Markets Morning Briefing

Daily Morning Prep

Morning Briefing – Resting on support of dovish Fed commentary

U.S. equity futures hold slight gains after stocks finished higher yesterday on dovish Fed commentary. The S&P 500 futures trade four points, or 0.2%, above fair value. 

The probability for a 50-basis points rate cut at the July 30-31 FOMC meeting jumped to over 70% at one point yesterday, according to the fed funds futures market. Today, some of that optimism has been reined in to 45.3%, perhaps on the understanding that economic data this week hasn’t justified the case for a sharper rate cut. 

Today’s lone economic report will be the preliminary July reading for the University of Michigan Index of Consumer Sentiment (Briefing.com consensus 98.9) at 10:00 a.m. ET. 

In key corporate news, Microsoft (MSFT 140.50, +4.08, +3.0%) has impressed investors by beating top and bottom-line estimates. Boeing (BA 367.00, +5.89, +1.6%) announced that it will incur a $4.9 billion after-tax charge for the second quarter pertaining to the disruptions caused by the 737 MAX grounding. 

U.S. Treasuries are little changed after seeing increased buying interest yesterday. The 2-yr yield and the 10-yr yield are up one basis point each to 1.79% and 2.05%, respectively. The U.S. Dollar Index is up 0.2% to 97.01. WTI crude is up 1.3% to $56.04/bbl. 

In U.S. Corporate news:

  • Microsoft (MSFT 140.50, +4.08): +3.0% after beating top and bottom-line estimates.
  • Boeing (BA 367.00, +5.89): +1.6% after announcing it will assume a $4.9 billion after-tax charge for the second quarter pertaining to the 737 MAX grounding and associated delivery delays. 
  • American Express (AXP 128.59, +0.19): +0.2% after beating earnings estimates and reaffirming its full-year guidance.
  • Anheuser-Busch InBev (BUD 93.06, +3.72): +4.2% after agreeing to sell its Carlton & United Breweries for $11.3 billion. 
  • Chewy (CHWY 33.40, +0.55): +1.7% after reporting in-line results and providing upside guidance. 

Reviewing overnight developments:

  • Equity indices in the Asia-Pacific region ended the week on a mostly higher note. Japan’s Nikkei +2.0%, Hong Kong’s Hang Seng +1.1%, China’s Shanghai Composite +0.8%, India’s Sensex -1.4%, South Korea’s Kospi +1.4%, Australia’s ASX All Ordinaries +0.8%.
    • In economic data:
      • Japan’s June National CPI 0.0% m/m (last 0.0%); +0.6% yr/yr, as expected (last 0.8%). National Core CPI +0.6% yr/yr, as expected (last 0.8%). May All Industries Activity Index +0.3% m/m, as expected (last 0.8%)
      • South Korea’s June PPI -0.3% m/m (expected -0.1%; last 0.0%); +0.1% yr/yr (expected 0.5%; last 0.4%)
    • In news:
      • Yonhap reported that South Korea may review its plan to renew a military information sharing pact with Japan.
      • South Korea’s Trade Minister, Lee Ho Hyun, said it is uncertain when the dispute with Japan will be resolved, noting that Japanese officials have yet to respond to a request for a meeting.
  • Major European indices trade near their flat lines while Italy’s MIB (-1.6%) underperforms. STOXX Europe 600 -0.1%, Germany’s DAX -0.1%, U.K.’s FTSE 100 -0.1%, France’s CAC 40 -0.2%, Italy’s FTSE MIB -1.6%, Spain’s IBEX 35 -0.6%.
    • In economic data:
      • Eurozone’s May Current Account surplus EUR29.70 bln (expected surplus of EUR21.20 bln; last surplus of EUR22.40 bln)
      • Germany’s June PPI -0.4% m/m (expected -0.1%; last -0.1%); +1.2% yr/yr (expected 1.4%; last 1.9%)
      • U.K.’s June Public Sector Net Borrowing GBP6.50 bln (expected GBP3.20 bln; last GBP3.82 bln)
    • In news:
      • There has been growing speculation that Italy’s ruling coalition is operating on borrowed time.
      • Deputy Prime Minister Matteo Salvini’s advisers reportedly believe that it is hard to continue governing with M5S in the coalition, but Mr. Salvini himself has not vocalized that view.
      • Italy’s President, Sergio Mattarella, has asked Mr. Salvini to determine in the next 48 hours if snap elections are warranted.
      • Elsewhere, German Chancellor, Angela Merkel, indicated that the plan for the Irish backstop may be up for renegotiation.

U.S. equity futures:

  • S&P 500 Futures +5 @ 3003
  • DJIA Futures +80 @ 27281
  • Nasdaq Futures +18 @ 7952

Overseas: 

  • Europe: DAX -0.1%, FTSE -0.1%, CAC -0.2%
  • Asia: Nikkei +2.0%, Hang Seng +1.1%, Shanghai +0.8%

Commodities: 

  • Crude Oil +0.79 @ 56.09
  • Nat Gas -0.002 @ 2.285
  • Gold +10.30 @ 1438.40
  • Silver +0.13 @ 16.33
  • Copper +0.06 @ 2.77

U.S. Summary:

  • Earnings/Guidance:
    • American Express (AXP) beats by $0.05, reports revs in-line; reaffirms FY19 EPS guidance, revs guidance
    • BlackRock (BLK) misses by $0.18, misses on revs
    • Boeing (BA) announces $4.9 bln after-tax charge for Q2 related to the 737 MAX grounding and associated delivery delays; 737 production costs increased by $1.7 bln during the quarter amid lower production rate
    • Capital One (COF) beats by $0.16, beats on revs
    • Chewy (CHWY) misses by $0.01, reports revs in-line; Q2 and FY20 revenue guidance compares favorably to Wall Street estimates
    • Chico’s FAS (CHS) reaffirms second quarter and full-year outlook
    • Citizens Financial Group (CFG) beats by $0.02; raised Q3 common dividend 13% to $0.36 per share
    • Cleveland-Cliffs (CLF) beats by $0.11, beats on revs
    • CrowdStrike (CRWD) beats by $0.01, reports revs in-line with pre-announced range; guides Q2 EPS above consensus, revs above consensus
    • E*TRADE (ETFC) beats by $0.02, misses on revs; announces new $1.5 bln share buyback program
    • Intuitive Surgical (ISRG) beats by $0.38, beats on revs; raises FY19 procedure growth to +16-17% from +15-17%
    • Manpower (MAN) beats by $0.11, reports revs in-line; guides Q3 EPS below consensus
    • Marten Transport (MRTN) beats by $0.01, beats on revs
    • Microsoft (MSFT) beats by $0.16, beats on revs in all three segments; guides Q1 revenues in line
    • Regions Fincl (RF) misses by $0.02, misses on revs
    • Schlumberger (SLB) reports EPS in-line, beats on revs
    • Select Medical (SEM) provides upside Q2 guidance
    • Sensient (SXT) misses by $0.02, misses on revs; lowers FY19 EPS below consensus
    • Skechers USA (SKX) beats by $0.16, beats on revs; guides Q3 EPS above consensus, revs above consensus
    • State Street (STT) beats by $0.05, reports revs in-line
    • Synchrony Financial (SYF) beats by $0.01
  • General News:
    • The Trump administration has sent House Speaker Nancy Pelosi suggested spending reductions for budget deal, according to Bloomberg
    • USTR Robert Lighthizer spoke with China counterparts by phone yesterday, but divisions still exist, according to Bloomberg
    • President Trump nominates Gene Scalia as the new Secretary of Labor
    • AT&T (T) considering sale of Puerto Rican business to pay down debt, according to Bloomberg
    • Chico’s FAS (CHS) appoints Bonnie Brooks as CEO
    • Discover Financial Services (DFS) approved new $2.2 bln share repurchase program and increased quarterly common stock dividend to $0.44 per share from $0.40
    • JC Penney (JCP) has hired advisors for debt restructuring, according to Reuters
    • Schlumberger (SLB) names Olivier Le Peuch CEO and member of the Board effective August 1
  • M&A:
    • Anheuser-Busch InBev (BUD) agrees to sell Carlton & United Breweries to Asahi Group Holdings, Ltd. for AUD 16.0 billion; continues to evaluate a potential IPO of Budweiser APAC
    • Brookfield Asset Management (BAM) is aiming to sell Atlantis Paradise Island Resort, according to Bloomberg
    • MGM Grand (MGM) is considering sale or leaseback of Bellagio and other properties, according to Bloomberg
    • PepsiCo (PEP) to acquire Pioneer Foods Group for approximately $1.7 bln in cash
    • QEP Resources (QEP) lower on New York Post report that Elliott Management lowered its acquisition proposal
    • Red Robin Gourmet (RRGB) confirms receipt of unsolicited conditional proposal of $40/share from Vintage Capital
    • VMware (VMW) to acquire Bitfusion; terms not disclosed
  • Syndicate:
    • Amarin (AMRN) prices underwritten public offering of 22,222,223 American Depositary Shares at a price to the public of $18.00 per ADS
    • Atara Biotherapeutics (ATRA) prices underwritten public offering of 6,871,727 shares of its common stock at a price to the public of $15.28 per share
    • Golden Ocean (GOGL) files for $400 mln mixed securities shelf offering
    • Icahn Enterprises (IEP) files for $1 bln mixed securities shelf offering
  • IPOs:
    • Priced to trade:
      • Afya (Nasdaq: AFYA): Major education company based in Brazil. Prices 13.74 mln share IPO at $19.00, above the expected $16.00-18.00 range
      • Intercorp Financial (NYSE: IFS) prices 9 mln share IPO at $46.00, just below the midpoint of the expected $44.00-50.00 range
      • Medallia (NYSE: MDLA): Developer of enterprise software that captures experience data from signal fields emitted by customers and employees. Prices upsized 15.5 mln share IPO (from 14.5 mln shares) at $21.00, above the expected $16.00-18.00 range

Gapping Up/Down

  • Gapping up: CRWD +16.8%, RRGB +12.8%, SKX +12.5%, EXPO +10%, GCI +9.5%, CFG +4%, BUD +3.8%, MSFT +3.5%, ALV +2.8%, GOGL +1.8%, CHWY +1.8%, BA +1.7%, SPR +1.6%, RF+1.4%, PBCT +1.2%, CLF +1.1%, AIG +0.6%, BEDU +0.5%, WAL +0.5%
  • Gapping down: RICK -11.1%, QEP -6.5%, OZK -2.9%, ETFC -2.8%, AMRN -2.3%, ATRA -1.8%, AA -0.7%

Analyst Research:

  • Upgrades:
    • AXIS Capital (AXS) upgraded to Buy from Neutral at Buckingham Research; tgt raised to $70
    • HealthEquity (HQY) upgraded to Buy from Neutral at BofA/Merrill Lynch
    • KBR (KBR) upgraded to Outperform from Market Perform at Cowen; tgt raised to $31
    • Philip Morris International (PM) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $100
    • Post (POST) upgraded to Overweight from Neutral at Piper Jaffray; tgt raised to $130
    • Public Storage (PSA) upgraded to Buy from Neutral at BofA/Merrill Lynch
  • Downgrades:
    • Arch Capital (ACGL) downgraded to Neutral from Buy at Buckingham Research; tgt $38
    • CubeSmart (CUBE) downgraded to Neutral from Buy at BofA/Merrill Lynch
    • CVB Financial (CVBF) downgraded to Neutral from Buy at Janney
    • Eagle Bancorp (EGBN) downgraded to Neutral from Overweight at Piper Jaffray; tgt lowered to $47
    • Ingevity (NGVT) downgraded to Hold from Buy at Jefferies; tgt lowered to $107
    • Invitation Homes (INVH) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt $28.50
    • Michaels Stores (MIK) downgraded to Underperform from Neutral at BofA/Merrill Lynch; tgt lowered to $5
    • MSG Networks (MSGN) downgraded to Underweight from Neutral at JP Morgan; tgt lowered to $19
    • Paycom Software (PAYC) downgraded to Hold from Buy at Jefferies; tgt $233
    • Travelers (TRV) downgraded to Neutral from Buy at Buckingham Research; tgt $158
  • Others:
    • Altimmune (ALT) initiated with a Buy at ROTH Capital; tgt $8.30
    • AMC Entertainment (AMC) initiated with an Outperform at Credit Suisse; tgt $18
    • Cinemark (CNK) initiated with an Outperform at Credit Suisse; tgt $43
    • Dow (DOW) initiated with a Market Perform at Cowen; tgt lowered to $55
    • GrubHub (GRUB) initiated with a Buy at The Benchmark Company; tgt $95
    • Redfin (RDFN) initiated with a Sector Weight at KeyBanc Capital Markets
    • Smith Micro Software (SMSI) initiated with a Buy at B. Riley FBR; tgt $5
    • Sunoco LP (SUN) initiated with a Hold at Stifel; tgt $35
    • Zillow (ZG/Z) resumed with an Overweight at KeyBanc Capital Markets; tgt $66

Upcoming Events:

  • Econ Data:
    • 10:00 ET: Univ. of Michigan Consumer Sentiment for July – Prelim (Briefing.com consensus 98.9; Prior 98.2)
  • Earnings:
    • Monday (July 15)
      • Pre-Market: C, OGI
      • After-Hours: JBHT, WTFC
    • Tuesday (July 16)
      • Pre-Market: CP, CBSH, DPZ, FHN, FRC, GS, JNJ, JPM, PLD, SNV, WFC
      • After-Hours:  CTAS, CSX, FNF, FULT, HWC, HOPE, PNFP, SGEN, UAL
    • Wednesday (July 17)
      • Pre-Market:  ABT, ASML, BAC, BK, CMA, ERIC, OMC, PNC, PGR, TXT, USB, WIT
      • After-Hours: ADTN, AA, BXS, CATY, CNS, CCK, CCI, EGBN, EBAY, IBM, KMI, LLNW, NFLX, PLXS, SLG, TCBI, TBK ,UMPQ, URI
    • Thursday (July 18)
      • Pre-Market: ADS, ALLY, BMI, BBT, BX, GTLS, DHR, DOV, EWBC, GATX, GPC, HOMB, HON, IIIN, MTB, MS, NUE, PM, POOL, PPG, SASR, SAP, SNA, SON, STI, UNP, UNH, WBS, WNS
      • After the close: OZK, BEDU, COF, CHWY, CRWD, ETFC, EXPO, FFBC, ISRG, MRTN, MSFT, PBCT, RECN, SKX, WAL
    • Friday (July 19)
      • Pre-Market:  AXP, ALV, BLK, CFG, CLF, GNTX, IBKC, KSU, MAN, NVR, RF, SLB, SXT, STT, SYF
      • After-hours:  None of note

Asia & Europe detail:

Asia: Nikkei +2.0%, Hang Seng +1.1%, Shanghai +0.8%

Equity indices in the Asia-Pacific region ended the week on a mostly higher note. Yonhap reported that South Korea may review its plan to renew a military information sharing pact with Japan. South Korea’s Trade Minister, Lee Ho Hyun, said it is uncertain when the dispute with Japan will be resolved, noting that Japanese officials have yet to respond to a request for a meeting.

  • In economic data:
    • Japan’s June National CPI 0.0% m/m (last 0.0%); +0.6% yr/yr, as expected (last 0.8%). National Core CPI +0.6% yr/yr, as expected (last 0.8%). May All Industries Activity Index +0.3% m/m, as expected (last 0.8%)
    • South Korea’s June PPI -0.3% m/m (expected -0.1%; last 0.0%); +0.1% yr/yr (expected 0.5%; last 0.4%)

—Equity Markets—

  • Japan’s Nikkei: +2.0% (-1.0% for the week)
  • Hong Kong’s Hang Seng: +1.1% (+1.0% for the week)
  • China’s Shanghai Composite: +0.8% (-0.2% for the week)
  • India’s Sensex: -1.4% (-3.0% for the week)
  • South Korea’s Kospi: +1.4% (+0.4% for the week)
  • Australia’s ASX All Ordinaries: +0.8% (UNCH for the week)

—FX—

  • USD/JPY: +0.3% to 107.61
  • USD/CNH: +0.1% to 6.8766
  • USD/INR: UNCH at 68.84

Europe: DAX -0.1%, FTSE  -0.1%, CAC -0.2%

Major European indices trade near their flat lines while Italy’s MIB (-1.6%) underperforms. There has been growing speculation that Italy’s ruling coalition is operating on borrowed time. Deputy Prime Minister Matteo Salvini’s advisers reportedly believe that it is hard to continue governing with M5S in the coalition, but Mr. Salvini himself has not vocalized that view. Italy’s President, Sergio Mattarella, has asked Mr. Salvini to determine in the next 48 hours if snap elections are warranted. Elsewhere, German Chancellor, Angela Merkel, indicated that the plan for the Irish backstop may be up for renegotiation.

  • In economic data:
    • Eurozone’s May Current Account surplus EUR29.70 bln (expected surplus of EUR21.20 bln; last surplus of EUR22.40 bln)
    • Germany’s June PPI -0.4% m/m (expected -0.1%; last -0.1%); +1.2% yr/yr (expected 1.4%; last 1.9%)
    • U.K.’s June Public Sector Net Borrowing GBP6.50 bln (expected GBP3.20 bln; last GBP3.82 bln)

—Equity Markets—

  • STOXX Europe 600: -0.1% (-0.1% week-to-date)
  • Germany’s DAX: -0.1% (-0.9% week-to-date)
  • U.K.’s FTSE 100: -0.1% (-0.3% week-to-date)
  • France’s CAC 40: -0.2% (-0.6% week-to-date)
  • Italy’s FTSE MIB: -1.6% (-2.0% week-to-date)
  • Spain’s IBEX 35: -0.6% (-1.3% week-to-date)

—FX—

  • EUR/USD: -0.4% to 1.1233
  • GBP/USD: -0.1% to 1.2529
  • USD/CHF: +0.2% to 0.9826