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North American Morning Briefing : Stock Futures Slip With Tech Earnings on Tap

07/27/2021 | 06:04am EDT

MARKET WRAPS

Watch For:

U.S. Durable Goods Orders for June; S&P CoreLogic Case-Shiller Home Price Index for May; Conference Board Consumer Confidence; Alphabet Inc. 2Q earnings; Apple Inc. 3Q earnings; Microsoft Corp. 4Q earnings; Raytheon Technologies 2Q earnings; United Parcel Service Inc. 2Q earnings; Visa Inc. 3Q earnings; Mondelez International Inc. 2Q earnings; Starbucks Corp. 3Q earnings; General Electric Co. 2Q earnings.

Opening Call:

Stock futures ticked lower Tuesday as investors awaited earnings reports from the biggest technology giants and data on the manufacturing sector.

U.S. stocks have been grinding higher as investors cheered strong corporate results and upbeat guidance from some of the largest American businesses. At the same time, concerns are lingering over the Delta-variant of Covid-19, supply-chain problems, a spike in inflation and cooling economic growth.

"We've been characterizing this market as a jetliner that has lifted off and is coming out of the Covid-19 air pocket, but is still trying to find an appropriate cruising altitude," said Kara Murphy, chief investment officer at Kestra Holdings. "We are seeing economic data going from great levels to good levels: that is still indicative of economic growth."

Earnings reports from behemoths including Microsoft, Apple and Google-parent Alphabet after markets close Tuesday could offer insights into how those companies are faring as lockdowns end and supply constraints for key products persist. Visa and Starbucks are also among the companies that will publish results, making it a blockbuster day in the earnings season.

Other blue chip firms set to post results before markets open include United Parcel Service, General Electric, 3M and Raytheon Technologies.

"We have seen earnings expectations continue to be ratcheted up quite significantly, but lots of companies are still beating expectations," said Ms. Murphy.

Investors will be able to parse data indicating the strength of the economic rebound later on Tuesday.

U.S. durable goods orders for June, due at 8:30 a.m. ET, are forecast to rise for a second consecutive month as demand remains strong. Still, manufacturers have struggled to keep up amid supply bottlenecks and difficulties finding workers. Data on consumer confidence is also due to be released at 10 a.m. ET.

Hong Kong's Hang Seng Index slumped as a selloff of tech stocks deepened, driven by concerns about China's regulatory crackdown in recent days.

The meltdown in China is weighing on investors' appetite for stocks in other markets, but the contagion effect is likely to be limited, according to Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe.

"The drag on sentiment will be there because China has been the engine of global growth for years now and seeing its stock market suffer like this is going to put a question mark on global growth," Mr. Kassam said. "Anything that weighs on global growth is going to have an effect on markets, but it is going to be a second-order story for global markets."

Social-media giant Tencent Holdings fell 9% while Hong Kong-listed shares of Alibaba Group, China's biggest e-commerce company, shed more than 6% by the close of trading.

Forex:

The dollar isn't set for any "meaningful moves" against other major currencies ahead of the conclusion of the Federal Reserve's policy meeting on Wednesday, but it may edge higher given Fed officials could offer more details about discussions on a possible scaling back of bond purchases, ING said.

"While no Federal Reserve policy changes are expected in July's meeting, we could hear more about the tapering discussions that started in June," it said.

ING says there is a growing "hawkishness"--or bias toward tightening monetary policy--among some Fed policy makers given the strong U.S. economy and the fact that inflation is running at more than double the central bank's 2% target.

The pound should rise through next year as an improving U.K. economic outlook brings the Bank of England closer towards withdrawing stimulus, MUFG Bank said.

While U.K. coronavirus cases are expected to increase after the final easing of England's restrictions last week, rising levels of immunity from vaccines and those who have already had Covid-19 will help slow the spread, MUFG currency analyst Lee Hardman said.

"The reduced risk of further Covid-related disruption would help to support the BOE's forecast for a robust recovery this year for the U.K. economy."

That means the BOE is inching towards tightening policy, although it will be a gradual process, Hardman said.

Bonds:

The yield on the benchmark 10-year U.S. Treasury note ticked down to 1.249% from 1.276% on Monday. Bond yields and prices move in opposite directions.

Any dip in economic activity will justify the stance of major central banks to keep their hugely accommodative policies in place longer, but many of these factors are already priced into U.S. Treasury markets, said Mark Holman, chief executive officer of TwentyFour Asset Management.

"Whilst this political kink in the road may create some further temporary inflationary pressure, it also serves to take some of the heat out of the growth, which should help keep Treasuries more stable, the disruption of which we think is key for risk markets in Q4," he said.

From a fixed-income credit risk perspective, this isn't expected to materially change the fundamental outlook, Holman said.

Commodities:

Oil prices waver around flat. Investors will be watching out for American Petroleum Institute data due later Tuesday and Department of Energy figures due out Wednesday.

The wild swings seen in oil prices over recent weeks may have calmed for the moment but natural gas prices in Asia remain firm, with hotter than usual weather in North-East Asia raising air conditioner usage, said ING's Warren Patterson.

In Europe, too, gas prices remain near record highs, though the return of the Nord Stream pipeline from maintenance should ease those pressures, he added.

Metals prices slipped as China's regulatory crackdown hits risk assets and boosts safe-havens like the dollar.

Three-month copper on the LME was down 1.7% at $9,692 a metric ton while aluminum fell 0.2% to $2,498.50 a ton and nickel dropped 2.2% to $19,280 a ton.

The ICE Dollar Index rose weighing on dollar-denominated commodities such as base metals and gold.

"The never ending mantra from Beijing of speculative activity is bad and unacceptable is hitting home," says Malcolm Freeman, CEO of metals brokerage Kingdom Futures.

TODAY'S TOP HEADLINES

Apple Expected to Post Record Profit, With Strong iPhone, Device Demand

Apple Inc. on Tuesday is expected to post a record spring-quarter profit, as customers continue to embrace new iPhones and other devices and investors look for signs the company's pandemic-induced success will continue.

Analysts predict the Cupertino, Calif., tech giant will post almost $17 billion in profit for the three-month period that ended in June, the best fiscal third quarter in its 45-year history. Revenue is expected to rise 23% from a year earlier to $73 billion.

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Credit Suisse Taps Goldman Executive as Post-Archegos Chief Risk Officer

Credit Suisse Group AG hired a top executive from Goldman Sachs Group Inc. as its chief risk officer, part of an effort to get a better grip on risks after losing $5.5 billion from family investment firm Archegos Capital Management.

David Wildermuth, formerly deputy chief risk officer at Goldman, will join the executive board and take over from Joachim Oechslin, who held the role temporarily. Credit Suisse's former chief risk officer, Lara Warner, was pushed out in April after the Archegos loss and the separate collapse of a financing partner, Greensill Capital.

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Reckitt Benckiser Swung to 1H Loss on Higher Costs

Reckitt Benckiser Group PLC reported on Tuesday a swing to pretax loss for the first half of the year on lower revenue and higher costs.

The consumer-goods company--which houses Dettol, Harpic and Durex among its brands--posted a pretax loss of 1.94 billion pounds ($2.68 billion) for the six months, including a hit of GBP3.20 billion from losses on assets held for sale and disposal of goodwill and brands. This compares with a profit of GBP1.44 billion in the year-earlier period.

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Investor Cat Rock Urges Just Eat Takeaway to Explore Combinations, Sell Assets

U.S. investor Cat Rock Capital Management LP said Tuesday that Just Eat Takeaway.com NV should explore combinations with other global players and sell noncore assets, putting pressure on the Grubhub owner to address its share performance.

The investor--which owns 4.7% of the Amsterdam-based food-delivery company's shares and is one of its top ten shareholders--said Just Eat Takeaway should invest the money raised from asset sales in its growth and to buy back the shares used toward the Grubhub acquisition. Cat Rock also called on the company to improve transparency on the expected magnitude, composition and returns of its investments to boost its standing in capital markets.

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LVMH Books Higher 1H Revenue, Profit as Fashion Sales Surge

LVMH Moet Hennessy Louis Vuitton SE's earnings rose sharply in the first half as sales jumped by more than half on the year, driven by the core soft-luxury division.

The French luxury-goods giant said Monday that it made an operating profit of 7.63 billion euros ($8.98 billion) in the six months to end-June, nearly fives times as much as the previous-year period, and some 44% higher than in the same period of 2019. Sales increased to EUR28.67 billion from EUR18.39 billion previously.

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Tesla's Quarterly Profit Soars to Record $1.1 Billion

Tesla Inc.'s generated a record quarterly profit as the car maker largely sidestepped the effects of a global chip shortage that has constricted production for many global auto makers.

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07-27-21 0603ET

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