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Morning Briefing: June 29, 2023

Market Overview

US equity futures are showing a positive outlook as traders are responding to encouraging signals from Micron Technology (MU) after its earnings report. The semiconductor manufacturer is optimistic that a bottom in industry demand has already been established. This outlook has resonated across the sector, prompting a rise in other semiconductor stocks.
The broader market is also seeing support from modest gains in the mega-cap cohort, buoyed by the news that all 23 banks passed the Federal Reserve’s annual stress test, underlining a strong performance in the banking sector. These indicators, coupled with a series of IPOs scheduled for today, are contributing to a change of pace in the IPO market.

Economic Data

Key economic data to watch out for today includes:
– Initial Claims and Continuing Claims at 8:30 a.m. ET, with consensus figures of 266K (Prior 264K) and 1759K, respectively.
– Q1 GDP – Third Estimate and Q1 GDP Deflator – Third Estimate at 8:30 a.m. ET. Both are expected to be at 1.3% and 4.2%, as per consensus figures.
– May Pending Home Sales at 10:00 a.m. ET, with consensus figures indicating a -0.8% change (Prior 0.0%).
– EIA Natural Gas Inventories at 10:30 a.m. ET (Prior +95 bcf).

The 2-yr Treasury note yield is up by three basis points to 4.75%, and the 10-yr note yield is up by four basis points to 3.75%. The U.S. Dollar Index is slightly down, by 0.1% to 102.83.

Corporate News

In corporate news, a few significant events:
– Walt Disney (DIS): The company’s stocks are slightly down (-0.6%), following a downgrade to Sector Weight from Overweight by KeyBanc Capital Markets.
– Micron (MU): The chip manufacturer beat revenue expectations, and despite guiding Q4 EPS below consensus, it’s confident about a rebound in industry demand. Its stocks are up by 3.2%.
– Pfizer (PFE): The company was downgraded to Neutral from Outperform by Credit Suisse, leading to a slight decrease in its stocks (-0.5%).
– Occidental Petroleum (OXY): The company’s shares are up 1.4% after Berkshire Hathaway increased its stake by purchasing 2,138,250 shares.
– Ashland (ASH): Despite authorizing $1.0 billion for share repurchases, the company is experiencing a dip (-5.8%) after guiding Q3 and FY23 revenues below consensus.
– BlackBerry Ltd. (BB): The company’s stocks are up by 13.8% after beating both EPS and revenue expectations.
– SPDR S&P Bank ETF (KBE): The ETF is experiencing a boost (+1.9%) after all 23 banks in its basket passed the Fed’s stress test.
– FREYR Battery (FREY): Stocks are up by 10.5% after an upgrade to Overweight from Equal-Weight by Morgan Stanley.

Global Market Trends

US equity futures, along with European stocks, are gaining as traders focus on robust company earnings, dismissing concerns over potential central bank interest rate hikes. Renault SA and Hennes & Mauritz AB have made significant gains on the European market, following their respective earning reports.

Central Bank Perspectives

Federal Reserve Chair Jerome Powell, along with European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, have indicated that measures, including interest rate hikes, may be necessary to rein in inflation. However, equity markets have remained resilient, with investors focusing on strong economic underpinnings supporting company earnings.
According to Peter Garnry, head of equity and quantitative strategy at Saxo Bank AS, markets are largely disregarding central bank sentiments. He highlights that unless the earnings outlook deteriorates significantly, especially in technology and AI-linked companies, markets are unlikely to be significantly affected.

Economic Forecasts

Despite concerns over a potential US recession, many experts believe that the downturn may be less severe than initially feared. Consumer confidence and home sales data have bolstered this optimism. Daniel Lam, head of equity strategy for Standard Chartered Wealth Management, suggests that positive economic surprises have underpinned recent gains. However, he cautions that if the market hurdles get too high, investors may begin to rotate into other regions, such as Japan and Asia.
As we progress through the day, all eyes will be on how these economic trends develop and impact the market trajectory.




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