US Index Futures start the week with a hedging bias, with stock markets and bond yields lower on Monday morning. The most recent economic data showed weakness in developed economies and the aggressive posture of central banks in relation to controlling inflation increases the risks of recession. This drives the week’s early flow into hard currency, fixed income and gold.
By 6:57 AM, Dow Jones futures (DOWI:DJI ) were down 23 points, or 0.07%. S&P 500 futures were down 0.15%, while Nasdaq-100 futures were down 0.23%. The 10-year Treasury yield was at 3.683%.
Elsewhere in Russia over the weekend, there was a brief insurgency by a group of mercenaries against the government, followed by a deal, posing a pricing challenge for investors. On the one hand, the coup attempt brought some hope to the West of a possible departure of Putin from power, renewing expectations regarding the end of the war in Ukraine. On the other hand, the quick agreement brokered by Belarusian President Lukashenko suggests the continuity of the conflict. In China, stock markets melted for the fourth consecutive session, as investors await government stimulus measures.
In commodities markets, West Texas Intermediate crude for August was up 0.14% to trade at $69.28 a barrel. Brent crude is up 0.30% at $74.07 and natural gas futures are up more than 5% in Europe. Iron ore in Dalian, China, fell 0.44% to around $110.20.
On Monday’s US economic agenda, the Dallas Fed Industrial Activity Index will be released at 10:30 am.
By Friday’s close, the Dow Jones Industrial Average was down 219.28 points, or 0.65%, to 33,727.43 points. The S&P 500 fell 33.56 points, or 0.77%, to 4,348.44 points. The Nasdaq Composite dropped 138.09 points or 1.01% to 13,492.52 points. For the week, the Dow Jones Industrial Average is down 1.7%, while the Nasdaq and S&P 500 are both down 1.4%.
The main catalyst for the deterioration was the expectation of higher interest rates and, consequently, lower growth in the central economies. In addition to the tougher signals given by central bankers in the US, Europe and the UK in this last round of interest rate decisions, activity data has worsened, which corroborates fears of a further slowdown in the global economy.
On Friday, the highlight was the preliminary reading of the Composite Purchasing Managers’ Index (Flash PMI Composite) in the euro zone, with the data referring to June indicating the stagnation of the European economy. In the United Kingdom and the United States, the composite indexes continued to indicate expansion – albeit lower than that seen in the last month – but pointed to a new relevant worsening of prospects for industrial production.
Ahead of Monday’s quarterly results, traders will be watching Carnival’s report.
Wall Street Corporate Highlights for Today
Deutsche Bank (NYSE:DB) – Deutsche Bank has informed customers that it cannot guarantee full access to the Russian shares they hold, due to a shortfall in the shares backing depository receipts issued prior to the invasion of Ukraine. Unsupervised share conversion resulted in double counting and uncertainty for investors. The bank plans to go out of business in Russia and will allow the exchange of DRs for shares. Other banks also face similar challenges. The net value of the shares returned to investors will be considerably lower than the current market price.
JPMorgan Chase (NYSE:JPM) – JPMorgan is laying off about 40 US investment bankers due to months of weak markets. The bank expects a 15% drop in revenue in the second quarter.
Goldman Sachs (NYSE:GS) – According to CNBC, Goldman Sachs is likely to face a major writedown due to its $2.2 billion acquisition of fintech GreenSky following attempts to sell the acquired business in 2021. through GreenSky’s loan origination platform fell short of expectations. Goldman is conducting a sale process, and the valuation of the platform ranges from US$ 300 million to more than US$ 500 million. The bank may write off the $500 million goodwill it paid over the book value of the assets. In other news, Goldman Sachs is cutting chief executives around the world as part of its efforts to cut costs. About 125 MDs will lose their jobs in response to a drop in business.
Morgan Stanley (NYSE:MS) – Strategist Michael Wilson of Morgan Stanley has expressed concerns about US equities, predicting a possible sell-off in the near future. He sees the S&P 500 at near-term downside risk, expecting the index to end the year at 3,900 before rising to 4,200 in the second quarter of next year. Wilson highlighted headwinds, including earnings drawdowns and deteriorating liquidity, that could negatively affect the stock market.
HSBC (NYSE:HSBC) – HSBC Holdings Plc plans to leave its headquarters in Canary Wharf, downsizing to a smaller office in the City of London, in response to demand for flexible working. The former BT Group Plc headquarters near St Paul’s is the preferred option, with the intention to move by the end of 2026. The decision is another blow to the Docklands district, as other companies are also reducing their offices in Canary Wharf. The future of the original building remains uncertain, requiring substantial investment to make it attractive to tenants.
Meta Platforms (NASDAQ:META) – Meta agreed to conduct a stress test in July to verify compliance with EU online content rules. Thierry Breton, EU industry chief, said Meta must act immediately on child-friendly content rules or face sanctions. The rules include banning certain types of targeted advertisements.
IBM (NYSE:IBM) – IBM is finalizing the acquisition of Apptio, a software company, for approximately $5 billion. Apptio provides hybrid and cloud business management software.
Starbucks (NASDAQ:SBUX) – Starbucks baristas struck across the US on Sunday to protest the removal of LGBTQ+ Pride decorations. The company has denied the allegations, stating its support for the LGBTQIA2+ community. The conflict between Starbucks and union workers has been intensifying, with complaints about reduced hours and benefits. The company’s progressive reputation is being questioned by employees.
Shake Shack (NYSE:SHAK) – Shares of Shake Shack have seen an impressive recovery in 2023, rising 78% so far and offsetting last year’s losses. This increase is largely attributable to the influence of activist investor Engaged Capital, who reached an agreement with the company to appoint two directors.
Pepsi (NASDAQ:PEP), Nike (NYSE:NKE) – Companies such as PepsiCo and Nike are calling on the European Union to set stricter emissions targets for trucks to reduce long-term costs. They call for an increase in emissions cuts to 65% by 2030 and a set date for 100% of new trucks to produce zero emissions. Companies emphasize the need for greater availability of zero-emissions trucks to drive the transition to more sustainable vehicles. Truck manufacturers face challenges in electrifying heavy-duty vehicles, but are working to expand the supply of CO2-neutral trucks.
Kroger (NYSE:KR), Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN) – Law enforcement and retailers are investigating a series of bomb threats targeting supermarkets and other stores across the United States. Major retailers such as Kroger, Walmart and Amazon’s Whole Foods Market have received threats demanding payments in gift cards, bitcoin or cash, threatening to detonate bombs. The extent and coordinated nature of these threats is still unclear to authorities.
JD.com (NASDAQ:JD) – JD.com plans to create a standalone unit by merging its 7Fresh supermarket chain with other online services to form a nationwide fresh food and groceries retailer. The new operation, called “Innovative Retail”, will be led by Yan Xiaobing and will bear similarities to the Freshippo unit of Alibaba Group Holding Ltd (NYSE:BABA). JD.com is looking to follow a similar business model to Alibaba, but it remains unclear whether it will go down the path of a separate listing.
Newmont (NYSE:NEM) – Newmont has declared force majeure due to the strike at the Peñasquito mine in Mexico affecting deliveries of metal products. The union strike led to the restriction of zinc, lead and gold production. The company is in dialogue with the union and the authorities to resolve the situation. Concerns over zinc supplies have also led to increases in commodity prices. Miner Boliden also faced interruptions in zinc production due to unsustainable financial losses and a fire at its smelter.
Baker Hughes (NASDAQ:BKR) – U.S. energy companies reduced the number of oil and gas rigs for the eighth straight week, hitting the lowest count since April 2022, according to Baker Hughes. The drop in gas prices has led some companies to reduce production and cut platforms, but independent exploration and production companies are planning to increase spending in 2023, aiming for an increase in oil and gas production in the coming years, according to the US Energy Information Administration.
TotalEnergies (NYSE:TTE) – Aramco and TotalEnergies have signed a US$11 billion contract to build the “Amiral” petrochemical complex in Saudi Arabia. The project is an expansion of the petrochemical facilities at the SATORP refinery and will have a global reach.
Tesla (NASDAQ:TSLA) – Shares of Tesla fell in premarket trading on a warning from Goldman Sachs to take profits. The bank downgraded the stock to Neutral from Buy, although it raised the price target. The difficult environment for new vehicles and competition were cited as concerns. Other analysts also lowered their outlook for the company. In other news, the state of Washington has planned to make it mandatory to include the Tesla plug at electric vehicle charging stations that want to participate in a state road electrification program. This decision follows the example of Texas and advances CEO Elon Musk’s vision of making the Tesla plug the national standard.
General Motors (NYSE:GM) – Element 25 Ltd has announced an agreement to supply manganese sulfate to General Motors as it seeks to secure supplies of minerals for electric vehicle batteries in the United States. With this agreement and others already signed, Element 25 found customers for the production of its manganese sulfate plant in Louisiana. The company plans to establish processing plants near customers and in Australia as the battery industry develops. GM will purchase up to 32,500 tons of manganese sulfate per year from Element 25.
Ford (NYSE:F) – United Auto Workers (UAW) President Shawn Fain has sharply criticized the U.S. Department of Energy’s plan to lend $9.2 billion to a joint venture of Ford Motor and SK On to build battery factories. Fain expressed concerns about low wages and a lack of regard for workers’ rights. Ford said it hopes to offer competitive wages and respect workers’ right to organize. The UAW and Senator Bernie Sanders also criticized a General Motors battery factory for paying lower wages to the automaker’s unionized workers.
Lucid (NASDAQ:LCID) – Shares in Lucid Group rose 8.96% in premarket after the company struck a supply deal with British luxury car maker Aston Martin. The deal involves building high-performance electric vehicles, with Lucid providing industry-leading technologies. As part of the deal, Aston Martin will issue 28.4 million new shares of common stock to Lucid, making it a shareholder with around 3.7% of Aston Martin.
Apollo Global Management (NYSE:APO) – Apollo Global Management and a group of investors are planning a debt investment of up to $2 billion in chipmaker Wolfspeed. The financing will initially provide US$1.25 billion in cash, with the possibility of withdrawing an additional US$750 million later. Wolfspeed plans to expand its US operations.
Spirit AeroSystems (NYSE:SPR) – Spirit AeroSystems will hold talks with the train drivers’ union after workers rejected a proposal and announced a strike. The company expects its operations in Wichita to remain suspended until an agreement is reached. A prolonged shutdown could affect aircraft manufacturers Boeing and Airbus, which depend on Spirit’s products.
Boeing (NYSE:BA) – Germany plans to acquire 60 Boeing Chinook helicopters in a deal that could reach 8 billion euros. This includes the purchase of aircraft, services, national contracts and infrastructure. The deal is awaiting parliamentary approval and aims to replace the CH-53 fleet. The decision was driven by the increase in defense spending following the Russian invasion of Ukraine.
Southwest Airlines (NYSE:LUV) – Southwest Airlines announced an interim agreement with the union representing mechanics and related employees. The agreement, subject to ratification by members, will result in high salaries for aircraft maintenance technicians, in line with industry-leading standards. The airline did not release the details, which will be provided by the union to its members.
Carnival (NYSE:CCL) – Carnival announced that it will report its second-quarter financial results before stock markets open on Monday. According to analysts polled by FactSet, Carnival is expected to report a quarterly loss of 34 cents a share on sales of $4.8 billion, nearly double the year-earlier rate. Carnival shares were up 0.32% premarket.
Canopy Growth (NASDAQ:CGC) – Canadian marijuana grower Canopy Growth posted a broader quarterly loss and raised questions about its ability to continue. The company faces regulatory challenges, battles with the illicit marijuana market and government delays. Canopy seeks cost cuts and layoffs to become profitable. Entry into the US cannabis market through Canopy USA is a considered possibility.
Madrigal Pharmaceuticals (NASDAQ:MDGL) – Baker Bros. Advisors is a major shareholder of Madrigal Pharmaceuticals, owning 1,545,113 shares of the company’s common stock. However, they also own 1.97 million Series A Convertible Preferred Bonds and 400,000 Series B Convertible Preferred Bonds, which currently cannot be converted due to ownership restrictions. On June 15, Baker Bros. took an activist investor position, with Julian Baker and Raymond Cheong being appointed to Madrigal’s board. Baker Bros. retains an 8.4% stake in the company.
Market view
Tesla (NASDAQ:TSLA) – Shares of Tesla, which have risen more than 108% this year and around 33% in the last month, have been downgraded by Goldman Sachs analysts to “Neutral” from “Buy” , although they have raised the price target to $248 from $185 previously.
Alphabet (NASDAQ:GOOGL) – Alphabet was down 1.5% in premarket trading on Monday after being downgraded to “Neutral” from “Buy” by analysts at UBS. The price target has been raised to $132 from the previous $123.
Moderna (NASDAQ:MRNA) – Moderna rose 2.95% in premarket after shares in the vaccine maker were raised to “Buy” from “Neutral” on UBS. UBS lowered its share price target to $191 from $221 earlier.
Uber (NYSE:UBER) – Uber Technologies has been up 76% this year, and Barclays analyst Ross Sandler raised his price target to $57, highlighting a possible path to $70. Uber has opportunities for growth through its core ride-hailing business, as well as initiatives such as food delivery and international expansion. Furthermore, Sandler sees promising potential in Uber’s strategy to become a “travel concierge” by offering additional services and taking advantage of artificial intelligence.