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North American Morning Briefing: Stock Futures Edge Up Ahead of Earnings, Services Data

08/03/2022 | 06:15am EDT


Watch For:

U.S. Factory Orders for June; U.S. ISM Report on Business Services PMI for July; EIA Weekly Petroleum Status Report; Federal Reserve Bank of Richmond President Thomas Barkin speaks at Shenandoah Valley Partnership event; CVS Health Corp. 2Q earnings.

Opening Call:

Stock futures gained slightly ahead of fresh economic data on the services sector but caution remains as investors digest the latest comments from the Federal Reserve.

Fed officials said the central bank was likely to continue raising interest rates at coming meetings, dampening hopes in markets that slowing economic growth could mean a change in policy.

Stocks have also come under renewed pressure from geopolitical tensions as U.S. House Speaker Nancy Pelosi met with Taiwan's president despite warnings from China.

"Markets are taking a bit of a breather to assess what's going on globally. There is still a lot of inflation, central banks are keeping that hawkish rhetoric and we get some geopolitics on top of that," said Olivier Marciot, global macro portfolio manager at Unigestion.

There are "raised concerns that the economy could well be slowing sharply. Investors will be looking to see if the ISM services report shows similar weakness," Michael Hewson, markets analyst at CMC Markets, said.

Purchasing managers' surveys on the services sector in July are set to go out at 10 a.m. ET.

In premarket trading, PayPal jumped more than 10% after hedge fund Elliott Management confirmed it has a $2 billion stake in the payments company. Airbnb declined 8% after it said it swung back to profit but its outlook disappointed investors.

Online dating group Match tumbled 21% after posting results that missed estimates and said the CEO of Tinder is leaving the firm.

Starbucks rose 1.5% after it said demand is still strong and raising prices partially offset higher labor costs. Chip maker Advanced Micro Devices fell 6% after it reported a drop in profit and issued guidance for the current period that came below Wall Street's expectations.

Drugstore chain CVS Health and vaccine-maker Moderna are scheduled to report earnings on Wednesday.

Overseas, the pan-continental Stoxx Europe 600 ticked up, while major benchmarks in Asia were mixed.


The dollar rose after Fed officials damped speculation that the central bank could shift away from raising interest rates amid U.S. recession fears.

Fed officials Mary Daly, Loretta Mester and Charles Evans on Tuesday signaled that the Fed was committed to lifting rates further to tame inflation.

"Expect similar rhetoric to emerge from Fed speakers today from the likes of James Bullard (1330CET), Patrick Harker (1630), Mary Daly (1715) and Tom Barkin (1745)," ING said.

However, the bigger focus may be the OPEC+ supply meeting, the Dutch bank said. Any surprise increase in crude supplies would hit oil prices, weakening the dollar on reduced safe-haven flows, it said.


Longer-dated Treasury yields are likely to oscillate in a rather wide range but without reaching mid-June highs in the remainder of the year, Julius Baer said.

The yield curve moved lower in recent weeks as recession fears started to dominate the inflation debate, while markets interpreted the Fed's removal of forward guidance and a more data-dependent reaction function as a sign of slowing need for action, according to bank.

That said, some Fed officials have reiterated their determination to fight high inflation, Julius Baer said.


Government bond yields are unlikely to rise much from current levels in the second half of the year as investors' concerns over an economic slowdown take over inflation fears, Threadneedle Investments said.

"As we go into the second half and people start to look more at the potential slowdown in economies, that's when we reckon that actually bond yields are not going to rise further from where we are right now," the asset manager said.

10-year Treasury yields are likely to be at or below 3% 2H 2022 and the big yield increases seen in 1H won't be repeated in 2H, Threadneedle Investments said.


Government bonds seem to have already priced in much of the looming deterioration in economic growth, leaving a little room for bond yields to rise slightly in the coming weeks, Generali Investments said.

"With the peak in inflation still to come and further key rate hikes still in the offing, we expect yields to trend moderately upward again in the weeks to come," it said.

As both the ECB and the Fed have effectively abolished their forward guidance and turned to a data-dependent, meeting-by-meeting approach, "yield uncertainty is set to rather increase and will keep bond market volatility on a high level," Generali Investments said.


Oil prices edged lower ahead of the OPEC+ meeting. The cartel Saudi-led is set to decide on future production plans as its course of supply hikes comes to an end.

President Biden, following his visit to Saudi Arabia last month, has hinted that the group could continue to raise its supply quotas.

OPEC delegates told the Wall Street Journal that the cartel is undecided between a modest increase or keeping quotas unchanged. The virtual meeting is set to begin at 1130 GMT.

The former could be challenging seeing as the group has fallen short of its earlier targets. It also raises questions about whether extra supply quotas would translate into actual barrels of oil reaching the market.


Recession fears make OPEC members less likely to agree to raise production levels when they meet later Wednesday, DNB Markets said.

The cartel is caught between U.S demands to raise output further and its ally Russia, which is likely to oppose additional supply. Since President Biden's visit to Saudi Arabia last month, concerns about the global economy have grown, which could dampen the cartel's appetite to pump more.

"The weakening macro backdrop and rising risk of recession are weighing on OPEC+ confidence to add more production," DNB said.

"With spare production capacity largely exhausted outside Saudi and U.A.E., it might prove difficult to line up full support for a production increase."


Metals markets were mixed, with trading houses noting limited buying in Asian markets amid Nancy Pelosi's visit to Taiwan.

Mrs. Pelosi's statement of not abandoning Taiwan injects uncertainty to markets, helping to lower trading activity, according to Marex.

However, analysts are starting to discount the likelihood of China coming back with a military response despite drills being conducted in the South China Sea, it said.


BMW Backs Auto Margin Target for 2022

BMW AG confirmed the margin target for its auto business this year, expecting lower deliveries to be offset partly by pricing, but posted lower second-quarter earnings.

The German luxury car maker said Wednesday that quarterly after-tax profit fell to 3.05 billion euros ($3.10 billion) from EUR4.79 billion in the same period a year earlier.

SocGen Swung to Second-Quarter Loss on Russia Exit

Société Générale SA said Wednesday that it swung to a second-quarter net loss as it booked losses from its disposal of Russian assets.

The French lender reported a net loss of 1.48 billion euros ($1.50 billion) compared with EUR1.44 billion net profit a year earlier.

Commerzbank Beats Views on Solid Customer Business, Rising Interest Rates

Commerzbank AG said Wednesday that it beat expectations for second-quarter profit and revenue on customer demand and rising interest rates, as it drives forward with a cost-cutting program.

Net profit in the three months to the end of June was 470 million euros ($477.9 million), swinging from a loss of EUR527 million for the same period last year, Germany's second-largest lender said.

Nintendo First-Quarter Net Profit Rises 28% on Forex Gains

Nintendo Co. said Wednesday that its first-quarter net profit rose 28% from a year earlier thanks to foreign-exchange gains, despite falls in sales of Switch consoles and software.

The Japanese videogame company said net profit for the quarter ended June 30 rose to 118.98 billion yen ($893.4 million) from Y92.75 billion a year earlier. That beat the estimate of Y94.26 billion from a poll of analysts by Quick.

Match Splits With Tinder CEO as Earnings Fall Short

Match Group Inc.'s new chief executive has shaken up the leadership of the company's Tinder dating platform citing product missteps as he seeks to boost growth for the online dating company.

"Tinder's current revenue growth expectations for the second half of the year are below our original expectations as a result of disappointing execution on several optimizations and new product initiatives," Bernard Kim said as the company posted quarterly results that missed Wall Street expectations.

Pelosi Vows 'Ironclad' Defense of Taiwan's Democracy, as China Plans Live-Fire Drills

House Speaker Nancy Pelosi vowed to preserve democracy in Taiwan in the face of growing threats from mainland China in a closely watched meeting on Wednesday with Taiwan's president.

Mrs. Pelosi (D., Calif.), the highest-ranking U.S. official to visit Taiwan in a quarter-century, told Taiwan President Tsai Ing-wen that the U.S. wouldn't abandon its commitment to Taiwan, framing her visit as part of a broader struggle over democracy's future.

China Suspends Natural Sand Exports to Taiwan

China suspended the exports of natural sand to Taiwan on Wednesday, said the nation's commerce ministry, the latest move to retaliate House Speaker Nancy Pelosi's visit to the self-ruled island.

The Ministry of Commerce said in a brief statement on its website that the export suspension was made based on related laws and regulations and took effect on Wednesday. It didn't say how long the suspension would last.

Ukraine Braces for Brutal Fight for Occupied Southern Regions as Referendum Looms

(MORE TO FOLLOW) Dow Jones Newswires

08-03-22 0614ET

Stocks mentioned in the article
ChangeLast1st jan.
ADVANCED MICRO DEVICES, INC. 1.77% 68.36 Delayed Quote.-53.32%
AIRBNB, INC. 4.06% 110.69 Delayed Quote.-36.11%
ASSICURAZIONI GENERALI S.P.A. -1.02% 14.07 Delayed Quote.-23.70%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.11% 0.66974 Delayed Quote.5.33%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 1.23% 0.65135 Delayed Quote.-10.87%
BMW AG -0.25% 71.58 Delayed Quote.-18.91%
BRITISH POUND / EURO (GBP/EUR) -0.08% 1.11654 Delayed Quote.-5.98%
BRITISH POUND / US DOLLAR (GBP/USD) 1.23% 1.0855 Delayed Quote.-20.44%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.52% 0.755355 Delayed Quote.8.86%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.74% 0.7339 Delayed Quote.0.00%
COMMERZBANK AG -3.71% 7.276 Delayed Quote.12.96%
CVS HEALTH CORPORATION 0.98% 98.16 Delayed Quote.-5.25%
EURO / US DOLLAR (EUR/USD) 1.34% 0.97228 Delayed Quote.-15.60%
INDIAN RUPEE / EURO (INR/EUR) -1.02% 0.012629 Delayed Quote.8.09%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.36% 0.012283 Delayed Quote.-8.75%
JULIUS BÄR GRUPPE AG -1.98% 44.12 Delayed Quote.-26.43%
LONDON BRENT OIL 3.46% 89.15 Delayed Quote.7.68%
MATCH GROUP, INC. 3.17% 48.56 Delayed Quote.-64.41%
MODERNA, INC. -0.07% 122.15 Delayed Quote.-51.87%
MSCI TAIWAN (STRD) -2.69% 464.006 Real-time Quote.-36.03%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 1.55% 0.57192 Delayed Quote.-17.14%
NINTENDO CO., LTD. 883.85% 59700 Delayed Quote.13.10%
PAYPAL HOLDINGS, INC. 6.26% 91.12 Delayed Quote.-54.53%
SOCIÉTÉ GÉNÉRALE -4.35% 20.995 Real-time Quote.-27.33%
STARBUCKS CORPORATION 3.36% 87.11 Delayed Quote.-27.49%
STOXX EUROPE 600(EUR)(TR) 0.31% 897.15 Delayed Quote.-18.59%
US DOLLAR / EURO (USD/EUR) -1.31% 1.02851 Delayed Quote.18.19%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) -0.38% 57.9294 Delayed Quote.-21.89%
WTI 4.04% 81.752 Delayed Quote.4.16%
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