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Morning Briefing: July 7, 2023

Financial Markets Overview

Today, the financial landscape paints a mixed picture as stock futures remain largely unchanged. This static atmosphere appears to be an outcome of a prevalent wait-and-see vibe ahead of June’s Employment Report. The air of anticipation is thick, fueled by concerns around escalating interest rates and expectations of market consolidation following its strong performance in H1 2023.

As investors hold their breath, treasury yields exhibit a modest response, largely maintaining their levels following yesterday’s sharp surge. The 2-yr note yield sits unmoved at 5.01%, while the 10-yr note yield has increased slightly, up two basis points to 4.06%.

In contrast, commodity futures are making strides in a positive direction. WTI crude oil futures have witnessed a 0.3% uptick to $71.98/bbl, and copper futures are also experiencing a lift, up 0.6% to $3.76/lb. The surge suggests the global recovery narrative is still in play and resource demand remains robust.

Economic Indicators: Spotlight on Employment Report

The eyes of the financial world are set on the impending release of the Employment Situation Report for June at 8:30 a.m. ET. This report holds significant sway over investor sentiment, with several important metrics expected to be under the microscope:

  1. Nonfarm Payrolls: Expected to sit at 220,000, down from the previous figure of 339,000.
  2. Nonfarm Private Payrolls: The consensus stands at 210,000, lower than the previous 283,000.
  3. Average Hourly Earnings: Expected to match the previous figure of 0.3%.
  4. Unemployment Rate: Anticipated to decrease slightly to 3.6% from 3.7%.
  5. Average Workweek: Predicted to hold steady at 34.3.

Corporate Highlights

On the corporate front, several companies are making headlines:

  • Levi Strauss (LEVI) stands out with a $0.01 beat on earnings expectations and reported revenues matching projections. However, the denim giant has guided FY23 EPS and revenues below consensus, contributing to a 7.9% drop in its stock.
  • Exxon Mobil (XOM) and JPMorgan Chase (JPM) both experienced downgrades from Wolfe Research to Peer Perform from Outperform, reflecting potential headwinds for these titans.
  • Tesla (TSLA), the EV leader, announced workforce reductions at its China battery plant and is offering rebates on top models in China, indicating a strategic shift in its operations in the country.
  • Biotech firm Biogen (BIIB) confirmed the FDA’s traditional approval for LEQEMBI, likely leading to optimism among its shareholders.
  • KLA Corporation (KLAC) suffered a downgrade to Sector Weight from Overweight at KeyBanc Capital Markets, potentially pointing to a challenging outlook.
  • Alibaba (BABA) witnessed a 2.8% rise on the back of news that China is resolving Ant Group’s regulatory issues with a fine of at least $1.1 billion.
  • Retail giant Costco (COST) announced June’s adjusted comparable sales growth of 3.0%, offering insights into the retail sector’s health.

Global Perspective

Internationally, European shares are battling the specter of their worst week since mid-March. This follows Thursday’s losses in the S&P 500 and Nasdaq 100 benchmarks triggered by stronger-than-expected private hiring data in the US.

Furthermore, the ADP Research Institute’s revelation that US companies added the most jobs in more than a year in June has propelled traders to add wagers of more rate hikes. The upcoming US nonfarm payrolls and unemployment reports will play a crucial role in shaping further revisions in rate-hike expectations.

Central Bank Views and Policy

Central banks worldwide are grappling with the challenging task of balancing economic recovery and inflation control. Dallas Fed President Lorie Logan and European Central Bank President Christine Lagarde have both voiced concerns about high inflation, advocating for more tightening measures.

Contracts linked to the Federal Reserve’s future policy decisions price in a quarter-point interest-rate hike by July 26. This signals that investors are bracing for a tightening monetary policy globally as central banks battle rampant inflation.

Asia and US Relations: A Delicate Dance

On the geopolitical front, US Treasury Secretary Janet Yellen held informal talks with China’s former Vice Premier Liu He and the People’s Bank of China governor Yi Gang. These discussions are an integral part of efforts to stabilize the relationship between the two superpowers.

Meanwhile, the Hong Kong government’s announcement to relax its residential mortgage rules for the first time since 2009 suggests an attempt to stimulate a weakening property market.

Market Outlook

Today’s market outlook is one of cautious anticipation. Investors will be keenly eyeing the U.S. Employment Situation Report, as its implications could have a significant bearing on the Federal Reserve’s interest rate decisions.

Alongside this, the ongoing shifts in corporate news, economic indicators, and global economic developments continue to foster an environment of uncertainty. These factors reinforce the wait-and-see approach currently permeating the market, as investors keenly anticipate the next turn in this complex financial landscape.




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