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Morning Briefing: August 18th, 2023

Market Overview:
Despite positive earnings and guidance from key players like Applied Materials (AMAT) and Deere (DE), as well as a dip in market rates, stock futures are signaling a lower open. The primary cause for this negative tilt is the ongoing concerns about China and the less-than-stellar price action observed throughout August.

China’s Financial Woes:
China’s Evergrande Group has filed for Chapter 15 bankruptcy in a New York court, aiming to restructure an overwhelming $19 billion in offshore debt. This move has sent ripples across the global market. Additionally, the People’s Bank of China has directed state banks to ramp up their interventions in the foreign exchange market, aiming to bolster the yuan.

Treasury Market Update:
Safe haven trading was evident in the Treasury market overnight. The 2-yr note yield has decreased by five basis points, settling at 4.91%, while the 10-yr note yield has dropped by nine basis points to 4.22%.

Corporate Highlights:

  • Applied Materials (AMAT): Reported earnings that surpassed expectations by $0.16 and also beat on revenue. Their guidance for October’s EPS is above consensus.
  • Deere (DE): Exceeded expectations by $1.98 with in-line revenue reports. They’ve also raised their net income guidance for FY23.
  • Bloomin’ Brands (BLMN): Starboard is reportedly targeting a 5% stake in Bloomin’ Brands, as per WSJ.
  • Ross Stores (ROST): Beat expectations by $0.16 and on revenue. Their guidance for Q3 EPS is in-line, with Q4 EPS projected above consensus.
  • XPeng (XPEV): Reported Q2 results with in-line revenue but anticipates Q3 revenue below expectations.
  • Keysight (KEYS): Beat expectations by $0.15 with in-line revenue, but their Q4 guidance is below consensus.
  • Farfetch (FTCH): Beat EPS expectations by $0.07 but missed on revenue, guiding FY23 revenue below consensus.
  • (BILL): Surpassed expectations by $0.18 and on revenue. Their guidance for September’s EPS is above consensus, but revenue is projected below.
  • Dolby Laboratories (DLB): They are set to join the S&P MidCap 400, effective before Tuesday, August 22.

Global Market Sentiments:
Global stocks are on a downward trajectory, with the MSCI World Index potentially ending the week 2.6% lower. This is attributed to concerns about China and rising global interest rates. US equity futures are also trending lower, continuing the risk asset selloff. Bitcoin has seen a decline of up to 8%, and oil is on track for its first weekly loss since June.

Bond Market Reactions:
Despite the current retreat in yields, investors remain wary of the risks of persistent inflation and the recent sharp rise in rates. The ongoing property crisis in China and issues in the shadow banking system have further fueled market anxiety. The yield on 10-year UK gilts has decreased by eight basis points to 4.67%.

Expert Takes:
Tim Graf from State Street Global Markets comments on the resilience of risky assets being potentially dented by the rise in yields. Meanwhile, Bank of America Corp.’s Michael Hartnett warns of a potential 4% drop in stocks due to China’s economic instability and the surge in bond yields.

Options Expiration:
Traders are closely watching the options expiration today. An estimated $2.2 trillion of longer-dated contracts linked to stocks and indexes are set to mature.

Upcoming Events:
Investors are keenly awaiting next week’s gathering of policymakers at Jackson Hole in Wyoming to discern the Federal Reserve’s sentiment, especially after the recent publication of minutes suggesting a tighter policy.

Cryptocurrency Update:
Bitcoin is currently trading around $26,000. Notably, Elon Musk’s SpaceX has sold a significant portion of its Bitcoin holdings after writing down $373 million, as reported by The Wall Street Journal.

In conclusion, while there are positive earnings reports from several corporations, concerns about China’s financial stability and global interest rates continue to dominate market sentiment. Investors worldwide will be closely monitoring developments, especially from the Federal Reserve’s upcoming meeting.




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