US morning briefing for 3rd of July 2019

Briefing – Poised for higher start in shortened trading session

U.S. equity futures trade in the green with the S&P 500 futures up nine points versus fair value.

The overnight session saw losses in most Asian markets while European indices have had a better showing. South Korea’s Finance Ministry trimmed the country’s GDP forecast to 2.4%-2.5% from 2.6%-2.7% due to continued weakness in exports.

In Europe, David-Maria Sassoli was elected to lead the European Parliament. Mr. Sassoli is a member of Italy’s Democratic Party. The European Parliament still has to approve yesterday’s nominations to top EU jobs.

On the home front, today’s session will be shorter than usual, and it is expected to be fairly quiet. The New York Stock Exchange will close at 13:00 ET.

Treasuries have built on yesterday’s gains. The 10-yr yield is down two basis points at 1.96%. The U.S. Dollar Index is little changed at 96.69. Crude oil is up 0.9% at $56.76/bbl after yesterday’s drop.

Market participants will receive a full slate of data today. The weekly MBA Mortgage Index was released earlier, showing a 0.1% downtick driven by a 1.1% increase in the Purchase Index and a 1.2% decrease in the Refinance Index. The June ADP Employment Change report (Briefing.com consensus 145,000; prior 27,000) will be released at 8:15 ET, followed by May trade balance (Briefing.com consensus -$54.40 bln; prior -$50.80 bln) and weekly Initial Claims (Briefing.com consensus 222,000; prior 227,000) at 8:30 ET. May Factory Orders (Briefing.com consensus -0.5%; prior -0.8%) and the June ISM Non-Manufacturing Index (Briefing.com consensus 55.8; prior 56.9) will be released at 10:00 ET.

In U.S. corporate news:

  • Symantec (SYMC 26.25, +4.15, +18.8%): +18.8% after Bloomberg reported that the company is in advanced discussions to be acquired by Broadcom (AVGO 282.50, -12.83, -4.3%).
  • Tesla (TSLA 240.86, +16.31, +7.3%): +7.3% after reporting a larger than expected number of total deliveries in Q2.

Reviewing overnight developments:

  • Asian markets ended lower. Japan’s Nikkei -0.5%, Hong Kong’s Hang Seng -0.1%, and China’s Shanghai Composite -0.9%.
    • In economic data:
      • China’s June Caixin Services PMI 52.0 (expected 52.6; last 52.7)
      • Australia’s June Services PMI 52.6 (expected 53.3; last 51.5); May Trade Balance A$5.745B (expected A$5.25B; last A$4.871B); exports +4% (last +2%) and imports +1% (last +3%); May Building Approvals +0.7% (expected 0.0%; last -4.7%)
      • India’s June Nikkei Services PMI 49.6 (expected 50.4; last 50.2)
    • In news:
      • Bank of Japan policymaker Yukitoshi Funo said that the BoJ must keep rates low for a prolonged period since neither prices nor inflation expectations are rising much.
  • European markets trade in the green. Germany’s DAX +0.7%, U.K.’s FTSE +0.8%, and France’s CAC +0.7%.
    • In economic data:
      • Eurozone’s June Final Services PMI 53.6 (expected 53.4; last 53.4); Final Composite PMI 52.2 (expected 52.1; last 52.1)
      • Germany’s June Final Services PMI 55.8 (expected 55.6; last 55.6); Final Composite PMI 52.6 (expected 52.6; last 52.6)
      • Spain’s June Services PMI 53.6 (expected 52.7; last 52.8)
      • Italy’s June Services PMI 50.5 (expected 50.0; last 50.0)
      • France’s Final June Services PMI 52.9 (expected 53.1; last 53.1); Final Composite PMI 52.7 (expected 52.9; last 52.9)
      • UK’s June Services PMI 50.2 (expected 51.0; last 51.0)
    • In news:
      • June Services PMI data was mixed, although readings for the EU’s largest economies were all above 50.0, which is the dividing line between expansion and contraction.

U.S. equity futures:

  • S&P 500 Futures +6 @ 2986
  • DJIA Futures +46 @ 26843
  • Nasdaq Futures +18 @ 7856

Overseas: 

  • Europe: DAX +0.7%, FTSE +0.8%, CAC +0.7%
  • Asia: Nikkei -0.5%, Hang Seng -0.1%, Shanghai -0.9%

Commodities: 

  • Crude Oil +0.51 @ 56.76
  • Nat Gas +0.022 @ 2.262
  • Gold +15.90 @ 1423.90
  • Silver +0.04 @ 15.28
  • Copper unch @ 2.66

U.S. Summary:

  • Earnings/Guidance:
    • Int’l Speedway (ISCA) misses by $0.03, misses on revs; reaffirms FY19 EPS guidance, revs guidance
    • Jefferies (JEF) beats by $0.04, beats on revs
    • Tesla (TSLA) reports record Q2 deliveries, above estimates; orders exceeded deliveries
    • USANA (USNA) issues downside Q2 guidance and cuts FY19 outlook
  • General News:
    • President Trump nominates Christopher Waller and Judy Shelton to Fed Board of Governors, according to Bloomberg
    • Iran has warned it will increase enrichment of uranium on Sunday, according to Washington Post
    • The Commerce Department staff was told that Huawei should still be considered blacklisted, according to Reuters
    • China could soon purchase some soybeans, corn, and pork from U.S., according to Bloomberg
    • Japanese Prime Minister Shinzo Abe believes a 10% sales tax is high enough, according to Bloomberg
    • Amazon (AMZN) to create over 2,000 permanent jobs in the UK in 2019, taking total permanent workforce to more than 29,500; Amazon aims to build 43 story tower in Bellevue, WA, according to Seattle Times
    • Canopy Growth (CGC) Co-CEO and Board member Bruce Linton to step down
    • HP (HP), Microsoft (MSFT), and Dell (DELL) aim to move production out of China, according to Nikkei
    • Vale (VALE) is being investigated over dam collapse with a focus on knowledge of executives, according to The Wall Street Journal
  • M&A:
    • Broadcom (AVGO) in advanced discussions to acquire Symantec (SYMC), according to Bloomberg
    • CB Richard Ellis (CBRE) to acquire Telford Homes Plc for $336.9 mln
    • Deutsche Bank (DB) is in talks with Citigroup (C) and BNP Paribas (BNPQY) over sale of its equity unit, according to The Wall Street Journal
    • Enpro Industries (NPO) announces acquisition of The Aseptic Group; terms not disclosed
    • Omnova Solutions (OMN) to be acquired by Synthomer plc for $10.15/share in cash
    • TC Energy (TRP) to sell Columbia Midstream assets to UGI Corporation (UGI) for $1.275 bln
  • Syndicate:
    • Clear Channel Outdoor (CCO) files for $1 bln mixed securities shelf offering
    • Danaher (DHR) files mixed securities shelf offering
    • MeiraGTx (MGTX) files for 5,797,102 ordinary share offering by selling shareholders
    • Office Properties Income Trust (OPI) files mixed securities shelf offering
  • IPOs:
    • Expected this week:
      • None at this time

Gapping Up/Down

  • Gapping up: OMN +50%, SYMC +19.2%, TSLA +7.5%, BTX +6.9%, AU +3.2%, SALT +3%, GOLD +1.8%, GDX +1.5%, GFI +1.5%, BIDU +1.4%, LOGI +1.3%, GSK +1.1%, ABUS +0.9%, GLD+0.8%, BHP +0.7%, BBL +0.6%
  • Gapping down: USNA -17.4%, AVGO -4.1%, NUS -2%, FLDM -1.5%, MGTX -0.9%

Analyst Research:

  • Upgrades:
    • Aker Solutions (AKRTF) upgraded to Equal-Weight at Morgan Stanley
    • Assa Abloy (ASAZY) downgraded to Equal Weight at Barclays
    • GOL Linhas Areas Inteligentes S.A. (GOL) upgraded to Buy from Neutral at Goldman Sachs
    • Henkel AG (HENKY) upgraded to Buy from Neutral at Goldman Sachs
    • John Wood Group (WDGJF) upgraded to Overweight at Morgan Stanley
    • Sophos Group plc (SPHHF) upgraded to Overweight at JPMorgan
    • South32 (SOUHY) upgraded to Hold from Sell at Liberum
    • Standard Chartered (SCBFF) upgraded to Buy at Societe Generale
    • Travis Perkins plc (TPRKY) upgraded to Buy at Canaccord Genuity
  • Downgrades:
    • Ferguson (FERGY) downgraded to Hold at Canaccord Genuity
    • Iluka Resources Limited (ILKAY) downgraded to Neutral at JPMorgan
    • Intesa Sanpaolo (ISNPY) downgraded to Underperform at Jefferies
    • LATAM Airlines (LTM) downgraded to Sell at Goldman Sachs
    • Petrofac Limited (POFCF) downgraded to Equal-Weight at Morgan Stanley
    • Reckitt Benckiser (RBGLY) downgraded to Sell from Buy at Societe Generale
    • Royal Dutch Shell (RDS.A) downgraded to Neutral at Exane BNP Paribas
    • Thomas Cook (TCKGY) downgraded to Hold at Jefferies
    • Valeo SA (VLEEY) downgraded to Underperform at Mainfirst
    • Vallourec (VLOWY) downgraded to Underweight at Morgan Stanley
  • Others:
    • Merck (MRK) initiated with Buy and $97 tgt at Mizuho

Upcoming Events:

  • Econ Data:
    • 07:00 ET: MBA Mortgage Applications Index for week ending June 29 (prior +1.3%)
    • 08:15 ET: ADP Employment Change for June (Briefing.com consensus 145K; prior 27K)
    • 08:30 ET: Trade Balance for May (Briefing.com consensus -$54.4B; prior -$50.8B)
    • 08:30 ET: Initial Claims for week ending June 29 (Briefing.com consensus 222K; prior 227K)
    • 08:30 ET: Continuing Claims for week ending June 22 (prior 1688K)
    • 10:00 ET: ISM Non-Manufacturing Index for June (Briefing.com consensus 55.8; prior 56.9)
    • 10:00 ET: Factory Orders (Briefing.com consensus -0.5%; prior -0.8%)
    • 10:30 ET: EIA Crude Oil Inventories for week ending June 29 (prior -12.8M)
  • Earnings:
    • Monday (July 1)
      • Pre-Market: None of note
      • After-Hours: None of note
    • Tuesday (July 2)
      • Pre-Market: AYI GBX OMN SMPL
      • After-Hours:  None of note
    • Wednesday (July 3)
      • Pre-Market:  ISCA
      • After-Hours: None of note
    • Thursday (July 4)
      • Market closed for Independence Day
    • Friday (July 5)
      • Pre-Market:  None of note
      • After-hours:  None of note

Asia & Europe detail:

Asia: Nikkei -0.5%, Hang Seng -0.1%, Shanghai -0.9%

Equity indices in the Asia-Pacific region were mostly lower on Wednesday. The go-to-excuse was “trade concerns,” although growth concerns may have been the bigger culprit after China’s June Caixin Services PMI dipped to a four-month low of 52.0, which was weaker than expected. In turn, South Korea cut its 2019 GDP growth outlook to 2.4-2.5% from 2.6-2.7% while Bank of Japan official Funo pointed out that the BOJ must keep rates low for a prolonged period since neither prices nor inflation expectations are rising much.

  • In economic data:
    • China’s June Caixin Services PMI 52.0 (expected 52.6; last 52.7)
    • Australia’s June Services PMI 52.6 (expected 53.3; last 51.5); May Trade Balance A$5.745B (expected A$5.25B; last A$4.871B); exports +4% (last +2%) and imports +1% (last +3%); May Building Approvals +0.7% (expected 0.0%; last -4.7%)
    • India’s June Nikkei Services PMI 49.6 (expected 50.4; last 50.2)

—Equity Markets—

  • Japan’s Nikkei: -0.5%
  • Hong Kong’s Hang Seng: -0.1%
  • China’s Shanghai Composite: -0.9%
  • India’s Sensex: +0.1%
  • South Korea’s Kospi: -1.2%
  • Australia’s ASX All Ordinaries: +0.4%

—FX—

  • USD/JPY: -0.2% to 107.64
  • USD/CNH: +0.04% to 6.8903
  • USD/INR: +0.02% at 68.89

Europe: DAX +0.7%, FTSE +0.8%, CAC +0.7%

Major European indices are mostly higher, enthused reportedly by the news that EU leaders managed to agree on Tuesday to nominees for the EU’s top leadership posts. That included IMF Director Christine Lagarde being nominated to lead the ECB. Low rates (actually negative rates in some cases) for European sovereign bonds, which reflect investors’ expectation for a continuation of dovish monetary policy, have also been supportive for equity markets. June Services PMI data was mixed, although readings for the EU’s largest economies were all above 50.0, which is the dividing line between expansion and contraction.

  • In economic data:
    • Eurozone’s June Final Services PMI 53.6 (expected 53.4; last 53.4); Final Composite PMI 52.2 (expected 52.1; last 52.1)
    • Germany’s June Final Services PMI 55.8 (expected 55.6; last 55.6); Final Composite PMI 52.6 (expected 52.6; last 52.6)
    • Spain’s June Services PMI 53.6 (expected 52.7; last 52.8)
    • Italy’s June Services PMI 50.5 (expected 50.0; last 50.0)
    • France’s Final June Services PMI 52.9 (expected 53.1; last 53.1); Final Composite PMI 52.7 (expected 52.9; last 52.9)
    • UK’s June Services PMI 50.2 (expected 51.0; last 51.0)

—Equity Markets—

  • STOXX Europe 600: +0.8%
  • Germany’s DAX: +0.7%
  • U.K.’s FTSE 100: +0.8%
  • France’s CAC 40: +0.7%
  • Italy’s FTSE MIB: +1.7%
  • Spain’s IBEX 35: +0.9%

—FX—

  • EUR/USD: +0.1% to 1.1297
  • GBP/USD: -0.1% to 1.2576
  • USD/CHF: -0.2% to 0.9841
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