Early Look

Friday, July 12, 2024

After seeing one of the most lopsided rotation trades in history of the market, where the Nasdaq fell over 2% and the Russell 2000 Smallcap index rose 3.5%, U.S. futures are steady into round two of June inflation data (PPI at 8:30 AM) and a handful of top bank earnings with JPM, Citi, Wells, and Bank of New York reporting ahead of the earnings season barrage. The Nasdaq Composite fell nearly -2% on Thursday, hit by losses in Mag 7 stocks (AAPL, AMZN, META, MSFT, TSLA) and chip stocks as the SOX fell -3.4% off record highs behind losses in NVDA, AMAT, ARM, QCOM, as investors rotated into Small cap companies, as the Russell 2000 surged 3.5% after softer-than-expected CPI inflation data fed bets the Federal Reserve will cut interest rates in September. So how odd was yesterday’s trading action? Well, @GunjanJS tweets: “The Russell 2000 outperformed the Nasdaq by **5.5 percentage points** –largest spread on record”. Also, @bespokeinvest noted “There’s been just one other trading day since 1979 when the small-cap Russell 2,000 rose 3%+ while the S&P 500 was down on the day. 10/10/08: R2K was up 4.6%, S&P was down 1.2%. Today: R2K up 3.35%, S&P down 0.75%.” In Asian markets, The Nikkei Index fell over 1,000 points of 2.45% to settle at 41,190, the Shanghai Index was little changed at 2,971, and the Hang Seng Index jumped 461 points to 18,293. In Europe, the German DAX is up 70 points to 18,605, while the FTSE 100 rises 17 points to 8,241. Treasury yields inch higher after tumbling Thursday, the dollar dips along with Bitcoin falling to $57K. Traders now see an 86% chance of a rate cut in September, up from 72% a week ago, according to CME Group’s FedWatch Tool. In politics, President Joe Biden vowed he would remain in the 2024 presidential race despite a series of gaffes deepened concerns about his mental acuity.

• The Dow Jones Industrial Average rose 32.39 points, or 0.08%, to 39,753.75.
• The Nasdaq Composite tumbled -364.04 points, or 1.95%, to 18,283.41.
• The Russell 2000 Index surged 73.28 points, or 3.57% to 2,125.04.

• 8:30 AM ET                  Producer Price Index (PPI) headline Y/Y for June…est. +2.3 (prior +2.2%)
• 8:30 AM ET PPI Core (ex: food & energy) M/M for June…est. +0.2% (prior 0%)
• 8:30 AM ET PPI Core (ex: food & energy) Y/Y for June…est. +2.5% (prior +2.3%)
• 10:00 AM ET                University of Michigan Confidence, July-Prelim…est. 68.5
• 10:00 AM ET                University of Michigan 1-yr and 5-yr inflation expectations, July-prelim
• 12:00 AM ET WASDE Ag report for July             
• 1:00 PM ET                   Baker Hughes Weekly rig count data

• Japan may have spent up to 3.57 trillion yen ($22.43 billion) on Thursday in its most recent intervention in the for-ex market to bounce the yen up from 38-year lows, Bank of Japan data suggested. The Ministry of Finance appears to have spent around 3.37-3.57 trillion yen intervening in the market to support the Japanese currency, The yen had been hovering at about 161.61 per dollar when it sharply appreciated around the release of U.S. consumer price figures, rallying nearly 3% to as far as 157.40.

• Bunge Ltd. (BG) offered concessions to European Union competition regulators in a bid to allay antitrust concerns over its planned $8.2B buyout of Viterra Inc.
• Tesla (TSLA) downgraded to Sell from Neutral and $197 tgt saying it is increasingly difficult to justify valuation.

• Diamondback Energy (FANG) said Q2 Avg total realized oil price/barrel $79.51, Avg total natural gas price/Mcf $0.10, and avg total realized NGLs price/barrel $17.97.
• Fastenal (FAST) Q2 EPS $0.51 in-line with consensus as sales rose 1.8% y/y to $1.92B, also in-line.
• Lockheed Martin (LMT): Deliveries of F-35 jets to the U.S. military are set to resume shortly without the complete TR-3 software upgrade, the head of the F-35 Joint Program Office (JPO) said on Thursday.

• JPMorgan (JPM) Q2 adj EPS $4.40 vs. est. $4.28; Q2 revs $50.2B and managed revenue $51B vs. est. $50.21B; CEO says inflation and interest rates May stay higher than the market expects; Q2 includes $821M net reserve build; 2Q credit costs $3.1 billion, including $2.2 billion net charge-offs.
• Wells Fargo (WFC) Q2 PES $1.33 on revs $20.69B vs. est. $20.28B; Q2 net interest income $11.92B, below est. $12.12B; said commercial banking revenue $3.12B vs. est. $3.15B; Q2 net interest margin 2.75% vs. est. 2.77%; Return on equity 11.5%, common equity Tier 1 ratio 11%; Q2 provision for credit losses $1.24B, vs. est. $1.28B

• Merck (MRK) said it expects to post a Q3 charge of about $1.3 billion, or 50c/share following acquisition completion of EyeBio deal.

• Ericsson (ERIC) reported better-than-expected Q2 sales and profitability; said a new 5G patent licensing deal was signed during Q2, lifting licensing revenue to 3.9 billion Swedish kronor ($371.6 million) and keeping it on track to deliver SEK12 billion to SEK13 billion of licensing revenue this year; Q2 sales fell 7.1% in the quarter to SEK59.85 billion, but was better than the SEK58.58 billion expected; Q2 adjusted gross margin rose to 43.9%.
• Intel’s (INTC) push into software is going well and the company could have cumulative software revenue of $1 billion by the end of 2027, Chief Technology Officer Greg Lavender told Reuters.
• Semtech (SMTC) Q2 bookings have exceeded bookings for Q1; reaffirms financial outlook for Q2.