EUROPEAN EQUITY OPEN: GSK LN to resolve Zantac cases for USD 2.2bln; HSBA LN mulls cost cuts; DTE GY announces buyback, raises dividend; UAW warns on STLAM IM strikes; Ahead, ECB minutes, US CPI, US weekly jobless claims, AMD and TSLA events

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  EUROPEAN OPEN: European equities are opening lower in wake of Fed meeting minutes, which revealed that officials were divided on whether to cut rates by 50bps in September, and ahead of key releases today, including the ECB’s meeting minutes, US CPI data, weekly jobless claims data, an AI event at AMD (AMD), and Tesla’s (TSLA) Robotaxi event (see below). In data, German retail sales rose by +1.6% M/M in August (exp. 0.1%, prev. -1.2%), with the annual rate climbing to 2.1% Y/Y (prev. -1.7% Y/Y). In the UK, RICS reported a significant uptick in housing market activity, with increased sales and demand; its housing survey rose to 11.0 in September (exp. 4.0, prev. 1.0), however, it said that the rental market remains challenging, as tenant demand surpasses supply, and highlighted ongoing affordability issues that need addressing to ensure a sustainable housing market.


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  STOCK SPECIFICS: In healthcare, GSK (GSK LN) is to resolve 93% of US Zantac cases for up to USD 2.2bln, and accordingly will recognise GBP 1.8bln charge in Q3 results. Settlement costs are to be funded through existing resources. In financials, HSBC (HSBA LN) is considering a cost-cutting plan that may save up to USD 300mln by reducing top management layers as it contemplates merging its commercial and investment banking units; a decision is expected by the end of October. In communications, Deutsche Telekom (DTE GY) announced plans for a share buyback programme of up to EUR 2bln, scheduled for 2025, alongside an increase in its dividend; it proposes its dividend for FY24 will rise to EUR 0.90/shr from 0.77/shr last year. In autos, The UAW union warned that a strike at Stellantis (STLAM IM / STLAP FP) could begin within weeks, and accused the company of failing to uphold investment commitments. In earnings, Suedzucker (SZU GY) saw Q2 earnings plunge, but it backed its annual outlook. Going ex-dividend today: Tesco (TSCO LN), WPP (WPP LN), Kingfisher (KGF LN).

TODAY’S AGENDA:

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  DAY AHEAD: In Europe, the highlight is the ECB meeting minutes, where traders will look for insights on the rationale behind the central bank’s 25bps deposit rate cut, as well as some guidance on future policy intentions, especially in light of recent market pricing changes (where a rate cut is now expected at the ECB’s next meeting). The US Day features weekly initial jobless claims data (230k expected vs a prior 225k) an continuing claims (1.83mln expected vs a prior 1.826mln) - neither coincide with the October jobs data. US CPI inflation data for September are also due (we have a preview below). On the speakers’ slate, remarks are due from the Fed’s Cook (voter), who will speak on entrepreneurship; Fed’s Barkin (voter) will give remarks on the economic outlook; Fed’s Williams (voter) will also speak on the economic outlook. Equity traders will also be watching AMD’s (AMD) AI Event today, as well as Tesla’s (TSLA) Robotaxi event (primers for both are below); additional, earnings are due from Domino’s Pizza (DPZ) and Delta Airlines (DAL). On the supply front, the US will conclude its bond offerings with a sale of USD 22bln of 30yr bonds.


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  PREVIEW: US CPI (13:30BST/08:30EDT): The consensus looks for headline CPI to rise +0.1% M/M in September (prev. +0.2%), and the annual rate is expected to pare back to 2.3% Y/Y from 2.5%; the core rate is seen cooling to +0.2% M/M (prev. +0.3%), though the annual rate of core inflation is expected to be unchanged at 3.2% Y/Y. Bank of America’s analysts said that there is no reason to be alarmed by the firm core inflation reading just yet, noting that the data series is noisy and that could play a large role again this month; BofA said airfares and lodging were expected to contribute to core inflation, despite only representing 2.7% of the core CPI basket - these items can often cause significant monthly fluctuations, though overall, lodging prices are stable while airfares are decreasing. BofA said that outside of rents, inflation is no longer a problem; rents remain a primary source of persistent inflation, contributing significantly to core inflation over the past year, and although asking rents and vacancy rates show improvement, rents are expected to stay sticky, with potential seasonal effects leading to softer price increases in Q4. BofA will be keeping an eye on used cars prices, which are anticipated to rise due to recent increases in wholesale auction prices; however, BofA does not expect these increases to last, given softening demand and improved supply, meaning used cars are unlikely to drive disinflation in the near term. BofA is confident that beyond the near-term, the disinflation trends should continue; “while we expect core CPI to be on the firmer side of recent readings in September, our forecast does not change our medium-term outlook for further disinflation,” it wrote, “a cooler labour market coupled with anchored inflation expectations should keep disinflation on track.” However, the bank says that there are some upside risks to consider, including the East coast port strikes, rising oil prices and higher shipping costs; “we think these risks would contribute to a more gradual disinflationary process than we currently expect,” BofA added. Speaking last week, Fed Chair Powell expressed growing confidence in inflation’s return to the 2% target, and said that the 50bps cut in September reflects this confidence. He noted that low inflation in new leases will eventually affect headline inflation and observes a flattening of housing services inflation, albeit slowly. Powell suggested that housing services inflation will decline if the growth rate of rents for new tenants remains low. He believes that further cooling in the labour market was unnecessary to achieve its 2% inflation goal, highlighting a balanced risk in reaching both employment and inflation objectives. Powell said that the upcoming November confab will consider additional employment and inflation reports, but emphasised that the recalibration of policy can help to maintain labour market strength while supporting the move towards the inflation goal. Meanwhile, the FOMC’s September meeting minutes released this week revealed that while a substantial majority favoured a 50bps rate cut, believing it would align monetary policy with inflation and labour market indicators, some officials had supported a 25bps cut previously, citing evidence that inflation was trending towards 2% while the labour market showed signs of cooling, and “a few” said they could have supported a decision in favour of the smaller reduction. BofA says that based on its forecasts for CPI in September, as well as assumptions for trend like inflation for PPI components of PCE, it currently projects core PCE inflation at 0.18% M/M in September; “while this would be a good print, it is neither weak nor strong enough to affect the size of the next cut,” BofA said, “inflation continues to move in the right direction, which will allow further cuts, however, we continue to think labour data matters more for size of cuts.”


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  PRIMER - TESLA (TSLA) ROBOTAXI EVENT: Tesla will hold its “Robotaxi Day” today at Warner Brothers Discovery (WBD) studio in Burbank, California. The event is expected to unveil the next-generation Robotaxi with updated AI hardware and version 13 of FSD, aimed for late 2026, along with a second version of Optimus. Truist’s analysts expressed caution regarding the event, stating it is unlikely to serve as a positive catalyst for Tesla shares. Truist noted the focus would be more on AI advancements rather than new near-term vehicle models, although they acknowledge the potential for the event to positively impact Tesla’s stock if a smaller, more affordable model for 2025 is revealed, but they consider this scenario unlikely. Meanwhile, Ming Chi Kuo said that while some investors are optimistic, mass production of Robotaxis may not begin until Q1 2027, suggesting expectations for a stock rally could be overly optimistic. Chi Kuo emphasised the importance of meeting government FSD requirements before launching the service, noting that Tesla has the necessary hardware capabilities but may not achieve Level 4 autonomy until after 2027. He concluded that while the robotaxi trend is promising, patience will be needed for its realisation, with long-term investors potentially overlooking short-term stock impacts from the event. The analyst mode currently has Tesla rated as a Hold, with an average price target of USD 209.14, according to Refinitiv’s data.


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  PRIMER - AMD (AMD) AI EVENT: AMD is set to showcase new technologies at its 2024 Advancing AI event today, including Instinct GPU accelerators and EPYC server processors. Analysts view this as a potential “catch-up catalyst” for AMD in the AI accelerator market, where it currently holds 5-7% share compared to Nvidia’s (NVDA) over 80%. AMD aims to increase its share of the market to 10% by 2026, potentially generating an additional USD 5bln in sales. The company expects to highlight partnerships with firms like Microsoft (MSFT), Oracle (ORCL), and Meta Platforms (META). Some analysts have expressed scepticism about AMD’s ability to capture GPU market share; however, BNP Paribas says if AMD shows solid growth prospects for 2025, perceptions could shift, adding that a successful AI event could mirror last year’s 10% stock rise, aiding recovery amid ongoing weaknesses in its core segments. Meanwhile, Cantor notes that during last year’s event, AMD unveiled its Instinct MI300 series GPU/APU platform, highlighted AI PCs, and projected USD 400bln+ AI total addressable market by 2027; Cantor anticipates similar announcements this year, including the official launch of the Turin CPU, MI325X accelerators, and likely Strix PRO AI PCs, alongside ROCm software advancements. Analyst currently rate AMD as a Buy, with an average price target of USD 187.07, according to Refinitiv’s data.


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  ECB MINUTES (12:30BST/07:30EDT): As expected, the ECB opted to cut the deposit rate by 25bps from 3.75% to 3.5% whilst also lowering the main refi and marginal lending rates by 60bps (as previously announced in March). In the policy statement, the ECB reiterated that it will continue to follow a meeting-by-meeting approach and remain in data-dependent mode. Furthermore, policy rates will be kept sufficiently restrictive for as long as necessary and the ECB will not pre-commit to a specific policy path. In the accompanying macro projections, headline inflation forecasts for 2024-26 were left unchanged; 2026 remained below target at 1.9%. On a core basis, 2024 and 2025 forecasts were upgraded by 10bps on account of stubborn services inflation. From a growth perspective, 2024-2026 projections were lowered by 10bps each “owing to a weaker contribution from domestic demand over the next few quarters”. At the follow-up press conference, Lagarde noted that the decision to cut the DFR by 25bps was “unanimous”. On the inflation path, the President noted that September inflation is likely to see a downtick on account of base effects before rising again in Q4. Despite attempts by journalists to extract information about easing intentions for the October meeting, Lagarde stated she would neither commit to a position or comment on how close the ECB is to R-star. Note, the account of the meeting will likely be deemed as stale by market participants given the shift in market pricing seen September 12th on account of soft survey data and inflation metrics.

10 Oct 2024 - 08:10- EquitiesEU Research- Source: Newsquawk