US EARLY MORNING: Cauious trading conditions are being seen ahead of today's CPI data, and as debt talks fail to yield any breakthrough

OVERNIGHT: On Wall Street, stocks trended lower on Tuesday with losses led by the Nasdaq 100, as Technology an underperformed, though stocks were generally lower across the board. Our US market wrap can be accessed here. Fiscal talks between President Biden and Congressional leaders did not yield any significant progress, but talks will continue throughout the week, and Biden will meet leaders again on Friday (see debt talks section, below). In the APAC session, stocks were mostly lower as the region digested a slew of earnings updates and following the weak handover from Wall Street. Aussie shares saw underperformance in financials, energy and telecoms but with losses stemmed by defensives and as participants mulled over the details of the recent federal budget. China stocks conformed to the global downbeat mood, while a report which said Chinese GDP growth was likely to pick up in Q2 due to policy support did little to spur risk appetite. Our Asia wrap is here. European equities open with mild gains; final German inflation data for April was unrevised. ECB speak was leaning somewhat dovish, with the ECB's German representative Nagel suggesting that the central bank's rate hike policy may be moving into the final stretch, even though there is further to go; this theme has been echoed by ECB's Stournaras, who thinks that rate rises will be over this year. Our European morning opening note is here.

US PRE-MARKETS: Ahead of today's key CPI data for April, US equity futures are mixed but not too far off flat, continuing the horizontal trading patterns seen since last month. Treasury yields are mixed, with the short-end a little higher, though long-end yields are moderately lower ahead of today's sale of 10yr notes. The Dollar Index is sub-neutral, albeit not by that much. Crude futures are in the red following a surprise build reported by the API afterhours on Tuesday. Debt talks in Washington failed to yield any breakthrough; talks will continue this week, and President Biden will meet Congressional leaders again on Friday (see below for more). Today's main event is the CPI report for April, and although the Fed is in a conditional pause regarding rate hikes, the data could sway that narrative if it comes in hotter than expected (our preview is below). On Tuesday, Fed's Williams struck a hawkish tone, warning that the central bank would resume hikes if the situation demanded.

US DEBT TALKS: Congress' leaders from both parties and President Biden did not make significant progress in their meeting to avoid a US debt default. Both parties did not compromise from their positions, and Biden and Senate leader Schumer claimed there was nothing to negotiate. Talks will continue during the week, and party leaders will begin discussing a possible budget and spending deal as soon as Tuesday evening, moving closer to pairing the debt limit with another major issue. Biden will meet House Speaker McCarthy, Senate Leader Schumer, Senate Minority Leader McConnell and House Minority Leader Hakeem Jeffries again on Friday. Biden said he was mulling the use of the 14th Amendment to circumvent the debt ceiling standoff, although he doubts its effectiveness and acknowledges that it would have to be litigated. Proponents of the idea argue that the Amendment makes it unconstitutional for the government to stop paying its debts. Treasury Secretary Yellen has previously said that the US should not be in a position where it needs to consider whether or not the 14th Amendment applies, describing that as a “disastrous situation that the country shouldn’t be in.”

PREVIEW - US CPI (13:30BST/08:30EDT): Headline CPI is seen rising +0.4% M/M in April, picking up from the 0.1% M/M pace in March; the annual measure is seen unchanged at 5.0%. Core inflation is seen rising 0.4% M/M in April, matching the rate of growth seen in March, while the annual measure of core inflation is seen easing a touch to 5.5% Y/Y (prev. 5.6%). JPMorgan and Goldman Sachs both think that If inflation is lower than expected on Wednesday, US stocks could rally if the data is lower than expected as traders will bet that the Fed will then stop rate hikes; if the annual rate of headline inflation comes in sub-5.0%, S&P could rally by at least 0.5% GS said, while any reading above 5.9% could drag stocks lower by at least 2%, writing that “the cooler the data the better for stocks right now.” Meanwhile, JPMorgan thinks that the most likely scenario is for CPI to print between 5.0-5.2%, which could see the S&P 500 rise by 0.5-0.75%; on the other side, it thinks that if inflation comes in above 5.5%, stocks could slide by more than 3.0%. This week, the influential NY Fed President Williams (who is also the FOMC Vice Chair) said that although the Fed had made significant progress in taking action to lower the high levels of inflation, it was too soon to say if the Fed is done with rate hikes, adding that policymakers would not hesitate to act if further action was required. Ahead of the data, money markets are suggesting that rates have already peaked, and are pricing around 63bps of cuts (implying two 25bps rate cuts, and a decent chance of a third) by the end of this year. Williams, however, said the Fed must keep a restrictive stance of policy in place for quite some time to make sure that inflation does come down to the 2% target, and in his baseline view, does not see any reason to cut interest rates this year.

DAY AHEAD:

• Our interactive Day Ahead calendar is here; a pdf version can be accessed here.


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  EUROPE DATA/SPEAKERS: German final inflation metrics for April are expected to be unrevised. Italian industrial output is seen rebounding in March after the decline in February. On the central bank front, Riksbank's Bunge will speak on economic developments. On the supply front, the UK will sell GBP 3.50bln of 2033 Gilts, while Germany will sell EUR 2.5bln 2053 and 2050 debt.


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  US DATA/SPEAKERS: The main event is the US CPI data for April, where the headline is expected to be unchanged at 5.0% Y/Y, while the core rate is expected to pare back to 5.5% Y/Y from 5.6% (a preview is in the section above). Elsewhere, Federal Budget data for April is due in the afternoon. Supply-wise, the US will sell USD 35bln of 10yr notes.


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  ENERGY: The API’s weekly inventory data reportedly showed headline crude stocks +3.62mln (exp. -0.9mln), Cushing stocks -1.3mln, gasoline +0.4mln (exp. -1.2mln), distillate -3.9mln (exp. -0.8mln). ING said that overall, the numbers were neutral to slightly bearish, given the larger-than-expected build in crude. The DoE weekly data will be released later today.


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  US CORPORATE EARNINGS: The highlights on today earnings slate includes DIS; our Daily US Earnings Estimates note can be accessed here. Meanwhile, JD will report numbers on Thursday; our Weekly US Earnings Estimates sheet can be accessed here.

EQUITY NEWS:

TECH:

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  Oracle (ORCL), Microsoft (MSFT) - Oracle and Microsoft are talking about an agreement to rent servers to each other if they run out of computing power for customers using large-scale AI, The Information reports. This would help both companies meet the high demand for servers that can run AI software. Additionally, Oracle is working on an AI strategy to improve its core software products and may sell AI software to cloud customers in the future.


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  Taiwan Semiconductor Manufacturing (TSM) - April sales TWD 147.9bln (prev. 145.4bln M/M). In April TSM forecast -16% in sales for Q2 as consumers grapple with an inventory glut, while the weakening global economy clouds demand outlook, Reuters said.


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  SoftBank (SFTBY) - SoftBank is close to selling its asset manager Fortress Investment Group to Abu Dhabi sovereign wealth fund Mubadala for up to USD 3bln, FT reports. The deal would make Mubadala one of the largest credit investors in the world, with nearly USD 50bln in AUM. SoftBank acquired control of Fortress for USD 3.3bln in 2017. Separately, Softbank will buy back up to 1.19% of shares for JPY 100bln.


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  Software AG (STWRY) - Software confirmed the receipt of another non-binding offer from Bain's Rocket Software, but said it is not a superior offer. Software AG continues to support Silver Lake's offer.


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  Uber (UBER) - Uber is adding flight bookings to its app in the UK, as part of its efforts to become a “super app” for travel, FT reports. The new tool will allow customers to book a complete journey using different types of transportation.


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  Akamai (AKAM) - Q1 adj. EPS 1.40 (exp. 1.32), Q1 revenue USD 916mln (exp. 910.5mln). Said its security segment became its largest revenue stream in the quarter. Sees Q2 adj. EPS between USD 1.38-1.42 (exp. 1.34), and sees Q2 revenue between USD 923-937mln (exp. 918.5mln). Lifts FY23 adj. EPS outlook, now sees 5.69-5.84 (exp. 5.47) from 5.40-5.60, and lifts FY23 revenue outlook to between USD 3.74-3.785bln (exp. 3.7bln) from 3.7-3.78bln.


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  Affirm (AFRM) - Q3 EPS -0.69 (exp. -0.92), Q3 revenue USD 380.98mln (exp. 369.6mln). Q4 revenue seen between UDS 390-415mln (exp. 389.7mln), and Q4 GMV seen between USD 5.2-5.35bln. For the FY23, revenue is seen between USD 1.532-1.557bln (exp. 1.52bln), and FY23 GMV seen between USD 19.89-20.04bln.


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  RingCentral (RNG) - Q1 adj. EPS 0.76 (exp. 0.69), Q1 revenue USD 534mln (exp. 527.9mln). Lifts FY23 EPS outlook to USD 3.19-3.25 (exp. 3.07) from 3.04-3.10; lifts FY23 revenue view to USD 2.187-2.205bln (exp. 2.2bln) from USD 2.18-2.2bln.


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  Eventbrite (EB) - Q1 EPS -0.13 (exp. -0.14), Q1 revenue USD 78mln (exp. 74.25mln). Narrows FY23 revenue view to USD 317-330mln (exp. 323.9mln) from USD 312-330mln.


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  Toast (TOST) - Q1 EPS -0.16 (exp. -0.17), Q1 revenue USD 819mln (exp. 764mln). Q2 revenue seen between USD 920-950mln (exp. 906mln). Lifts FY23 revenue outlook to USD 3.71-3.8bln (exp. 3.65bln).

COMMUNICATIONS:

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  Verizon (VZ) - Verizon and Vertical Bridge partner to build new cell towers in the US, expanding Verizon's 4G and 5G services. The towers will be owned by Vertical Bridge, but Verizon will be the main tenant and get a share of the profits.


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  Electronic Arts (EA) - Q4 adj. EPS -0.04 (exp. 1.31), Q4 revenue USD 1.87bln (exp. 1.76bln). Sees Q1 EPS of 0.95 (exp. 0.96), and sees revenue at USD 1.55bln (exp. 1.58bln). For the FY24, sees EPS around 6.54 (exp. 6.46), and revenue between USD 7.30-7.70bln (exp. 7.5bln)


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  Endeavor Group (EDR) - Q1 EPS 0.03 (exp. 0.31), Q1 revenue USD 1.6bln (exp. 1.57bln). Sees FY23 revenue between 5.665-5.815bln (exp. 5.9bln), and sees adj. EBITDA between USD 1.22-1.275bln; the updated guidance reflects expected sale of IMG Academy. Adds that it will begin paying a quarterly cash dividend.


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  Twilio (TWLO) - Q1 2023 (USD): Adj. EPS 0.47 (exp. 0.21), Revenue 1.01bln (exp. 1bln). Sees Q2 revenue of USD 985mln (exp. 1.05bln), and sees Q2 EPS between 0.27-0.31c (exp. 0.29). For the FY23, lifts the bottom-end of its adj. income from operations guidance range.


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  Angi (ANGI) - Q1 revenue USD 392.4mln (exp. 384.5mln), Q1 net cash provided by operating activities was USD 19.1mln (+19.8mln Y/Y). Raises FY EBITDA view.


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  IAC (IAC) - Q1 adj. EBITDA USD 9.1mln (vs 7.7mln Y/Y), Q1 revenue USD 1.08bln (exp. 1.07bln). Sees FY23 adj. EBITDA between USD 320-440mln. Exec said Dotdash Meredith still faces a challenging advertising market, but it is starting to see stability for the first time since the acquisition of Meredith.

CONSUMER:

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  Tesla (TSLA) - Factory in Texas has increased its production rate to 5,000 Model Y units per week, meaning it can make about 250,000 cars annually, Teslarati reported. That would be a 20% increase M/M. The report said that although Tesla has not announced this officially, photos show the company celebrating this achievement with a special logo.


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  Toyota Motor (TM) - FY22/23 net profit -14% to JPY 2.45tln, operating profit -9% Y/Y to JPY 2.73tln. Will buy back up to JPY 150bln of its shares. For Q4, it reported net income of JPY 552.3bln (exp. 534.8bln), and operating income of JPY 626.9bln (exp. 535.9bln). Ahead, sees FY23/24 global group-wide retail sales of 11.38mln vehicles, net profits of JPY 2.58tln (exp, 2.76tln), and operating income of JPY 3.0tln (exp. 3.0tln).


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  Airbnb Inc (ABNB) - Q1 adj. EPS 0.18 (exp. 0.09), Q1 revenue 1.80bln (exp. 1.79bln). Exec notes it is now twice the size as it was before the pandemic on both a GBV and revenue basis, with considerably higher profitability and cash flow. Approves new share repurchase of up to USD 2.5bln. Q1 gross booking value USD 20.4bln (exp. 20.1bln), Q1 nights and experiences booked 121.1mln (exp. 122.3mln), Q1 gross booking value per nights and experiences booked USD 168.43 (exp. 164.50). Sees Q2 revenue between USD 2.35bln-2.45bln (exp. 2.42bln), Q2 adj. EBITDA seen at similar levels to Q2 2022 on a nominal basis but lower on a margin basis, and sees Q2 ADR slightly lower Y/Y.


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  Wynn Resorts (WYNN) - Q1 adj. EPS 0.29 (exp. -0.01), Q1 revenue USD 1.42bln (exp. 1.37bln). Exec said that for the first time in over three years, each of its resorts was generating strong financial results; Wynn Las Vegas and Encore Boston Harbour generated a new all-time record for Adjusted Property EBITDAR at its combined North American properties during the quarter. And in Macau, it saw a meaningful return of visitation and demand. Q1 Palace Hotel occupancy 88.1% (exp. 51.1%, prev. 47.2% Y/Y); Q1 Macau Hotel occupancy 90.9% (exp. 53%, prev. 49.8% Y/Y); Q1 Las Vegas Local Hotel occupancy 88.8% (exp. 90.3%, prev. 76.9% Y/Y). It resumes dividend payments, will pay a rate of USD 0.25/shr (analysts note it was USD 1.00 pre-pandemic).


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  Continental (CTTAY) - Saw earnings rise 35% on strong quarter for automotive. Q1 adj. EBIT Margin 5.6% (exp. 4.9%), Q1 revenue EUR 10.3bln (exp. 10.1bln). Confirms guidance.


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  H&R Block (HRB) - Q3 adj. EPS 4.20 (exp. 4.46), Q3 revenue USD 2.094bln (exp. 2.1bln). Exec said tax season 2023 was not the return to normal as anticipated post-pandemic. Consumers adjusted to smaller refunds, and many shifted to balance due. The industry contracted as those not required to file didn't, and there was an impact from the IRS' extending the filing deadline in certain states. Lowers FY23 adj. EPS outlook to 3.65-3.80 (exp. 3.82) from 3.70-3.95, and lowers FY23 revenue view to between USD 3.44-3.465bln (exp. 3.5bln) from 3.535-3.585bln.


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  Rivian Automotive (RIVN) - Q1 2023 adj. EPS -1.25 (exp. -1.59), Q1 revenue 661mln (exp. 652mln); still sees production of 50k vehicles (exp. 51,462). For the FY23, still sees adj. EBITDA loss of USD 4.30bln (exp. loss 4.38bln), and still sees CapEx at USD 2.00bln (exp. 2.01bln).


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  Grocery Outlet (GO) - Q1 adj. EPS 0.27 (exp. 0.23), Q1 revenue USD 965.5mln (exp. 949mln), Q1 comparable store sales +12.1%, driven by +7.9% in the number of transactions, and +3.9% increase in average transaction size. Lifts FY23 EPS outlook to 0.96-1.00 from the prior view of 0.94-0.99, and sees FY23 revenue around USD 3.9bln (exp. 3.9bln); also lifts FY23 comparable store sales guidance to 5-6% from 4.5-5.5%.


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  Compass (COMP) - Q1 EPS -0.33 (exp. -0.34), Q1 revenue USD 957mln (exp. 905.3mln). Q2 revenue seen between USD 1.45-1.6bln (exp. 1.5bln). Expects to be free cash flow positive for FY23.


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  Dutch Bros (BROS) - Q1 adj. EPS 0.00 (exp. 0.01), Q1 revenue USD 197.3mln (exp. 209.1mln). Q1 system same shop sales -2.0%, company-operated same shop sales -3.5%. Reiterates FY23 revenue outlook between USD 0.95-1.00bln (exp. 986.9mln), and FY23 same shop sales growth of low single digits.

MATERIALS:

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  Celanese Corp (CE) - Q1 adj. EPS 2.01 (exp. 1.64), Q1 revenue USD 2.85bln (exp. 2.86bln). Exec said Q1 demand meaningfully recovered from exceptionally poor conditions in Q4. Added that so far across April and May, underlying demand improvement over March has been immaterial, not yet substantive enough to support any pricing expansion. Sees Q2 EPS of 2.50 (exp. 2.97), which is inclusive of approximately USD 0.30/shr of M&M transaction amortisation.


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  Teck Resources (TECK), Glencore (GLNCY) - A consortium led by Pierre Lassonde has proposed purchasing Teck Resources’ metallurgical coal unit; Lassonde said Teck wants to move forward, and have something done in 8-12 weeks, The Times reports. Glencore’s USD 23bln offer was rejected in April, though the Co. has continued to express an interest in the unit.

ENERGY:

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  Occidental Petroleum Corp (OXY) - Q1 adj. EPS 1.09 (exp. 1.24), Q1 revenue USD 7.26bln (exp. 7.37bln). Saw a boost in Q1 oil and gas daily output to 1.22mln BPD (vs 1.08mln Y/Y) on higher production at its Permian operations. Raises FY production guidance by 20k bbls, to 1.22mln BPD. Said it triggered the redemption of USD 647mln of preferred stock, is initiating next phase of shareholder return framework.


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  BP (BP), Repsol (REPYY), Shell (SHEL) - UK's Unite union announced that 1,200 offshore workers will conduct a 48-hour strike in a dispute over jobs, pay and conditions with the strike action to hit various operators including Apache, BP, Shell, Repsol and others.

INDUSTRIALS:

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  Alstom (ALSMY) - Sees higher margins ahead, but has delayed mid-term targets. FY sales EUR 16.5bln (exp. 16.5bln), adj. EBIT EUR 852mln (exp. 848mln), orders EUR 20.6bln (exp. 19.8bln), adj. net EUR 292mln (exp. 300mln). FY23/24 outlook sees significantly positive free cash flow, sales growth consistent with mid-term guidance, book-to-bill ratio over 1. Proposing a 0.25/shr dividend (exp. 0.29/shr).


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  ZipRecruiter (ZIP) - Q1 EPS 0.05 (exp. -0.02), Q1 revenue USD 183.7mln (exp. 179.7mln). Exec said that given the evolving and uncertain macroeconomic environment, it is not providing annual revenue guidance. Exec said macroeconomic environment remains highly uncertain and so far in 2023 we have seen online job postings soften further. However, it was able to maintain FY adj. EBITDA view of USD 185mln at the midpoint. Additionally, announced a USD 100mln share buyback.


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  Axon Enterprise (AXON) - Q1 adj. EPS 0.88 (exp. 0.54), Q1 revenue USD 343mln (exp. 318.6mln). Raises FY23 revenue view to USD 1.44-1.46bln (prev. at least 1.43bln), which reflects Y/Y growth of 22% (prev. +20%).

FINANCIALS:

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  Credit Agricole (CRARY) - Earnings topped expectations on boost to trading sales. Q1 revenue EUR 6.12bln (Exp. 5.85bln), net income EUR 1.23bln (exp. 723mln). CIB revenue EUR 2.05bln (+19% Y/Y). Operating Expenses EUR 3.84bln (+1.9% Y/Y). Exec said the Group recorded a strong commercial activity over the quarter across all business lines.


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  ABN AMRO (AAVMY) - Saw higher than expected Q1 profits, helped by lending income. Q1 profit EUR 523mln (exp. 372.3mln). Loan-loss provisions EUR 14mln (exp. 143mln). Said net interest income increased significantly as deposit margins went up and volumes grew compared with Q1 2022 and Q4 2022.


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  SVB Financial (SIVB) - Files for non-timely 10-Q with US SEC, while Co.'s limited staff is dedicated to exploring strategic alternatives for remaining businesses and meeting requirements related to Chapter 11 case.


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  Lincoln National Corp (LNC) - Q1 adj. EPS 1.52 (exp. 1.90), Q1 revenue USD 3.81bln (exp. 4.7bln). Exec said it made substantial progress in rebuilding capital, and increased ongoing pace of capital generation.


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  Upstart (UPST) - Q1 adj. EPS -0.47 (exp. -0.81), Q1 revenue USD 103mln (exp. 109mln). Sees Q2 revenue around USD 135mln (exp. 133.2mln), and sees Q2 adj. EBITDA roughly breakeven (exp. -11mln).

HEALTHCARE:

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  Syneos Health (SYNH) - A consortium that includes Elliott Investment Management, Patient Square Capital and Veritas Capital is in advanced talks to acquire Syneos Health, Bloomberg reports. A deal for the drug-research services company could be announced as soon as this week. No final decision has been made, and talks could still fall through.


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  Exact Sciences (EXAS) - Q1 EPS -0.42 (exp. -0.75), Q1 revenue USD 602.5mln (exp. 543.5mln). Lifts FY23 outlook to USD 2.38-2.42bln (exp. 2.3bln) from USD 1.66-1.69bln; guidance assumes screening revenues of between USD 1.770-1.795bln, precision Oncology revenue of USD 605-620mln, COVID-19 testing revenue of USD 5mln. Sees positive cashflow in 2023 (prev. was targeting 2024)


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  Alcon (ALC) - Q1 EPS 0.70 (exp. 0.60), Q1 revenue USD 2.33bln (exp. 2.2bln). Reiterates FY23 EPS outlook for 2.55-2.65 (exp. 2.59), and its FY23 revenue outlook for between USD 9.2-9.4bln (exp. 9.3bln).

10 May 2023 - 09:00- EquitiesData- Source: Newsquawk