Futures Flat Ahead Of First Mag7 Reports: Alphabet, Tesla Earnings On Deck

US equity futures reversed earlier losses and were modestly in the green with small-caps leading and Tech lagging, following the partial retracement from yesterday and weaker Semis earnings last night. As of 7:30am, S&P futures are up 0.1%, while Nasdaq futs are 0.1% in the red with Mag7 stocks mostly flat/up ex-NVDA which is -80bps, lower with most other Semis names after disappointing earnings from NXP Semi which dropped 9% in premarket after giving a third-quarter revenue forecast that was weaker than expected. Reports after the close from GOOG/TSLA/TXN are important for the Tech trade. Bond yields are lower, USD is flat, and commodities are weaker though WTI is higher. Macro data is primarily regional activity indicators ahead of tomorrow's Flash PMIs. There is a 2Y bond auction today; rates traders are looking for a modest concession.

In premarket trading, NXP Semiconductors shares dropped 7.9%, after the semiconductor device company gave a third-quarter revenue forecast that was weaker than expected. Wiz turned down an up-to-$23 billion takeover bid from Alphabet, sticking instead with an IPO plan. General Electric climbed in premarket trading after reporting an increase in second-quarter profit. Here are some other notable premarket movers:

• Azek shares drop 2.1% after BMO Capital Markets analyst Ketan Mamtora cut the recommendation to market perform from outperform, citing demand growth moderating for composite decking.
• Danaher shares climb 6.8% after the life-sciences firm reported sales and adjusted earnings per share from continuing operations for the second quarter that topped the average analyst estimate.
• Polaris shares slump 16% after the maker of snowmobiles, off-road vehicles and boats lowered its full-year forecasts for sales and profit.
• Snap shares rise 3.2% after Morgan Stanley raised its recommendation on the social media company to equal-weight from underweight, citing improving ad performance.
• Under Armour fell 3.1% as Morgan Stanley cut the recommendation on the sportswear maker to underweight from equal-weight, saying internal survey results came in as “neutral-to-negative.” Meanwhile, the bank raised Skechers USA to overweight from equal-weight.
• UPS shares dropped 7.4% after the delivery company posted second-quarter adjusted earnings per share below consensus and gave a revenue forecast for the full year of about $93 billion. It had previously seen revenue about $92 billion to $94.5 billion

Companies representing 29% of the S&P 500’s market value are due to report this week with Tesla and Alphabet the first of the Mag7 to post earnings this quarter. Analysts will be looking for details of Tesla’s robotaxi service, while Google parent Alphabet is expected to see a sales boost from its cloud unit. With valuations among technology firms still high after last week’s retreat, investors are looking for more evidence that their businesses are on track and the euphoria around artificial intelligence is justified.

“The earnings season is now shifting gear,” said Andrea Tueni, head of sales trading at Saxo Banque France. “This will be this week’s focus before inflation on Friday. I don’t see a repricing of the ‘Trump trade’ taking place just yet.”

About 16% of the companies in the S&P 500 have reported so far, and most have beaten earnings-per-share expectations. Analysts are predicting that index earnings grew 9% in the second quarter from a year earlier, but much of this depends on mega cap tech names.  At the same time, US election developments remain front and center, with Kamala Harris now having more than enough pledged delegates to clinch the Democratic presidential nomination. On the data front, US readings on the economy are due later in the week as well as the Federal Reserve’s preferred inflation gauge.

In Europe, the Stoxx 600 Index was 0.6% higher as German software firm SAP SE rose the most since January and Swiss computer accessories maker Logitech International SA jumped. Here are some other notable movers:

• SAP shares rise as much as 7.1% to a record after the German software firm reported 28% growth in current cloud backlog — an indicator of cloud revenue to be booked within 12 months.
• Compass Group shares climb as much as 5.1% after the contract caterer reported solid third-quarter results, including a modest increase to its growth outlook for the year.
• Banca Generali shares rose as much as 4.9% in Milan after Barclays analysts raised their recommendation on the Italian bank to overweight from equal-weight.
• Interparfums shares soar as much as 17%, the biggest intraday advance since October 2002, after the perfume manufacturer reported 2Q sales that Oddo called resilient.
• ID Logistics shares soar as much as 10%, reaching the highest intraday level on record, after second-quarter sales from the international logistics and transport company beat estimates.
• Indivior shares rise as much as 4.4% in London after Piper Sandler starts coverage of the opioid-addiction treatment maker with an overweight recommendation.
• Givaudan shares drop as much as 6.4% as disappointing results in its taste and wellbeing division overshadow stellar profit for the Swiss chemical giant.
• Edenred shares drop as much as 7.9%, hitting the lowest intraday level since March 2022, after the payment-service provider reported first-half like-for-like operating revenue that came below estimates.
• UPM-Kymmene shares slide as much as 4.8%, the most since February, after latest earnings from the Finnish paper and forestry firm were described by analysts as weak on several metrics.
• Thales shares fall as much as 2.8% after the supplier of electrical systems to the defense and aerospace industries reported interim results that broadly met expectations.
• Akzo Nobel shares drop as much as 4.2% in Amsterdam, the largest decline since mid-June, after the paints-maker cut its 2024 adjusted Ebitda guidance.
• Lindt shares fell as much as 1.3%, erasing early gains, after the Swiss chocolate maker’s first-half results and a new share buyback failed to ease concern over the surge in cocoa prices.

In Asia, stocks gained, tracking an advance on Wall Street overnight, driven by a rebound in technology shares before earnings season kicks off in earnest. The MSCI Asia Pacific Index rose as much as 0.8%, snapping three days of losses, with TSMC and Samsung among the biggest boosts. Taiwan’s Taiex led gains among regional benchmarks, rising 2.8%, its biggest gain in more than five months. The advance followed a gain in the S&P 500 on Monday, ahead of results from Tesla and Alphabet. Concerns over geopolitical tensions and the sustainability of the AI rally had helped drive a rotation into laggards last week. Meanwhile, a sense of some calmness returned to the US election after Joe Biden’s withdrawal.

In FX, the Bloomberg Dollar Spot Index is little changed while the yen tops the G-10 FX leaderboard for a second day, rising 0.7% against the greenback ahead of the Bank of Japan policy meeting next week as traders look set to trim their carry positions during the summer holiday season. Some Bank of Japan officials are open to raising rates at the July meeting while others see weakness in consumer spending complicating their decision, according to people familiar with the matter.

In rates, treasuries climb, with US 10-year yields falling 2bps to 4.23% and trailing larger advances for gilts and most euro-zone bond markets. The yield curve is flatter as front end lags ahead of $69b 2-year note auction at 1pm New York time, first of three coupon auctions this week. WI 2-year yield at 4.465% is lower than 2Y auction stops since January following rally from April’s YTD yield highs fueled mainly by improving inflation trend. Treasury auction cycle also includes 5- and 7-year notes over next two days, the last coupon auctions of the May-July financing quarter, with August-to-October plans scheduled to be unveiled July 31.

In commodities, oil prices advance, with WTI rising 0.3% to trade near $78.60 a barrel. Spot gold rises $9 to around $2,405/oz.

Looking at today's calendar, US economic data calendar includes the July Philadelphia Fed National Activity Index (8:30am), July Richmond Fed Manufacturing Index and June existing home sales (10am). Fed members scheduled to speak before the next FOMC meeting begins July 30 — a period during which a self-imposed quiet period is customary — include only Governor Bowman and Dallas Fed President Logan on July 24, both at an event on Texas community partnerships

Market Snapshot

• S&P 500 futures down 0.2% to 5,597.00
• STOXX Europe 600 up 0.1% to 515.41
• MXAP up 0.4% to 182.79
• MXAPJ up 0.3% to 566.83
• Nikkei little changed at 39,594.39
• Topix up 0.2% to 2,833.39
• Hang Seng Index down 0.9% to 17,469.36
• Shanghai Composite down 1.6% to 2,915.37
• Sensex down 0.3% to 80,279.06
• Australia S&P/ASX 200 up 0.5% to 7,971.13
• Kospi up 0.4% to 2,774.29
• German 10Y yield -1.8bps at 2.48%
• Euro down 0.1% to $1.0878
• Brent Futures up 0.4% to $82.76/bbl
• Gold spot up 0.1% to $2,399.94
• US Dollar Index little changed at 104.29

Top Overnight News

• US VP Harris's campaign secured enough delegates to attain the Democratic Presidential nomination: AP
• DNC Chair Jaime Harrison said the Democratic Party will deliver a presidential nominee by August 7th which will allow a Vice Presidential nominee in the same time frame, while he added that if only one candidate reaches the 300-delegate threshold to be placed in nomination, virtual voting could occur as soon as August 1st: BBG
• Kamala Harris has raised more than $100 million since Sunday, including from about 680,000 first-time contributors, her campaign said. The VP has enough pledged delegates to secure the nomination. Harris will launch her presidential campaign in Milwaukee today, where she plans to use her background as a prosecutor to define Donald Trump. BBG
• Michigan Governor Whitmer endorsed Harris and said she will serve as co-chair of Harris's campaign, while former House Speaker Pelosi also endorsed Harris for President: AP
• India raised taxes on capital gains from equity investments and hiked the levy on stock derivatives trades in a bid to douse the speculative fervor in the country’s $5 trillion stock market. The government plans to levy a 20% tax on financial assets held for less than 12 months, up from 15%, according to the budget presented in parliament Tuesday. It also increased the tax on long-term capital gains to 12.5% from 10% on all financial and non-financial assets. BBG
• Israeli Prime Minister Benjamin Netanyahu told families of hostages held in Gaza that a deal that would secure their release could be near, his office said on Tuesday, as fighting raged in the battered Palestinian enclave. RTRS
• Porsche shares fell the most on record after it issued a profit warning and cut outlook for the year. BBG
• Car manufacturers and dealers are slashing prices to offset softening demand, as high interest rates dent US consumers’ appetite for new vehicles. Average incentive packages offered on new vehicles rose 53 per cent year over year in June, according to Motor Intelligence, with manufacturers such as Hyundai, General Motors and Volkswagen offering cash back, low interest rates and price cuts to stimulate demand and clear inventories, which have marched higher since pandemic-era supply constraints eased. FT
• JPMorgan’s new investment bank co-heads are looking to handle more corporate cash flows, a mundane service that can open the door to lending and trading. In their first joint interview, Jenn Piepszak and Troy Rohrbaugh said they’re also forging ahead in private credit and deploying AI. BBG
• NXPI reported Q2 results inline on major metrics (EPS, GMs, and revs), but the Q3 guide is underwhelming (they see sales of ~$3.25B vs. the Street $3.35B w/EPS of 3.42 vs. the Street 3.56). Investors were hoping for a larger improvement in Q3 financial momentum – the outlook will likely weigh on sentiment for NXPI’s major peers (ADI, TXN, MCHP, ON, etc.). RTRS
• Google’s talks to acquire the cybersecurity startup Wiz for a planned $23 billion have fallen apart, according to a person with knowledge of the discussions. In an email to employees sent Monday and viewed by The Wall Street Journal, Wiz Chief Executive Assaf Rappaport said the company is now aiming for an initial public offering. WSJ
• AMZN's strategy to set prices low for Echo speakers and other smart devices, expecting them to generate income elsewhere in the tech giant, hasn’t paid off. Amazon has lost tens of billions of dollars on its devices business, which includes Echos and other products such as Kindles, Fire TV Sticks and video doorbells, according to internal documents and people familiar with the business. WSJ

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed and only partially sustained the momentum from the tech-led rebound on Wall St ahead of key data releases and big-tech earnings as sentiment clouded by ongoing China woes. ASX 200 was underpinned with tech stocks inspired by the outperformance of the sector stateside, while energy suffered due to recent declines in oil prices and with pressure in Woodside Energy after a mixed quarterly update. Nikkei 225 boosted at the open although has since pared the majority of the gains amid a firmer currency and after a recent source report suggested indecision regarding rates at next week’s BoJ meeting. Hang Seng and Shanghai Comp. were subdued in which the latter remained the laggard as the PBoC’s recent short-term funding rate cuts and liquidity boost via 7-day reverse repos, left the market wanting more.

Top Asian News

• China Human Resources Ministry said China added 6.98mln urban new jobs in H1 and the employment situation is generally stable, while it will intensify the employment and entrepreneurship of young people such as college graduates.
• Indian Budget: India's inflation is low and stably moving to target; uncertainties remain. Fiscal deficit seen at 4.9% vs 5.1% in interim budget. To reduce import tax on gold bars and silver bars to 6%. Long-term capital gains tax to be 12.5%.
• Chow Tai Fook Jewellery (1929 HK) Quarterly Retail Sales -20%; SSS mainland China -26.4%; SSS Hong Kong & Macau -30.8%.

European bourses, Stoxx 600 (+0.4%), are mostly but modestly higher, in what has been a choppy session thus far. European sectors hold a negative bias; Tech takes the top spot, propped up by post-earning strength in SAP (+5%), but chip names are lower, following poor NXP (-9% pre-market) results. Basic Resources is hampered by underlying weakness in the metals complex, whilst Autos lags after Porsche AG cut guidance. US equity futures (ES -0.2%, NQ -0.3%, RTY +0.1%) are mixed, with the NQ underperforming, giving back some of the hefty advances seen in the prior session, and with Tech sentiment hit following NXP results. Citi Global Equity Strategy: Upgrades UK to Neutral rating. Upgrades Telecoms sector to Overweight. Downgrades Industrials to Neutral from Overweight. Upgrades Consumer Staples to Neutral. Downgrades Emerging Markets to Underweight. Downgrades Basic Resources Sector to Underweight from Neutral.

Top European News

• ECB's de Guindos said data-wise, September is a much more convenient month for taking decisions than July was; ECB has to be prudent when taking decisions. Inflation data is practically in line with projection. Already seeing wages starting to slow down. Inflation will be at its current levels through 2024. Will particularly closely at wage developments. Would like to see more cross-border banking M&A transactions because we want to have single banking market.
• ECB's Lane's opening remarks at the Joint ECB-IMF-IMFER Conference 2024 [No commentary on policy].

FX

• USD is softer vs. JPY but firmer vs. other peers. Fresh US drivers are lacking aside from noise surrounding the 2024 Presidential election race. For now, DXY is caged within yesterday's 104.18-42 range.
• EUR/USD remains stuck below the 1.09 mark after a brief forat to 1.0903 on Monday. Fresh drivers for the EZ may be lacking in the short-term as policymakers at the ECB head for their summer break and see how the data unfolds before its September meeting. Currently trading near session lows at 1.0869.
• GBP is a touch softer vs. the USD in quiet newsflow, ahead of Wednesday's PMI metrics. Cable sits within Monday's 1.2906-42 range.
• JPY once again out-muscling the USD with USD/JPY slipping below Monday's trough at 156.28 to as low as 155.83. Support comes via the 18th July low at 155.36 and 100DMA at 155.32.
• Antipodeans are both softer vs. the USD as sentiment surrounding China remains negative and metals prices stay under pressure.
• PBoC set USD/CNY mid-point at 7.1334 vs exp. 7.2746 (prev. 7.1335).

Fixed Income

• USTs are steady in quiet newsflow. There has been a lot of noise surrounding the Presidential election. However, there hasn't been much in the way of sustained price action to Harris entering the race. US yields are a touch softer in the belly but marginally so.
• Choppy price action for Bunds with the German 10yr paring early losses, having flown past 132.00 to highs of 132.07; Bunds currently trade near session highs.
• Gilts are the laggard across core fixed income markets with no real obvious catalyst behind price action. Currently trading lower by around 14 ticks, but off worst levels of 97.61 vs current 97.80.
• UK sells GBP 1bln 0.125% 2039 I/L Gilt: b/c 3.0x (prev. 3.16x) & real yield 1.053% (prev. 1.051%)

Commodities

• Crude futures are trading indecisively on either side of the flat mark, with crude futures again in consolidation mode in the European morning in the absence of other catalysts. Brent Sep in a USD 82.22-78/bbl parameter.
• Precious metals are mixed with both spot silver and palladium in the red, but spot gold ekes mild gains; the latter benefits from news that India is to reduce import tax on gold bars and silver bars to 6%. Spot gold has inched back above USD 2,400/oz.
• Base metals are mostly softer despite the easing Dollar as the Chinese demand hangover continues, whilst pertinent newsflow for the complex remains somewhat quiet.
• World refined copper market was in a 65k metric tonne surplus in May 2024, according to ICSG.
• Russian senior oil industry source said Lukoil's supplied through the Druzbha pipeline via Ukraine and Hungary have not resumed in July, according to Reuters.
• Germany reportedly plans 10,000km hydrogen grid costing some EUR 19.7bln, according to Bloomberg.
• Iran sets August Iranian Light Crude OSP to Asia at Oman/Dubai +USD 2.10/bbl (prev. +USD 2.60/bbl)

Geopolitics: Middle East

• Israeli warplanes broke the sound barrier over Lebanese capital Beirut and other areas of Lebanon on Tuesday, according to Reuters citing Lebanese security sources
• Israeli PM Netanyahu and US President Biden’s meeting was postponed and a US official later stated that President Biden is expected to meet Israeli PM Netanyahu on Thursday at the White House. It was also reported that Vice President Harris will meet with Israeli PM Netanyahu this week at the White House and that Netanyahu requested a meeting with GOP presidential candidate Trump while in the US this week.
• US President Biden said they will keep working to end the war in Gaza and believes a ceasefire is imminent in the Gaza conflict.
• Israeli operation in Khan Yunis killed 70 people and wounded more than 200, according to the health ministry in Gaza cited by AFP News Agency. Furthermore, Israel conducted raids on the town of Aita al-Shaab in southern Lebanon, while Hezbollah said it shelled the Tzuriel colony for the first time with dozens of Katyusha rockets in response to the attack on civilians, according to Al Arabiya and Al Jazeera.
• Japan is to impose its first sanctions on Israeli settlers in the West Bank in which it is arranging an asset freeze on Israeli settlers following similar moves by the US and UK, according to NHK.
• Leaders of Palestinian rival factions Fatah and Hamas will meet with the press in Beijing following reconciliation talks, while Chinese Foreign Minister Wang Yi will attend the meeting, according to CGTN.
• Iraq eyes a drawdown of US-led forces starting September and to formally end the coalition's work by September 2025 with some US forces likely to remain in a newly negotiated advisory capacity, according to four Iraqi sources cited by Reuters.

Geopolitics: Other

• US official Kritenbrink said the meeting of US-Japan defence and foreign ministers will demonstrate how the two countries will ensure not just the defence of Japan, but also the contribution to regional security.
• Russian overnight attack on energy facility in Sumy region cut power to over 50,000 consumers, according to Ukraine's energy ministry

US Event Calendar

• 08:30: July Philadelphia Fed Non-Manufactu, prior 2.9
• 10:00: July Richmond Fed Index, est. -6, prior -10
• 10:00: June Existing Home Sales MoM, est. -3.0%, prior -0.7%
• 10:00: June Home Resales with Condos, est. 3.99m, prior 4.11m

DB's Jim Reid concludes the overnight wrap

Markets began to stabilise again yesterday, with the Magnificent 7 (+2.33%) leading the recovery after a 4-day slump last week. The moves came as earnings season is about to ramp up, with Tesla (+5.15%) and Alphabet (+2.26%) set to be the first of the Mag 7 to announce results after the US close today. We’ll have to wait to see what those bring, but the optimism spread across markets ahead of that, helping the S&P 500 (+1.08%) and STOXX 600 (+0.93%) post their best sessions since early June and claw back some of their recent losses.

When it came to yesterday’s headlines, the main story was of course the reaction to President Biden’s withdrawal from the US election. Vice President Harris has continued to cement her position as the Democratic frontrunner, and according to an unofficial tally by the Associated Press, she now has pledged support above the 1,976 delegates she will need to secure the nomination. These delegates don't have to vote for her at the convention but it would take an extraordinary set of circumstances for someone to come from nowhere and challenge her, especially with all realistic alternative candidates pretty much coming out and backing Harris.

As we look forward to November, the main question is really what the polls look like from here. Clearly there’ve been several hypothetical polls up to now with Vice President Harris as the Democratic nominee, and they’ve shown her trailing Trump by around 2pts in the RealClearPolitics average. But those hypothetical polls can often turn out differently when presented with the  reality, while the read across to the state level polling adds another challenge. So it’ll be fascinating to see if the state of the race meaningfully changes once we do get some fresh polls over the coming week, and whether Harris can narrow or even overturn Trump’s margins in the swing states that will determine the Electoral College. For now at least, the average of betting odds on RealClearPolitics gives Trump a 59% chance, slightly down from its peak of 66% on July 15, shortly after the assassination attempt.

For markets, the reaction was mainly focused on a few specific assets, and it basically led to a partial reversal of the “Trump trade” that was evident last week. Although not everything behaved as you would have expected. In essence, the perception is that Biden’s withdrawal makes it more likely that the Democrats will keep control of the White House, and the Republicans are less likely to get the full sweep that would also see them win both chambers of Congress, so making Trump’s policies marginally less likely to be implemented. This theme saw a better day for assets that might do better under a Democratic administration, such as solar energy firms including Sunrun SolarEdge Technologies (+2.37%) and SunPower (+5.37%). Meanwhile in the FX space, the Mexican Peso (+0.76%) strengthened against the US Dollar, and was one of the top-performing global currencies yesterday.

Overall, while there were some clear moves in specific assets, it was difficult to detect a broader move to price in any political outcomes across equities and bonds. One classic “Trump trade” has been a curve steepening. While this saw some reversal early in yesterday’s session, with the 2s10s curve trading 3bps flatter intra-day, by the close it was actually +1.0bps steeper at -26.7bps. This came as a rise in yields around the European close sent yields higher across the curve, leaving the 2yr yield up +0.5bps at 4.52%, and the 10yr yield up +1.4bps at 4.25%. However in Asia this morning, yields on 10yr USTs are -1.6bps lower as we go to print. Over in Europe, yields on 10yr bunds (+2.7bps), OATs (+1.5bps) and gilts (+3.7bps) all moved higher.

Whilst bonds were losing ground, equities did have a much better day, with the Magnificent 7 (+2.33%) leading the way. That helped the NASDAQ (+1.58%) to outperform as well, with the S&P 500 (+1.08%) lagging behind both. However, energy stocks came off badly, with those in the S&P 500 down -0.72%. That comes after energy stocks outperformed the broader S&P by 4% last week (+2.02% vs - 1.97%) amid the Trump rotation trade but it wasn’t helped yesterday by a fresh decline in oil prices as WTI crude closed below $80/bbl for the first time in over a month (-0.44% to $79.78/bbl). Back in Europe, equities generally followed a similar pattern, albeit with larger gains, and there were decent advances for the STOXX 600 (+0.93%), the DAX (+1.29%) and the CAC 40 (+1.16%).

In Asia the Nikkei (+0.20%), KOPSI (+0.35%) and the S&P/ASX 200 (+0.63%) are higher but with Chinese markets are underperforming on continued disappointment following the Third Plenum and also concern over the rationale for the PBOC’s surprise interest rate cut yesterday. In terms of specific moves, the CSI (-1.04%) is leading losses with the Shanghai Composite (-0.59%) and the Hang Seng (-0.10%) also edging lower. S&P 500 (-0.21%) and NASDAQ 100 (-0.35%) futures are also drifting lower.

To the day ahead now, and data releases include US existing home sales for June, the Richmond Fed’s manufacturing index for July, and the European Commission’s preliminary consumer confidence indicator for the Euro Area in July. From central banks, we’ll hear from the ECB’s Lane. And today’s earnings releases include Alphabet, Tesla, Visa, Coca-Cola, General Electric and General Motors.