US EARLY MORNING: Equity futures are a little higher, Treasuries are rallying ahead of PPI data and FOMC minutes

US PRE-MARKETS: US equity futures are a little better than flat, and indices remain near the highs for the week. Treasury yields are mostly seeing downside, with the long-end outperforming. The Dollar Index is around neutral. This week's equity upside has been underpinned by some Fed officials suggesting that the recent back-up in yields along the long-end of the Treasury curve is assisting the Fed's efforts to tighten conditions, and may mean that the central bank does not need to fire another rate hike this cycle; additionally, there has been further hopes of China stimulus in the pipeline, helping to improve the risk mood. Much of that narrative will be put to the test in the next couple of sessions, with PPI data out today before CPI data is released on Thursday; the playbook will likely be similar to what we have seen in recent releases, where hotter than consensus inflation may put pressure on bonds and equities, as traders reason that further monetary tightening may be in store, and vice versa. Some releases, like the NY Fed's Survey of Consumer Expectations for September, released Tuesday, highlight that the road to lower inflation is unlikely to be linear: consumer's year-ahead expectation rose to 3.7% (prev. 3.6%), three-year ahead up to 3% (prev. 2.8%), though the five-year gauge eased to 2.8% (prev. 3%). The street looks for headline PPI to rise by 0.3% M/M (prev. 0.7%), though the annual measure is seen unchanged at 1.6% Y/Y; the core measure is seen rising 0.2% M/M, with the annual measure ticking up to 2.3% Y/Y from 2.2%. Ahead of the release, Pantheon Macroeconomics said "PPI inflation moves closely in line with the GDP deflator, the broadest measure of inflation, and it points to a sharp drop over the next couple quarters."

TODAY'S AGENDA:

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  DAY AHEAD: The focus of the US Day will be PPI data for September, which is being released before CPI data due Thursday, and will help inform expectations. The FOMC meeting minutes (preview below) will be released in the afternoon, and traders will be looking to see if the minutes contain any of the thoughts expressed by some officials recently, where the rise in long-end bond yields may be helping the Fed with its tightening efforts, and may potentially allow the central bank to avoid lifting rates again. Elsewhere, weekly MBA Mortgage applications data, API inventory data. EMFX traders will be on the lookout for the NBH minutes. On the speakers' slate, Fed Governors Bowman and Waller will speak, as will 2023 non-voters Bostic and Collins. On the supply front, UK will sell 2034 Gilts, Germany will sell 2048 and 2052 debt, while the US Treasury will sell 10yr notes. Our interactive calendar can be accessed here; a pdf version can be downloaded here.


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  PREVIEW - FOMC MEETING MINUTES (19:00BST/14:00EDT): At its September meeting, the Fed voted unanimously to keep interest rates steady at 5.25-5.50%, in line with expectations. The central bank upgraded its language about the economy, stating it's growing at a “solid" pace instead of "moderate". It also recognised that job gains have slowed recently, but are still strong. Policymakers continue to believe that inflation is high, and the unemployment rate is low. In its updated economic forecasts, it raised expectations for real GDP growth in 2023 and 2024, and lowered its unemployment rate projections. Inflation is expected to be at 3.3% in 2023, 2.5% in 2024, and 2.2% in 2025 for headline PCE. Core inflation is projected at 2.6% in 2023, 2.6% in 2024, and 2.3% in 2025. The "dots," were revised mawkishly, and the central bank still sees further rate hike this year, whilst for next year, it now only sees the prospect of 50bps rate cuts (vs 100bps in its previous SEP). During his press conference, Fed Chair Powell emphasised the central bank’s cautious approach, though not strong economic growth and tight labour markets. Powell mentioned that inflation remains above the 2% target, but has eased slightly. He said that most policymakers believe another rate hike is likely, even though markets are sceptical. Powell declined to discuss when rate cuts might happen and suggested the neutral rate may have risen in the short term, contributing to the economy's resilience. Full preview here.

EQUITY NEWS:

TECH:

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  Samsung Electronics (SMSN) - Q3 prelim operating profit -78% Y/Y to KRW 2.4tln (exp. 2.1tln), sales -13% Y/Y to KRW 67tln (exp. 67.5tln). Samsung's quarterly profit decline was less severe than expected, mainly due to improved performance in its chip division, Bloomberg reports. The 78% drop in operating income was seen as better than feared, with shares rising up to 4.4% in APAC trade. BBG said that the results suggest a potential turnaround in the global semiconductor market. Samsung had been grappling with industry downturn and reduced orders from customers due to weak demand for electronic devices and excess chip inventory.


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  HP Inc. (HPQ) - Sees FY 2024 EPS between 3.25-3.65 (exp. 3.47), and FCF between USD 3.1-3.6bln (exp. 3.1bln), boosts dividend +5%. HP Inc will return all FCF to shareholders through dividends and share buybacks. HP expects a rebound in PC demand after a two-year slump; PC sales had been slow, but recent data suggests the market may be picking up, Bloomberg said.


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  Big Tech (GOOG, META, MSFT, NFLX) - European telecom companies want big tech firms like Google, Facebook, Netflix, Microsoft, and Amazon to help pay for 5G and broadband rollout, but the decision to propose rules may be postponed until the next European Commission's term, Reuters reports. EU industry chief Thierry Breton is expected to address the issue next year.


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  TSMC (TSM) - Q3 consolidated sales +13.7% Y/Y to TWD 546.7bln (prev. -10.0% Y/Y in Q2). TSMC said it is to receive additional AI orders from Nvidia (NVDA), and orders from others for 2024.

COMMUNICATIONS:

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  Disney (DIS), Blackstone (BX) - Private equity firm Blackstone is in early talks with Disney about potentially acquiring a stake in its Indian entertainment arm, as Disney explores options for its digital and TV business in India, Reuters reports.

CONSUMER:

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  Automakers - China Passenger Car Association said China passenger car sales +4.7% Y/Y to 2.04mln cars in September (prev. 2.2% in August), driven by people buying discounted and new models ahead of holidays, Reuters reports. New energy vehicle sales were up 22.1% (vs 34.5% in August). YTD, China's auto market saw a 2.1% increase in sales, at 15.41mln units.


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  General Motors (GM) - General Motors reached a tentative agreement with Canadian autoworkers, ending a national strike initiated by the Canadian union Unifor at GM's four facilities, CNBC reports.


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  Tesla (TSLA) - CPCA said Tesla exported 30,566 China-made vehicles in September. Tesla saw its China EV market share fall to 9.89% in Q3 (vs 12.98% in Q2, and 9.93% Y/Y).


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  Birkenstock (BIRK) - The German shoe brand set its IPO price at USD 46/shr, valuing the company at around USD 8.64bln, slightly lower than its initial target of USD 9.2bln, CNBC reported. Trading in BIRK stock will commence Wednesday.

ENERGY:

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  Exxon Mobil (XOM), Pioneer Natural Resources (PXD) - Exxon Mobil nears USD 58bln deal to buy Pioneer Natural Resources. The potentially all stock deal may be announced soon, though terms are still being negotiated, Bloomberg reports. At USD 250/shr, it would represent a 16% premium to Pioneer's pre-deal stock price, and would be the largest global corporate takeover this year, marking Exxon's biggest acquisition since merging with Mobil Corp. in 1999.


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  General Dynamics (GD) - UAW said that members at General Dynamics in Michigan, Ohio and Pennsylvania have voted to authorise a strike, Reuters reports.

INDUSTRIALS:

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  Boeing (BA) - 737 MAX monthly deliveries fell in September to the lowest since 2021, Reuters said, as it continues struggling with work needed to correct a manufacturing defect. New orders improved, but September deliveries fell to 15 737 MAX planes, 10 787s and two 777s, for a total of 27.


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  United Continental Holdings (UAL) - ALPA said pilots at United Airlines' Air Wisconsin have ratified a new three-year contracts with significant raises and improved scheduling; includes a 54% pay increase for first officers and a 38% increase for captains over the contract life. Deal is worth almost USD 48mln in new value over the life of the agreement.

HEALTHCARE:

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  Novo Nordisk (NVO) - Novo Nordisk will end a diabetes drug trial early after interim analysis for the treatment Ozempic showed success in preventing kidney failure. The Danish drugmaker's shares rose 2.5% in US afterhours trading.


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  CVS Health (CVS) - CVS issued a statement on 2024 Star ratings, said at this time, CMS has not disclosed the final ratings, and accordingly, CVS Health and Aetna do not have knowledge of the final 2024 Star ratings and cannot confirm the ratings at this time. An earlier report had suggested that its Medicare Advantage Prescription Drug plans won a rating of 4.0 out of 5.0 stars, with 87% of Medicare members enrolled in plans rated 4.0 or higher. If the rating is confirmed, analysts said it would be a positive for CVS after its CMS performance setback earlier in the year.


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  Walgreens Boots Alliance (WBA) - Appointed Tim Wentworth as its new CEO, starting on October 23rd, CNBC reports. Wentworth, an experienced healthcare executive, formerly led Express Scripts, the largest pharmacy benefits management company.


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  Illumina (ILMN) - EU antitrust regulators are expected to on Thursday order Illumina to sell cancer test maker Grail, a year after the USD 7.1bln deal was blocked on the grounds that it might restrict rivals from accessing Grail's technology for blood-based cancer detection tests. The FTC has also ordered Illumina to divest Grail, which Illumina is appealing.

11 Oct 2023 - 09:30- Research Sheet- Source: Newsquawk