Morning Briefing - Sluggish start in-store as investors weigh latest relief bill negotiations


The S&P 500 futures trade 13 points, or 0.4%, below fair value as shares of the mega-cap companies take a breather this morning, while investors continue to monitor the latest updates on coronavirus relief bill negotiations. 

Microsoft (MSFT 213.50, -3.04, -1.4%), which rallied 5.6% yesterday on TikTok-acquisition hype, is pulling back modestly in pre-market action amid Chinese state media claiming that the Chinese government won't accept a sale of TikTok US to Microsoft. President Trump for his part said the U.S. should receive a cut from a potential sale. 

Aside from that complicated situation, President Trump said he is considering executive orders to stop tenant evictions and lower payroll taxes if Congress can't overcome their differences on a coronavirus relief bill, according to the Washington Post. Treasury Secretary Mnuchin said he is open to a larger stimulus package to appease Democrats. 

Today's economic calendar will be limited to the Factory Orders report for June (Briefing.com consensus 5.2%) at 10:00 a.m. ET.

U.S. Treasuries have edged higher on the longer-end of the curve. The 2-yr yield is flat at 0.11%, and the 10-yr yield is down two basis points to 0.54%. The U.S. Dollar Index is up 0.3% to 93.61. WTI crude futures are down 1.7%, or $0.69, to $40.32/bbl. 

In U.S. Corporate news:

  • Microsoft (MSFT 213.50, -3.04): -1.4% to cool off from yesterday's 5.6% rally amid messy TikTok rhetoric. Chinese state media said the Chinese government will not accept Microsoft acquiring TikTok US, while President Trump said the U.S. should get a cut from a sale. 

  • Take-Two Interactive (TTWO 175.71, +8.03): +4.8% after beating revenue estimates and issuing upside quarterly and full-year guidance. 
  • BP (BP 23.56, +1.47): +6.7% despite missing top and bottom-line estimates and cutting its dividend to $0.0525 per share from $0.105 per share. The company also announced a new strategy to transition to clean energy, according to CNBC.

  • Cirrus Logic (CRUS 72.16, -2.33): -3.1% despite beating top and bottom-line estimates. 

  • Virgin Galactic (SPCE 21.95, -2.07): -8.6% after missing earnings estimates and commences a public offering of 20,489,977 shares of common stock for expected gross proceeds of approx. $460 million. 
  • Deutsche Bank upgraded McKesson (MCK) to Buy from Hold following yesterday's earnings. Specifically, MCK delivered a solid F1Q beat, driven by strong results in the Medical segment, as demand for PPE and improving customer mix in response to the COVID crisis increased sharply.

  • BofA Securities upgraded LyondellBasell (LYB) to Neutral from Underperform on relative underperformance. The firm admits they refrain from getting more bullish as they see headwinds from global polyethylene capacity expansions as keeping a lid on profit growth overall.

  • UBS upgraded Seagate Tech (STX) to Neutral from Sell noting they still see risk of a deeper cloud cyclical slowdown and we believe legacy market recovery post-COVID could be slower than expected.

  • Deutsche Bank upgraded Reliance Steel (RS) to Buy from Hold; the firm moved their valuation year to 2021 but continue to use an equal blend of 7.0x EV/EBITDA and 1.0x NPV calculated under a DCF methodology. In 2Q20, they believe RS has further added credibility to its business model and showed the strength of its management team in handling a significant decrease in activity related to COVID-19.
  • Susquehanna upgraded Zillow (ZG/Z) to Neutral from Negative ahead of Thursday's earnings suggesting favorable checks in the real estate market despite COVID-19 restrictions.

  • Morgan Stanley downgraded Southern Copper (SCCO) to Underweight and Freeport-McMoRan (FCX) to Equal Weight. On SCCO, firm feels that, despite good cash flow generation, SCCO's premium valuation vs. peers and its own history seems unwarranted. On FCX, firm highlights that Freeport has shown solid execution in a very challenging environment and has continued to make good progress on the transition to underground mining at its Indonesian operations, which should support significant EBITDA and FCF generation in the next few years. However, they believe this is already priced into the stock at current levels.

  • BofA Securities downgraded Take-Two (TTWO) to Underperform from Neutral following earnings as they feel the upside case from strong F1Q may already be priced in.

  • Following quiet period expiration, largely bullish sell side shops initiated coverage on Nkarta (NKTX) including Stifel, Cowen, Evercore ISI, and Mizuho. Cowen said they see clear potential for lead asset NKX101 (NKG2D CAR-NK) to succeed in r/r AML/MDS with opportunity in solid tumors. Based on conversations with physician and payor consultants, and a physician survey, they estimate $1.7B in potential 2030 WW peak revenues for AML/MDS alone. NKX019 (CD19 CAR-NK) provides upside potential with clinical visibility in 2021.

  • Following quiet period expiration, largely bullish sell side shops stated coverage on Poseida Therapeutics (PSTX) including BofA Securities, Piper Sandler, and William Blair. Specifically, Piper initiated the stock with an Overweight and $30 PT given their view of the many opportunities for value creation in the coming years.

  • Rosenblatt upped their target on Roku (ROKU) to a Street-high $190 from $145; they feel that, given live sports comprises most of the total live linear viewership, ongoing COVID-19 stresses suggest an opportune time to move more TV buyers up the CTV curve.
  • ]

Reviewing overnight developments: 

  • Equity indices in the Asia-Pacific region ended Tuesday on a higher note. Japan's Nikkei: +1.7%, Hong Kong's Hang Seng: +2.0%, China's Shanghai Composite: +0.1%, India's Sensex: +2.0%, South Korea's Kospi: +1.3%, Australia's ASX All Ordinaries: +1.9%.
    • In economic data:
      • Japan's July Tokyo CPI 0.6% yr/yr (last 0.3%) and Tokyo Core CPI 0.4% yr/yr (expected 0.2%; last 0.2%)
      • South Korea's July CPI 0.0% m/m (expected 0.1%; last 0.2%); 0.3% yr/yr (expected 0.4%; last 0.0%)
      • Australia's June Retail Sales 2.7% m/m (expected 2.4%; last 16.9%). June trade surplus AUD8.20 bln (expected surplus of AUD8.80 bln; prior surplus of AUD8.025 bln). June Imports 1% m/m (last -6%) and Exports 3% m/m (last -4%)
    • In news:
      • A South Korean court ruled that steelmaker Posco can seize Nippon Steel's stake in a joint venture as compensation for forced wartime labor. Nippon Steel appealed the ruling immediately.
      • Japan's Finance Minister, Taro Aso, said that any asset seizures are illegal.
      • Bank of Japan Governor, Haruhiko Kuroda, said that the BoJ could continue supporting Japanese corporations after the current programs expire in March.
      • The Reserve Bank of Australia left its cash rate and its 3-yr yield target at 0.25%. The central bank plans to resume its bond purchases tomorrow.
  • Major European indices trade on a mixed higher note. STOXX Europe 600: -0.3%, Germany's DAX: -0.5%, U.K.'s FTSE 100: +0.2%, France's CAC 40: UNCH, Italy's FTSE MIB: +0.7%, Spain's IBEX 35: +0.3%.
    • In economic data:
      • Eurozone's June PPI 0.7% m/m (expected 0.5%; last -0.6%); -3.7% yr/yr (expected -3.9%; last -5.0%)
      • France's June government budget deficit EUR124.90 bln (last deficit of EUR117.90 bln)
      • Spain's July Unemployment Change -89,800 (last 5,100)
      • Swiss Q3 SECO Consumer Climate -30 (last -56)
    • In news:
      • BP reported weaker than expected results and cut its dividend in half. Distiller Diageo and drugmaker Bayer also reported below-consensus results.
      • Infineon's CEO said that the company has seen concrete signs of a rebound in the auto sector.
      • European Central Bank policymaker, Philip Lane, reiterated that the outlook for the eurozone remains highly uncertain.


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