MARKET WRAPS
Watch For:
Housing Starts for July; Industrial Production for July; FOMC meeting minutes published; Canada Housing Starts for July; EIA Weekly Petroleum Status Report; Earnings from Cisco, Target, TJX, Synposys
Today's Top Headlines/Must Reads:
- Is It Time to Worry About Consumer Debt? What Is Going on in Seven Charts
- Intel Scraps Tower Acquisition After China Fails to Approve Deal
- Russia's Central Bank Can't Stop Ruble Trouble
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Opening Call:
Stock futures inched higher on Wednesday as bond yields fell and traders eyed publication later in the day of the Federal Reserve's minutes from its July rate-setting meeting.
The next FOMC meeting is slated for Sept. 19-20, by which point there will be more fresh data on the labor market, inflation and other economic indicators. Yet if the signals don't dramatically shift in the coming weeks, economists and market participants are betting that Fed officials pause again.
The likelihood that the Fed keeps the benchmark rate steady in September is at 88.5% as of Tuesday, according to the CME FedWatch Tool.
Overseas, China's problems-a toxic combination of a property crisis, shadow-bank defaults, and flagging growth-further drove down the price of Chinese stocks, while Hong Kong's Hang Seng Index fell 1.4%, taking year-to-date losses above 7% and the Shanghai Composite Index dropped 0.8%. Most markets in Europe were cautiously higher.
Read China Average New Home Prices Fell in July
Pre-Market Movers
Cava Group swung to a profit and posted higher sales in the second quarter. The company said it expects to open 65 to 70 new stores this year. Shares rose 11%.
Coherent was falling 19% after the company's forecasts for its fiscal first quarter and year were weaker than expected.
DLocal tapped Pedro Arnt, the former CFO of MercadoLibre, as its new co-chief executive officer. The company also reported a 59% jump in second-quarter sales and profit that topped analysts' expectations, according to FactSet. Shares rose 30%.
Tower Semiconductor declined 9.3% after Intel terminated its proposed $5.4 billion acquisition of the Israeli chip maker after failing to receive regulatory approval from China. Intel rose 0.3%.
VinFast was falling 12%. The stock rose more than 250% on Tuesday after the company began trading following the closing of its merger with the SPAC Black Spade Acquisition.
Tuesday's Post-Close Movers
Mercury Systems swung to a loss and reported a drop in fiscal fourth-quarter sales. Its outlook for the current fiscal year also came in lower than analysts' expectations. Shares fell almost 11%.
Sacks Parente Golf gave back some of its gains notched during trading hours on its market debut. Shares saw a more than six-fold increase in price during market trading and ended the session at $28.97. In the after-hours session, shares fell 27%.
Forex:
J.P. Morgan has a bullish dollar bias, and thinks that expecting the currency to weaken may not be a good idea.
"The dollar is already priced to benign growth outcomes...which makes chasing USD weakness a poor risk-reward strategy, in our view," it said. A soft landing is already well-priced in FX markets.
"The confluence of various offsetting factors--U.S. growth resilience, softer inflation, large rate cuts from high-yielders--has created a convoluted backdrop for FX," JPM said.
It attributes its bullish dollar bias to U.S. exceptionalism, JPM said, adding that it is focused versus lower-yielding and, in some cases, growth-challenged currencies.
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Sterling rose after data showed U.K. annual CPI inflation slowed to 6.8% in July from 7.9% in June but was still high enough to suggest the BOE will raise interest rates further. Core inflation remained at a high 6.9%.
"Today's data has added to the expectations that the Bank of England is likely to raise interest rates further in response," XTB said.
Read U.K. Inflation Slows in July, but Still a Worry
Read UK-Eurozone Policy Rate Differential Could Weigh on Euro
Bonds:
Over the past few months, institutional asset managers have pared back their demand for duration, although they remain somewhat bullish, Deutsche Bank said.
"The positioning pullback came as a period of very strong and steady inflows into long-term government bond funds earlier this year started to reverse more recently," Deutsche Bank said.
Its 10-year fair value model shows that after adjusting for various factors that drive the level of yields, the positioning variable has contributed between -10 basis points and +20 basis points to yields over the past year.
"Currently, bullish asset manager positions are estimated to be depressing 10y yields by about 5bps."
Energy:
Crude oil prices were steady, with worries over Chinese demand outweighing supply tightness concerns.
"Concerns that China's faltering economy will weigh on demand offset tight supply in the oil market," ANZ said, adding markets were in a "risk-off" mood.
This is despite tight supply with oil inventories in Cushing falling to their lowest level since April, according to ANZ.
"Asian refineries are also snapping up all available U.S. cargoes of oil. Rongsheng Petrochemical secured millions of barrels from the spot market last week."
Metals:
Base metal and gold were little changed, as the prospect of further rate hikes from the Federal Reserve and weak demand in China bites.
Weak economic data from China has added pressure to metals, with retail and industrial production figures disappointing, ING noted.
And stronger-than-expected retail sales in the U.S. has raised doubts over whether the Fed is really done with its tightening cycle, ING said.
"Any further data suggesting the Fed still has more work to do will likely put pressure on gold prices."
TODAY'S TOP HEADLINES
Estée Lauder's Big Bet on China Is Looking Not So Pretty
Estée Lauder's longtime chief, Fabrizio Freda, is under pressure to show he can turn around the beauty giant's key China and U.S. businesses.
Shares of the company have slumped by about a third so far this year, hitting their lowest levels in more than three years. Estée Lauder has missed out on a stock market rally that has lifted the S&P 500 index by about 16% since the start of the year.
Yum Brands CFO Has a Plan for 100% Digital Transactions
Yum Brands, which owns fast-food staples Taco Bell, Pizza Hut and KFC, is stepping up its investments aimed at increasing digital sales to customers.
Louisville, Ky.-based Yum wants 100% of its global system sales at some point to be driven digitally, with electronic means initiating at least one part of a customer transaction, Chief Financial Officer Chris Turner said on the company's earnings call on Aug. 2.
Apollo-Led Lenders Sell Yellow Loan to Citadel
Apollo Global Management and other lenders exited a $500 million loan to trucking giant Yellow and sold it to investment firm Citadel as the bankrupt company negotiates with rival lenders for additional funding to wind down its business, according to people familiar with the matter.
Apollo led a group of Yellow lenders that proposed extending an additional $142 million in credit in the form of a debtor-in-possession facility after the company filed for chapter 11. Apollo's offer lost out to rival proposals, including from another trucking business that offered Yellow a bigger loan and more time-180 days-to wind down its business and sell assets.
Eurozone Industrial Output Books Surprise June Growth
The eurozone's industrial output increased unexpectedly in June, despite sluggish production in the bloc's largest economies.
Total production rose 0.5% in June compared with the previous month, data from European Union statistics body Eurostat showed Wednesday. This defied an expected monthly decline of 0.6%, per economists polled by The Wall Street Journal. Compared with the same month a year ago, production was down 1.2% in June, better than the expected 4.2% slump.
Vital Natural Gas Is Being Stashed in Caverns Beneath War-Torn Ukraine
A daredevil trade is in vogue among commodity merchants: Stashing natural gas in caverns beneath the surface of war-torn Ukraine.
The wager could reap hundreds of millions of dollars collectively for traders such as Trafigura Group, Vitol and Gunvor Group, people familiar with the matter said. Others looking to cash in include oil-and-gas giants such as Shell and utilities such as Switzerland's Axpo.
Race to Control Electric-Vehicle Supply Chains Leads to Africa
JOHANNESBURG-Pressure to create supply chains for electric-vehicle batteries that bypass China is prompting Western miners to do something they have long avoided: process their metals in Africa.
China dominates both the production and processing of critical minerals such as cobalt and lithium that are key to the energy transition. That has led to growing concerns among Western governments, including in Washington, about their dependence on Beijing.
What's Next for Trump After Being Charged With Racketeering in Georgia
Donald Trump was indicted in Georgia on charges of racketeering and a dozen other offenses. The indictment painted a picture of a sweeping criminal enterprise to undo Joe Biden's 2020 victory in the state.
Here's what to watch as the case goes on:
Georgia Court Clerk Says Mishap Led to Early Posting of Trump Charges
The Fulton County Clerk of Superior and Magistrate Courts said Tuesday that she accidentally posted a sample document that outlined criminal charges against former President Donald Trump on Monday, hours before the actual indictment was made public.
Fulton County Superior Court briefly released a document Monday listing several criminal charges against Trump that appeared related to election interference, before the document was taken down without explanation. The list of charges against Trump were the same ones he was charged with later in the day.
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08-16-23 0619ET
