US EARLY MORNING: US index futures slip into negative territory ahead of US participants' return

SNAPSHOT: US equity futures have tilted lower, having been flat around the European open: ES -0.5%, YM -0.3%, NQ -0.5%, RTY -0.5%. Overnight APAC trade was mostly constructive; stocks were generally higher amid a pick-up from the holiday lull, though Chinese markets faltered due to the PBoC draining liquidity and lingering COVID fears, and despite the solid Caixin PMI data for June and some signs of easing Sino-US tensions. The RBA lifted rates by 50bps, though refrained from springing any hawkish surprises. European equities opened on the front foot, continuing the positive start to H2, but tilted into the red amid broad risk aversion, with some newswire reports citing continued growth fears. Treasury yields gapped higher after the re-open, though yields have been narrowing over the course of the European morning. The Dollar Index has been picking up, rising towards fresh YTD peaks; the EUR is lower, while other activity FX and EMs are also lower. Crude futures are trading higher, with WTI 'outperforming', although there was not a WTI settlement price for Monday on account of the US holiday. It is a quiet slate in the US, with no major data or Fedspeak due. The focus this week is on the FOMC minutes and US jobs report. Full Day Ahead here.

INTO H2: Following the S&P 500’s worst H1 since 1970, US equity futures have begun H2 trade on the front foot. Focus will shift onto Q2 corporate earnings, which gets underway next week when major banks start reporting their numbers. Goldman Sachs noted that “the current bear market has been entirely valuation-driven rather than the result of reduced earnings estimates. However, we expect consensus profit margin forecasts to fall which will lead to downward EPS revisions whether or not the economy falls into recession.” Going into the second half of the year, GS recommends stocks with stable earnings growth, noting that slowing economic growth and tightening financial conditions historically support quality styles. Additionally, stocks with a combination of high dividend yield and growth are attractive, even in a recession scenario, with the bank noting that S&P 500 dividends declined by just 1% around the median recession since 1945, but dividend futures imply 3% and 4% declines in 2023 and 2024. In terms of specific sectors, GS recommends health care, which it says has attributes that should drive outperformance in the medium term–margins have seen minimal declines during past recessions, EPS has grown in the last six recessions, while valuations are slightly below long-term averages–as well as in the event of an economic downturn.

EQUITY NEWS:

Recapping major equity stories from the weekend and Monday.

ENERGY:

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  Crude prices - Citi said that in a recession, crude oil prices could drop to USD 65/bbl by the end of this year, absent OPEC+ intervention and a decline in short-cycle oil investment, and to USD 45/bbl by the end of 2023.


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  Equinor (EQNR) – Strike action is impacting their operated fields on the Norwegian continental shelf, initiated safe-closure of the Gudrin, Oseberg Sor and Oseberg Ost fields following the Lederne union strike. Further escalation of the strike has been announced from July 9th, consequences of this escalation have not been clarified.


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  Exxon Mobil Corporation (XOM) - Projected a sequential increase of about USD 7.4bln in operating profits vs Q1, Reuters reported, as skyrocketing margins from fuel and crude sales could generate a record quarterly profit as energy prices shot up this year. Said that the estimated impact of exiting Russia would cut oil and gas profits by about USD 150mln vs Q1.


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  Occidental Petroleum Corporation (OXY), Berkshire Hathaway Inc. (BRK.B) - Berkshire bought another 9.9mln shares of Occidental Petroleum Corp, raising its stake to 17.4%, according to a filing. Berkshire paid around USD 582mln for the 9.9mln shares.


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  TransCanada Corporation (TRP) - TC Energy agreed with Mexico to build a USD 5bln gas pipeline in the Mexican Gulf Coast state of Veracruz, Reuters reported. The pipeline will connect the ports of Tuxpan and Coatzacoalcos, a source said.

UTILITIES:

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  Uniper (UNPPY) - Germany’s Uniper is said to be in talks with the German government for a bailout of up to EUR 9bln, according to Bloomberg sources.

TECH:

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  Chip Names Intel Corporation (INTC) - US and Asian chipmakers warn that they will delay or scale back investment in the US due to Washington's continued failure to fund the USD 52bln CHIPS Act aimed at boosting the domestic semiconductor industry, Nikkei reported. Intel blamed the act's delay for its decision to indefinitely postpone breaking ground on a USD 20bln fab in Ohio, which had originally been scheduled for late July.


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  Alphabet Inc. (GOOG) - Reuters reported that Google will delete location data showing when users visit an abortion clinic in the US, after concern that a digital trail could inform law enforcement if an individual terminates a pregnancy illegally.

COMMUNICATIONS:

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  Deutsche Telekom (DTEGY), KKR & Co. L.P. (KKR) - A KKR-backed consortium is said to be the front-runner for a stake in Deutsche Telekom's tower unit, which could be valued at around USD 20bln, according to Bloomberg sources.


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  Activision Blizzard, Inc. (ATVI), Microsoft Corporation (MSFT) - Activision received a positive mention in Barron’s, which said the stock is a bet on Microsoft’s takeover amid regulatory uncertainty, but was one that was worth making.

HEALTH CARE:

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  AmerisourceBergen Corporation (ABC), Cardinal Health, Inc. (CAH), McKesson Corporation (MCK) - A West Virginia judge ruled that the three drug distributors were not responsible for fueling an opioid epidemic, NPR reported, rejecting the plaintiffs demands for more than USD 2.5bln that would have gone toward abatement efforts.


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  AstraZeneca (AZN) - AstraZeneca is to acquire TeneoTwo and its clinical-stage T-cell engager, strengthening haematological cancer pipeline. AstraZeneca will acquire all outstanding equity of TeneoTwo in exchange for an upfront payment of USD 100mln on deal closing.

INDUSTRIALS:

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  Tesla, Inc. (TSLA) - Reported 254,695 deliveries in Q2 (exp. 295,078, prev. 310,048 in Q1), -17.9% Q/Q as China’s COVID policies disrupted production. Q2 production was 258,580 vehicles; Tesla said June 2022 was the highest vehicle production month in Tesla’s history. Separately, Tesla is to shut down production at Gigafactory Berlin to upgrade the factory and add a shift, according to Electrek.


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  General Motors Company (GM), Toyota Motor Corporation (TM) - GM outsold Toyota in Q2 car sales, Reuters reported. GM, which lost its crown as the US sales leader last year for the first time since 1931 to Toyota, said it sold 582,401 vehicles in the quarter, -15% Y/Y.


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  Stellantis (STLA) - FIM CISL union said a global chip crunch could cost the carmaker up to 220k in lost production.


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  Lockheed Martin Corporation (LMT) - Lockheed was awarded a USD 192.4mln Navy contract.


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  Northrop Grumman Corporation (NOC) - Northrop was awarded a USD 337.9mln Navy contract.


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  SAS (SASDY) - SAS has filed Chapter 11 in the US. Operations and flight schedules are unaffected. SAS expects to meet go-forward business obligations in the near term. Purpose of filing is to accelerate its transformation by implementing key elements of the forward plan. On-going strike action is a significant challenge to the transformation, and if prolonged, the negative financial impact could become material, SAS said. The board has concluded legal tools are required to make progress in negotiations with key stakeholders.

CONSUMER CYCLICALS:

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  AutoZone, Inc. (AZO), O’Reilly Automotive, Inc. (ORLY) - Auto parts retailers receive positive mention in Barron’s, which said the stocks have a reputation as defensives, but there are reasons to think these stocks can keep outperforming the index.


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  Estee Lauder Companies Inc. (EL) - The ‘Too Faced’ makeup brand that Estee acquired for USD 1.5bln in 2016 is shutting down its Tmall Global flagship by August, prompting speculation on Chinese social media that the brand is exiting the market, according to Women’s Wear Daily.


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  Las Vegas Sands Corp. (LVS) - LVS received a positive mention in Barron’s, which said China’s decision to ease its entry requirements for international travellers could also signals an eventual reopening of its Macau casinos, where LVS gets a little over two-thirds of its business from Macau.

CONSUMER STAPLES:

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  Kellogg Company (K) - Kellogg loses UK legal challenge over new government sugar rules, FT reported, failing to halt regulations that will curb promotion of high-sugar food.


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  Walmart Inc. (WMT) - Walmart CEO said the company was weighing how to respond to a US Supreme Court decision that ended the federal right to an abortion, CNBC reported.

FINANCIALS:

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  Toronto-Dominion Bank (TD), Cowen Inc. (COWN) - Toronto-Dominion Bank is weighing a deal for Cowen, Bloomberg reported citing sources. A transaction could extend TD Securities’ reach deeper into equity and debt offerings as well as research. No final decision has been made.


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  EU Names - The EU is looking to ease IPO rules and will explore how start-ups can provide stock to new workers, according to Bloomberg.


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  Bank OZK (OZK) - Raises quarterly dividend by 0.01 to 0.32/shr.

05 Jul 2022 - 09:34- EquitiesResearch Sheet- Source: Newsquawk