US EARLY MORNING: US index futures are lower; earnings season starts this week

• ES -0.6%, NQ -0.7%, YM -0.6%, RTY -0.7%.


• Treasury yields lower by 3-5bps, with the curve modestly steepening. 


• Dollar Index +0.4%.


• WTI -2.0%, Brent -1.9%

CORPORATE EARNINGS SEASON PREVIEW:

• The consensus expects earnings growth to rise 5.6% in Q2, according to Refinitiv, and revenues are seen rising 10.4%. Taking the energy sector out of the equation, earnings growth is seen -2.4% in Q2, while revenue growth is estimated to rise 6.7%. Heading into Q2 reporting, Refinitiv notes that there have been 77 negative preannouncements by S&P 500 companies, and 45 positive preannouncements. Major banks will begin publishing their latest earnings reports next week.


• Many analysts have suggested that earnings will take over from valuations as the key driver for equities given that rates and equity risk premiums are now discounting a slowdown in growth. Morgan Stanley notes that S&P equity risk premium has been rising recently, and currently sits at around 340bps, close to its fair value level of 370bps. “This is a necessary condition for a more durable low in equity prices, but until earnings estimates are cut to more reasonable levels or valuations reflect that risk, the bear market is not complete,” the bank writes, and expects Q2 earnings to be a “good start in that regard.”


• MS says S&P 500 and Nasdaq 100 forward earnings estimates are both over 20% above the post-GFC trend, while it cites several leading signals pointing to forward earnings expectations decelerating in the coming months from these elevated levels, and “importantly, earnings revisions breadth, which often leads forward dollar EPS, is in negative territory and has decelerated further in the last few days/weeks.”


• MS’ analysis finds that defensive industries – like Telecoms, Utilities, Insurance, Real Estate, some Staples, Healthcare – screen relatively well when assessed on that basis, while cyclical tech groups – like Tech Hardware, Semis – have a higher risk on that basis. The bank adds that several consumer-oriented groups – like Food & Staples Retailing, Consumer Services, Consumer Durables and Apparel, Transports – screen as being more at risk.


• “Given the increasing risk to growth, the market is rewarding earnings stability,” MS writes, “we measure earnings stability by looking at companies’ earnings estimate dispersion, ROE volatility, and sales growth volatility, and companies with stable earnings tend to have lower estimate dispersion, lower ROE volatility, and lower sales growth volatility.” MS continues to think this factor can outperform in an uncertain macro environment.


• Meanwhile, analysts at Goldman Sachs note that the consensus view of 5.6% Y/Y earnings growth is a low bar that firms will likely clear, but expects cautious commentary to prompt cuts to forward estimates. "In our baseline, assuming the economy avoids recession, we forecast EPS growth of +8% in 2022 and +6% in 2023 and a rise in the S&P 500 index to 4300," adding that "in a moderate recession, our model implies 2023 EPS would fall by 11% to USD 200 (vs. current consensus of USD 250)," and "assuming consensus EPS estimates move halfway (to USD 225) by year-end, a 14x P/E would bring the S&P 500 to 3150."

COMMUNICATIONS:

• 
  Twitter, Inc. (TWTR) - Elon Musk is ending a USD 44bln bid to buy Twitter, alleging that the social media company has failed to provide much of the information he requested, but even so, claims that several of Twitter's public disclosures regarding its mDAUs were either false or materially misleading. Twitter plans to pursue legal action against Musk, stating that it was committed to closing the transaction on the price and terms agreed, and plans to pursue legal action to enforce the merger agreement, adding that it was confident that it would prevail in Court.

TECH:

• 
  Alibaba Group (BABA), Tencent Holdings (TCEHY) - China slaps fines on Alibaba, Tencent, other firms, for failing to comply with anti-monopoly rules on the disclosure of transactions, Reuters reported. Regulators released a list of 28 deals that violated the rules, five of which involved units of Alibaba.


• 
  Uber Technologies, Inc. (UBER) - Uber broke laws, duped police and secretly lobbied governments, according to the Guardian newspaper, which cited leaks of more than 124k confidential documents. Guardian claims that the documents expose attempts to lobby US President Joe Biden, Germany Chancellor Olaf Scholz and former UK Chancellor George Osborne; the piece alleges that French President Emmanuel Macron secretly aided Uber lobbying in France. The article also alleges that Uber used a ‘kill switch’ during raids to stop police seeing data.


• 
  Alphabet Inc. (GOOG) - Google has offered concessions in an attempt to head off a possible US antitrust lawsuit aimed at its massive ad-tech business, WSJ reported citing sources, a sign that legal and regulatory pressures on the tech giant are coming to a head. Google has proposed splitting parts of its business that auctions and places ads on websites and apps into a separate company under the Alphabet umbrella, the Journal reported, and that unit could potentially be valued at tens of billions of dollars.


• 
  STMicroelectronics NV (STM), Globalfoundries Inc (GFS) - GlobalFoundries STMicroelectronics will Monday announce plans to build a EUR 4bln semiconductor factory in France, Le Figaro reported, helping support an EC push to produce 20% of the world's microchips in Europe by 2030.


• 
  Oracle Corporation (ORCL) - Oracle recently considered cost reductions of up to USD 1bln that could result in thousands of layoffs as soon as August, The Information reported citing sources. The proposed cuts could disproportionately impact US- and Europe-based workers.


• 
  Apple Inc. (AAPL) - CEO Cook receives positive mention in Barron's, noting that while Apple shares haven’t escaped bear market, it remains the largest US company by market cap, adding that Cook sees many opportunities ahead.


• 
  Microsoft Corporation (MSFT) - Positive mention in Barron's of CEO Satya Nadella, under which Microsoft has solidified its dominance in several key software categories, including office-productivity subscriptions, operating systems, and server applications. Article notes that MSFT has avoided the antitrust scrutiny trained on its Big Tech peers, noting that its ability to navigate regulatory hurdles has enabled it to complete a number of large acquisitions in recent years.

CONSUMER STAPLES:

• 
  Altria Group, Inc. (MO) - Constructive mention in Barron's, said Altria’s dividend yield spiked after Juul ban, but the pay-out looks secure.


• 
  Tesco PLC (TSCDY), Kraft Heinz Company (KHC) - Tesco and Heinz have reached an agreement which will see some of the UK's best-known products back on the supermarket chain's shelves in the coming days, BBC reported.

CONSUMER DISCRETIONARY:

• 
  Starbucks Corporation (SBUX) - Starbucks stops selling new chicken sandwich over quality concerns, WSJ reported; it took the 'chicken, maple butter and egg' item off menu after less than a week.


• 
  Lowe's Companies, Inc. (LOW) - Positive mention in Barron's, said Lowe’s can keep winning even as housing cools.

HEALTH CARE:

• 
  Abbott Laboratories (ABT) - Abbott has reopened its Michigan baby formula plant, which was shut last month due to heavy rains, according to Reuters.


• 
  Eli Lilly and Company (LLY) - Positive mention in Barron's, said Eli Lilly’s growth was set to soar under CEO David Ricks.


• 
  Novo Nordisk AS (NVO) - Phase 3 data for concizumab show 86% reduction in treated bleeds in haemophilia A or B with inhibitors.


• 
  Sanofi (SNY) - Fitusiran prophylaxis reduced bleeds by 61% in people with hemophilia A or B, with or without inhibitors, compared to prior factor or bypassing agent prophylaxis. Separately, pivotal data demonstrate once weekly efanesoctocog alfa provides superior bleed protection compared to prior factor prophylaxis.

INDUSTRIALS:

• 
  Airlines - The US has completed 10 airline investigations into delayed or withheld passenger refunds during the COVID-19 pandemic, will take enforcement action in coming weeks, DoT official told Reuters, adding that an additional 10 airline probes remain ongoing.


• 
  Deere & Company (DE), AGCO Corporation (AGCO) - AGCO Corp.'s Precision Planting unit won lawsuit against Deere over claims that its seed meters and seed-delivery system infringed two patents related to high-speed, accurate seed placement and spacing, Bloomberg reported.


• 
  Ford Motor Company (F), General Motors Company (GM) - Barron's argued that while General Motors took an early lead in electric vehicles, Ford has been successful in putting winning models in customer driveways. Barron's also notes the role Ford CEO Jim Farley has played in achieving this.


• 
  Airbus (EADSY) - June deliveries at 60 (prev. 47 in May) to 35 customers (prev. 27 customers).


• 
  Watsco, Inc. (WSO) - Positive mention in Barron's, said that the stock was now a buy after falling 20%.

FINANCIALS:

• 
  Federal Reserve - Board of Governors will today at 14:30EDT/19:30BST hold a closed-door meeting under expedited procedures for a periodic briefing and discussion on financial markets, institutions, and infrastructure.


• 
  Berkshire Hathaway Inc. (BRK.B) - Barron's says Berkshire has sharply picked up the pace of investments in 2022, after being inactive in the wake of the pandemic. Article notes the recent stake purchases in Alleghany, Chevron, Occidental, but doesn't seem to add any fresh deal news.


• 
  Santander (SAN) - Santander is said to be in talks with Ford to expand its alliance in Europe, according to reports.

ENERGY:

• 
  Siemens Energy (SMNEY) - Siemens Energy aims to return the turbine for Nord Stream 1 as soon as possible.


• 
  ConocoPhillips (COP) - After a judge in Alaska reversed the Trump administration's approval of the massive project, stating that federal agencies must reconsider their environmental analysis, the US Friday unveiled an environmental analysis for ConocoPhillips' planned USD 6bln Willow oil and gas project, outlining several options including not building it at all. The US will accept public comment on the alternatives for 45 days, which it will consider in its final decision.

11 Jul 2022 - 09:47- EquitiesResearch Sheet- Source: Newsquawk