EUROPEAN EQUITY OPEN: Indices open higher amid a heavy corporate earnings slate; key US data out in the afternoon, while numbers from luxury giant LVMH are due afterhours

EUROPEAN OPEN:

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  OVERNIGHT: Stocks eventually recovered on Wall Street to go flat (see here), while the APAC session was mixed amid key holiday closures and following a flat lead from US, while Hong Kong markets outperform on return from holiday (see here).


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  EUROPEAN START: Equity indices have started on a solid footing. Earnings have been in focus; Tesla (TSLA) numbers and comments from CEO were constructive, and have helped risk sentiment; numbers from Europe’s STMicroelectronics (STM) were also cheered, although software maker SAP (SAP GY) is under pressure after its earnings update, with the wider tech complex also noting a disappointing update from International Business Machines (IBM) after hours on Wednesday. Elsewhere, Diageo (DGE LN) H1 sales estimates beat expectations. Ahead, numbers from luxury giant LVMH Moet Hennessy Louis Vuitton (MC FP) are due after hours, continuing the focus on corporate updates. In the afternoon part of the session, the narrative may be dominated by US data releases, amid a heavy slate today, including advanced data GDP for Q4 (see below for more).

DAY AHEAD:

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  EUROPEAN DATA: Italian consumer confidence is expected to marginally improve in January, as too is manufacturing confidence. UK CBI distributive trades are expected to slip into negative territory in January (analysts expect the headline to fall to -5 from +11).


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  US DATA: It’s a busy day for US data releases. Advance GDP data for Q4 is expected to cool sequentially, though is still seen as running hot relative to the Fed’s longer-term view for GDP growth, while many expect the pace of growth to fall off as the year progresses. We preview the GDP data in a bit more detail below. It is worth noting that the PCE component within this report is for Q4 as a whole; on Friday, the Specific data for December will be released, and will no doubt be an influential input into the Fed’s February 1st meeting. On the labour market front, weekly initial jobless claims are expected to pick up from last week’s levels – the initial claims print for last week fell to the lowest levels since September, and coincided with the survey period for the BLS’ establishment survey; this week’s continuing claims number will be the one that coincides with that survey window, and will help shape expectations for the January jobs data. On the housing front, New Home Sales data for December is expected to cool to a rate of 617k from 640k. The advanced goods trade balance for December and durable goods orders for December are released at the same time. Elsewhere, the Kansas City Fed’s manufacturing gauge for the month will be eyed following mixed regional manufacturing reports, where the Empire Fed Manufacturing survey disappointed to the downside (strongly), as did the Richmond Fed’s gauge, though the Philly Fed was a little better on the month. These regional surveys help traders form expectations of how the influential Manufacturing ISM Data will look, when it is released on February 1st (note: for both services and manufacturing, the ISM headline is now in contraction, as are their respective new orders sub-indices). Finally, the National Activity Index for November will be released.


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  US GDP PREVIEW (13:30GMT/08:30EST): Advanced GDP data for Q4 is expected to show growth of 2.6% (prev. 3.2%); that consensus view is more pessimistic than the Atlanta Fed's GDPnow forecast, which is tracking Q4 growth a 3.5%, although it is far hotter rate of growth than the 0.5% that the Fed has pencilled in for this year, and is even above the 1.8% growth rate that the Fed projects in the longer run. The policy implication is that a hot report, or even a report which shows growth above the pace that the Fed is forecasting, will likely keep officials at the central bank cautious into their February 1st meeting, where a 25bps rate hike is priced with near certainty by financial markets, and will give them more confidence in pursuing a hawkish line on normalisation. Ahead, the growth dynamic in the US is expected to worsen significantly, with many analysts projecting the economy will enter a recession. While policymakers have generally given constructive updates on the prospects for growth this year, arguing that a recession can be averted and the economy can achieve a soft landing. It is worth noting that these data will be released during the Fed's blackout window ahead of the January 31-February 1st FOMC meeting; the current base case implied by both market pricing and analyst forecasts is that the central bank will lift rates by 25bps. However, many have caveated that view around incoming data, suggesting that if there is an upside surprise within the PCE data, then pricing for 50bps could pick up once again.


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  CENTRAL BANK EVENTS: Minutes for the CBRT’s recent meeting (unchanged) as well as its inflation report are scheduled for release. South Africa’s Reserve bank is expected to hike its Prime Rate by 50bps to 7.50%. ECB officials enter the blackout window ahead of the February 2nd meeting (50bps hike expected); Fed officials are in blackout ahead of their February 1st meeting (25bps hike expected).


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  AUCTIONS: The US will round-off its note supply with a sale of 7s; the auction follows a solid sale of 2s and 5s on Tuesday and Wednesday, respectively. Elsewhere, Italy will be auction 2025 notes, as well as a 2033 linker.


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  ENERGY INVENTORIES: Weekly EIA NatGas Storage change data is expected to print a draw of 82bcf, matching last week’s drawdown.


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  EARNINGS: Today’s major US corporate earnings include Comcast (CMCSA), Visa (V) and Mastercard (MA), Intel (INTC). Full earnings estimates can be accessed here.


• Our full day ahead calendar can be accessed here. Our full daily earnings estimate sheet can be accessed here.

STOCK SPECIFIC NEWS:

• Our full equity specific briefings for January 26th can be accessed here and here.


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  TECH: Stateside, International Business Machines Corp (IBM) missed its annual cash target and will cut 3.9k jobs. SAP (SAP GY, 8.4% DAX weight) sales slightly missed expectations in Q4, although cloud revenues slightly beat; also announced it would cut 3k jobs and sell its stake in Qualtrics. STMicroelectronics (STM FP) saw a rise in Q4 sales, and profit jumped on auto and microcontroller strength. Nokia's (NOKIA FH) Q4 profits topped expectations on robust demand, and sees stronger cashflows in 2024. Fingerprint Cards (FINGB SS) said lower volumes would continue in H1 2023.


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  CONSUMER CYCLICAL: US EV maker Tesla (TSLA) rose 5.5% afterhours as CEO sounded bullish on demand in the earnings call; its results showed profits and revenues above expectations, although some analysts noted that auto gross margins fell to a five-quarter low.  Volvo (VOLVB SS) core profits were in line with expectations, and proposed additional dividend. Tod's (TOD IM) 2022 sales rose 14% to over EUR 1bln, and it said it had a strong start to 2023. Elior (ELIOR FP) revenue rises as it continues post-pandemic recovery.  Berenberg downgrades Schaeffler (SHA GY). RBC downgraded Boohoo (BOO LN).


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  CONSUMER STAPLES: Diageo (DGE LN) H1 sales estimates beat expectations, with operating profits rising 15%, while it is confident that Chinese consumers will return as COVID eases. Tate & Lyle (TATE LN) said Q3 was tracking consistent with H1, and its FY outlook was unchanged. Fevertree (FEVR LN) revenues jumped +11% Y/Y. Price hikes helped Essity (ESSITYB SS) to top Q4 profit expectations. RBC downgraded Ocado (OCDO LN).


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  INDUSTRIALS: Deutsche Bank upgrades Rolls-Royce (RR/ LN), downgrades Airbus (AIR FP). BAE Systems (BA/ LN) upgraded at SocGen. Getlink (GET FP) reported revenue rose to an all time high in 2022. Wizz Air (WIZZ LN) reported average fares rose in Q3 as bookings picked up. SGS (SGS SW) FY profits slipped and came in below consensus.


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  FINANCIALS: Sabadell (SAB SM) profits fell due to losses at its UK TSB unit. Bantleon reportedly lowered stake in GAM holdings (GAM SW). TP ICAP plc (TCAP LN) Q3 update noted fundraising of USD 2.8bln, deployed USD 4.1bln. IG Group (IGG LN) extended its share buyback, and sees FY in line with guidance. St James' Place (STJ LN) said it attracted GBP 3.87bln of new clients in the last quarter. Provident Financial (PFG LN) appoints new CEO, will change name to "Vanquis Banking Group." SEB (SEBA SS) will launch a SEK 1.3bln share buyback. Hiscox (HSX LN) upgraded at JPMorgan Chase.


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  COMMUNICATIONS:  Telia (TELIA SS) said it may increase prices, will cut around 1500 jobs this year.


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  ENERGY: Qatar reportedly in talks to join TotalEnergies' (TTE FP) USD 27bln Iraqi energy project. Libya's NOC to sign offshore gas exploration and production deals with Eni (ENI IM). Subsea 7 (SUBC NO) downgraded at JPMorgan Chase.


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  HEALTH CARE: Evotec (EVT GY) entered into a strategic oncology collaboration with Johnson & Johnson's (JNJ) Janssen Biotech. US FDA classified the recall of Getinge (GETIB SS) heart devices as its most serious type since their use could lead to death. NovoZymes (NZYMB DC) sales were up 18% in Q4, sees more modest growth in Q1. Sartorius (SRT GY) confirmed 22 targets.


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  REAL ESTATE: Foxtons (FOXT LN) trading update noted that H1 2023 was expected to be more challenging than 2022.

26 Jan 2023 - 08:10- Research Sheet- Source: Newsquawk