Here are five things you must know for Friday, July 22:
1. -- Stock Futures Steady Amid Renewed Recession Risk
U.S. equity futures pointed to a muted open on Wall Street Friday as investors picked through a disappointing quarterly earnings report from message app maker Snap Inc., its ripple-effect on social media stocks and the ongoing uncertainty linked to global economic growth.
Snap, which makes the popular Snapchat messaging app, posted its slowest revenue growth rate on record late Thursday and cautioned that companies are pulling back sharply on ad spending amid the global slowdown.
The warning trimmed hundreds of millions in value from social media stocks, including big tech giants Google (GOOGL) and Meta Platforms (META), while reminding investors of the challenges that continue to face most companies over the second half of the yeas supply chains remain tangled, input costs continue to surge and demand begin to wane.
Underscoring that concern this morning was data from Europe showing that overall economic activity likely contracted in the month of July as inflation surged to a record high 8.6% and sentiment was pounded by both the ongoing war in Ukraine and political turmoil in Italy.
S&P Global's flash Composite PMI survey fell to 49.4 over the month -- below the 50 point mark that typically separates growth from contraction -- setting up the possibility of recession in the world's biggest economic bloc as the European Central Bank signals more interest rate hikes to come following the first increase in its benchmark refinancing rate in more than a decade yesterday.
"The euro zone economy looks set to contract in the third quarter as business activity slipped into decline in July and forward-looking indicators hint at worse to come in the months ahead," said S&P Global's chief economist Chris Williamson.
Recession concerns are evident in the U.S., as well, where the Treasury yield curve remains deeply inverted, as bond prices continue to rise in defensive trading, with 2-year notes trading at 3.06% and 10-year notes pegged at 2.816% in overnight dealing.
The CME Group's FedWatch, meanwhile, continues to suggest a firm 75 basis point rate hike from the Fed next week, with around a 22.5% chance of a 100 basis point increase following the bigger-than-expected ECB rate decision on Thursday.
Stocks are holding their ground this morning, however, with Europe's Stoxx 600 rising 0.42% in early Frankfurt trading, following on from a modestly positive session in Asia and a seven-day rally for the Nikkei 225 in Tokyo.
On Wall Street, futures tied to the S&P 500 are indicating an 11 point opening bell dip while those liked to the Dow Jones Industrial Average are priced for a 10 point move to the downside. Futures linked to the tech-focused Nasdaq are indicating a 75 point decline.
2. -- Snap Shares Plunge After Ad Sector Warning
Snap Inc (SNAP) shares plunged lower in pre-market trading after the messaging app maker posted its slowest revenue growth on record, while declining to offer near-term profit guidance, as the messaging app maker took a big hit to its ad-based business.
The Snapchat messaging app maker posted a narrower-than-expected second quarter loss of 2 cents per share, but noted the revenues rose only 13% to $1.11 billion, a figure that missed Street forecasts. Snap added the current quarter revenues are essentially flat, citing the broader macro slowdown and the impact of Apple Inc.'s (AAPL) privacy changes, which prevent user tracking, on its ad business.
Active users rose 18% from last year to 347 million, Snap said, but competition is also intensifying for its main demographic -- younger users -- as ByteDance-owned TikTok continues to take market share in the U.S. and elsewhere.
"With inflationary pressures impacting the health of consumers (especially for Snap’s younger users, who have less consumer discretionary spend) and businesses becoming more conservative with their advertising, Snap experienced reduced advertiser demand across its ad platform," said JMP Securities analyst Andrew Boone.
Snap shares were marked 28.2% lower in pre-market trading to indicate an opening bell price of $11.57 each.
3. -- Twitter Shares Lower With Q2 Earnings In Focus
Twitter (TWTR) shares slumped lower in pre-market trading ahead of the social media group's second quarter earnings, scheduled before the opening bell, with investors focused on both its $44 billion takeover battle with Elon Musk and the spillover impact of Snap Inc.'s warning on ad spending.
Twitter is expected to post a 11.3% increase in group revenues, to $1.315 billion, but rising expenses are likely to keep profits in check, with earnings forecast to fall around 30% from the same period last year to around 14 cents per share.
Twitter, which hauls in the vast majority of its overall revenues from ad sales, is likely to be hit by the pullback in spending seen on social media platforms over the past few months, even as it boosts the number of daily active users to around 238.7 million.
The group may also address the ongoing impact of its takeover dispute with Tesla TSLA CEO Elon Musk, who pledged to buy Twitter for $54.20 per share in April, only to attempt to back out of the deal amid concerns for the alleged number of fake accounts on the platform. The pair will face-off in Delaware Chancery Court in October.
Twitter shares were marked 2.35% lower in pre-market trading to indicate an opening bell price of $38.59 each.
4. -- Mattel Shares Dip After Solid Q2 Earnings, Price Hikes
Mattel (MAT) shares moved lower in pre-market trading after it posted stronger-than-expected second quarter earnings but hinted that it may find a ceiling for higher toy prices as it looks to offset the impact of surging input costs.
Mattel said adjusted earnings for the three months ending in June rose 20% from last year to a better-than-expected 18 cents per share, with revenues rising 20% to $1.24 billion. Input prices, supply chain snarls and transport costs combined to trim profit margins, however, and while the Hot Wheels and Barbie Doll maker will continue to boost prices, it suggested that some higher-priced items are starting to find "softness" in the retail market.
"There was some softness in higher-priced items, specifically the Dreamhouse," COO Richard Dickson told investors on a conference call late Thursday. "That said, we also expect the Dreamhouse will have its second biggest year on record this year. Barbie continues to be the number one global doll property in Fashion Doll. It’s got widespread brand health."
Mattel shares were marked 1.45% lower in pre-market trading to indicate an opening bell price of $23.82 each..
5. -- Seagate Warning Hits Memory Chip Makers
Seagate Technology Holdings (STX) shares tumbled in pre-market trading after the hard disk maker posted weaker-than-expected fiscal fourth quarter earnings and said it would trim production over the coming months amid what it called a 'confluence' of economic uncertainty.
Seagate said revenues fell 12.8% from last year to $2.628 billion, while earnings slumped to a softer-than-expected $1.27 per share as operating margins narrowed by around 300 basis points to 13.7%
"In this environment, we are reducing our production plans to maintain supply discipline as our customers manage through macro uncertainty," said CEO Dave Mosley. "Looking further ahead, I remain confident that the multiple secular growth trends fueling demand for data and mass capacity storage solutions remain intact."
The caution pulled memory-chip makers such as Wester Digital (WDC) and Micron Technology (MU) lower as well, as the broader semiconductor segment works through a global supply glut, supply chain disruptions and mixed demand signals.
Seagate shares were marked 11.8% lower in pre-market trading to indicate an opening bell price of $73.77 each..
