US EARLY MORNING: Equity futures and Treasuries are continuing the post-Fed rally; ECB and BoE policy announcements ahead

US PREMARKETS: US equity futures are trading higher after a dovish FOMC policy announcement on Wednesday, where the US central bank signalled that three 25bps rate cuts were coming in 2024, with Chair Powell confirming that rates were unlikely to be hiked further, and the Fed was very focussed on not making the mistake of keeping rates too high for too long (our review is below). European markets are braced for a heavy slate of central bank activity, with policy decisions due from the ECB (rates seen unchanged; focus on the forecasts), BoE (rates seen unchanged in 6-3 vote); this morning in Europe, the SNB maintained its policy rate at 1.75%, as expected, and said it was prepared to be active in the FX market as necessary (removing reference to specific “selling”). Treasuries are continuing to rally, with 10yr yields falling below 4.0% for the first time since August as money markets price six 25bps rate cuts by the end of next year (vs four, with a chance of five prior to the Fed’s policy update). 

FOMC REVIEW: The announcement was dovish. The Fed left rates unchanged at 5.25-5.50%, as expected, and softened guidance, stating that in determining the extent of "any" additional policy tightening, it will take into account the cumulative tightening of monetary policy, lags, inflation dynamics, economic and financial developments (Chair Powell later said that the word "any" was added to show that the Fed thought it was at or near the peak for rates, though participants did not want to take the possibility of further hikes off the table). The Fed also acknowledged that inflation has eased, but remains elevated, and it maintained language that tighter financial and credit conditions for households and businesses were still likely to weigh on activity, hiring, and inflation. Within its forecasts, it lowered its 2024 rate projection to 4.6% (from 5.1%, exp. 4.9%), 2025 was lowered to 3.6% (from 3.9%, exp. 3.6%), 2026 was kept at 2.9% (exp. 2.9%), and the longer run view was kept at 2.5% (exp. 2.5%). Powell said that inflation had eased without a significant rise in unemployment, but reiterated that inflation was still too high, and the central bank is fully committed to returning inflation to 2%. Policy is well into restrictive territory, and its full effects were likely not yet felt, reiterating that policy will be kept restrictive until the Fed is confident on the path to 2% inflation. The Fed chair talked about how policymakers were still focused on the question of whether rates were high enough, and while it was unlikely to hike further, it did not want take exclude that possibility. Still, Powell said that the Fed was very focussed on not making the mistake of keeping rates too high for too long. Powell said the Fed discussed the timing of rate cuts at the meeting, and there was a general expectation that rate cuts will be a topic of conversation going forward, adding that the Fed will proceed carefully. Wells Fargo's economists said the doves won the day; "the door was left ajar for additional tightening, but the 'dot plot' signals that this was not the base case for most participants," and it adds that "after a period of nearly two years of rapid monetary policy tightening, a pivot to cuts next year seems like the most probable outcome." Money markets are now pricing six full 25bps rate cuts by the end of this year (before the meeting, four were fully priced, with a decent chance of a fifth). The first rate cut is fully priced for March (vs May prior to the Fed's announcement).

TODAY'S AGENDA:

• Our full interactive calendar can be accessed here; a pdf version can be downloaded here.


• 
  DAY AHEAD: A heavy G10 central bank slate dominates, with policy decisions due from the ECB (rates seen unchanged; focus is on forecasts), BoE (rates seen unchanged in 6-3 vote) - previews for all are below; additionally, in EM, there is a Banxico policy announcement too (exp. unchanged at 11.25%). There are also key data releases, by way of weekly US jobless claims data, and a retail sales report for November; import and export prices data will also be out in the US premarket. Earnings are due from COST (estimates here). Energy watchers will note the IEA’s monthly oil market report, and weekly natgas stocks data.


• 
  ECB PREVIEW (announcement 13:15GMT/08:15EST; presser 13:45GMT/08:45EST): Consensus and market pricing look for no changes to the ECB's three key rates. Focus will be on accompanying projections and how they align with the markets aggressive bets for 2024 rate cuts. (Newsquawk)


• 
  BOE PREVIEW (12:00GMT/07:00EST): The MPC is expected to keep rates on hold via a 6-3 vote split. Markets currently price the first 25bps reduction by June 2024 with a total of 92bps of cuts priced by year-end. (Newsquawk)


• 
  FOMC REVIEW: The announcement was dovish. The Fed left rates unchanged at 5.25-5.50%, as expected, and softened guidance, stating that in determining the extent of "any" additional policy tightening, it will take into account the cumulative tightening of monetary policy, lags, inflation dynamics, economic and financial developments (Chair Powell later said that the word "any" was added to show that the Fed thought it was at or near the peak for rates, though participants did not want to take the possibility of further hikes off the table). The Fed also acknowledged that inflation has eased, but remains elevated, and it maintained language that tighter financial and credit conditions for households and businesses were still likely to weigh on activity, hiring, and inflation. Within its forecasts, it lowered its 2024 rate projection to 4.6% (from 5.1%, exp. 4.9%), 2025 was lowered to 3.6% (from 3.9%, exp. 3.6%), 2026 was kept at 2.9% (exp. 2.9%), and the longer run view was kept at 2.5% (exp. 2.5%). Powell said that inflation had eased without a significant rise in unemployment, but reiterated that inflation was still too high, and the central bank is fully committed to returning inflation to 2%. Policy is well into restrictive territory, and its full effects were likely not yet felt, reiterating that policy will be kept restrictive until the Fed is confident on the path to 2% inflation. The Fed chair talked about how policymakers were still focused on the question of whether rates were high enough, and while it was unlikely to hike further, it did not want take exclude that possibility. Still, Powell said that the Fed was very focussed on not making the mistake of keeping rates too high for too long. Powell said the Fed discussed the timing of rate cuts at the meeting, and there was a general expectation that rate cuts will be a topic of conversation going forward, adding that the Fed will proceed carefully. Wells Fargo's economists said the doves won the day; "the door was left ajar for additional tightening, but the 'dot plot' signals that this was not the base case for most participants," and it adds that "after a period of nearly two years of rapid monetary policy tightening, a pivot to cuts next year seems like the most probable outcome." Money markets are now pricing six full 25bps rate cuts by the end of this year (before the meeting, four were fully priced, with a decent chance of a fifth). The first rate cut is fully priced for March (vs May prior to the Fed's announcement).

EQUITY NEWS:

TECH:

• 
  Adobe Inc (ADBE) - Adobe slipped 5% afterhours following light outlook. It reported Q3 adj. EPS of 4.27 (exp. 4.14), Q3 revenue USD 5.05bln (exp. 5.02bln). Q3 subscription revenue USD 4.76bln (exp. 4.74bln), Q3 product sales USD 114mln (exp. 103.4mln). On trends, Adobe expects normal seasonality throughout the year, with a seasonal step down for new business into Q1, and sees sequential growth from Q1 to Q2, typical Q3 summer seasonality, and a strong finish to the year in Q4 2024. Sees Q1 adj. EPS between 4.35-4.40 (exp. 4.27); sees FY24 adj. EPS between 17.60-18.00 (exp. 18.00). Exec said that since June 2022, it has been cooperating with FTC staff in response to a civil investigative demand which seeks information regarding disclosure and subscription cancellation practices relative to restore online shoppers’ confidence act; said that defence or resolution of FTC matter could involve significant monetary costs or penalties and could have material impact on results and operations. On M&A with Figma, said it strongly disagrees with EC's preliminary statement of objections, and the UK CMA's competition concerns about the deal.


• 
  Alphabet (GOOG) - Google introduced MusicFX, an innovative AI tool allowing users to create music using MusicLM and SynthID technologies, Venture Beat reports. While it's a breakthrough for music creation, it won't generate music referencing specific artists or vocals to preserve originality and protect artists' styles.


• 
  3D Systems (DDD) - Jeffrey Creech joins Executive Vice President and CFO. Harriss Currie will join in a newly created role of President - Regenerative Medicine.


• 
  Atos (AEXAY) - Onepoint has lifted its stake in the company to 11.4% (9.9% on November 1st). Onepoint is seeking three seats on the forms board and while it intends to continue purchasing shares it does not intend to take control of the firm. Atos acknowledges the announcement, will continue to have constructive talks.

COMMUNICATIONS:

• 
  Vivendi (VIVHY) - Will study a project to split its activities into several entities; has endured high conglomerate discount, reducing its valuation and therefore limiting the ability to grow subsidiaries. Canal+, Havas and Lagardere are currently experiencing strong growth on an international level indicated by numerous investment opportunities. The three companies would be split into separate entities, which would be listed on the stock market.

CONSUMER:

• 
  Tesla (TSLA) - Tesla recalls over 2mln vehicles due to Autopilot misuse concerns amid a lengthy safety investigation, WSJ reports. This broad safety recall won't substantially restrict access to its driver-assistance features and is not anticipated to be costly, the report added.


• 
  Tesla (TSLA) - Tesla seeks a government affairs specialist in Sweden to address mounting strikes in Nordic countries, FT reports. The role aims to influence regulatory frameworks supporting Tesla's mission and requires expertise in Nordic legislative advocacy amidst escalating tensions with labour unions.


• 
  General Motors (GM) - General Motors' Cruise robotaxi unit removed nine key personnel amid safety inquiries linked to a San Francisco incident, including COO Gil West, Reuters reports. Its CEO and co-founder both resigned in recent weeks, and Cruise is preparing for a round of layoffs this month.


• 
  BMW (BMWYY) - Receives test license for L3 self-driving vehicles on high speed roads in Shanghai.


• 
  Alibaba (BABA) - Alibaba Group invested USD 634mln into its Singapore-based subsidiary Lazada. Investments now total over USD 1.8bln in 2023. BABA's move aims to bolster Lazada's position against rivals like TikTok in Southeast Asia.


• 
  Toll Brothers (TOL) - Approved a USD 0.21/hr dividend. Additionally, board authorised a new 20mln share repurchase programme.


• 
  Mattel (MAT), Paramount (PARA) - Mattel, Paramount, and Temple Hill Entertainment plan to create a live-action film based on the American Girl dolls. Will be produced collaboratively, and distributed by Paramount.


• 
  American Eagle (AEO) - American Eagle increases quarterly dividend +25% to 0.125/shr.

HEALTHCARE:

• 
  Amgen (AMGN) - The FDA grants Priority Review to Amgen's BLA for tarlatamab, an investigational therapy targeting advanced small cell lung cancer post-platinum-based chemotherapy. The Prescription Drug User Fee Action date is set for June 2024.


• 
  Medtronic (MDT) - Medtronic's PulseSelect Pulsed Field Ablation System gained FDA approval for treating paroxysmal and persistent atrial fibrillation (AF), becoming the first of its kind with CE Mark. The system aims for safety and efficacy, enhancing the company's electrophysiology solutions.


• 
  Nordson (NDSN) - Q4 adj. EPS 2.46 (exp. 2.39), Q4 revenue USD 719mln (exp. 706.8mln). Sees Q1 adj. EPS between 2.00-2.10 (exp. 1.99), and sees Q1 revenue USD 615-640mln (exp. 653.6mln).

FINANCIALS:

• 
  UBS Group AG (UBS) - UBS is pursuing the recovery of over USD 1.38bln in cash bonuses that Credit Suisse paid to retain staff pre-collapse. UBS is offering payment plans and legal action threats to recover a portion of the bonuses, Bloomberg reports. Additionally, Credit Suisse dismissed its entire China wealth management team, abandoning plans to expand as UBS declined to absorb the staff, BBG said. Around 20 relationship managers, investment consultants, and CEO Wang Jing were let go, signalling a shift in strategy.


• 
  Nasdaq (NDAQ) - Nasdaq resolved a stock-order impacting system issue affecting 50+ clients by rolling back the application to an earlier version. Triggered by a duplicate internal order ID in the 'FIX/RASH order' system, Nasdaq halted new orders, cancelled open ones, and restored functionality. Exec said it is confident that the corrective action fully addresses the issue, and is ready for Thursday's trading.


• 
  Robinhood (HOOD) - Net cumulative funded accounts (NCFA) 23.3mln at end-November (+20k M/M); Assets under custody USD 94.4bln (+12% M/M), net deposits USD 1.4bln (20% annualised growth rate vs October). HOOD said that over the last twelve months, net deposits were USD 16.4bln (annual growth rate of 23% Y/Y). Said November trading volumes were in line with October for equities and options, higher for crypto. Separately, CEO Vladimir Tenev sold 250k shares on December 11th at USD 11.6018/shr.


• 
  Cadence Bancorporation (CADE) - Board authorised new share repurchase programme for up to 10mln shares, subject to FDIC approval. Cadence has not repurchased shares authorised under its current share repurchase programme, which expires on December 29th.


• 
  Credit Agricole (CRARY) - Plans to halt all financing of new fossil fuel extraction projects.

ENERGY:

• 
  Occidental Petroleum (OXY), Berkshire Hathaway (BRK) - Berkshire has acquired around 10.5mln shares of Occidental this week for about USD 588.7mln, according to a filing. The purchases bring Berkshire's stake in Occidental to about 27%, Reuters reports. Berkshire also holds preferred shares and warrants to acquire another 83.8mln Occidental shares for USD 4.7bln (around 56.62/shr); if exercised, the warrants would bring its total ownership to 33%.


• 
  Pembina Pipeline Corporation (PBA), Enbridge (ENB) - Pembina is acquiring Enbridge's interests in JVs for CAD 3.1bln. The deal expands access to Western Canadian resources, enhances cash flow, and targets synergies for future growth.


• 
  EOG Resources (EOG) - Jeffrey Leitzell promoted to executive VP and COO, effective December 18th; current president and COO Lloyd Helms to continue serving as president. Ann Janssen will be promoted to executive VP and CFO, effective January 1st; current CFO Timothy Driggers will continue serving as an advisor prior to his retirement in 2024.


• 
  BP (BP) - Wins oil auction for the concession of the Tupinamba area in Brazil's Santos basin.

INDUSTRIALS:

• 
  Carrier (CARR), Haier (HRSHF) - Carrier to sell refrigeration unit to Haier at an USD 775mln enterprise value. Includes around USD 200mln of net pension liabilities. Follows last week's agreement to sell its Access Solutions business, and Carrier said it marks another meaningful step forward in the company's portfolio transformation.

14 Dec 2023 - 09:30- EquitiesResearch Sheet- Source: Newsquawk