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Morning Briefing: August 7th, 2023

Equity Market Movements

The equity market is cautiously trying to make up for the broad-based selloff witnessed last Friday afternoon, a surprising downturn given its lack of a news-driven trigger. However, recovery efforts have been hesitant, primarily due to ongoing concerns about interest rates.

Federal Reserve Updates

Remarks from Federal Reserve authorities continue to dominate the interest rate narrative. Fed Governor Bowman, a voter at the Federal Open Market Committee (FOMC), emphasized the likelihood of further rate hikes in the pipeline. Contrasting this, New York Fed President Williams, another FOMC voter, hinted that we might be nearing the interest rate zenith, yet it remains uncertain how long these high rates will need to be maintained.

Upcoming Economic Indicator

All eyes are on the July Consumer Price Index set for release before market open on Thursday, as it promises to be a significant trading influencer this week.

Treasury Notes and U.S. Dollar

In the fixed income space, we’ve seen a rise in yields: the 2-yr note yield surged by four basis points, now at 4.82%, while the 10-yr note yield also increased by four basis points to 4.10%. Meanwhile, the U.S. Dollar Index edged higher by 0.2% to a figure of 102.26.

Corporate Highlights

  • ADTRAN (ADTN 8.00, -1.05, -11.6%): Warned that Q3 revenues would fall short of market expectations.
  • Berkshire Hathaway (BRK.B 355.67, +5.68, +1.6%): Released its Q2 results.
  • Campbell Soup (CPB 44.39, -0.76, -1.7%): Announced its intent to buy SOVO at $23/share, forecasting the acquisition to positively influence adjusted EPS by its second year.
  • Elanco Animal Health (ELAN 12.32, +0.67, +5.8%): Exceeded expectations on both EPS and revenue, providing an optimistic outlook for FY23.
  • SAGE Therapeutics (SAGE 18.36, -17.74, -49.1%): Failed to meet estimates on EPS and revenue. The company is undergoing internal review, with plans to decrease operating expenses in 2024.
  • Tabula Rasa HealthCare (TRHC 10.25, +2.42, +30.9%): To be purchased by Nautic Partners at $10.50/share, followed by a merger with ExactCare Pharmacy.
  • Tyson Foods (TSN 52.54, -3.92, -6.9%): Disappointed on both EPS and revenue fronts, while projecting FY23 revenues in line with estimates.
  • Yellow Corporation (YELL 1.91, -1.66, -46.5%): Lodged voluntary Chapter 11 petitions.

Global Bond Market

Monday saw an intensified selloff in government bonds, induced by fears of continued interest rate hikes. Germany’s 30-year bond yields ascended by nine basis points to reach 2.72%, a peak not seen since 2014’s early days. Similarly, Treasury yields of the same maturity surged by six basis points.

US Equity Future and International Markets

US equity futures indicate a potential recovery from Friday’s fallback. Investors are particularly attentive to data revealing US economic vigor and further comments from Federal Reserve authorities, especially in light of Governor Michelle Bowman’s weekend remarks. The upcoming consumer price index (CPI) release this Thursday, which is forecasted to register a 0.2% elevation in July, is anticipated to cause ripples in market stability.

Europe, however, paints a slightly different picture. The S&P 500 futures witnessed a minor rise, but European equities receded, following a dip in Germany’s industrial output index to a six-month trough, signaling economic frailty. Moreover, trading activities in Europe have been muted, with Euro Stoxx 50 trading volumes resting at roughly 40% below their 30-day average.

Expert Takes

Janet Mui, RBC Brewin Dolphin’s Head of Market Analysis, struck a cautious note. While acknowledging that inflation is moving in a desirable direction, she cautioned against undue optimism, suggesting potential market unpreparedness for any unexpected inflation metrics.

In agreement, Pooja Kumra, a Senior European Rates Strategist at Toronto Dominion Bank, said, “The door for further rate hikes from the Fed is still open,” emphasizing the persistent uncertainty surrounding US monetary policy.

In sum, as we kickstart this week, the overarching theme is one of caution and anticipation, with global markets, investors, and corporations closely monitoring and adjusting to evolving economic indicators and central bank signals.




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