DAILY MORNING BRIEFING
S&P futures vs fair value: +8.90. Nasdaq futures vs fair value: +77.50.
The S&P 500 futures trade nine points, or 0.3%, above fair value ahead of the big tech antitrust hearing and the July FOMC policy statement later today.
Specifically, the CEOs of Amazon (AMZN 3027.15, +26.82, +0.9%), Apple (AAPL 375.75, +2.74, +0.7%), Alphabet (GOOG 1503.64, +3.30, +0.2%), and Facebook (FB 231.80, +1.68, +0.7%) will testify remotely before the House Judiciary Committee regarding competition in the digital marketplace, starting at 12:00 p.m. ET.
As for the Fed, the voting committee will release its policy directive at 2:00 p.m. ET, but no change in rates is expected. Per usual this year, Fed Chair Powell will host a follow-up press conference at 2:30 p.m. ET, which investors will watch closely for any guidance.
In the meantime, investors have had a big round of earnings to digest since yesterday's close. Starbucks (SBUX 78.83, +4.19, +5.6%) and Advanced Micro Devices (AMD 75.13, +7.52, +11.1%) are some notable earnings standouts, while Visa (V 193.50, -3.24, -1.7%) lags.
On the data front, investors will receive the Adv. June reports for International Trade in Goods, Retail Inventories, and Wholesale Inventories at 8:30 a.m. ET, followed by Pending Home Sales for June (Briefing.com consensus +17.0%) at 10:00 a.m. ET. The weekly MBA Mortgage Applications Index declined 0.8% following a 4.1% increase in the prior week.
U.S. Treasuries trade little changed. The 2-yr yield is flat at 0.14%, and the 10-yr yield is up one basis point to 0.59%. The U.S. Dollar Index is down 0.1% to 93.64. WTI crude is up 1.0% to $41.43/bbl.
Boeing is reporting a $2.4 billion loss for the second quarter due to the grounding of its 737 Max jet and the coronavirus pandemic, which is expected to depress airline travel even longer than previously expected.
The company said Wednesday that revenue fell 25%, which is worse than analysts had expected.
The results would have been worse for Chicago company if not for its defense and space business, which depends on contracts with governments and has been largely insulated from the pandemic.
The COVID-19 pandemic has triggered a plunge in air travel has killed airlines' appetite for new planes. So far this year Boeing has recorded 59 orders but 382 cancellations – mostly for the Max. Another 323 orders, also mostly for Max planes, were removed from Boeing’s backlog because uncertainty about the deals going through.
Boeing's report came a day after an airline industry trade group said air travel won’t recover to pre-pandemic levels until at least 2024, a year longer than its previous forecast. The International Air Transport Association cited the inability of the United States and developing countries to contain the new coronavirus.
For Boeing, the pandemic has compounded problems that began with its 737 Max airliner, which remains grounded after two crashes killed 346 people.
In U.S. Corporate news:Visa (V 193.50, -3.24): -1.7% despite beating earnings estimates.
- Starbucks (SBUX 78.83, +4.19): +5.6% after beating top and bottom-line estimates and raising its FY20 EPS guidance above consensus.
- Advanced Micro Devices (AMD 75.13, +7.52): +11.1% after beating top and bottom-line estimates and guiding revenue for Q3 and FY20 above consensus.
- Boeing (BA 173.12, +2.28): +1.3% despite missing top and bottom-line estimates.
- General Electric (GE 6.97, +0.08): +1.2% despite missing EPS expectations.
Reviewing overnight developments:
- Equity indices in the Asia-Pacific region ended Wednesday on a mixed note. Japan's Nikkei: -1.2%, Hong Kong's Hang Seng: +0.5%, China's Shanghai Composite: +2.1%, India's Sensex: -1.1%, South Korea's Kospi: +0.3%, Australia's ASX All Ordinaries: -0.3%.
- In economic data:
- South Korea's July Consumer Confidence 84.2 (last 81.8)
- Hong Kong's Q2 GDP -0.1% qtr/qtr (last -5.3%); -9.0% yr/yr (last -8.9%)
- Australia's Q2 CPI -1.9% qtr/qtr (expected -2.0%; last 0.3%); -0.3% yr/yr (expected -0.4%; last 2.2%)
- Singapore's Q2 Unemployment Rate 2.9% (last 2.4%)
- In news:
- Australia will reportedly close borders to the Greater Sydney area.
- Fitch affirmed Japan's A rating but lowered the outlook to Negative from Stable due to rising public debt.
- Canon reported weaker than expected results while guidance from Nissan and Fanuc also disappointed.
- In economic data:
- Major European indices trade in mixed fashion. STOXX Europe 600: UNCH, Germany's DAX: -0.1%, U.K.'s FTSE 100: +0.2%, France's CAC 40: +0.8%, Italy's FTSE MIB: -0.7%, Spain's IBEX 35: -0.4%.
- In economic data:
- Germany's June Import Price Index 0.6% m/m (expected 0.5%; last 0.3%); -5.1% yr/yr, as expected (last -7.0%)
- U.K.'s June Mortgage Lending GBP1.89 bln (expected GBP1.80 bln; last GBP1.28 bln)
- France's July Consumer Confidence 94 (expected 99; last 96)
- Italy's June PPI 0.5% m/m (last -0.1%); -4.5% yr/yr (last -5.3%)
- Spain's June Retail Sales -4.7% yr/yr (expected -17.6%; last -18.9%)
- Swiss July ZEW Expectations 42.4 (last 48.7)
- In news:
- Bank of England Chief Economist, Andy Haldane, said that the Northeast of England has seen a rapid rebound since May.
- The EU delayed its planned reopening of borders to tourists from most countries for another two weeks.
- Shareholders of UBI Banca have approved the hostile takeover by Intesa Sanpaolo. World markets traded in narrow ranges on Wednesday as investors looked to the U.S. Federal Reserve for clues about the economic outlook at a time of pessimism over the fallout from the coronavirus pandemic.The Fed is largely expected to keep short-term rates at their record, near-zero low, but they’re also looking to hear what it says about how long they may stay there. The central bank helped launch the stock market’s recovery in late March by slashing interest rates and promising to buy Treasurys, corporate bonds and other debt, pumping cash into the economy.On Tuesday, the Fed said it will extend the lives of seven of the lending programs by three months through the end of the year in an acknowledgment of the severity of the recession.Dow futures were up 0.1% and those for the S&P 500 gained 0.2% soon before the start of trading on Wall Street.In Europe, Germany's DAX was flat at 12,835 while in France, the CAC 40 rose 0.9% to 4,971. Britain's FTSE 100 added 0.2% to 6,143.Overall, the pandemic is the primary concern for markets, as secondary outbreaks raise the likelihood of further lockdowns to curb a resurgence in countries that had thought to have the virus under control, said Jeffrey Halley of Oanda.“An escalation followed by the renewal of severe movement restrictions could see the much-feared secondary wave double-dip recession occur. That has not been priced into markets remotely ... But as yet, we are not at the double-dip stage,” Halley said in a commentary.Tokyo's Nikkei 225 index lost 1.2% to 22,397.11 after Fitch Ratings lowered its outlook for Japan to “negative” from “stable,” meaning it is at greater risk of seeing its rating downgraded.“The coronavirus pandemic has caused a sharp economic contraction in Japan, despite the country’s early success in containing the virus,” Fitch said in announcing its decision.
Big Tech comes under the national spotlight today as four of its leaders - Amazon's (NASDAQ:AMZN) Jeff Bezos, Google's (GOOG, GOOGL) Sundar Pichai, Apple's (NASDAQ:AAPL) Tim Cook and Facebook's (NASDAQ:FB) Mark Zuckerberg - appear before the House Antitrust Subcommittee investigating the market dominance of online platforms. The hearing will offer a window into the thinking of 15 members of Congress, who will then make potential recommendations like new competition laws or company breakups. As of Monday, the four tech giants and Microsoft (NASDAQ:MSFT) represented the five most valuable U.S. companies. While Silicon Valley has vast control over what the world sees, reads, buys and does online, it has also showered blessings on the consumer and has allowed people around the globe to stay connected even during an unprecedented pandemic.
C meeting
While stocks ended lower on Tuesday amid concerns over stimulus negotiations, U.S. futures inched into the green overnight as traders awaited the Fed's latest policy decision. The central bank is expected to keep interest rates at near zero to support the pandemic-hit economy, while Jerome Powell will deliver a press conference at 2:30 p.m. He's expected to sound reassuringly accommodative and perhaps open the door to a higher tolerance for inflation, though some think that could squash real yields and the dollar and are therefore not expecting any meaningful policy announcements. On Tuesday, the Fed announced it would extend all its emergency lending programs through the remainder of 2020.
Reserve currency status
Goldman Sachs put out a note yesterday that warned on the dollar's reserve currency status as Congress closes in on another round of fiscal stimulus. Contrarians are loving it, and the Goldman analysts say they don't believe it will necessarily happen, but it highlights a worry that money-printing will trigger inflation in years to come. Putting it in perspective: The dollar is down 10% since mid-March, but it's 30% higher than at its financial crisis lows, and 15% higher than it was in 2005 when Ben Bernanke and team were in the middle of a years-long rate hike cycle.
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