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Morning Briefing for July 24, 2023

Anticipating Market Movements

As we step into a new week, the stock market shows signs of a higher open, building anticipation for a deluge of news. Earnings results from Alphabet (GOOG) and Microsoft (MSFT) are expected on Tuesday, while Meta Platforms (META) will follow suit on Wednesday. A spate of key policy meetings will also take place this week, including discussions at the Federal Reserve, the European Central Bank (ECB), and the Bank of Japan.

Economic Calendar

The economic calendar for this week features several significant releases. The Advanced Q2 GDP report and the June Personal Income and Spending Report stand out, with the latter including the Fed’s preferred inflation gauge, the core-PCE Price Index. For today, we have limited U.S. economic data, mostly focusing on the preliminary July S&P Global US Manufacturing and Services PMI readings, which are due at 9:45 a.m. ET.

European Economic Developments

Europe’s economic pulse has been somewhat weaker than expected, with preliminary readings for July manufacturing and services sector activity indicating a continual decline. These developments warrant close monitoring as they can influence financial and investment decisions.

Treasury Yields

Treasury yields are currently on a downward trend. The 2-year note yield has dipped three basis points to 4.82%, and the 10-year note yield has declined five basis points to 3.80%.

Corporate News

Turning to corporate news, a few developments merit attention:

  1. AMC gained 1.62% after a Delaware judge blocked the conversion of its APE units into common stock. According to Bloomberg, AMC aims to renew its stock conversion plan.
  2. Tesla has been downgraded to Neutral from Buy at UBS, leading to a 1.7% decrease in its shares.
  3. Chevron sees its Q2 EPS above consensus, and announced senior management changes, including a waiver on the mandatory retirement age for the CEO.
  4. Netflix has been upgraded to Outperform from Neutral at Baird and raised its price target from $160 to $500.
  5. Domino’s Pizza reported earnings that beat estimates by $0.02, but missed on revenues.
  6. Johnson & Johnson announced its intention to split off at least 80.1% of the shares of Kenvue through an exchange offer.
  7. Alnylam Pharma announced a partnership with Roche to co-develop and co-commercialize Zilebesiran.
  8. Kodiak Sciences provided an update on its Tarcocimab Tedromer development program following the top-line results from its Phase 3 studies.

Overnight Developments

In the economic data segment, Japan’s preliminary July Manufacturing PMI stood at 49.4, while its Services PMI was slightly better at 53.9. Australia’s Manufacturing PMI for July was 49.6, and Services PMI was recorded at 48.0. Singapore’s June Core CPI rose 0.5% month-over-month and 4.5% year-over-year.

News updates reveal worries about the property market, particularly concerning a debt refinancing effort by Country Garden, impacting the Hang Seng. However, the Nikkei responded positively to reports that the Bank of Japan may not make any changes to its yield curve control policy in its upcoming policy meeting on July 27-28.

In related news, foreign exchange moves are being closely monitored, with all options available to mitigate excessive yen volatility. The yen has rebounded against the dollar after Friday’s selloff. The USD/JPY rate is down by 0.4% to 141.15.

European Economic Data

From the European front, preliminary July PMI data from Germany, UK, France, and Spain showed slower growth than expected. This slowdown, coupled with political uncertainty in Spain, led to a modest decline in Spain’s IBEX 35.

Investors’ Dilemma

As we commence a week chock-full of central bank policy decisions and corporate earnings, investors find themselves in a quandary. While PMI data indicates weaker economic performance in Europe, traders are still positioning for the Federal Reserve and the ECB to raise interest rates this week. The question remains whether more hikes are likely after record tightening campaigns.

The equity markets are looking forward to their busiest earnings week this season, with more than 500 major companies worldwide due to report quarterly results, including US megacaps like Alphabet Inc. and Meta Platforms Inc. This week will be a litmus test for investors, eager to see if slowing economic momentum affects profit margins.

Bonds and Equities

Bonds climbed, with the yield on German 10-year notes, the euro-area benchmark, sliding as much as seven basis points. UK yields fell 8 basis points, while Treasury yields also edged lower.

Europe’s Stoxx 600 equity gauge traded modestly firmer, though Spanish equities underperformed following the inconclusive outcome in the election on Sunday. US stock-index futures posted modest gains.

Corporate Movements

Mattel Inc. saw a rise in its shares after Barbie became the top-grossing picture in US and Canadian cinemas, generating $155 million in ticket sales. Warner Bros. Discovery Inc., the parent of the Hollywood studio that produced the movie, also advanced.

US mega-cap tech shares including Nvidia Corp and Microsoft Corp also rose, despite concerns that high market concentration could hinder the Nasdaq’s performance.

In contrast, some European corporate results highlighted weakening consumer demand. Among these, Philips reported a drop in order intake, leading to a plunge in its share price, while Ryanair Holdings lowered its traffic prediction.

Looking Ahead

The Bank of Japan is expected to stick to ultra-loose policy settings at its meeting on Friday. Trading in China’s yuan was muted, even as the country’s leaders signaled they would ease property policies.

Key events this week include US Conf. Board consumer confidence on Tuesday, FOMC rate decision on Wednesday, and ECB rate decision on Thursday. Further, US GDP, durable goods orders, and initial jobless claims data will be out on Thursday, followed by Eurozone economic confidence, consumer confidence, and US consumer income data on Friday.




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