As we approach the zenith in terms of the June quarter earnings season with quarterly results from Caterpillar (CAT) , AMD (AMD) , Starbucks (SBUX) , PayPal (PYPL) and dozens of others today, U.S. equity futures point to a lower open later this morning amid renewed tensions between the US and China ahead of House Speaker Nancy Pelosi' expected trip to Taiwan.
For context, Pelosi would be the first House Speaker since Newt Gingrich in 1997 to visit Taiwan and Chinese authorities have been warning of consequences if the trip takes place. Markets will be looking to see if this is yet another round of saber-rattling and military flexing or something more.
Adding to the tension, one condition of the recently passed $54 billion CHIPS Act is companies that receive funds must promise not to increase their production of advanced chips in China.
Caterpillar Earnings
Earlier this morning, heavy equipment company Caterpillar reported its June quarter results that included a 20% year over year increase in its North American Construction Industries business. That increase was led by a combination of pricing and higher sales volume.
The company's earnings press release did not discuss the company's outlook for the coming quarter or the balance of 2022 in any great detail. It's earnings conference call presentation sees higher sales in the current quarter but did not give any segment or geographic breakdown.
We would expect the company to share at least some color on both during its earnings conference call that will be held this morning at 8:30 am ET today. During that call, we'll be listening for Caterpillar's comments on spending tied to the Biden Infrastructure Law and how it sees it ramping in the coming quarters given our positions in both United Rentals (URI) and Nucor (NUE) .
PepsiCo Does It Again
Yesterday, PepsiCo (PEP) and Celsius Holdings (CELH) signed a long-term distribution agreement that included a strategic investment by PepsiCo. Earlier today, PepsiCo struck again and inked a strategic agreement with premium Romanian spring water AQUA Carpatica to acquire 20% equity stake. While terms were not released, it was shared that PepsiCo will have rights to distribute the spring water in Romania and in Poland with opportunities to expand into other markets, including the United States.
Taking the back-to-back announcements together, PepsiCo continues to manage its beverage offerings to meet evolving consumer preferences. We see this as a positive, and as we reflect on the impact of the Celsius equity investment and the continued strength in the company's core business, we are increasing our price target to $190 from $180.
Given the upside to that target, we are maintaining our Two rating, but if PEP share were to pull back to the $165 level, we would look to revisit that rating. From a technical perspective, we see strong support for PEP shares at the $165 level.
After Today's Market Open
At 10 am ET, the monthly JOLTS report will be published, and expectations call for 11 million job openings, down from 11.254 million the prior month. As members know, we track this report rather closely given the insight it provides into healthcare hires and job openings due to our position in AMN Healthcare (AMN) shares. We expect the disparity between healthcare job openings and hires to remain, boding well for AMN's contract labor business.
Also, at 10 am ET, Federal Reserve Bank of Chicago President Charles Evans will host a hybrid on-the-record breakfast conversation on the US economy and monetary policy with members of the media. Following yesterday's July Manufacturing PMI data that pointed to a slowing domestic manufacturing economy, we expect any comments from Evans as to what the Fed's monetary policy action in the balance of 2022 might look like will be of more than passing interest.
We'd caution members that while the market may read too much into Evan's comments, there is much data to be had before the Fed's next monetary policy meeting that could sway rate hike expectations. We will continue to update our view on what's likely to happen as more of that forthcoming data is in hand.