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Breakfast Bites - Tue Aug 8, 2023

Rise and shine everyone.

Adverse reactions to earnings seem to be intensifying even with companies reporting inline. The market is certainly on a cautious footing and is looking for really, really good news from companies before they can be rewarded. This has been a tough season so far.

A few major news items coming across today

  • Moody's lowers credit ratings for 10 small and mid-sized US banks on mounting funding costs, dimmer outlook. It’s likely there will be further downgrades incoming.

  • China’s exports fall at fastest pace since Feb-2020, imports slide as demand headwinds persist.

US Equity futures are trading lower this morning some of it on lower performance from China. The Hang Seng fell almost 2%. Gold and Oil are lower. Bitcoin is flat while the USD Index is higher. Rates are lower with the Yield Curve at -0.74%

Asia and Australia

  • Asian equities mixed Tuesday with more underperformance notable in Hong Kong. Hang Seng dragged lower by its property stocks with mainland real estate names also underperforming.

  • China-based property developer Country Garden said Tuesday it had missed payments on two dollar bond coupons due Tuesday worth $22.5M combined. This doesn’t bode well for the Chinese Property market, and for the economy in general. Stimulus measure are not coming through fast enough.

  • China’s exports fell 14.5% YoY in July worsening from a 12.4% drop in the previous month and coming in the weakest since February 2020. Bigger surprise was a 12.4% contraction in imports following 6.8% decline in June. Early takeaways were bearish, as a 23.1% tumble in US-bound shipments led double-digit declines to much of Asia

  • Japan: Real Wages came in at -1.6% from -0.94% the prior month. Real Household spending fell to -4.2% YoY, also weaker than expectations of a -3.8% decline and follows -4.0% drop in May. It’s likely the Yen is weaker on this news since, these numbers still mean easing will continue.

  • Corporate bankruptcies in Japan surged 53% y/y in July, marking the fastest pace since early 2020 and the first back-to-back increase in about 23 years.

Europe, Middle East, Africa

  • European equity markets lower, near worst levels. Banks under pressure following Italian banking tax and Moody downgrades of US small/mid banks.

  • Italy surprises with 40% windfall tax on profits for domestic lenders, rattling Europe's banking sector

  • Germany started the week's key inflation releases from around the globe. Destatis reported that consumer prices in Europe's largest economy increased 0.3% m/m in July, in line with expectations and unchanged from June. Equates to 6.2% y/y, in-line with expectations and down from 6.4% in June.

  • ECB consumer inflation expectations for the next 12 months declined to 3.4% in June from 3.9% in May.

  • BoE's Pill says UK inflation persistence due to imported goods prices.

  • Ukraine to target Russian ports and cargoes on Black Sea, increasing risk in region.

The Americas

  • Moody's lowered credit ratings on ten small and midsize banks and warned it may downgrade US Bancorp, Bank of New York Mellon, State Street and Truist. Flagged higher funding costs, potential regulatory capital issues and risks surrounding exposure to CRE and softening demand for office space

  • Meta abandons blue-sky research in favor of revenue-generating commercial AI projects

  • Treasuries face test from $103B in auctions this week

  • UPS cut FY23 revenue guidance by ~4% and operating margin guidance by 100 bp. Combination of macro uncertainty, dampened pricing power and sticky wage pressures flagged as a risk to consensus expectations for an earnings recovery starting in 2H.


(news taken from Reuters, FT, Bloomberg; Calendar from Benzinga Pro)


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