US EARLY MORNING: Equity futures are lower and Treasury yields are higher in wake of 'hawkish' Fed minutes; we now enter a key window for labour market releases

US PRE-MARKETS: US equity futures are lower following FOMC minutes that were judged as hawkish, but didn’t add too much new information to the narrative (a recap is below), while Sino-West tensions continue to linger as Treasury Secretary Yellen begins her three day tour of the world’s second largest economy. Treasury yields are higher with the belly coming under the most pressure after the Fed minutes, while the influential NY Fed President Williams also said that the June meeting skip was the correct move, and we can expect further rate rises ahead. We are now entering a window of key labour market data, with ADP’s gauge of payrolls, the Challenger layoffs data for the month, JOLTs data, as well as the weekly jobless claims data all on the docket for release today, ahead of Friday’s nonfarm payrolls data. Analysts expect that the rate of payrolls growth will cool, though many note that the labour market has been resilient in the face of Fed rate hikes, and the last time we saw a downside surprise relative to the consensus was in March last year. We also get the ISM's services gauge today. Elsewhere, crude futures are trading lower despite the larger than expected draw reported by the API on Wednesday, with the complex more focussed on the weak risk tone ahead of key data releases. The dollar Index is a shade beneath neutral.

RECAP - FOMC MINUTES: The FOMC meeting minutes from the June meeting revealed most participants favoured leaving the target rate unchanged, but some supported a rate hike due to a tight labour market and stronger economic activity. Participants suggested a moderation in the pace of tightening and emphasised the need to observe the effects of previous tightening. "Some participants" favoured another 25bps hike, but "most" believed that a pause "would allow them more time to assess the economy's progress." The minutes stated that "almost all" "judged that additional increases in the target federal funds rate during 2023 would be appropriate." Most participants observed that post-meeting communications, including the SEPs (which pencilled in two more hikes this year), would help clarify their assessment regarding the stance of monetary policy. Ahead of the NFP reading on Friday, "some" pointed out that payroll gains had remained robust but noted that some other measures of employment—such as those based on the BLS' household survey, the Quarterly Census of Employment and Wages, or the Board staff's measure of private employment using data from the payroll processing firm ADP—suggested that job growth may have been weaker than indicated by payroll employment. A couple of participants also drew attention to the subdued growth in hours worked. Overall, the minutes contained no major surprises, and the market's outlook for policy was unchanged in wake of the release: there is an 85% implied probability of a July hike, and markets are pricing the terminal rate at 5.40% in November.

PREVIEW - MICROSOFT (MSFT)-ACTIVISION (ATVI) RULING EXPECTED SOON: A judge's ruling on the FTC preliminary injunction could come as soon as this week. If the FTC preliminary injunction is granted, it would mean MSFT/ATVI cannot complete the deal while the FTC antitrust review is ongoing. The deal has a deadline of 18th July 2023, and the FTC antitrust hearing is not until August 2nd. If the preliminary injunction is granted to the FTC, the deal cannot close by the deadline and MSFT would be required to pay ATVI a USD 3bln break-up fee, or renegotiate the deal. If the FTC injunction is not granted (ruling in favour of MSFT), it would clear the path for the deal to close in the US, and providing it is completed before the July 18th deadline, MSFT will not have to pay the USD 3bln break-up fee. Barron's highlights the FTC would also likely withdraw its antitrust complaint, as it did when a judge declined to grant the regulator an injunction blocking the acquisition of Within Unlimited by Meta (META). Regulatory hurdles remain, however; despite the EU approving the deal, the UK CMA has rejected it, with MSFT currently appealing that decision.

TODAY’S AGENDA:

• Our interactive daily calendar can be accessed here; a pdf version can be found here.


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  EUROPEAN DAY AHEAD: Construction PMI data will be released over the course of the morning, where the UK gauge is seen slipping a little. Eurozone retail sales data for May are expected to show only modest monthly growth, while the annual rate is seen easing slightly. Poland’s central bank will make its policy announcement today; some analysts are expecting a dovish update.


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  NORTH AMERICA DAY AHEAD: Employment data and the ISM services data are the highlights. Ahead of Friday’s jobs report, the ADP gauge of private payrolls is expected to print 228k from 278k prior; challenger layoffs data will also be released. JOLTs data for May (we get June payrolls data on Friday) is expected to show a moderation in the number of job openings to 9.9mln from 10.1mln in April. Meanwhile, weekly initial jobless gains and continuing claims data are seen rising a little. S&P Global will release its final composite and services PMI data 15 minutes before the release of ISM’s services index for June; the ISM headline is seen rising to 51.0 from 50.3, while the business activity index is seen improving a little to 51.9 from 51.5. The outlook for the services sector seems brighter than its manufacturing counterpart, and analysts will be monitoring to see how much longer the sector can remain resilient in the face of the manufacturing decline, as well as the lagged impact from the Fed’s previous interest rate hikes. On the speaker front, Fed's Logan (voter) will give remarks on policy challenges facing central banks.


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  ENERGY: The DoE will release weekly energy inventory data; the API’s data released Wednesday reportedly showed inventories of Crude stocks drew down by more than expected, -4.4mln (exp. -1.8mln); Cushing stocks rose +0.3mln; Gasoline inventories posted a surprise build at +1.6mln (exp. -1.1mln); Distillate stocks built in line with expectations at +0.6mln (exp. +0.5mln). We will also get another batch of comments from the UAE energy minister, speaking at the OPEC International Seminar, and OPEC's SecGen Al Ghais will also speak at the event.


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  RECAP - APAC TRADE (OVERNIGHT): Asia-Pacific stocks mostly declined due to weak global data, rising yields, and uneventful FOMC Minutes. ASX 200 and Nikkei 225 both traded lower, with mining and materials sectors leading the losses. Hang Seng and Shanghai Composite also fell, driven by pressure on Hong Kong-listed Chinese banks and regulatory scrutiny on bond purchases. Mainland losses were limited ahead of US Treasury Secretary Yellen's meetings in Beijing. Risk appetite was dampened by rising Aussie yields.  (Newsquawk)


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  RECAP - US TRADE (WED): Stocks were mixed on Wall Street on Wednesday; the Russell 2k struggled due to weak global macro data, the Nasdaq 100 held steady. Big Tech showed mixed performance, with Meta and Google showing strength. Sectors like Communications, Utilities, and Real Estate outperformed, while Tech, Industrials, and Materials lagged. Treasury yields steepened, the Dollar strengthened, and activity currencies like CAD and AUD weakened. Oil prices had a modest increase despite weak data, supported by Saudi jawboning and production cuts. Metals prices were affected by a stronger dollar and poor data. (Newsquawk)

EQUITY NEWS:

FINANCIALS:

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  Bank of America (BAC) - Bank of America to raise dividend by 2c to 0.24/shr in Q3. The update follows news this week that Bank of America was engaged in ongoing discussions with the Fed to understand differences in stress test results.


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  Enact Holdings (ACT) - Enact Holdings has signed a quota share reinsurance agreement with a group of highly rated reinsurers. They will cede 13.125% of insurance written, focusing on capital efficiency and minimising credit risk.


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  Marathon Digital (MARA) - Marathon Digital reports a significant increase in bitcoin production in June, up 599% Y/Y despite weather-related curtailment and decreased transaction fees. It also highlights operational and installed hash rate growth and a new joint venture in Abu Dhabi.

ENERGY:

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  Exxon Mobil (XOM) - Exxon expects a USD 4bln reduction in Q2 earnings due to lower natural gas prices and refining margins. Exxon Mobil said its Q2 earnings are impacted by reduced refining margins, resulting in a USD 2.1bln loss. It added that the impact from liquids prices ranges from a USD 0.3bln loss to a USD 0.1bln gain, and gas prices impact ranges from a USD 2.2bln loss to a USD 1.8bln loss.


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  Energy Inventories - API data reportedly showed inventories of Crude stocks drew down by more than expected, -4.4mln (exp. -1.8mln); Cushing stocks rose +0.3mln; Gasoline inventories posted a surprise build at +1.6mln (exp. -1.1mln); Distillate stocks built in line with expectations at +0.6mln (exp. +0.5mln).

INDUSTRIALS:

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  Spirit Airlines (SAVE), JetBlue (JBLU), American Airlines (AAL) - JetBlue to end alliance with American Airlines as ordered by a judge, protecting its planned purchase of Spirit Airlines. American plans to appeal the ruling.


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  Nikola (NKLA) - Nikola receives a USD 41.9mln grant from the California Transportation Commission, in partnership with Caltrans, to construct six hydrogen refuelling stations in Southern California.


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  CBIZ (CBZ) - CBIZ acquires American Pension Advisors, expanding its retirement investment services and strengthening its presence in the Indianapolis market.

COMMUNICATIONS:

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  Meta (META) - CEO Zuckerberg said its new Threads service passed 10mln sign ups in the first seven hours. Separately, The Canadian government suspends Facebook and Instagram ads due to Meta's plan to remove news in response to a law requiring platforms to negotiate deals with publishers, Bloomberg reports. Government wants fair contribution from tech giants.


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  Pinterest (PINS), Amazon (AMZN) - RBC Capital finds early signs of Pinterest and Amazon partnership going live early, and potentially ahead of schedule. Expects integration details to be revealed in September.


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  Disney (DIS) - A piece in Variety claims that Disney, which has been a highly successful movie studio in the past, is facing challenges in terms of the profitability of its recent releases. Several of its big movies, including ones from Marvel, Pixar, and Lucasfilm, have underperformed at the box office. Disney's market share is still high compared to competitors, but ticket sales have decreased, and the studio no longer has movies that reach USD 1bln in revenue. Variety says that Disney's high production budgets and changing international box office landscape are affecting its profitability, while the rise of streaming services like Disney+ has also impacted movie theatre attendance.

TECH:

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  Vimeo (VMEO) - Vimeo CEO Anjali Sud is leaving the company, and Adam Gross will serve as interim CEO until a permanent replacement is found. Vimeo confirms Q2 revenue outlook of USD 100mln, matching the consensus. For FY23, Vimeo maintains its revenue outlook, expects a slight decrease.


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  Palo Alto Networks (PANW) - CTO Nir Zuk sold 36K shares on July 3rd for a total USD 9.14mln.


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  Monolithic Power (MPWR) - CEO Michael Hsing sold 11K shares on July 3rd for a total USD 5.9mln.


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  Flex (FLEX), Enphase (ENPH) - Enphase Energy starts shipping microinverters from South Carolina with Flex, marking the first production from their US manufacturing partnerships, supporting global demand, and boosting the clean energy economy.


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  Leidos Holdings (LDOS) - Leidos is chosen to train US Army aviators on Bombardier Global aircraft as part of the High Accuracy Detection, Exploitation System program. Training includes ground and flight instruction.

CONSUMER:

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  Toyota (TM) - Toyota will suspend operations at its component packaging plant for exports on Friday, following a Nagoya port cyber attack, JiJi reports. Toyota sees no impact of the on its domestic auto production and overseas plant operations.

HEALTHCARE:

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  ResMed (RMD) - ResMed acquires Somnoware, a leader in sleep and respiratory care diagnostics software. Terms undisclosed. Somnoware's offerings will be integrated into ResMed's brand and solutions.


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  Abcam (ABCM) - Abcam reports a 10% increase in first-half revenue. Adjusted operating profit margin also improved. Company meets expectations and sees improved Net Promoter Score.


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  Merus (MRUS) - Merus receives Breakthrough Therapy Designation from the FDA for zenocutuzumab, a treatment for advanced unresectable or metastatic NRG1+ non-small cell lung cancer.

REAL ESTATE:

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  Simon Property (SPG) - Wolfe Research upgrades "cash engine" Simon Property Group, citing stable internal growth and potential for buybacks and acquisitions. Price target USD 127.


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  Netstreit (NTST) - Wolfe Research downgrades Netstreit, citing upcoming debt refinancing, external growth slowdown, and tenant credit concerns. Said the cautious market outlook leads to conservative ratings.


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  Phillips Edison (PECO) - Wolfe Research downgrades Phillips Edison, expects peer growth to catch up. Cautious outlook leads to conservative ratings. Predicts 3% annual funds from operations growth for Phillips through 2025.


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  UMH Properties (UMH) - UMH Properties reports positive second-quarter results with increased occupancy, rental income growth, and higher sales of manufactured homes. Capital raised was used to pay down debt.

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