US EARLY MORNING: US futures are negative amid a gloomy global risk tone; Fedspeak ahead, US CPI later in the week, while earnings season kicks off towards the back-end of the week

US PRE-MARKETS: US equity futures are trading with losses amid a gloomy risk tone, where China CPI data disappointed expectations overnight, reignniting fears about a slowdown in the world's second largest economy. US Treasury Secretary Yellen concluded her visit to China, where she held direct talks with Chinese officials. The readout suggested that some progress was made in talks, but key disagreements remain, with China expressing concerns about US sanctions; both sides said they aim to deepen economic ties and maintain communication. The key release for the week ahead is the US CPI Data due on Wednesday, and before then, the NY Fed will release its gauge of consumer expectations in the late US morning. The corporate reporting season will also kick-off this week, when Big Banks begin publishing their numbers for Q2. In terms of the day ahead, there is a decent amount of Fedspeak, which traders will look to to frame the recent economic data, particularly the mixed payrolls reading from Friday.

Q2 CORPORATE EARNINGS: Earnings season will begin at the tail end of the week, with Big Banks reporting their numbers for Q2 Goldman Sachs notes that for the Q2 season as a whole, the consensus view looks for a 9% Y/Y decline in S&P 500 EPS, which will be driven by flat sales growth and margin compression. Goldman says that it expects companies will be able to meet the low bar set by consensus. "Negative EPS revisions for 2023 and 2024 appear to have bottomed and revision sentiment has improved," the bank says. GS says the key areas traders will be focusing on include: (1) ability of firms to maintain margins as inflation recedes, (2) impact of bank stress on credit and lending, (3) potential uses of AI, (4) status of the US consumer. Its estimates for 2023 EPS remain above consensus, forecasting USD 224 vs consensus USD 220, but the bank continues to view the 2024 consensus for EPS growth (of +11%, at USD 244) as too optimistic - it thinks that EPS will grow by around 5% for FY23 to USD 237.

CITI ON STOCKS: Citi's strategists lowered their view of US equities from "overweight" to "neutral" because US stocks have performed well recently, and there is still a risk of a recession ahead. The bank also downgraded global Tech stocks due to potential weakness in large growth companies, but they plan to buy these stocks if their prices fall. Citi prefers investing in sectors that are experiencing growth and selective cyclical industries, and raise their view of the Materials and Industrial sectors. Regionally, Citi upgrades Europe to "overweight" as it is trading at a significant discount compared to the US, and could benefit from a weaker USD and potential stimulus from China. However, Citi downgrades UK stocks to "neutral" due to a lack of exposure towards growing companies, while the stronger GBP could have a negative impact. Citi upgrades emerging markets to "overweight" due to an appealing risk/reward profile with a combination of growth and materials. The bank also predicts a slight slowdown in EPS but not a full recession. The outlook has balanced risks, with possible "soft landing" scenarios, but tighter credit conditions and central bank liquidity are significant challenges.

TODAY’S AGENDA:

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  EUROPEAN DAY AHEAD: The docket is thin on Monday. The July Sentix index is expected to edge lower in July. On the speaker’s front, BoE Governor Bailey (Neutral) will deliver his annual address to the Mansion House.


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  US DAY AHEAD: Employment trends data for June, Wholesale Sales data for May (and revisions to inventories); the NY Fed’s survey of consumer expectations will help add colour to expectations surrounding Wednesday US CPI data. Towards the close, consumer credit stats for May will be published. On the speaker's slate, Fed's Barr (Voter, Neutral) will speak on Banking Supervision & Regulation, Fed's Daly (2024 Voter, Neutral) will speak on policy, Fed's Mester (2024 Voter, Hawk) and Bostic (2024 Voter, Neutral) will speak on "National and Metro Atlanta Economies".


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  WEEK AHEAD: US CPI, rate decisions from the BoC, RBNZ, BoK, meeting minutes from the ECB and Riksbank Minutes, as well as a batch of key UK data are all due this week. Our week ahead briefing can be accessed here. The US corporate reporting season gets underway at the tail-end of the week, when big banks will begin publishing their numbers.


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  RECAP – WALL STREET (FRIDAY): Stocks on Wall Street fluctuated on Friday, with earlier gains eroding as the day progressed. Dollar weakened, benefiting cyclical assets. Commodity prices rose, except for natural gas. Fed rate hike expectations and outlook unchanged. CPI data awaited.


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  RECAP – APAC SESSION (OVERNIGHT): Asia-Pac stocks mostly positive, gains limited as China's soft inflation data analysed. ASX 200 down (-0.3%), rangebound due to mixed sectors. Nikkei 225 down (-0.2%), rebounds late. Hang Seng up (+0.8%), Shanghai Comp up (+0.2%). Tech sector boosts HK; Chinese inflation misses estimates. Yellen mentions progress in China ties.


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  RECAP - CHINA CPI: China CPI -0.2% M/M (prev. -0.2%) in June, and was unchanged Y/Y (exp. 0.2%, prev. 0.2%). PPI eased to -5.4% Y/Y in June (exp. -5.0%, prev. -4.6%). Pantheon Macroeconomics said weak consumer demand was leading to low inflation in China. PM expects consumer inflation to remain subdued in the second half, and policymakers may focus on targeted stimulus for industry and technology upgrades rather than significant consumer support.


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  RECAP - EUROPE OPEN: European stocks stumble as China's disappointing consumer prices data sparks concerns of disinflation. More CPI data expected this week. REC data alluded to a cooling in UK labour market conditions. BoE's Bailey and Chancellor Hunt to speak at Mansion House later today.

EQUITY NEWS:

CONSUMER CYCLICAL:

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  Tesla (TSLA) - China Association of Auto Manufacturers (CAAM) retracted a pledge made by 16 automakers, including Tesla, to avoid "abnormal pricing" due to antitrust law violations, Reuters reports. The pledge was seen as a potential truce in a price war, but Tesla introduced a referral program, prompting the retraction. Separately, French Finance Minister expressed optimism that Tesla CEO Elon Musk will choose France for a significant investment related to electric vehicle production in Europe, Reuters reports. Various options are being considered, and France is open to welcoming Musk's decision, the report added. Elsewhere, Tesla CFO Zachary Kirkhorn sold 3,750 shares on July 5th for a total USD 1.05mln.


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  Toyota Motor (TM) - Toyota will suspend night-shift operations on Monday at three factories in Fukuoka due to torrential rain which triggered landslides, and killed at least one person, Reuters reports.


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  Alibaba (BABA) - Ant Group, founded by Jack Ma, has launched a share buyback plan at a valuation much lower than its proposed IPO price, FT reports. This comes after Chinese regulators fined the company nearly USD 1bln and implemented a restructuring campaign. Ant's focus now is to enhance compliance governance and regain normal business operations.


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  Shein, Amazon (AMZN), PDD Holdings (PDD) - Fast-fashion company Shein has transformed from a Chinese discount apparel seller to a marketplace platform where various merchants can sell their products directly to consumers. This expansion puts Shein in direct competition with e-commerce giants like Amazon and PDD's Temu, WSJ reports.


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  Amazon (AMZN) - Nearly 900 Amazon workers in Coventry, UK, will strike for three days over a pay dispute during the Prime Day sales event, CNBC reported. The workers are demanding wages of GBP 15/hour and union rights.


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  Travel Names - Barron's writes that Americans have the travel bug; identifies Hyatt Hotels (H) as a hotel stock that could benefit from the travel boom. Royal Caribbean Group (RCL), Carnival (CCL), and Norwegian Cruise Line Holdings (NCLH) are mentioned as cruise-line stocks that have already seen significant growth in 2023 and could continue to benefit from pent-up demand. United Airlines Holdings (UAL), Delta Air Lines (DAL), and American Airlines Group (AAL) are highlighted as US carriers with strong international exposure.

CONSUMER STAPLES:

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  Consumer Staples Prices - A WSJ article discusses how consumer prices are rising for certain grocery items known as "centre store" products. The prices of these items have increased significantly, while prices for fresh foods like meat and produce have not risen as much. Consumers are turning to cheaper store brands and seeking discounts to cope with the high prices, the article adds.


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  Walmart (WMT) - Positive mention in Barron's; said Walmart was quietly growing into a retail tech titan, and the stock is a buy.


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  PepsiCo (PEP) - PepsiCo's appeal to maintain a patent for a potato variety used in Lay's potato chips has been rejected by an Indian court, Reuters reports. The court upheld the revocation of the patent by the Protection of Plant Varieties and Farmers' Rights Authority.

COMMUNICATIONS:

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  BCE (BCE), Meta Platforms (META) - Bell Media to halt advertising on Facebook and Instagram in response to Meta's plan to block Canadian news content. Bell expresses concerns about the impact on Canadians and support the Online News Act for fair negotiations and access to reliable Canadian news.


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  Meta Platforms (META), Microsoft (MSFT) - Sarah Silverman, Christopher Golden, and Richard Kadrey are suing Microsoft-backed OpenAI and Meta Platforms for copyright infringement, The Verge reports. They claim that the companies' AI models, ChatGPT and LLaMA, were trained using their copyrighted works obtained from illicit sources such as "shadow library" websites. The authors seek damages and restitution for various copyright violations. The lawsuits raise questions about the boundaries of copyright in the context of AI technology.


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  Meta Platforms (META) - Cautious mention in Barron's; said that while it is the new platform Threads may have gained attention and investor enthusiasm, it is unlikely to significantly impact Meta's business or stock value. Barron's highlights the similarities between Threads and Twitter, and noted the lack of advertising and limited monetisation plans for Threads. It concludes that Threads is not likely to be a major driver for Meta's success and growth.


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  Snap Inc (SNAP) - Snapchat is successfully attracting creators back to its platform by offering them a share of the ad revenue generated by their content, WSJ Reports. The new revenue-sharing programme has been extended to eligible users, and thousands of creators are participating, the report adds.


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  Sony (SONY), Disney (DIS) - Sony Picture's 'Insidious: The Red Door' surpassed Disney's 'Indiana Jones and the Dial of Destiny' at the domestic box office, earning USD 32.6mln compared to Indy's USD 26.5mln. It also won the global box office with a total of USD 64.05mln, including USD 31.4mln from international markets.


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  AT&T (T), Verizon (VZ) - A Wall Street Journal investigation has found that telecom giants like AT&T and Verizon have left behind a vast network of toxic lead-covered cables across the US. The investigation reveals a hidden source of lead contamination that hasn't been addressed by the companies or regulators. The lead is degrading and contaminating areas where people live, work, and play.


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  Bumble (BMBL) - Positive mention in Barron's; said that despite Bumble's stock price falling nearly 40% since a recommendation by Barron's last November, the company itself is doing well, with strong sales and user growth, and analysts view Bumble as a long-term growth opportunity. Barron's adds that the current low stock price could be a good opportunity for investors.

TECH:

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  Oracle (ORCL), Equifax (EFX), Experian (EXPN LN), LiveRamp (RAMP) - Australian regulators are seeking public input to regulate the practices of data brokers in the country's digital platform services sector, Reuters reports. Companies like Oracle, Equifax, Experian, and LiveRamp will be considered in the ACCC's report on the sector. The inquiry aims to address transparency and consumer awareness regarding how data brokers collect and use personal information. The report will be submitted to the treasurer in March 2024.


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  Taiwan Semiconductor Manufacturing Company (TSM) - TSMC June sales TWD 156.4bln (prev. TWD 176.5bln in May 2023, and TWD 175.9bln Y/Y).


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  Workday (WDAY) - Workday General Secretary Richard Sauer sold 4.2K shares on July 5th for a total USD 935k.

FINANCIALS:

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  SVB, FDIC - SVB Financial Group sues US FDIC to recover USD 1.9bln in cash that the regulator has withheld since taking over the group's banking subsidiary, FT reports. SVB argues that the retention of the cash by the FDIC violates US bankruptcy law and hampers its ability to reorganise. The cash is considered a significant asset for SVB Financial, and without its return, the company may need to seek external financing for its bankruptcy case.


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  Credit Suisse (CS) - Credit Suisse largest shareholder Saudi National Bank wanted to increase its stake to 40% before the bank's collapse, Bloomberg reports, but Swiss regulators vetoed its offer due to foreign shareholders needing approval to own more than 10% of a Swiss bank.


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  Icahn Enterprises (IEP) - After negotiating with his lenders, investor Carl Icahn has reached amended loan agreements that separate his personal loans from the trading price of the shares, increase collateral, and establish a plan for repayment over three years, WSJ reports. The revised agreements alleviate concerns about forced stock sales and potential margin calls. IEP has recently faced a significant drop in its share price following a short-seller attack.


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  Banks - House Financial Services Committee to hold a hearing on July 12th entitled, "Protecting Investor Interests: Examining Environmental and Social Policy in Financial Regulation"; the Senate Banking Committee will hold a hearing on July 12th entitled "Bank Mergers and the Economic Impacts of Consolidation".


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  Small Banks - Positive mention for Axos (AX), Bread Financial (BFH), First Financial Bancorp (FFBC), OFG Bancorp (OFG), Preferred Bank (PFBC), S&T Bancorp (STBA) in Barron's; identified these six small bank stocks that have big upside potential.


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  Blackstone (BX) - Director Joseph Baratta sold 85K shares on July 5th for a total USD 7.9mln.


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  South Korean Banks - South Korean regulator has reportedly asked major commercial banks to prepare USD 4bln financing for potential support to credit unions facing customer withdrawals, according to Reuters. An official at the Financial Services Commission confirmed banks had been asked to prepare liquidity to aid MG Community Credit Cooperatives (MGCCC). Depositors were lining up last week to withdraw funds from an MGCCC branch after local media reported a rise in non-performing loans to real estate projects. Sharply rising rates and cooling property market have raised concerns about the potential impact on South Korea - Asia's fourth largest economy.

HEALTHCARE:

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  Big Pharma - Positive mention for Bristol Myers Squibb (BMY), Pfizer (PFE), Amgen (AMGN), and Gilead Sciences (GILD) in this week's edition of Barron's, which were identified as cheap Big Pharma stocks. On the other hand, Eli Lilly (LLY) is mentioned as an expensive stock.

ENERGY:

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  US SPR - The government announced it is to buy 6mln barrels of oil as it rebuilds the Strategic Petroleum Reserve, with more purchases expected ahead. The country's oil reserve is at its lowest level in 40 years due to previous withdrawals, Bloomberg reported, adding that the government plans to buy a total of around 12mln barrels this year at varying prices based on market conditions.


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  Kinder Morgan (KMI) - A fire broke out at Kinder Morgan's Pasadena Terminal during construction, but it was quickly extinguished with no injuries reported, the Houston Chronicle reported. The City of Pasadena confirmed there was no danger to the public, and Kinder Morgan will conduct an investigation into the incident.

MATERIALS:

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  Steel Dynamics (STLD) - Experienced an unplanned outage at a facility in Texas due to equipment issues. Hot mill expected to resume operations within two to four weeks, with estimated expenses of less than USD 1mln for repairs. The cold mill and coating lines will continue operating during the outage.

INDUSTRIALS:

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  United Parcel Service (UPS) - Acting US Labor Secretary Julie Su does not believe intervention is necessary in the contract talks between the Teamsters Union and UPS at this stage. The White House remains optimistic that an agreement will be reached and is in contact with both parties.


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  AZZ (AZZ) - Q1 EPS 1.14 (exp. 1.16), Q1 revenue USD 390.9mln (exp. 396.7mln). Exec said that operational improvements were made at Precoat Metals, and debt was reduced. The company expects growth due to infrastructure spending and environmental trends. Construction of a new plant is going well. Reiterates FY24 EPS outlook of USD 3.85-4.35 (exp. 3.96), and its FY24 revenue outlook of between USD 1.40-1.55bln (exp. 1.52bln).

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