US EARLY MORNING: Equities are a touch higher, and Treasuries are rallying ahead of today's ADP jobs data, quarterly refunding, Services ISM, and the key FOMC meeting

OVERNIGHT: On Wall Street, Tuesday saw a risk-off trade with a focus on regional banking, leading to vast losses, with the regional banking ETF closing down over 6%. The latest JOLTS was cooler than expected, leading to fresh buying on haven demand and a dovish move in money market pricing, with markets pricing in a 25bps hike from the Fed with 85% certainty. Our US wrap is here. Most Asia-Pacific stocks were negative due to losses on Wall Street ahead of the FOMC rate announcement and regional bank jitters. The ASX 200 and KOSPI declined due to weak data releases, while the Hang Seng was pressured by weakness in energy and tech sectors, with traders expecting a rate hike from the Fed and a similar move by the HKMA. The RBNZ Financial Stability Report said NZ's financial system is well placed to handle the higher interest rate environment and international financial disruptions; data showed New Zealand HLFS Job Growth +0.8% Q/Q in Q1 (exp. 0.4%). Our APAC wrap can be accessed here. European equity indices open with gains amid a heavy slate of corporate earnings. There were constructive updates in the financial sector, with numbers from BNP (BNP FP), UniCredit (UCG IM) and Lloyds (LLOY LN), helping the risk mood this morning – these updates follow other well received updates from Europe’s banking sector in this earnings season. Our European morning equity open note can be accessed here. 

US PRE-MARKETS: US equity futures are trading in positive territory, Treasury yields are rallying (though headlines point out that 2-month Bills are rising in London trade despite the rally in Treasuries – perhaps alluding to some debt ceiling related concerns). The Dollar Index is slightly lower. Today, it is all about the Federal Reserve’s policy announcement, where a 25bps rate rise is the base case to 5.00-5.25%. However, traders will be focussed on whether the central bank signals that hikes have now concluded (are on a data-dependent pause); a pause would be in keeping with its March projections, where participants estimated the terminal rate would sit in the 5.00-5.25% bracket (5.1%). Powell will also be quizzed on market pricing for rate cuts (rate markets currently assume the Federal Funds Rate target will close out this year at between 4.25-4.50%). Analysts also note that the Fed has historically stayed at terminal for between 3-15 months, with the average being around 6.5 months; if the historical playbook is used, then traders might expect rate cuts by the end of the year. It is unlikely the Fed boss will endorse this view, and he will likely caveat the central bank’s future policy around data. Traders will also want to get Chair Powell’s view on the most recent banking sector jitters, a WSJ report recently suggested that officials would be considering the market reaction to regulators’ response. On Tuesday, regional banks slid amid concerns that while officials would be likely to protect deposits of failing institutions, equity and debt holders would likely be wiped out. The KRE index of regional banks found stability in afterhours trade, closing around flat levels after the 6.3% loss in regular trading hours. Before the Fed, the ADP’s gauge of payroll growth in the US will be eyed, and analysts are generally expecting a sequential cooling in the rate of jobs growth going forward, as reflected in other labour market metrics, like JOLTs data released on Tuesday; it will be curious to see the market reaction, given it appeared at one point after yesterday’s JOLTs data that equity traders were more focussed on the growth implications, while fixed income traders were more tuned into the immediate rate implications.

DAY AHEAD: 

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


• Another thin slate in Europe; the highlight is labour market data for March, where the Eurozone unemployment rate is seen unchanged at 6.6%.


• The labour market theme will continue into the US Day, where the ADP national employment data will contribute to our expectations of the more widely followed official BLS jobs data out on Friday; analysts expect ADP to print 150k vs 145k previously.


• The US quarterly refunding announcement is not expected to ruffle too many feathers ahead of the ISM services data due after the open; the street expects slight upside in the ISM release.


• The main event of the day is the FOMC meeting (our full preview is here), where a 25bps rate hike is expected, and traders will be on the lookout for any guidance on whether the Fed is now to pause monetary policy tightening (our full Fed preview can be accessed here).


• On the corporate earnings front, numbers are today due from CVS, EL, MELI, QCOM, EQIX, PSA; our Daily US Earnings Estimates sheet can be accessed here. Later this week, MRNA, REGN, COP, MNST, AAPL, BKNG and CI are due; our Weekly US Earnings Estimates sheet can be accessed here.

EQUITY NEWS:

TECH:

• 
  Advanced Micro Devices Inc (AMD) - AMD saw top- and bottom-line beats, but traders noted that Data Centre Revenues missed expectations, with chip sales falling 64%, and its stock declined over 6% afterhours. Q1 adj. EPS 0.60 (exp. 0.56), Q1 revenue USD 5.35bln (exp. 5.3bln). Q1 Data centre revenue USD 1.30bln (exp. 1.46bln); Gaming revenue USD 1.76bln (exp. 1.53bln); Client revenue USD 739mln (exp. 908.3mln); Embedded revenue USD 1.56bln (exp. 1.42bln). Exec said demand environment was mixed. Expects sequential growth in data centre and client segments will be offset by modest declined in gaming and embedded segments for Q2. Remains confident in H2 as PC and server markets strengthen and new products ramp. CEO said server demand was expected to remain mixed in Q2; AMD well positioned to grow cloud and enterprise footprint in H2. Expects client CPU sales to grow in Q2 and the seasonally stronger second half of the year. Guides Q2 sales between USD 5.0bln-5.6bln (exp. 5.51bln), and guides initial FY23 data centre and embedded segments to grow Y/Y. CEO is seeing signs of improvements in the China market, and said Q1 was the bottom for AMD business and the overall market; expects to see double-digit data centre growth in H2, and will begin ramping revenue for MI300 in Q4 with cloud AI customers and will be more meaningful in 2024.


• 
  Amazon.com, Inc. (AMZN) - The consumer discretionary company plans to revamp Alexa with more ChatGPT-like generative-AI features, Business Insider reports. One of its ideas is to add entertainment features for Prime Video search and recommendations. It also wants to make storytelling and news-reading apps more interactive.


• 
  Nvidia (NVDA) - Lowers the price of its best graphics card, the RTX 4090, but only in Europe and only the Founders Edition GPU is affected, according to Digital Trends.


• 
  Super Micro Computer (SMCI) - Q3 adj. EPS 1.63 (exp. 1.71), Q3 revenue USD 1.28bln (exp. 1.39bln). Exec said it continued to see record levels of "engagements" in its new product lines, especially for AI applications; it secured several new and large design wins, is deploying leading GPU clusters. "With the recent new key components supply chain challenges mostly in the rear-view mirror and production normalizing, we expect to gain share and expand scale as we emerge as the true leader for rack-scale Total IT Solutions." Q4 adj. EPS seen between 2.21-2.71 (exp. 2.09), Q4 net sales seen between USD 1.7-1.9bln (exp. 1.6bln). Backs FY23 adj. EPS view between USD 10.50-11.00 (exp. 10.25), and its FY23 revenue outlook between USD 6.6-6.8bln (exp. 6.7bln).


• 
  Unity Software (U) - Is to lay off around 600 employees (8% of its workforce), and plans to reduce its global network of offices to fewer than 30 from 58, WSJ reports. The report notes that this is Unity's third and largest round of layoffs in response to negative economic trends; the cuts also reflect the need to deal with a duplication of roles resulting from its USD 4.4bln acquisition of ad-tech company ironSource last year.


• 
  Paycom Software Inc (PAYC) - Q1 EPS 2.46 (exp. 2.35), Q1 revenue USD 0.451bln (exp. 0.44bln). Exec said Q1 results "were excellent, with robust revenue growth from new clients and expanding margins, as demand for automation and our easy-to-use HCM solutions continues to increase." Sees FY revenue between USD 1.713-1.715bln (exp. 1.7bln).


• 
  Jack Henry & Associates Inc (JKHY) - Q3 EPS 1.12 (exp. 1.10), Q3 revenue USD 508.6mln (exp. 501.6mln). Exec said that despite the disruptions in the banking industry, it continued to experience great demand for Jack Henry financial technology solutions. FY23 revenue view 2.05-2.06bln (prev. 2.05-2.06bln, exp. 2.05bln).

COMMUNICATIONS:

• 
  Match Group Inc (MTCH) - Q1 EPS 0.42 (exp. 0.41), Q1 revenue USD 787.1mln (exp. 794.5mln). Exec said that given its significant levels of cash flow, expects to return at least half to shareholders over the next few years; Board authorised a new USD 1bln share buyback programme. Is seeing early signs in April that the changes at Tinder are leading to greater momentum, which should position it to exit 2023 with much improved financial performance. Sees Q2 sales of USD 810mln (exp. 824mln).


• 
  Lumen (LUMN) - Q1 adj. EPS 0.10 (exp. 0.06), Q1 revenue USD 3.74bln (exp. 3.72bln). Exec said it was early in its turnaround, but it has already seen positive leading indicators. Reiterates FY23 adj. EBITDA outlook between USD 4.6-4.8bln.

FINANCIALS:

• 
  Morgan Stanley (MS) - Morgan Stanley is reportedly in discussions with US authorities to resolve federal investigations into its block trading business, FT reports. The investigations by the SEC and AG in Manhattan are among the most significant legal probes the bank has faced recently. MS is was engaged in discussions regarding potential resolution, according to a filing, but cautioned that there was no guarantee of a resolution.


• 
  Western Union (WU) - Q1 adj. EPS 0.43 (exp. 0.34), Q1 revenue USD 1.04bln (exp. 999mln). Exec noted that revenue remained below its long-term aspirations, but saw a significant improvement in trajectory vs Q4 in many key markets; notes ongoing momentum in digital business, with 14% growth in our new branded digital customer base, which accelerated global branded digital transaction growth to 7%. Sees FY23 adj. EPS between 1.55-1.65 (exp. 1.58), and sees FY23 GAAP revenue falling between -9% and -7% (exp. 4.1bln).


• 
  Prudential Financial Inc (PRU) - Q1 adj. EPS 2.66 (exp. 2.93), Q1 AUM 1.42tln, Q1 adj. operating income pre-tax 1.27bln (exp. 1.43bln). EPS miss was driven by lower variable investment and fee income, as well as elevated seasonal mortality.


• 
  BNP Paribas (BNPQY) - Profits doubled in the quarter after Bank of the West sale, and it confirmed FY targets. Q1 revenue EUR 12.0bln (exp. 12.068bln), Q1 FICC Sales & Trading Revenue EUR 1.91bln (+9% Y/Y), Q1 CIB achieved very good results, driven by strong client activity in all its business lines. Business drive was very strong, leveraging a diversified and integrated model to meet clients’ needs.


• 
  UniCredit (UNCRY) - Raised guidance after a strong quarter, while CEO said some M&A targets made no sense at current levels. Q1 revenue EUR 5.93bln (exp. 5.36bln), Q1 net EUR 2.06bln (exp. 1.37bln). Raises its FY23 adj. net revenue and NII guidance.


• 
  Lloyds (LYG) - Q1 profits top forecasts, maintains guidance. Q1 statutory pre-tax profit GBP 2.26bln (exp. 2.04bln). Q1 NIM 3.22% (exp. 3.28%). Q1 operating costs GBP 2.17bln (exp. 2.19bln). Maintains guidance.


• 
  Assurant Inc (AIZ) - Q1 revenue USD 2.64bln (exp. 2.58bln), Q1 net premiums earned +6% Y/Y at USD 2.27bln (exp. 2.19bln). Saw better results in its Global Housing unit. Reaffirms FY guidance, and expects to resume share buybacks later in Q though at modest levels, given the market volatility.

REAL ESTATE:

• 
  Simon Property Group Inc (SPG) - Q1 FFO/shr 2.74 (exp. 2.80), Q1 revenue USD 1.35bln (exp. 1.24bln); raises quarterly dividend +8.8% to 1.85/shr (prev. 1.70shr). Raises FY23 guidance: FFO/shr seen between 11.80-11.95 (exp. 11.93) from 11.70-11.95.


• 
  Welltower Inc (WELL) - Q1 EPS 0.05 (exp. 0.12). Sees FY23 EPS between 0.57-0.72 (exp. 0.67).


• 
  Extra Space Storage Inc (EXR) - Q1 core FFO/shr 2.02 (exp. 2.07), Q1 revenue USD 503.1mln (exp. 510.9mln). Sees FY23 core FFO/shr between 8.30-8.60 (exp. 8.51).

CONSUMER CYCLICAL:

• 
  Starbucks Corp (SBUX) - Reported top- and bottom-line beats in Q2 as China SSS sees return to growth. Q2 adj. EPS 0.74 (exp. 0.65), Q2 revenue USD 8.7bln (exp. 8.4bln). Q2 Comp. sales +11% (exp. +7.33%); North America comp. sales +12% (exp. +9.03%); US comp. sales +12% (exp. +8.91%); International comp. sales +7% (exp. +1.51%). Said that during quarter ended April 2nd, China market began recovering from pandemic-related business interruptions; China comp. sales +3% (exp. -9.86%). Reaffirming FY guidance, with US comparable sales growth expected between +7-9%. Exec said EPS growth will be meaningfully lower than its annual guidance range of +15-20%, while Q4 EPS growth is expected above the high-end of guidance range.


• 
  Yum China (YUMC) - Q1 adj. EPS 0.69 (exp. 0.46), Q1 revenue 2.92bln (exp. 2.81bln); Q1 SSS +8% Y/Y. Exec noted that Q1 sales rebounded significantly Y/Y and sequentially, while margins also improved, benefitting from sales leveraging, cost structure rebasing, temporary relief from the government and landlords. However, Exec adds that it is still in the early stages of recovery. Sales during the CNY trading period were buoyed by pent-up travel demand, yet same-store sales post-CNY have remained at teens level below 2019. The pace and the trajectory of the recovery remain uncertain, given the challenging macroeconomic conditions and the lingering effects of the pandemic.


• 
  Nike (NKE), Adidas (ADDYY) - Nike and Adidas are among the companies US lawmakers query over allegations its products use forced Chinese labour.


• 
  Ford Motor Co (F) - Q1 results topped expectations, but shares fell afterhours, which Barron's said was a result of economic worries as investors remain wary of highly cyclical auto stocks when many are predicting recession in the coming months, noting a similar scenario was seen after General Motors (GM) reported its Q1 numbers. Ford’s Q1 adj. EPS 0.63 (exp. 0.41), Q1 revenue USD 41.5bln (exp. 36.08bln). Q1 saw the automaker split-out sales results from its three key divisions: Ford Blue (ICE unit) revenue +21% to USD 25.1bln; Q1 Ford Model e (EVs) Q1 revenue USD 700mln; Ford Pro (commercial unit) revenue +28% to USD 13.2bln. Exec said profitability was enhanced by favourable mix of products, higher net pricing increased volume and was broadly based geographically. Reaffirms FY forecast. Still sees FY adj. EBIT USD 9bln-11bln (exp. 9.52bln). Restates forecast of a 5% decline in prices through the year, will make appropriate adjustments to production to control inventories. CFO said it was on track for Model E vehicles to be EBIT-margin positive by end-2024. Expects to see pricing pressures this year as sales volumes normalise.


• 
  Porsche AG (POAHY) - Saw record deliveries in Q1 and operating profit surged 25%. Q1 revenue EUR 10.1bln (exp. 10.5bln), operating profit EUR 1.84bln, return on sales 18.2%. Reaffirms FY23 guidance of hitting a Return on Sales of 17-19% on revenue of EUR 40-42bln.


• 
  Stellantis (STLA) - Sales rise 14% in Q1, exec said demand was holding up well in Europe, and it confirmed its guidance. Q1 revenue EUR 47.2bln (exp. 45.81bln). Initiated a EUR 1.5bln share buyback. Says increased due to higher shipments and strong net pricing. Short term pricing should be relatively stable, clear this is dependent on order intake. Strong portfolio in Europe, seeing some improvement in N. American market share. Do not think Chile’s plan to nationalise lithium industry will be a significant problem.


• 
  Aston Martin Lagonda (ARGGY) - Q1 performance was in line with expectations, and maintained FY guidance. Q1 EUR revenue 295.9mln (exp. 299.5mln). Net PBT GBP -74mln (prev. -112mln).


• 
  Caesars Entertainment Inc (CZR) - Q1 EPS -0.63 (exp. -0.01), Q1 revenue USD 2.80bln (exp. 2.76bln), Q1 EBITDA USD 958mln (exp. 920mln). Exec said performance was led by a new Q1 adj. EBITDA record in Las Vegas, while its regional segment remained consistent with prior quarters, especially when excluding the impact of bad weather in northern Nevada during the quarter. Digital segment was nearly break even despite launching operations in Ohio and Massachusetts.


• 
  Flutter (PDYPY) - Q1 revenues rise 29%, but US sales were up 92%, and it said it remains firmly on track for US profitability in FY23. Average Monthly Players +30% at 12.3mln in Q1. Revenue growth +46% to GBP 2.4bln.


• 
  Pandora (PANDY) - Raised guidance after Q1 sales top expectations. Q1 revenue DKK 5.85bln (exp. 5.71bln), Q1 EBIT DKK 1.26bln (exp. 1.21bln). Raises the mid-point of its FY23 revenue guidance. Says current trading in Q2 has been resilient so far, with underlying LFL trends broadly similar to Q1.


• 
  Bright Horizons (BFAM) - Q1 adj. EPS 0.49 (exp. 0.39), Q1 revenue USD 554mln (exp. 530.3mln). Reiterates FY23 EPS outlook between 2.80-3.00 (exp. 2.84), and its FY23 revenue outlook between USD 2.3-2.4bln (exp. 2.3bln).


• 
  Camping World (CWH) - Q1 EPS 0.05 (exp. -0.06), Q1 revenue USD 1.5bln (exp. 1.48bln), Q1 same store used vehicle unit sales +7.0%, Q1 same store new vehicle unit sales -30.6%. Exec said that despite softer new vehicle demand, it saw record setting gross profit performance in used vehicles and Good Sam Services and Plans.

CONSUMER STAPLES:

• 
  PepsiCo, Inc. (PEP) - Raises quarterly dividend +10% to USD 1.265/shr (prev. USD 1.15/shr).


• 
  AB InBev (BUD) - Plans to boost marketing on Bud Light.


• 
  Clorox Co (CLX) - Q3 adj. EPS 1.51 (exp. 1.22), Q3 revenue USD 1.92bln (exp. 1.82bln). Q3 organic sales +8% (exp. 3%). Sees FY23 EPS between 4.35-4.50 (exp. 4.30) from 4.05-4.30, and sees organic growth of between +3-4% (exp. +1.9%).


• 
  Herbalife Nutrition (HLF) - Q1 adj. EPS 0.54 (exp. 0.65), Q1 revenue USD 1.3bln (exp. 1.2bln). Is not providing guidance given the continued dynamic macroeconomic backdrop. Exec said capital allocation priorities remain unchanged. Announced senior executive leadership changes: Mark Schissel to retire in July, Frank Lamberti to be appointed COO.

INDUSTRIALS:

• 
  Airlines - DoT Secretary told airlines the Biden administration will not extend the July 1st retrofit deadline for 5G C-band. Secretary Buttigieg noted that airlines had made progress, but urged them to work aggressively to continue retrofitting airplanes, Reuters reported.

MATERIALS:

• 
  Axalta Coating (AXTA) - Q1 EPS 0.27 (exp. 0.31), Q1 revenue USD 1.28bln (exp. 1.24bln). Exec said he expects operating income to continue to improve given momentum in price-cost and earnings recovery in Mobility Coatings. In Performance Coatings, expects that continued focus on price should more than offset softer demand in Industrial, while Refinish is set for another record year of profitability. Sees Q2 adj. EPS 0.34-0.40 (exp. 0.39), and sees Q2 revenue growth of 7-10% (exp. 1.3bln).


• 
  Ashland (ASH) - Q2 adj. EPS 1.43 (exp. 1.50), Q2 revenue USD 603mln (exp. 626mln). Lowers FY23 revenue outlook to USD 2.3-2.4bln (exp. 2.5bln) from 2.5-2.7bln. Exec said based on current forecasting, continued customer de-stocking, external uncertainties in H2, has begun to reduce inventories, and these actions were expected to negatively impact adj. EBITDA in H2 by around USD 20mln. Exec said "while we expected to gain more clarity on de-stocking and market dynamics during the quarter, weaker-than-expected results over the past month and in certain end markets have created greater uncertainty regarding the de-stocking dynamics," adding that "we expect that demand for our pharmaceutical products will remain strong through the second half of the fiscal year."


• 
  Livent (LTHM) - Q1 EPS 0.55 (exp. 0.39), Q1 revenue USD 253.5mln (exp. 233.5mln). Exec said continued strength in customer demand supported higher average realised prices across all products in Q1. Lifts FY23 revenue outlook to USD 1.025-1.125bln (exp. 1.1bln) from 1.0B-1.1bln.

UTILITIES:

• 
  Edison International (EIX) - Q1 core EPS 1.09 (exp. 0.96), Q1 revenue USD 3.97bln (exp. 4.25bln). FY23 core EPS view 4.55-4.85 (exp. 4.73).

ENERGY:

• 
  ONEOK Inc (OKE) - Q1 EPS 2.34 (exp. 2.10), Q1 adj. EBITDA +99% Y/Y at USD 1.72bln (exp. 1.66bln). Q1 Natural Gas Gathering and Processing adj. EBITDA +32% Y/Y at USD 283mln (exp. 286.8mln), Q1 Natural Gas Pipelines adj. EBITDA +17% Y/Y at USD 145mln (exp. 123.3mln).


• 
  Saipem (SAPMY) - Sold its KCA onshore drilling activities for USD 550mln.

HEALTHCARE:

• 
  Pfizer (PFE) - Intends to begin selling its 32% stake in Haleon within months, according to the FT, as it focuses on reducing debt linked to its USD 43bln acquisition of Seagen and boosting returns to shareholders. Pfizer’s stake in Haleon is just over USD 10bln, FT said.


• 
  Eli Lilly (LLY), Sanofi (SNY) – Lilly and Sanofi are to cap US insulin prices at USD 35/month for the uninsured in NY.


• 
  Amgen (AMGN), Novartis (NVS) - Amgen sues Novartis for infringing several patents, and asks a New Jersey federal court to block generic osteoporosis and bone cancer drugs. Separately, UK NICE said it was unable to make a recommendation on capmatinib (Tabrecta) since Novartis (NVS) did not provide an evidence submission.

03 May 2023 - 09:30- Research Sheet- Source: Newsquawk