Here are five things you must know for Tuesday, July 12:
1. -- Stock Futures Slump With Earnings, Inflation In Focus
U.S. equity futures extended declines Tuesday, while Treasury bond yields moved lower and the dollar consolidated gains against its global peers, as investors kept clear of risk markets into the start of the second quarter earnings season and key inflation data later in the week.
Earnings could provide the key to market performance heading into the second half of the year, as investors largely price-in both near-term rate hikes from the Federal Reserve while debating the prospects of a possible recession in the world's largest economy.
Around 18 companies, including major lenders JPMorgan JPM, Citigroup and Wells Fargo, are set to kick-off the earnings calendar this week, with analysts expecting collective S&P 500 profits to rise 5.7% from last year to a share-weighted $465.3 billion.
Energy, industrial and bank profits, however, will likely comprise around a third of that total, suggesting even a stronger-than-expected overall reporting season may not be enough to dispel recession concerns.
On that front, Treasury bond yields continue to flash recession warnings, with 2-year Treasury note yields trading at 3.004% and 10-years notes trading at 2.917%. extending the so-called 'inversion' of the yield curve into a fourth consecutive session.
The dollar index, which tracks the greenback against a basket of its global peers, was marked 0.4% higher at a fresh twenty-year high of 108.466.
In overseas markets, Europe's Stoxx 600 was slipped 0.23% in early Frankfurt trading while stocks in Asia ended firmly lower amid concerns over the rise of new Covid variant infections in China, which pulled the MSCI ex-Japan index into a 1.24% decline for the session.
On Wall Street, futures tied to the S&P 500 are indicating a 30 point opening bell pullback while those liked to the Dow Jones Industrial Average are priced for a 240 point slide. Futures linked to the tech-focused Nasdaq are indicating a 78 point decline.
2. -- Euro Hits Parity Against The Dollar For First Time in 20 Years
The European single currency traded at a parity against the U.S. dollar for the first time in more than two decades Tuesday, extending the greenback's recent surge against its global peers and highlighting the challenges facing the world's biggest economic block.
The European Central Bank, the region's equivalent of the Fed, has remained patient on the idea of rate hikes to defend the currency, and fight the fastest inflation on record, amid concerns over the broader impact on the region's growth prospects, particularly for indebted member states such as Spain, Italy, Greece and Portugal.
Russia's threat to cut off natural gas supplies, which have spiked near-term prices and could trigger a full-blown autumn energy crisis, alongside the lingering impact of the war in Ukraine, have added to the euro's weakness, as has the more wide-spread "risk off" environment that has lifted the dollar -- a traditional safe-haven currency -- to multi-decade highs.
It is no secret that the ECB dislikes a weak euro (but) for now, it appears that the ability of the ECB to lift the currency is, however, quite limited," said ING currency analyst Frantisek Taborsky.
3. -- Twitter Fires Back At Musk, Demands $44 Billion Merger Completion
Twitter (TWTR) shares edged lower again in pre-market trading, pulling the stock to a fresh four-month low, as the social media group indicated its ready for a protracted legal battle in its takeover dispute with Tesla (TSLA) CEO Elon Musk.
Twitter executive wrote to Musk late Monday, accusing the world's richest man of knowingly breaching their $44 billion merger agreement and threatening legal action if he fails to do so.
"Twitter demands that Mr. Musk and the other Musk Parties comply with their obligations under the Agreement, including their obligations to use their respective reasonable best efforts to consummate and make effective the transactions contemplated by the Agreement," the Twitter letter stated.
Musk told the U.S. Securities and Exchange Commission late Friday that he was "terminating" the merger agreement, which compels him to pay $54.20 per share for the micro-blogging website, accusing Twitter of making "false and misleading representations" that created a "material adverse effect' to his proposed takeover.
Twitter shares were marked 0.7% lower in pre-market trading to indicate an opening bell price of $32.65 each.
4. -- Gap Shares Tumble On CEO Sonia Syngal Exit
Gap Inc. (GPS) shares slumped lower in pre-market trading after it said Sonia Syngal will step down as group CEO after only two years and the struggling apparel retailer said current quarter sales would continue to decline.
Syngal, who agreed to stay on during a brief transition period, will be replaced on an interim basis by chairman Bob Martin, who has served on the Gap board since 2002. The group also added that Haio Barbeito, formerly the head of Walmart (WMT) Canadian unit, was named CEO at its Old Navy brand, effective August 1.
“Leading this great company and our 100,000-strong employees since 2020, through unprecedented challenges for our industry, and society, has been an immense honor," said Syngal. "Through it all, Gap Inc. and its dedicated teams have seized change as an opportunity, restructured for future growth, crystallized unique brand identities rooted in cultural relevance and fiercely chased transformation”.
Gap, which posted a wider-than-expected first quarter loss while slashing its full-year profit forecast in late May, said sales for its fiscal second quarter would likely fall by "high single digits" while margins would continue to be squeezed by rising freight and input costs.
Gap shares were marked 6.16% lower in pre-market trading to indicate an opening bell price of $8.22 each.
5. -- Bill Ackman
Billionaire hedge fund investors Bill Ackman said late Monday that he will unwind his $4 billion blank check company, the biggest on record, and return cash to shareholders after being unable to find a suitable takeover target.
Ackman has raised the cash through Pershing Square Tontine Holdings (PSTH) in July of 2020, and had hoped to use the investment structure, which is listed on a stock exchange, to search for companies to either merge with or purchase completely. He had planned to use the SPAC to purchase a 10% stake in Universal Music Group, but pushback from the Securities and Exchange Commission forced him to use his Pershing Square Capital hedge fund instead.
"High quality and profitable durable growth companies can generally postpone their timing to go public until market conditions are more favorable, which limited the universe of high-quality possible deals for PSTH, particularly during the last 12 months," Ackman told investors.
"The rapid recovery of the capital markets and our economy were good for America but unfortunate for PSTH, as it made the conventional IPO market a strong competitor and a preferred alternative for high-quality businesses seeking to go public," he added.
