2 revenue USD 1.9bln (exp. 1.97bln).


• 
  Columbia Sportswear (COLM) - Q2 EPS 0.14 (exp. 0.03), Q2 revenue USD 620.933mln (exp. 585.7mln). Cuts FY23 EPS outlook to between 4.40-4.65 (exp. 5.10) from 5.15-5.40, and cuts FY23 revenue outlook to between USD 3.53-3.59bln (exp. 3.6bln) from 3.57-3.67bln.

ENERGY:

• 
  Crude Oil - The Biden administration is again delaying a replenishment of the SPR after deciding the offers it received were too expensive, Bloomberg said. An Energy Department spokesperson later confirmed that the US pulled back offer to buy 6mln bbls of oil for the SPR due to market conditions.


• 
  Devon Energy (DVN) - Q2 core EPS 1.18 (exp. 1.19), Q2 revenue USD 3.454bln (exp. 3.74bln). Said oil production reached an all-time high of 323k BPD in Q2, supported by strong well productivity in the Delaware Basin, as well as efficiency gains that compressed project cycle times. Noted operational momentum into H2. Still sees FY CapEx between USD 3.6-3.8bln (exp. 3.72bln).


• 
  Pioneer Natural Resources (PXD) - Q2 adj. EPS 4.49 (exp. 4.18), Q2 FCF USD 742mln (exp. 650mln); Q2 average production 710,678 BOE/D (exp. 691,224), and average oil production 369,070 BPD (exp. 366,576).

MATERIALS:

• 
  Axalta Coating Systems (AXTA) - Q2 EPS 0.35 (exp. 0.38), Q2 revenue USD 1.29bln (exp. 1.34bln). Sees Q3 EPS between USD 0.35-0.40 (exp. 0.42), and sees Q3 revenue of 3-5%. Sees FY EPS between 1.40-1.45 (exp. 1.57). Exec said the quarter reflected strong underlying earnings and profitability improvement, particularly in Mobility Coatings where momentum is building.


• 
  Mosaic (MOS) - Q2 EPS 1.04 (exp. 1.12), Q2 revenue USD 3.39bln (exp. 3.12bln), Q2 potash sales 2.2mln tonnes (exp. 2.21mln), phosphates volumes 1.9mln (exp. 1.95mln). Exec said agriculture fundamentals were driving crop prices higher, leading to favourable grower economics. In North America, it said that a strong spring application season depleted fertiliser inventories, which are now being replenished. In Brazil, it said that an attractive fertiliser-to-soybean barter ratio suggests a recovery in 2023 shipments.

INDUSTRIALS:

• 
  BAE Systems (BAESY) - Lifted its guidance on rising military spending levels. It reported H1 non-IFRS revenue of GBP 12.018bln (exp. 11.183bln), underlying EBIT of GBP 1.258bln (exp. 1.177bln). Order intake was GBP 21.1bln (prev. 18.0bln Y/Y). Order backlog was GBP 66.2bln (prev. 52.7bln). Raises FY23 guidance: now sees sales growth of +5-7% (prev. +3-5%), underlying EBIT growth of +6-8% (prev. +4-6%), FCF above GBP 1.8bln (prev. above 1.2bln).


• 
  Frontier (ULCC) - Q2 adj. EPS 0.31 (exp. 0.28), Q2 revenue USD 967mln (exp. 965.8mln), Q2 CASM +20%. Exec noted moderation in average fares, caused primarily by a shift in demand to competing long-haul international destinations.

FINANCIALS:

• 
  Wells Fargo (WFC) - The bank expects to pay up to USD 1.8bln to help refill FDIC fund, and expects to expense it upon FDIC finalisation of the rule. Adds that it expects a significant rise in risk-weighted assets, and net rise in capital requirements. Is considering a range of potential actions to address the impact of federal banking rules, including balance sheet and capital optimisation.


• 
  American International Group (AIG) - Q2 adj. EPS 1.75 (exp. 1.59), Q2 adj. ROE +9.4% (exp. +8.29%), Q2 book value per share 58.49 (exp. 58.14); boosts share buyback authorisation to USD 7.5bln, and raises quarterly dividend 12.5% to 0.36/shr. GI net premiums written 7.54bln (exp. 7.32bln). GI catastrophe loss 250mln (exp. 276.5mln).


• 
  Prudential (PRU) - Q2 adj. EPS 2.94 (exp. 3.01).


• 
  Aflac (AFL) - Q2 adj. EPS 1.58 (exp. 1.43), Q2 revenue USD 5.2bln (exp. 4.46bln).


• 
  Allstate (ALL) - Q2 EPS -4.42 (exp. -4.04), Q2 revenue USD 13.979bln (exp. 12.52bln),  Q2 cat losses +143% Y/Y to USD 2.7bln.

REAL ESTATE:

• 
  Boston Properties (BXP) - Q2 FFO/shr 1.86 (exp. 1.80), Q2 revenue USD 817.2mln (exp. 752.8mln). Q2 leasing 938K sqft (vs 660K in Q1). Q3 FFO seen between 1.83-1.85 (exp. 1.80), and sees FY23 FFO between 7.24-7.29 (exp. 7.16).

HEALTHCARE:

• 
  Roche (RHHBY), Novartis (NVS) - Roche's Genentech subsidiary is suing Novartis, accusing one of its units of infringing a patent via the sale of a generic version of Esbriet.


• 
  Exact Sciences (EXAS) - Q2 EPS -0.45 (exp. -0.51), Q2 revenue USD 622mln (exp. 600.1mln). Lifts FY23 revenue outlook to USD 2.441-2.466bln (exp. 2.42bln) from USD 2.38-2.42bln.


• 
  Vertex Pharmaceuticals (VRTX) - Q2 EPS 3.89 (exp. 3.88), Q2 revenue USD 2.49bln (exp. 2.42bln). Raises FY2023 product revenue guidance to between USD 9.70bln-9.80bln from USD 9.55-9.70bln.

02 Aug 2023 - 09:30- Data- Source: Newsquawk