Early Look

Friday, August 26, 2022

U.S. futures are pulling back slightly after yesterday’s upward advance, as Treasury yields bounce with investors awaiting a speech by Federal Reserve Chairman Jerome Powell, who is expected to give an indication of the central bank’s hawkishness. The yield on the 10-year Treasury note rose 5 bps to 3.07% after falling on Thursday and has climbed above the 3% level for the first time in a month this week. Prior to the Fed Chairman’s comments, US data today includes trade balance data for July, personal income & PCE deflator data at 8:30 and the University of Michigan Sentiment data at 10:00 AM. Fed Chair Jerome Powell will likely try to convince markets that the Fed is serious about keeping monetary policy tight as long as inflation stays above 2%, even if economic activity suffers. With financial conditions having eased since the Fed’s 75-bps hikes in June and July, more tightening will be needed to hasten the disinflation process. In Asian markets, The Nikkei Index rose 152 points to 28,641, the Shanghai Index fell -10 points to 20,170, and the Hang Seng Index gained 201 points to 20,170. In Europe, the German DAX is down about -44 points to 13,227, while the FTSE 100 is little changed at 7,482. Oil prices are higher, while gold is lower. In earnings overnight, shares of WDAY, ULTA, and GPS are trading higher post results while AFRM, MRVL and DELL are lower.

Economic Calendar for Today

·     8:30 AM ET          Personal Income M/M for July…est. +0.6%

·     8:30 AM ET          Personal Spending M/M for July…est. +0.4%

·     8:30 AM ET          PCE Price Index M/M for July

·     8:30 AM ET          PCE Price Index Y/Y for July

·     8:30 AM ET          Core PCE Price Index M/M for July…est. +0.3%

·     8:30 AM ET          Core PCE Price Index Y/Y for July…est. +4.7%

·     8:30 AM ET          Advance Goods Trade Balance for July

·     10:00 AM ET       Federal Reserve Chairman Speaks at Jackson Hole Symposium

·     10:00 AM ET        University of Michigan Confidence, Aug-F…est. 55.2

·     1:00 PM EST         Baker Hughes Weekly rig count data

Market Closing Prices Yesterday

·     The S&P 500 Index gained 58.35 points, or 1.41%, to 4,199.12

·     The Dow Jones Industrial Average rose 322.55 points, or 0.98%, to 33,291.78

·     The Nasdaq Composite surged 207.74 points, or 1.67%, to 12,639.27

·     The Russell 2000 Index advanced 29.35 points, or 1.52% to 1,964.64

World News

·     U.S. to suspend 26 China-bound flights from the United States by four Chinese carriers in response to the Chinese government’s decision to suspend some U.S. carrier flights over COVID-19 cases – Reuters

·     Taiwan welcomed its third US congressional visit this month, as Senator Marsha Blackburn began a three-day trip to the island that’s likely to further test Washington’s tense ties with Beijing

Sector News Breakdown

Consumer

·     Gap Stores (GPS) 2Q adj EPS $0.08 vs est. ($0.05) on net sales $3.86B vs est. $3.82B, qtrly comps -10%, says seen improvement in sales trends in July and into August consistent with other retailers; taking action to reduce operating expenses (expected to have more significant impact on FY23), targeting negative inventory y/y by end FY22, remains cautiously optimistic in light of consumer environment as relates to revs in 2H22, does not anticipate further share repurchase for remainder of FY22; withdrawing prior FY22 outlook

·     Ulta Beauty (ULTA) Q2 EPS $5.70 vs. est. $5.00; Q2 sales $2.3B vs. est. $2.21B; Q2 comp sales rose 14.4% driven by an 8.3% increase in transactions and a 5.6% increase in average ticket; Selling, general and administrative (SG&A) expenses increased 15.1% to $534.5M; increased its outlook for fiscal 2022 as sees FY operating margin 14.6% to 14.8%, saw 14.1% to 14.4% and sees FY comp sales +9.5% to +10.5%, saw +6% to +8%

·     Farfetch Limited (FTCH) 2Q adj EPS ($0.21) vs est. ($0.32) on revs $579.35Mm vs est. $548Mm, 2Q GMV $1B +1.3%; guides FY digital platform GMV +0-5%, brand platform GMV +0-10%, break-even adj EBITDA vs est. ($8Mm)

·     Panasonic Holdings Corp, a supplier to electric-car maker Tesla Inc (TSLA), is in talks to build an additional electric vehicle (EV) battery plant in the United States at a cost of around $4 billion, the Wall Street Journal reported on Friday

Energy, Industrials and Materials

·     First Solar (FSLR) upgraded to Buy from Neutral at Bank America

·     Grain futures fell on the Chicago Board of Trade Thursday after the U.S. Department of Agriculture’s weekly export sales report caused confusion among traders; the USDA retracted the data after the markets closed.

Financials

·     Affirm Holdings (AFRM) shares fall -16%; Q4 EPS loss (-$0.65) vs. est. loss (-$0.59); Q4 revs rose 39% y/y to $364.1M vs. est. $354.77M; sees Q1 revs $345M-$365M below est. $386M and year revs $1..625B-$1.725B vs. est. $1.91B; qtrly active consumers grew 96% to 14.0 mln

·     Freddie Mac (FMCC) total mortgage portfolio increased at an annualized rate of 2.5% in July; single-family refinance-loan purchase and guarantee volume was $8.0 billion in July

Healthcare

·     Merck & Co.’s (MRK) discussions to purchase cancer-drug company Seagen (SGEN) are said to have been put on hold. The talks are said to have ended over a disagreement on price, according to a Bloomberg report, but could still resume and a deal could still happen.

·     Novavax (NVAX) said U.K. regulators have extended the approval granted for its COVID-19 vaccine on Friday, allowing its use in those aged 12 – 17 years

·     Savara (SVRA) said that the U.K.’s Medicines and Healthcare Products Regulatory Agency granted promising innovative medicine (PIM) designation to the company’s inhaled therapy molgramostim to treat autoimmune pulmonary alveolar proteinosis, type of a rare lung disease.

Technology, Media & Telecom

·     Dell Inc. (DELL) 2Q adj EPS $1.68 vs est. $1.64 on revs $26.4B vs est. $26.5B, client solutions group revs $9.5B, infrastructure solutions group revs $9.5B, says observed more cautious customer behavior as the qtr progressed

·     Domo Inc. (DOMO) Q2 adj EPS loss (-$0.265) vs. est. loss (-$0.33); Q2 revs $75.5M vs. est. $76.39M; raises FY23 EPS view to (96c)-(88c) from ($1.34)-($1.26) but cuts FY23 revenue view to $305M-$310M from $315M-$319M, consensus $315.69M

·     Elastic NV (ESTC) 1Q adj EPS ($0.15) vs est. ($0.17) on revs $250Mm vs est. $246Mm; guides 2Q revs $260-262Mm vs est. $260.7Mm, adj EPS ($0.11)-($0.09) vs est. ($0.09); sees FY revs $1.08-1.086B vs est. $1.081B and adj EPS ($0.31)-($0.25) vs est. ($0.32)

·     Marvell Technology (MRVL) 2Q adj EPS $0.57 vs est. $0.56 on revs $1.52B vs est. $1.52B, gross margin 51.8%; sees 3Q net revs $1.56B vs est. $1.58B, adj gr margin 64.75-65.25%, adj EPS $0.56-0.62 vs est. $0.61

·     Sumo Logic (SUMO) 2Q adj EPS ($0.10) vs est. ($0.14) on revs $74.1Mm vs est. $71.5Mm; sees 3Q adj EPS ($0.15) vs est. ($0.16) and revs $73.5-74.5Mm vs est. $73Mm; guides FY adj EPS loss ($0.56)-($0.54) vs est. ($0.61), adj op margin 23%-22% and revs $289-293Mm vs est. $290.4Mm

·     T-Mobile US Inc (TMUS) will use Elon Musk-owned SpaceX’s Starlink satellites to provide mobile users with network access in parts of the United States, the companies announced on Thursday, outlining plans to connect users’ mobile phones directly to satellites in orbit.

·     VMWare (VMW) Q2 adj EPS $1.64 vs est. $1.57; Q2 revs rose 6% y/y to $3.34B vs. est. $3.3B; combination of subscription and SaaS and license revenue was $1.74B for Q2, an increase of 15% y/y; Subscription and SaaS ARR for Q2 was $3.89B, an increase of 24% y/y

·     Workday (WDAY) 2Q adj EPS $0.83 vs est. $0.80 on revs $1.54B vs est. $1.52B; guides FY adj EBIT margin 19%; Subscription revenue rose 23% y/y to $1.37B and Professional services revenue rose 15% y/y to $168.5M