Futures Slide On Tech Weakness As Meme Stocks Fade, CPI Looms

After a Monday which started off with a powerful rally only to fizzle and close in the red, overnight market action has seen a continuation of the muted drift lower, and S&P 500 futures have turned lower this morning, falling 0.2% to 4,132, near session lows after trading 0.2% higher earlier. Nasdaq futures dropped 0.5%, indicating that the index will extend its losses for a third session, and semiconductor companies like Nvidia and AMD slipped in premarket trading after Micron forecast adjusted revenue for the fourth quarter at or below the low end of its June 30 guidance. The fading of some meme stock euphoria that defined the past 3 days has not helped bullish sentiment. Treasuries dipped, with the 10-year benchmark yield rising three basis points to 2.79% as traders await Wednesday’s CPI report to gauge the path of Federal Reserve tightening.

In premarket trading, US semiconductor companies like Nvidia and AMD slipped after Micron followed Nvidia and forecast adjusted revenue for the fourth quarter at or below the low end of its June 30 guidance. At the same time, bank stocks were mostly higher in premarket trading Tuesday as the US 10-year Treasury yield holds steady around the 2.79% level. In corporate news, growing tensions within the Carlyle Group reached breaking point last week with the board deciding it had lost confidence in CEO Kewsong Lee. Here are some other notable premarket movers:

Novavax (NVAX US) tumbles 33% in premarket trading as analysts see the quarterly revenue miss and guidance cut as disappointing, while remaining positive on the vaccine-maker’s longer term outlook.
GoodRx (GDRX US) shares soar by 50% in premarket trading, poised for their biggest jump since September 2020. The telemedicine firm’s 2Q results were good but more important for the company is the resolution of a dispute between its pharmacy benefit management customers and grocer Kroger, as this will “dramatically” improve visibility, analysts say.
Upstart (UPST US) shares slump 12% in premarket trading, as Barclays says investors should brace themselves for a “lengthier period of macro-driven instability” after the consumer finance company forecast revenue for the third quarter below analyst expectations and withdrew its full-year guidance.
Lemonade (LMND US) shares rally 16% in premarket trading after the insurance company posted a smaller-than-expected quarterly loss and issued a full-year revenue forecast that includes Metromile. Jefferies says the beat was largely driven by reduced growth spend.
Palantir Technologies (PLTR US) falls 1.2% in premarket trading after being cut to sell from hold at Deutsche Bank, which says that 2Q results leave “little to hang our hat on.”
Tandem DiabetesCare (TNDM US) drops 1.8% on low volume after the firm was double-downgraded to underweight from overweight at Wells Fargo, with the broker saying consensus estimates for the insulin pumps-maker are too high.
Bed Bath & Beyond (BBBY US) rallied 14% in premarket trading, rising along with fellow meme stocks, as the home-goods retailer is set to extend its rising streak for a tenth session – longest since 2007.
Avaya Holdings (AVYA US) shares sank 17% in premarket trading, after the company said there is substantial doubt about its ability to continue as a going concern. Third-quarter loss was wider than the average analyst estimate, while adjusted Ebitda and gross margin missed

Focus now turns to the question of whether US inflation may have peaked in June as economists project the biggest drop in more than two years for July’s CPI print due tomorrow. A blowout reading for nonfarm payrolls has eased worries about a recession, while corporate performance remains stellar.

“Until inflation abates and the Federal Reserve rebalances its priorities away from inflation and toward growth, tempting rallies are likely to remain unsustainable,” Seema Shah, chief strategist at Principal Global Investors, wrote in a note to clients.

European stocks also fell, the Stoxx 600 declining 0.3%, with almost every sector in the red outside of banks, insurers and energy producers. Travel, tech and chemicals are the worst performing sectors. FTSE 100 is flat, but outperforms regional indexes. Here are some of the biggest movers in Europe today:

European semiconductor stocks slip after US memory-chip maker Micron reduced its 4Q sales forecast, citing challenging market conditions.
IWG shares drop as much as 18%, the most intraday since March 2020, with RBC saying the flexible office firm’s 1H results look “light.”
Zur Rose was cut to equal-weight from overweight at Barclays, which cited balance sheet concerns and “less conviction” on near-term growth acceleration. Shares drop as much as 12%.
RPS shares jump 75% to 205p after the environmental consultant received a takeover offer from Canada’s WSP at a price of 206p/share, or enterprise value of around GBP625m.
Abrdn shares slump as much as 10%, the most since April 2020, after the investment firm reported revenue that missed analyst estimates and delayed ambitions for sales growth.
Dufry gains as much as 4.4% after the Swiss duty-free store operator reported what RBC called a higher-than-expected set of 1H results with continued top-line recovery in July.
Kindred shares drop as much as 6.6%, the most intraday since June, after Bank of America initiated coverage of the Swedish online gambling firm at underperform with a SEK88 PT, saying its recovery could prove tougher than expected.
PostNL shares fall as much as 7.3% after Jefferies downgraded the stock to hold from buy citing “slower parcel volume growth, and rising fuel and labor costs.”
CEZ jumped as much as 3.4% after the Czech utility increased its profit guidance for the second time this year, citing surging electricity prices.

Earlier in the session, Asian stocks slid after Hong Kong damped speculation about looser stamp duty rules and China ordered a probe of the $3 trillion trust industry; meanwhile investors awaited this week’s US inflation report for cues on the pace of monetary tightening, while assessing the ongoing corporate earnings season. The MSCI Asia Pacific Index fell as much as 0.6%, as technology shares followed US peers lower after a weak revenue forecast from Nvidia. Japanese stocks underperformed the rest of the region, weighed down by Tokyo Electron on disappointing earnings. Asian equities have been struggling for direction as investors remain wary over the prospect of faster US rate increases to curb inflation as well as rising geopolitical tensions. Fresh Covid lockdowns in China also added to the cautious sentiment. Asian emerging markets “remain too close to ground zero when it comes to the negative impacts of the trifecta of higher US interest rates, a slowing global economy and a deteriorating US-China relationship,” said Olivier d’Assier, head of APAC applied research at Qontigo. “These pressures are likely to keep investors in those markets on the defensive for the time being.” Hong Kong stocks dropped for a second day, erasing earlier gains as the government said it had no plans to relax the stamp duty on home purchases. Markets in Singapore and India were closed for a holiday on Tuesday.

Japan stocks dropped as investors reacted to the discouraging earnings from major US tech companies while also weighing the domestic results.  The Topix Index fell 0.7% to 1,937.02 as of market close in Tokyo, while the Nikkei declined 0.9% to 27,999.96. Tokyo Electron Ltd. contributed the most to the Topix’s decline with its 8.2% tumble, as the maker of electronics short of operating income estimates and investors reacted to Nvidia’s quarterly results. Out of 2,170 shares in the index, 1,408 fell, 667 rose while 95 were unchanged. “Stocks linked to earnings are affecting the move today,” said Makoto Furukawa, chief portfolio strategist at Mitsubishi UFJ MS Securities. “Long-term investors will not be taking much of an action as they will be waiting for the CPI data, though there may be some mid-to-long term investors that could be paying close attention to the financial earnings announcements, but not much of an major trend overall.”

Australia’s S&P/ASX 200 index rose 0.1% to close at 7,029.80, boosted by strength across consumer discretionary and real estate shares. The financials sub-gauge declined, dragged by shares of National Australia Bank after the lender updated its cost outlook for the full year.  Meanwhile, Australia’s consumer sentiment tumbled as surging inflation, interest-rate increases, and falling home prices weighed on the outlook for households.  In New Zealand, the S&P/NZX 50 index rose 0.4% to 11,753.48

In FX, the dollar retreated for a second day, with Group-of-10 currencies broadly in a holding pattern ahead of US CPI data on Wednesday.  Norwegian and Danish currencies outperform peers, while the Australian dollar underperformed peers, weighed by lingering fears on the outlook for global growth.

The Bloomberg Dollar Spot Index fell 0.2% after declining 0.2% on Monday: “Even if inflation turned out lower than expected in July, we think the body of evidence justifies staying the course of swift monetary tightening,” wrote Danske Bank analysts in a note to clients on Tuesday. “If short-term inflation expectations do not moderate over the coming months, the Federal Reserve will likely need to hike more and extend the hiking cycle into next year.” That should support the dollar, while US LNG exporters are poised to benefit as heating season approaches, they wrote. Expect EUR/USD to drop to 0.95 in 12 months
EUR/USD gains 0.3% to 1.0228. Large expiries in the pair include 1.0185 (EU1.41b), 1.0300 (EU1.27b)
GBP/USD rises 0.2% to 1.2108: Bank of England Deputy Governor Dave Ramsden told Reuters that the BOE would continue to sell gilts accumulated under its bond-buying programs even if officials eventually cut rates
AUDUSD fell as much as 0.3% after data show growing pessimism among Australian households despite business conditions and sentiment remaining strong. The pace of the currency’s decline has softened as there’s “some acceptance now of the tightening cycle,” says Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. “The Aussie looks to be trading more of its own accord, less of a global high beta at the moment”
USD/JPY little changed at 134.93

In rates, Treasuries were cheaper across the curve ahead as US auctions resume with 3-year note sale, to be followed in next two days by 10-year note and 30-year bond offerings. US stock index futures near day’s low with focus on earnings. Yields were cheaper by more than 4bp across belly of the curve, elevating 2s5s30s fly by around 3bp on the session; 10-year yields at 2.795% trade broadly in line with bund performance over European session and slightly underperform gilts. $42BN 3-year note sale at 1pm ET is first coupon auction of the August-October quarter; $35b 10-year and $21b 30-year follow Wednesday and Thursday. WI 3-year yield around 3.165% is above auction stops since 2007 and ~7bp cheaper than last month’s, which stopped 0.5bp through. The UK long-end shrugs off comments by BOE’s Ramsden that the central bank would sell gilts even if interest rates are reduced.

In commodities, WTI crude futures trade around $90 a barrel; gold slightly firmer around $1,790. Base metals are mixed: LME aluminum outperforms while tin lags.

Bitcoin is underpressure after yesterday’s strong performance, action that has pushed the crypto back below USD 23.5k.

To the day ahead now, and data releases from the US include Q2’s preliminary nonfarm productivity and the NFIB’s small business optimism index for July. Otherwise, earnings releases include Coinbase.

Market Snapshot

S&P 500 futures down 0.3% to 4,128.00
STOXX Europe 600 down 0.3% to 437.82
MXAP down 0.3% to 160.23
MXAPJ little changed at 524.51
Nikkei down 0.9% to 27,999.96
Topix down 0.7% to 1,937.02
Hang Seng Index down 0.2% to 20,003.44
Shanghai Composite up 0.3% to 3,247.43
Sensex up 0.8% to 58,853.07
Australia S&P/ASX 200 up 0.1% to 7,029.83
Kospi up 0.4% to 2,503.46
German 10Y yield little changed at 0.91%
Euro up 0.3% to $1.0232
Brent Futures down 1.3% to $95.38/bbl
Brent Futures up 1.3% to $97.38/bbl
Gold spot up 0.2% to $1,792.75
U.S. Dollar Index down 0.31% to 106.11

Top Overnight News from Bloomberg

FBI Raid Focused on Material Trump Brought From White House
China Drills Show Preparation for Possible Invasion, Taiwan Says
China Seizes on Pelosi Visit to Set ‘New Normal’ for Taiwan
China Orders Surprise Audit of $3 Trillion Trust Industry
China Corruption Probes Stem From Anger Over Failed Chip Plans
Goldman Analyst Calls Out ‘Deeply Disappointing’ Energy Bets
Alibaba Reduced Workforce by Nearly 10,000 in Three Months
SoftBank Pledges Sweeping Cost Cuts After $23.4 Billion Loss
Micron Technology to Invest $40b in US Through End of Decade
Carlyle’s Billionaire Founders Reached a Breaking Point With CEO
ConEd Asks Brooklyn, Queens to Reduce Power Amid High Heat
Google Search Outage Affects Tens of Thousands of Users
Franklin Templeton Appoints Nomura Veteran as Head of China
What-If DC War Game Maps Huge Toll of US-China Clash Over Taiwan
Boeing to Restart 787 Deliveries Within Days on FAA Approval
Top China Analyst Sees Stocks in Limbo as GDP Growth Slows to 2%
Trump Turns to Lawyer on Bannon’s Losing Case for DOJ Talks

A more detailed look at global markets courtesy of Newsquawk

Asia-Pacific stocks eventually traded mostly higher but with gains capped as the region focused on key earnings releases and initially followed suit to the indecisive performance in the US. ASX 200 was just about kept afloat by strength in tech and miners although gains were limited by weakness in financials including NAB despite posting earnings growth as it also flagged higher costs. Nikkei 225 was the laggard with the worst performing stocks pressured by earnings releases including SoftBank which suffered a record quarterly loss and warned of a potentially dramatic reduction in its headcount. Hang Seng and Shanghai Comp were indecisive in early trade with participants tentative amid lingering geopolitical concerns and  after a Chinese press report suggested that interest rate and RRR cuts are unlikely. The Hang Seng Index later strengthened with property names underpinned after reports that Hong Kong is considering waiving double stamp duty for mainland Chinese homebuyers. However, these reports were later refuted by the government.

Top Asian News

Recession Watch Spreads as Global Curves Follow Treasuries Trend
Felixstowe Dockers Offered £500 Bonus in Bid to Stop Strike
China’s Small Caps Defy Market Slump to Trounce Blue-Chip Stocks
Hong Kong Has No Plan to Cut Stamp Duty After Ip Floats Idea
Treasuries Hold Rebound, Australian Bonds Eke Out Advance
Tokyo Taxi Fares Set for Rare Hike as Inflation Pressures Mount

European bourses are under modest pressure, Euro Stoxx 50 -0.5%, but remain relatively rangebound and lack conviction with catalysts thin. Stateside, futures are similarly rangebound though are posting incrementally more mixed/flat performance, ES -0.1%. Pressure has been seen following a downbeat Q4 guidance update from Micron (-5% pre-mkt), pressuring the NQ -0.4% and European tech performance. Micron (MU) sees Q4 revenue at or below the low end of June 30th guidance; expects challenging market environment in Q4 2022 and Q1 2023. Additionally, has announced USD 40bln investments in leading-edge US memory manufacturing; Micron expects to begin production in the second half of the decade, ramping overall supply in line with industry demand trends.

Top European News

Barclaycard said UK consumer spending rose 7.7% Y/Y in July which was boosted by clothing, beauty and staycations, while it added that UK consumers are starting to cut back on overseas travel, eating out and drinking to offset higher outgoings.
Poland’s Kaczynski (de-facto leader) has pledged they will not undertake any further steps in adhering to the EU Commission’s rule of law demands regarding unlocking grants/loans, saying “..shown maximum goodwill, but concessions have yielded nothing”. Will, if necessary, veto EU initiatives and seek to remove President von der Leyen. (Politico)
Recession Watch Spreads as Global Curves Follow Treasuries Trend
Continental Sees Better Second Half on Rising Auto Output
Ukraine Latest: Zelenskiy Lauds Biden Over ‘Unprecedented’ Aid
UK Airfares Up 30% as Bumper Demand Runs Up Against Flight Caps
Searing Temperatures Across Europe Trigger Weather Warnings

FX

DXY briefly dipped under 106.00 from a 106.40 peak despite a lack of news flow.
Sterling saw some downside on commentary from BoE Deputy Governor Ramsden, EUR/USD eyes several notable OpEx ahead of the NY cut.
Non-US Dollars are firmer to varying degrees with the aid of the softer Dollar.
USD/JPY found some resistance by its 50 DMA (135.14) early in the session and trades just under 135 awaiting the next catalyst

Fixed Income

Sonia/Gilts supported on BoE’s Ramsden before reverting to a ‘hawkish’ bias amid broader EGB/UST pressure.
Catalysts are thin with the initial upside fizzling out in short order though seemingly unaffected by strong/poor UK and German supply respectively.
US yields are incrementally stepper though the broader inversion remains while BTP-Bund spread holds around 210bp.

Commodities

Crude oil futures have drifted off best levels; however, pronounced upside seen most recently on Russia reportedly suspending oil exports via southern-section of the Druzhba pipeline.
Spot gold eyes USD 1,800/oz to the upside amid the softer Dollar.
Base metals are mixed with the breadth of the market also narrow, but LME copper reclaimed a footing above USD 8,000/t.
Norway has drawn up plans to ration electricity exports in a move which could stoke fears of energy shortages in Europe and the UK this winter, according to The Telegraph.
China’s NDRC is to lower retail prices of gasoline and diesel by CNY 130/tonne and CNY 125/tonnes respectively as of August 10th; 4th consecutive decline in prices.
Russia suspends oil exports via southern-leg of the Druzhba pipeline amid transit payment issues, via Reuters citing sources.

US Event Calendar

06:00: July SMALL BUSINESS OPTIMISM 59.9, est. 89.5, prior 89.5
08:30: 2Q Unit Labor Costs, est. 9.5%, prior 12.6%
08:30: 2Q Nonfarm Productivity, est. -4.7%, prior -7.3%

DB’s Jim Reid concludes the overnight wrap

Yesterday was the quietest day of the month after last week’s drama in Taiwan and the stronger than expected US data that put a more aggressive Fed back in play and created a lot of bond volatility and much flatter curves. There were still some big swings but it didn’t feel as frantic or busy. This temporary calm could clearly all change tomorrow with the latest US CPI so maybe the next 30 hours will be the calm before the storm or perhaps herald in the real start of the dog days of summer.

I’m going on holiday to Cornwall next week and after around 2 months where there’s been no rain here in the UK, the first drops of rain for some time seem to be dropping on Cornwall for the first day of our holiday and then carrying on through the week. Typical. At the age of 48, I bought my first ever wetsuit yesterday for paddle boarding and the like. If you don’t vote for me in next year’s II survey I’ll send you a picture!

Anyway, having said that it was calmer yesterday, that’s still relative as the NASDAQ and S&P 500, having been up around 1.5% and 1% respectively early in the session, ended up closing -0.12% and -0.1% respectively. The former was up +20% from its June lows at one point but Nvidia’s preliminary results and outlook led to the stock falling -6.3% and slowly taking the market down with it. Basically a good old fashion profit warning for the biggest chipmaker. As I type, US stock futures are edging back up with contracts on the S&P 500 (+0.23%) and NASDAQ 100 (+0.25%) slightly higher.

In Europe, the market closed while the S&P 500 was still up just over half a percent so the STOXX 600 (+0.74%), the DAX (+0.84%) and the CAC 40 (+0.80%) were all still able to post solid gains of their own. This morning though DAX futures are -0.17% lower.

There was good news yesterday though. One of the main stories was the New York Fed’s latest Survey of Consumer expectations for July, which found that inflation expectations were declining at the 1-year, 3-year and 5 year-horizons. That’ll be music to the Fed’s ears, since if that trend continues then it means that the Fed may not have to be so aggressive in hiking rates, since one of their big fears is that higher inflation expectations will lead to a self-fulfilling prophecy of higher actual inflation as firms adjust prices and workers bargain for wages accordingly. Indeed, the numbers were pretty good across the board, with 3-year expectations down to 3.2% (from 3.6%), which is the lowest reading for that measure since April 2021. That said, when it comes to the Fed’s next meeting in just over 6 weeks, the decline in expectations didn’t seem to move the dial for investors, and futures are still pricing in a 75bps move as more likely than not following Friday’s very strong jobs report, with the hike priced in for next time priced at around 68.5bps down a basis point.

Sovereign bonds rallied steadily all day further out the curve so it was hard to say there was a definite trigger even if the inflation expectations story fitted the narrative. Yields on 10yr Treasuries fell c.-7bps to 2.746%, but with 2s10s flattening a further -6bps to -46bps, which is the most inverted it’s been since 2000. It was much the same story in Europe too, since the German 2s10s curve flattened by -3.2bps to close at its flattest level so far in 2022. And whilst yields fell back there as well, with those on 10yr bunds (-5.7bps), OATs (-5.0bps) and gilts (-9.7bps) all moving lower, that went alongside a fresh widening in peripheral spreads after a good run over the last week, with the gap between 10yr Italian yields over bunds up by +7.6bps to 213ps.

Elsewhere we got some further concerning news on the energy side yesterday, with Norway’s energy minister saying that they would be prepared to limit power exports if required, with refilling reservoirs to be prioritised over power production. This is a potentially significant development, since Norway is a key exporter of electricity to Europe, and this comes on top of the existing energy disruption thanks to Russia’s invasion of Ukraine, as well as the current European heatwave that has further bolstered demand. In fact, French power prices for 2023 hit a record €543 per megawatt-hour yesterday, and their German counterpart also surged to €406 per megawatt-hour. For context, exactly a year ago today those prices closed at €81.70 and €79.14 respectively, so we’re talking about increases of more than five-fold over the last 12 months. And that also came amidst a fresh rise in oil prices, with Brent crude back up by +1.82% to $96.65/bbl, while WTI rose +1.97% to $90.76/bbl.

Another negative story of late have been the growing tensions between the US and China over Taiwan, with China continuing military exercises beyond their original conclusion on Sunday into yesterday. US President Biden said that he didn’t think China was “going to do anything more” but did say “I’m concerned that they’re moving as much as they are”. However, there was some more positive news for Biden domestically, as with less than 3 months to go until the mid-term elections now, FiveThirtyEight’s models are giving the Democrats their best chances of retaining the House and the Senate in recent months. For the Senate, they give the Democrats a 59% chance of retaining control (up from 47% a month earlier), and for the House they put that at 20% (up from 13% a month earlier). That comes amidst a fresh legislative win for Biden over the weekend, with the Senate passing the Inflation Reduction Act, which the House is expected to take up later in the week.

Asian equity markets are struggling to gain traction on a quiet morning. The Nikkei (-0.85%) is lagging in early trade but the Hang Seng (+0.77%) has pared initial losses on news that double stamp duty on the Island may be waived for Chinese homebuyers. Over in Mainland China, stocks are rebounding as the Shanghai Composite (+0.31%) and the CSI (+0.17%) moved back into positive territory whilst the Kospi (-0.03%) is oscillating between gains and losses as I type.

Elsewhere, early morning data showed that Australia’s NAB Business Confidence rose 5 points to +7 in July from the previous month, while business conditions advanced 6 points to +20 points in the same period, despite rising interest rates and high inflation. These were above expectations.

To the day ahead now, and data releases from the US include Q2’s preliminary nonfarm productivity and the NFIB’s small business optimism index for July. Otherwise, earnings releases include Coinbase.