Housing development in England under threat as electricity capacity nears limits
Data centres, which can use as much energy as thousands of homes, put London and the south-east at particular risk
New housing development in London and the south-east of England is at risk as electricity networks near capacity and upgrades are stalled, according to experts, despite the UK government forecasting increased demand for power almost a decade ago.
Electricity demand has fallen in recent years as homes have become more efficient, but it is forecast to rise as drivers adopt electric vehicles and homeowners install heat pumps, placing additional demands on local networks.
Three boroughs in west London have paused development because there is no spare capacity for new connections to the electricity grid until 2035, the Financial Times reported on Thursday.
Experts on Friday warned the problem could spread as national efforts to hit net zero carbon emissions boost electricity consumption, unless networks are quickly upgraded to withstand extra demand.
“The truth is, the overall electricity system is creaking a bit,” said Guy Newey, formerly energy adviser to two Conservative business secretaries and now boss of Energy Systems Catapult, an independent research centre.
Warning that power outages were likely without upgrades, he added: “If we’re serious about net zero targets we have to build ahead of need, otherwise you’ll keep getting stories like west London.”
In Hillingdon, Ealing and Hounslow, the network has come under strain far faster than expected because a series of data centres, which can consume as much energy as thousands of homes, have been connected.
According to the Energy Networks Association, which represents network operators, the volume of new requests for connections from data centres in the past two years alone has equalled the entire area’s electricity demand.
That made west London unique, said a senior employee at one distribution network operator, adding that although development elsewhere was “not a today problem . . . it’s fair to say this is a bit of a wake-up call”.
Local networks in affluent areas are most at risk because demand for new EVs and heat pumps is highest there, according to Adam Bell, head of policy at the consultancy Stonehaven and formerly head of energy strategy at the Department for Business, Energy and Industrial Strategy.
“Everyone has known this has been coming for a very long time but there has not been the political will to do anything without absolute certainty that any costs imposed will be justified,” he said.
The Department of Energy & Climate Change, now part of the business department, in 2013 published a report that warned of “the impact on the electricity network of large numbers of electric heat pumps” in the context of decarbonising the heating system.
But nine years on, experts say the grid remains unprepared for the widescale electrification that is set to enable decarbonisation.
Distribution network operators, which own and operate the power lines required to run electricity from the grid into homes, are responsible for upgrading infrastructure.
But upgrades require approval from the energy regulator Ofgem — whose role is to protect consumers from excessive costs — and are signed off only when there is demonstrable new demand.
Forecasting that demand is difficult, in part because the take-up of EVs and heat pumps is likely to vary widely across the country, management of existing demand is being refined and because the business department is delaying a decision on the role of hydrogen in domestic heating until 2026. That decision will in turn affect demand for heat pumps.
The system of incrementally boosting distribution capacity to meet demand has historically worked, said the senior employee at a network operator. “But in an exponential growth environment we need to rethink,” he added.
The Department for Business, Energy and Industrial Strategy said: “We are in regular contact with the independent regulator Ofgem to ensure electricity network companies have the necessary funding to meet future demand on the grid, including to support the rollout of heat pumps.”
Weekly Market Update: Fed coaches market through another 75 bps hike; Soft landing hopes remain alive
US stock markets entered the week riding at more than one month highs. Retreating global interest rates and a general stable read-through from Q2 earnings reports regarding the current business environment appeared to have stabilized equity sentiment. Clear signals of softening in recent economic readings, as well as high profile corporate pre-announcements like that of Walmart, bolstered hope that much of the Central banks’ heavy lifting in terms of tightening were starting to get the desired effects, potentially paving the way for a “softish” landing and potential Fed pivot into next year. Nevertheless growth concerns lingered as indicted by a deeper inversion in the benchmark 2-10 year Treasury yield spread, while market based inflation expectations continued to push lower ahead of another all but guaranteed “unusually large” 75 bps rate hike by the Federal Reserve on Wednesday.
The Fed did indeed follow through and hike by 75 bps, but it was language of the FOMC statement and Chair Powell that the markets latched onto. Investors cheered as Powell acknowledged slowing economic momentum and that rates were already likely in the ‘neutral’ range, stressed data dependency, scrapped forward guidance and declined to guide markets to expect another 75 bps hike in September. US Treasury yields continued to track lower and stocks surged sending the S&P back above 4100 for the first time in nearly 2-months. Thursday’s first look at Q2 GDP came in negative, meeting the criteria for the common definition of ‘recession’, seemly supporting the markets’ read of the Fed. Even Friday’s hotter than expected inflation readings, including Fed-favored PCE, did little to tamp down the hopes that slowing economic growth might encourage the Fed to raise rates at a slower clip down the road. By Friday, the US 10-year yield dropped back below 2.65%, gold prices were on the rise and risk assets like Bitcoin and stocks appeared to be breaking out to the upside. For the week the DJIA added 3% and the Nasdaq was up 4.7%, while the S&P gained 4.3% for the week and rose 9.1% in July for its best month since November 2020.
In corporate news this week, Walmart cut its guidance, citing pricing actions aimed to improve inventory levels and food inflation affecting customers’ ability to spend on general merchandise. Amazon shares however jumped the most since February after beating on the top line and providing some upbeat guidance. Apple shares gained after beating expectations, led by a solid iPhone sales, and declaring that growth is expected to continue into Q4 despite macro headwinds.
Microsoft missed consensus estimates but its rosy guidance pleased investors, sending shares higher post-earnings. Alphabet also rose after notching better-than-feared Q2 earnings, given the shaky macro advertising environment. Meta missed on its top and bottom line earnings and issued a weak outlook as its ad sales disappointed. Intel shares slumped after whiffing on its Q2 results and further slashing its outlook, pointing to the macro environment and its own execution issues. Several oil majors reported boffo results amid lucrative crude refining margins and soaring energy prices.
SUN 7/24
(EU) ECB’s Holzmann (Austria, hawk): ECB may have to accept a moderate recession to stem price pressures if it sees signals that inflation expectations are rising
INFO.IN Reports Q1 $0.16 v $0.17 y/y; Rev $4.44B v $3.78B y/y
MON 7/25
PHIA.NL Reports Q2 adj EBITA €216M v €532M y/y, Rev €4.18B v €4.23B y/y; Cuts FY22 SSS outlook; US DoJ began discussions with Philips regarding the terms of a proposed consent decree to resolve the identified issues
VOD.UK Reports Q1 Rev €11.3B v €11.3Be; On track to deliver FY23 outlook
(EU) ECB's Kazaks (Latvia, hawk): Too weak Euro is a problem; Sept hike needs to be quite significant, should be open to talks to bigger hikes
(DE) GERMANY JULY IFO BUSINESS CLIMATE SURVEY: 88.6 V 90.1E
(CN) China Foreign Ministry spokesman Zhao Lijian: China is getting seriously prepared for US House Speaker Pelosi's Taiwan visit
(CN) China reportedly forced some of firms, including Foxconn, Huawei and CNOOC, to operate within a “closed loop” restricted system for seven days amid COVID outbreak in Shenzhen - press
(RU) Russia govt spokesperson Peskov: Russia will install repaired turbine for Nord Stream 1; Russia is not interested in complete gas supply cut off to Europe
INTC Intel and MediaTek announce a strategic partnership to manufacture chips using Intel Foundry Services’ (IFS) advanced process technologies
(RU) Reportedly there are several more turbines need to be repaired at Gazprom's Portovaya station; Repair of one turbine takes about three months - Russian press
GAZP.RU (RU) Company said to have halted one more Siemens turbine at Portovoya - press
*(US) JULY DALLAS FED MANUFACTURING ACTIVITY INDEX: -22.6 V -22.0E
WMT Cuts Q2 and FY23 profit guidance; Primarily due to pricing actions aimed to improve inventory levels at Walmart and Sam’s Club in the US and mix of sales
AMZN To raise Amazon Prime subscription prices by 20-43% in Europe, effective Sept 15th - press
BABA Seeking primary listing on the HKEX, will be dual primary listed on NYSE; Expects completion by end of 2022 [currently has a secondary listing on the HK Exchange]
COIN Said to be facing a probe from SEC on Cryptocurrency listings and if the company let digital assets trade that should have been registered as securities for people to trade - press
LOGI Reports Q1 $0.74 v $0.82e, Rev $1.16B v $1.18Be; Cuts FY23 outlook sharply; Raises share buyback authorization to $1.5B
TUES 7/26
BABA Said to be scaling back global expansion plans and has failed to meet B2B target of 1.0M new businesses signing up and new target is now 2.0K/yr - FT
UBSG.CH Reports Q2 Net $2.11B v $2.0B y/y, Adj PBT $2.61B v $2.6B y/y, Rev $8.92B v $8.98B y/y; To continue buyback as planned; Notes operating environment that remains uncertain
ETL.FR Eutelsat and OneWeb confirm to combine in $3.4B all-share transaction; Eutelsat and OneWeb shareholders would each hold 50% of the Eutelsat shares
UNA.NL Reports H1 Net €3.22B v €3.40B y/y, Rev €29.6B v €25.8B y/y
(HK) Macau to announce plan for COVID measures later this week - press
GM Reports Q2 $1.14 v $1.40e, Rev $35.8B v $36.5Be; Notes its outlook for H2 2022 is strong
UPS Reports Q2 $3.29 v $3.14e, Rev $24.8B v $24.7Be; Raises targeted share repurchases to $3.0B
GM Expect to double Rev to $275B-$315B by 2030; Improvement in China started in June with production levels beginning to recover - earnings slides
(RU) Russia govt spokesperson Peskov: Some problems with another Nord Stream turbine; First turbine for Nord Stream 1 is en route from Canada
GE Reports Q2 $0.78 v $0.38e, Rev $18.6B v $18.0Be; Continues to trend toward the low end of its FY22 outlook for all metrics except FCF; On track to create 3 independent companies
PHM Reports Q2 $2.73 adj v $2.58e, Rev $3.93B v $4.03Be
MMM Sees weakening consumer electronics demand, particularly smartphones, tablets and TVs; Expecting supply chain challenges to persist for foreseeable future - earnings slides
(EU) EU renews economic sanctions over Russia's aggression against Ukraine for further six months until Jan 31st, 2023 - press
KO Reports Q2 $0.70 v $0.67e, Rev $11.3B v $10.7Be; Raises FY22 Rev and EPS outlook; Sees $0.03 impact to comparable EPS from Russia exit
ADM Reports Q2 $2.15 adj v $1.75e, Rev $27.3B v $25.3Be; Will buyback $1B in shares in 2H 22
MCD Reports Q2 $2.55* v $2.46e, Rev $5.72B v $5.89Be
FISV Reports Q2 $1.56 v $1.54e, Rev $4.45B v $4.07Be; Raises guidance
PCAR Reports Q2 $2.07 v $1.81e, Rev $7.16B v $6.51Be
LOGI CEO: Chip shortage is not over, but moderating; Expect to be clear of problems by Q3 or by Q4 2022 at latest - post earnings comments
SHOP Reportedly to lay off 1K employees (10% of workforce); CEO says he was wrong that pandemic E-commerce boom would last - press
*IMF WORLD ECONOMIC OUTLOOK (WEO) CUTS 2022 GLOBAL GROWTH FORECAST FROM 3.6% TO 3.2%
*(US) JULY RICHMOND FED MANUFACTURING INDEX: 0 V -14E
*(US) JUN NEW HOME SALES: 590K V 659KE
ML.FR Reports H1 €1.18 v €1.44 y/y, Rev €13.3B v €11.2B y/y
ADS.DE Reports prelim Q2 Op €360M v €387M y/y, Rev €5.60B v €5.73Be; Cuts outlook; experiencing a slower-than-expected recovery in its business in Greater China
(DE) Germany Green Party leadership reportedly has come to conclusion that all options should be on table to respond to energy crunch, including extending life of nuclear plants - FT
MSFT Reports Q4 $2.23 v $2.29e, Rev $51.9B v $52.3Be
GOOGL Reports Q2 $1.21 v $1.27e, Rev $57.5B (Ex-tac) v $57.6Be
MDLZ Reports Q2 $0.67 v $0.63e, Rev $7.27B v $6.78Be; Raises dividend by 10% to $0.385 (indicated yield 2.45%)
V Reports Q3 $1.98 v $1.74e, Rev $7.28B v $7.06Be
TEVA Reaches nationwide opioids settlement; To pay up to $4.25B including already-settled cases spread over 13 years
*(AU) AUSTRALIA Q2 CPI Q/Q: 1.8% V 1.9%E; Y/Y: 6.1% V 6.3%E (highest annual pace since 2001)
(HK) Macau reports 0 new covid cases
WEDS 7/27
CSGN.CH Reports Q2 (CHF) Net -1.59B v +0.25B y/y, Pretax -1.2B v +0.8B y/y, Rev 3.65B v 5.1B y/y; Announces a comprehensive strategic review
MBG.DE Reports Q2 adj EBIT €4.94B v €4.24Be, Rev €36.4B v €35.2Be; Raises FY22 outlook; Expects healthy demand in all core markets in H2 2022; Sees a gas reduction potential of around 50% in Germany without impact if regional pooling is possible
DBK.DE Reports Q2 Net €1.05B v €692M y/y, Rev €6.64B v €6.24B y/y
BAS.DE Reports final Q2 Net €2.09B v €2.09B prelim, Adj EBITDA €2.34B v €2.34B prelim, Rev €23.0B v €23.0B prelim; Raises sharply FY22 Rev outlook
BN.FR Reports H1 Net €1.05B v €1.00B y/y, Recurring Op €1.61B v €1.55B y/y, Rev €13.3B v €11.8B y/y; Raises FY22 LFL Rev outlook
GSK.UK Reports Q2 Adj EPS £0.35 v £0.28e, Rev £6.93B v £6.26Be; Raises FY22 outlook
MBG.DE CEO: Could implement measures to reduce gas consumption by up to 50% within 2022; Have already reduced gas consumption by 10% while maintaining full operations; Incoming orders remain high - post earnings comments
7211.JP Reports Q1 Net ¥38.6B v ¥6.09B y/y, Op ¥30.8B v ¥10.6B y/y, Rev ¥528.7B v ¥431.9B y/y; Raises FY22 outlook
UMC Reports Q2 (NT$) Rev 72.1B v 50.9B y/y; Notes semiconductor industry is now in a period of inventory correction
(HK) Macau said to possibly ease COVID measures from Aug 2nd if cases are low; May allow dining-in during stable period - press
HLT Reports Q2 $1.29 v $1.06e, Rev $2.24B v $2.00Be
BG Reports Q2 $2.97 adj v $3.40e, Rev $17.93B v $17.9Be
CCJ Reports Q2 C$0.18 v -C$0.10 y/y, Rev C$558M v C$359M y/y
GPI Reports Q2 $12.11 v $10.65e, Rev $4.15B v $4.12Be; Continue to see the majority of new vehicles in US either presold or sold shortly after delivery
TMUS Reports Q2 -$0.09 v +$0.41e, Rev $19.7B v $20.1Be; Raises FY22 outlook
ADP Reports Q4 $1.50 adj v $1.48e, Rev $4.13B v $4.05Be
BMY Reports Q2 $1.93 v $1.79e, Rev $11.9B v $11.5Be
WM Reports Q2 $1.44 adj v $1.36e, Rev $5.03B v $4.84Be; Raises guidance
BA Reports Q2 -$0.37 v -$0.08e, Rev $16.7B v $17.7Be; Affirms it expects FY22 FCF positive; Working with FAA on final actions to resume 787 deliveries, currently producing 787 at very low rate
*(US) JUN PRELIMINARY WHOLESALE INVENTORIES M/M: 1.9% V 1.5%E
*(US) JUN PENDING HOME SALES M/M: -8.6% V -1.0%E; Y/Y: -19.8% V -13.5%E
(US) Atlanta Fed GDPNow: raises Q2 GDP forecast from -1.6% to -1.2%
KER.FR Reports H1 Recurring Net €1.99B v €1.48B y/y, Recurring Op €2.82B v €2.24B y/y, Rev €9.93B v €8.05B y/y; remains confident in its growth potential for the medium and long term
AIR.FR Reports H1 adj Net €1.90B v €2.23B y/y, Adj EBIT €2.65B v €2.55Be, Rev €24.8B v €25.9Be; Cuts FY22 delivery targets
(US) Association of American Railroads weekly rail traffic report for week ending July 23rd: 499K total units, -0.8% y/y
(US) Senate votes to pass $52B semiconductor manufacturing bill - press
*(US) FOMC RAISES TARGET RANGE BY 75BPS TO 2.25-2.50% (AS SPECULATED); RECENT INDICATORS OF SPENDING AND PRODUCTION HAVE SOFTENED, THOUGH JOB GAINS ARE ROBUST
META Reports Q2 $2.46 v $2.51e, Rev $28.8B v $28.7Be; CFO David Wehner to become Chief Strategy Officer; Names Susan Li as new CFO; effective Nov 1st; Notes it reduced its hiring
F Reports Q2 $0.68 v $0.43e, Rev $40.2B v $32.7Be; Raises quarterly dividend $50% to $0.15/shr from $0.10/shr prior
LRCX Reports Q4 $8.83 v $7.31e, Rev $4.64B v $4.21Be; Guides Q1 strong
URI Reports Q2 $7.86 adj v $6.57e, Rev $2.77B v $2.70Be; Raises FY outlook
BBY Cuts again FY22 Enterprise SSS -11.0% (prior -6.0% to -3.0%), Op margin 4% (prior 5.2-5.4%); Pauses share buybacks; Notes consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further since May
(US) Senator Manchin (D-WV): Reached agreement with Leader Schumer to support the 'Inflation Reduction Act' that will pay down national debt, and lower energy and healthcare costs
005930.KR Reports final Q2 (KRW) Net 10.95T v 9.45T y/y; Op 14.1T v 14.0T prelim (12.6T y/y); Rev 77.2T v 77.0T prelim (63.7T y/y)
THURS 7/28
*(DE) GERMANY JULY CPI NORTH RHINE WESTPHALIA M/M: +1.1% V -0.1% PRIOR; Y/Y: 7.8% V 7.5% PRIOR
SAN.FR Reports Q2 Business EPS €1.22 v €0.84e, Op €2.75B v €2.27B y/y, Rev €8.56B v €8.4Be
NESN.CH Reports H1 (CHF) Net 5.2B v 5.8Be, Op 6.68B v 6.99B y/y, Rev 45.6B v 44.9Be
SAF.FR CEO: sees supply chain problems will probably last into 2023, may even stretch towards end-2023 - post earnings comments
SHEL.UK Reports Q2 CCS $1.54 v $0.71 y/y, Adj CCS Net $11.5B v $5.53B y/y, Rev $100.1B v $60.5B y/y; Announces up to $6B share buyback
TTE.FR Reports Q2 adj Net $9.8B v $9.37Be, adj EBITDA $18.7B v $8.67B y/y, Rev $74.8B v $47.0B y/y; Plans share buyback of up to $2B in Q3
DGE.UK Reports FY21/22 Preliminary Net £3.25B v £2.66B y/y, adj Op £4.4B v £3.73B y/y, Net Rev £15.5B v £12.7B y/y
7201.JP Reports Q1 Net ¥47.1B v ¥114.5B y/y, Op ¥64.9B v ¥75.7B y/y, Rev ¥2.14T v ¥2.01T y/y
STM.FR CEO: Sees signs of demand softening in consumer electronics - post earnings comments
(RU) Russia said to aim ending payments in US dollars for its oil exports and instead use Chinese yuan (CNY) and UAE dirham (AED) as soon as possible; Could happen as early as Aug - press
(CN) China Politburo: Reiterates stance to stabilize employment and prices in H2; Will stick to dynamic zero-COVID policy; Will stabilize property market and ensure delivery of property projects
SWK Reports Q2 $1.77 v $2.12e, Rev $4.39B v $4.77Be; Cuts EPS outlook; Implements global cost reduction program
LIN.DE Reports Q2 $3.10 adj v $2.98e, Rev $8.46B v $8.38Be
VLO Reports Q2 $11.36 v $9.70e, Rev $51.6B v $40.6Be
HON Reports Q2 $2.10 v $2.03e, Rev $8.95B v $8.70Be; Notes macro crosscurrents are clouding the global economic growth outlook
MRK Reports Q2 $1.87 v $1.67e, Rev $14.6B v $13.9Be
LUV Reports Q2 $1.30 v $1.17e, Rev $6.73B v $6.68Be
PFE Reports Q2 $2.04 v $1.72e, Rev $27.7B v $26.3Be
CMCSA Reports Q2 $1.01 v $0.92e, Rev $30B v $29.8Be
LECO Reports Q2 $2.18 v $1.98e, Rev $969.6M v $933Me; Organic Rev +20.5% y/y
*(DE) GERMANY JULY PRELIMINARY CPI M/M: 0.9% V 0.6%E; Y/Y: 7.5% V 7.4%E
WING Reports Q2 $0.45 v $0.35e, Rev $83.8M v $84.8Me; Raises dividend to $0.19 from $0.17 (indicated yield 0.76%)
MA Raises FY22 adj Rev (cc) up low-twenties (prior up high-teens); Notes inflation yet to significantly impact spending - earnings slides
*(US) INITIAL JOBLESS CLAIMS: 256K V 250KE; CONTINUING CLAIMS: 1.359M V 1.39ME
*(US) Q2 ADVANCE GDP ANNUALIZED Q/Q: -0.9% V +0.4%E (moves into a technical recession); PERSONAL CONSUMPTION: 1.0% V 1.2%E
*(US) Q2 ADVANCE GDP PRICE INDEX: 8.7% V 8.0%E (highest pace since 1981); CORE PCE Q/Q: 4.4% V 4.4%E
(US) Nevada reports June casino gaming Rev $1.28B, +8.1% y/y; Las Vegas strip Rev $734.8M, +22.7% y/y
OPEC+ Aug 3rd meeting reportedly will keep oil output steady or raise output slightly in Sept; Will likely discuss a 'modest output increase' - press
(CN) In today's talks, Xi told Biden that on the Taiwan issue, those who play with fire will get burned; China firmly opposes Taiwan independence and external interference - Chinese press
(US) Freeport LNG terminal expansion approved by regulators after explosion earlier this year - press
(US) House of Representatives has enough votes to pass the CHIPS Act as expected, vote ongoing - press
AMZN Reports Q2 -$0.20* (inc $3.9B pretax valuation loss) v $0.15e, Rev $121.2B v $119.7Be
INTC Reports Q2 $0.29 v $0.69e, Rev $15.3B v $17.9Be; Cuts outlook sharply
INTC Notes deteriorating macro, inventory and supply disruptions, competitive pressures; Expect 10% decline in 2022 PC TAM; Prolonged supply chain challenges - earnings slides
X Reports Q2 $3.86 v $3.87e, Rev $6.29B v $5.81Be; Announces $500M share buyback
EMN Reports Q2 $2.83 v $2.69e, Rev $2.78B v $2.75Be; To continue raising prices
AAPL Reports Q3 $1.20 v $1.14e, Rev $83.0B v $82.0Be; Notes Mac, iPad remain supply constrained
FRI 7/29
RNO.FR Reports H1 Net Cont Ops €657M v €199M y/y, Rev €21.1B v €21.1B y/y; Raises FY outlook
*(FR) FRANCE Q2 PRELIMINARY GDP Q/Q: 0.5% V 0.2%E; Y/Y: 4.2% V 3.7%E
ENI.IT Reports Q2 adj Net €3.81B v €3.14Be, adj Op €5.84B v €5.24Be, Rev €31.6B v €16.3B y/y; Raises share buyback to €2.4B
066570.KR Reports final Q2 (KRW) Net 193.1B v 425Be, Op 792.2B v 792B prelim. Rev 19.5T v 19.5T prelim
6758.JP Reports Q1 Net ¥218.2B v ¥211.8B y/y, Op ¥307.0B v ¥280.1B y/y, Rev ¥2.31T v ¥2.26T y/y
*(FR) FRANCE JULY PRELIMINARY CPI M/M: 0.3% V 0.3%E; Y/Y: 6.1% V 6.0%E
*(ES) SPAIN JULY PRELIMINARY CPI M/M: -0.2% V -0.3%E; Y/Y: 10.8% V 10.6%E
*(ES) SPAIN Q2 PRELIMINARY GDP Q/Q: 1.1% V 0.4%E; Y/Y: % V 5.5%E
WY Reports Q2 $1.06 adj v $1.02e, Rev $2.97B v $2.80Be; Guides "remain constructive on long-term demand fundamentals"
*(DE) GERMANY JULY NET UNEMPLOYMENT CHANGE: +48.0K V +17.0KE; UNEMPLOYMENT CLAIMS RATE: 5.4% V 5.4%E
*(IT) ITALY Q2 PRELIMINARY GDP Q/Q: 1.0% V 0.3%E; Y/Y: 4.6% V 3.7%E
*(DE) GERMANY Q2 PRELIMINARY GDP Q/Q: 0.0% V 0.1%E; Y/Y: 1.4% V 1.7%E
*(EU) EURO ZONE Q2 ADVANCE GDP Q/Q: 0.7% V 0.2%E; Y/Y: 4.0% V 3.4%E
(RU) Russia govt spokesperson Peskov: Does not see possibility for negotiations with Ukraine; There are no plans for contacts between Putin and Biden yet
CVX Reports Q2 $5.82 adj v $5.02e, Rev $68.8B v $55.8Be; Raises top-end of its share buyback program to up to $15B (prior $10B)
XOM Looking ahead to 2023, Plans add'l refining capacity of 1Mbpd, excluding China, should help to meet recovering demand; Expects its US Gulf Coast refining capacity to increase by 17% or about 250Kbpd in Q1 2023 - earnings slides
PG Reports Q4 $1.21 v $1.23e, Rev $19.5B v $19.4Be; Sees FY23 FX impact to be a headwind of ~3% to all-in sales growth
PG CEO: Seeing some input costs roll over while others continue to go higher so can't say that inflation has peaked yet - CNBC
(US) Fed's Bostic (non-voter, hawk): Does not believe US is in recession but clear there are a number of people hurting - media comments
ABBV Reports Q2 $3.37* v $3.31e, Rev $14.6B v $14.7Be
*(US) Q2 EMPLOYMENT COST INDEX (ECI): 1.3% V 1.2%E
*(US) JUN PERSONAL INCOME: 0.6% V 0.5%E; PERSONAL SPENDING: 1.1% V 1.0%E
*(US) JUN PCE DEFLATOR M/M: 1.0% V 0.9%E; Y/Y: 6.8% V 6.8%E
(US) Atlanta Fed GDPNow: Forecasts initial Q3 GDP at 2.1%
(US) June Dallas Fed Trimmed Mean PCE +6.9% v +5.2% m/m
(ES) Reportedly Spain confirms death linked to monkeypox - Sky News
Evergrande misses deadline for $300bn debt restructuring plan
Chinese real estate developer’s update lacks concrete proposal for investors on liabilities
Evergrande has failed to meet a self-imposed deadline for a proposal to restructure its $300bn in liabilities, adding to uncertainty over the fate of the world’s most indebted real estate developer.
The struggling property business, which was the most prominent default last year in a sector-wide liquidity crisis in China that shook its entire real estate market, said in January that it would publish a “preliminary restructuring proposal” by the end of July.
Last month, it told creditors it was on track to meet the deadline and urged patience amid threats of legal action.
The long-awaited announcement late on Friday evening in Asia outlined the potential use of equity in the company’s offshore subsidiaries, including a property services business and electric vehicles unit, to repay bondholders and said the company had made “positive progress”.
But it did not provide concrete details of how it would restructure its more than $300bn in liabilities, around $20bn of which are held by international investors who have seen their holdings plunge to a fraction of their original value.
A person close to the international bondholders said Evergrande was “nowhere near” a comprehensive restructuring plan.
The lack of detail underscores the drawn-out and opaque process surrounding Evergrande’s restructuring, which is expected to be the largest in China’s history and has deep ramifications for other major developers that defaulted as part of the same crisis.
International bondholders have previously expressed frustration over a lack of engagement from the company and in March some threatened legal action after mystery Evergrande lenders seized $2bn through its property services subsidiary.
Last week, the company’s chief executive and chief financial officer resigned following an investigation into the incident.
Evergrande has previously mooted a draft debt restructuring plan that would rely on staggered payments and debt-to-equity swaps, Reuters has reported. But another person involved in the process said that this had not materialised into a formal proposal because of a lack of approval from its biggest creditors.
The group first began missing payments on its international bonds in September last year, sparking global concerns over the health of China’s economically critical real estate sector. Other developers, including Kaisa and Fantasia, have also defaulted on their debts as construction across the country ground to a halt last year.
Evergrande’s Hong Kong-listed shares have been suspended from trading since March as it has yet to file its overdue annual accounts.
The company has prioritised the completion of its residential projects across China, where the practice of selling homes before their completion has added to political tensions around its failure. It said on Friday that it had “partially or completely resumed construction” at 96 per cent of pre-sold and undelivered projects.
Evergrande said its electric vehicle unit, which investors have closely watched as a potential asset that could be used in the restructuring, started taking orders for electric SUVs earlier this month despite a delay in delivery. It had received more than 37,000 orders for its signature model as of July 20, it said.
The company this week also put its Hong Kong headquarters up for sale again, following a failed attempt to sell it last year.
Closing Stock Market SummaryFor the last session in July, the market opened higher mostly thanks to better-than-feared quarterly results from Apple (AAPL 162.51, +5.16, +3.2%) and Amazon.com (AMZN 134.95, +12.67, +10.3%). Each of the main indices lost a little steam and traded sideways through midday before finding upside momentum and climbing to close near fresh highs.
The strong start to the day was thanks to favorable quarterly results, but also carryover momentum from this week's rally. Week-to-date the S&P 500, Dow Jones Industrial Average, and Nasdaq gained 4.3%, 3.0%, and 4.7%, respectively.
Trading up in solidarity with Apple and Amazon, the mega caps were an important upside driver today. The Vanguard Mega Cap Growth ETF (MGK) closed up 2.3% versus a 0.9% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.4% gain in the S&P 500.
S&P 500 sector performance was driven by constituents' quarterly results. Consumer discretionary (+4.3%) and information technology (+1.6%) outperformed thanks to Apple and Amazon but the technology sectors' gains were muted due to Intel's (INTC 36.31, -3.40, -8.56%) disappointing results and guidance.
The energy sector (+4.5%) closed at the top of the leaderboard thanks to Exxon (XOM 96.93, +4.29, +4.6%) and Chevron (CVX 163.78,+13.39, +8.9%) after both companies reported better-than-expected results ahead of the open.
The only two sectors to close in negative territory were health care (-0.4%) and consumer staples (-0.7%). The former was dragged down by Dexcom (DXCM 82.08, -4.91, -5.6%) after it reported worse-than-expected earnings and issued downside guidance. The latter had Church & Dwight (CHD 87.97, -8.24, -8.5%) and Procter & Gamble (PG 138.91, -9.15, -6.18%) to thank for its underperformance. Both companies issued downside guidance before the open.
Separately, there was a batch of discouraging economic data today that included the highest PCE Price Index reading (+6.8% yr/yr) since 1982, the second-lowest consumer sentiment number on record (51.5), and the lowest Chicago PMI reading (52.1) since August 2020.
Also, Energy complex futures made upside moves today. WTI crude oil futures rose 2.1% to $98.55/bbl while Natural gas futures rose 2.8% to $8.32/mmbtu.
The Treasury market closed mixed with the 2-yr note yield rising two basis points to 2.90% while the 10-yr note yield fell four basis points to 2.64%.
Looking ahead to Monday, market participants will receive the July IHS Markit Manufacturing PMI Final reading (prior 52.3%) at 9:45 a.m. ET. The July ISM Manufacturing Index (consensus 52.5%; prior 53.0%) and June Construction Spending ( consensus 0.2%; prior -0.1%) at 10:00 a.m. ET.
Reviewing today's economic data:
- June Personal Income 0.6% (consensus 0.5%); Prior was revised to 0.6% from 0.5%;June Personal Spending 1.1% (consensus 0.8%); Prior was revised to 0.3% from 0.2%; June PCE Prices 1.0% (consensus 1.0%); Prior 0.6%; June PCE Prices - Core 0.6% (consensus 0.6%); Prior 0.3%
- The key takeaway from the report, other than inflation remaining sticky, is that the inflation sapped the consumer's purchasing power. Real personal spending was up a weak 0.1% as real disposable personal income declined 0.3%.
- Q2 Employment Cost Index 1.3% (consensus 1.1%); Prior 1.4%
- The key takeaway from the report is that workers saw a nice increase in wages and salaries in Q2, yet that increase was subsumed by inflation, evidenced by the 7.1% increase in the Q2 PCE Price Index seen in the Advance Q2 GDP report.
- July Chicago PMI 52.1 (consensus 56.2); Prior 56.0
- July Univ. of Michigan Consumer Sentiment - Final 51.5 (consensus 51.1); Prior 51.1
- The key takeaway from the report is that consumer sentiment remains near record-low levels amid persistent worries about inflation and growing worries about a softening labor market.
- Dow Jones Industrial Average: -9.6% YTD
- S&P 400: -11.6% YTD
- S&P 500: -13.4% YTD
- Russell 2000: -16.0% YTD
- Nasdaq Composite: -20.7% YTD
- Renault (RNL TH) +5%
- Renault Moves Past Russia Loss With Improved Outlook
- BNP Paribas (BNP TH) +2.9%
- BNP Beats Estimates on Boost From Retail Unit, Equities Push
- Scor (SDRC TH) +2.1%
- Equinor (DNQ TH) +1.9%
- Eni Raises Share Buyback as Profit Soars on High Energy Prices
- Anglo American (NGLB TH) +1.9%
- RBC Upgrades Three Mining Stocks as Pressure on Sector Eases
- Rio Tinto (RIO1 TH) +1.8%
- OMV (OMV TH) +1.7%
- Adyen (1N8 TH) +1.5%
- Uniper (UN01 TH) +1.4%
- Evolution (E3G1 TH) +1.4%
- Rational (RAA TH) -0.6%
- Sartorius (SRT3 TH) -0.6%
- Santander (BSD2 TH) -0.7%
- Philips (PHI1 TH) -1.1%
- Prosus (1TY TH) -3.4%
- Signify (G14 TH) -5%
- Signify 2Q Comparable Sales Beats Estimates
- AMS-Osram (DQW1 TH) -5.3%
- AMS-Osram 2Q Adjusted Ebit Misses Estimates
DAX:
- Zalando (ZAL TH) +1.7%
- Deutsche Bank (DBK TH) +1.4%
- Porsche SE (PAH3 TH) +1.3%
- VW (VOW3 TH) +1.2%
- Mercedes (MBG TH) +1.1%
- Fresenius Medical (FME TH) -0.5%
MDAX:
- Siltronic (WAF TH) +8.1%
- Siltronic 2Q Ebitda Beats Estimates; Raises Sales Forecast (1)
- TAG Immobilien (TEG TH) +2.9%
- Uniper (UN01 TH) +2.3%
- Thyssenkrupp (TKA TH) +1.5%
- Lufthansa (LHA TH) +1%
SDAX:
- SMA Solar (S92 TH) +1.8%
- MorphoSys (MOR TH) +1.8%
- VERBIO Vereinigte (VBK TH) +1.7%
- SAF-Holland SE (SFQ TH) +1.7%
- Deutz (DEZ TH) +1.7%
- 1&1 (DRI TH) +1%
- PVA TePla (TPE TH) -0.7%