US EARLY MORNING: Equity futures are a little lower, while Treasuries are giving back some of Friday's upside; quiet slate on Monday ahead of key data this week

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  EQUITIES: APAC was mixed, Europe started defensively; US equity futures are giving back some of Friday's gains, which were underpinned by remarks from Fed Chair Powell, which were said to have given traders confidence that the Fed could cut rates next year.


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  TREASURIES: Yields are rising along the Treasury curve, again giving back some of Friday’s upside; the short-end is underperforming as the curve bear flattens after the bull-steepening on Friday. Money market pricing has tilted dovish in wake of remarks from Fed Chair Powell; five rate hikes are priced for 2024 (before Powell spoke on Friday, the market fully discounted four hikes, with a decent chance of a fifth). The first rate cut is fully priced for May, although there is a decent chance it could come in March. The Fed is now on blackout ahead of its December 13th confab. 


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  FOREX: Despite traders adding to rate cut bets on Friday, the Dollar Index is higher, supported by rising short-end Treasury yields (the latter giving up some of the gains booked on Friday). There is much attention on Gold and Bitcoin, with the former printing fresh record highs above USD 2,100 on Monday (helped by Fed rate cut bets), while the latter rose above USD 41k for the first time in a year. The AUD is lower ahead of the RBA’s rate decision (due Tuesday – unchanged is expected). The CHF is weaker vs the EUR after softer-than-expected CPI data.


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  COMMODITIES: Oil benchmarks are lower, with newswire reports suggesting that the downside is being driven by persistent pressure following the OPEC+ policy decisions last week, while uncertainty regarding future demand conditions are also said to weigh. That said, traders are attentive to events in the Middle East; the Pentagon is aware of reports regarding an attack on USS Carney and several commercial vehicles in the Red Sea, and as Yemeni Houthis claimed it targeted two Israeli ships, though Israel said the ships had no connection to Israel.

TODAY’S AGENDA:

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


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  DAY AHEAD: Eurozone Sentix is seen improving slightly in December. Scandy watchers will be eying the Riksbank’s meeting minutes (preview in our week ahead note here). On the speakers’ front, ECB’s Elderson, Vice President de Guindos, and President Lagarde are all due to make remarks. With the Fed in blackout ahead of its December 13th confab, the calendar is quiet on Monday, with US factory orders and durable goods revisions the only notable releases due.


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  WEEK AHEAD: Highlights include US jobs report; China CPI/trade data; RBA, BoC rate decisions. Our week ahead briefing can be accessed here. Earnings this week are due from NIO, AZN, SJM on Tuesday; CPB, BF.B on Wednesday; DG, LULU, AVGO on Thursday; our weekly US earnings estimates sheet can be accessed here.

EQUITY NEWS:

SELL-SIDE VIEWS:

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  JPM'S 3 STOCK DRIVERS FOR 2024: The Bank looks for three key equity drivers next year: 1) falling bond yields; the bank notes that the street anticipates a long-duration trade due to declining bond yields, influenced by a presumed concluded Fed action, decreased inflation rates, softening economic activity, and a rebound from a significant bond sell-off. Initially perceived as beneficial for equities, this support might not be sustained, JPM says. 2) sequential slowdown in activity; economists forecast slower 2024 real GDP growth across major regions compared to the current year. Projections suggest three consecutive quarters of US real GDP growth between 0-1%, indicating a fragile economic condition. JPM says this precarious state, while not indicating a recession, implies vulnerability to contraction from this low starting point. 3) disappointing earnings expectations; the bank notes that the consensus expects an earnings pickup in 2024, but potential weaker pricing could lead to disappointments. It says that certain sectors, like Real Estate and Utilities are anticipated to outperform, while others, such as European Banks and stretched consumer/corporate cyclicals, have been downgraded. By region, JPM says Japan remains attractive despite the economic landscape. And additionally, despite usually favourable seasonal trends in December/January, the current technical indicators, particularly SPX RSI in overbought territory, appear unattractive.


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  GS’ TEN STOCKS THAT COULD OUTPERFORM: Goldman Sachs has analysed USD 5tln of hedge fund equity positions at the start of Q4, and notes that both hedge funds and mutual funds have boosted exposure to the equity market YTD. "In Q3, both fund types increased exposure most to Info Tech," GS writes, "solid hedge fund returns YTD were aided by popular long stocks as the most shorted stocks have lagged," while "conversely, mutual fund overweights have lagged underweights." GS says history suggests that the most owned stocks typically outperform the least owned stocks, and notes that there are ten "shared favourites" of these groups: FI, HUM, KVUE, MA, PGR, PXD, UBER, UNH, V, VRT.

FINANCIALS:

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  S&P 500 (SPX) - Uber Technologies (UBER), Jabil (JBL), Builders FirstSource (BLDR) will join the S&P 500 index prior to trading om December 18th; will replace Sealed Air (SEE), Alaska Air (ALK) and SolarEdge (SEDG).


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  Citigroup (C) - Positive mention in Barron's; the newspaper said the bank's low balance sheet risk, minimal CRE exposure, and the CEO’s restructuring initiatives.


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  JPMorgan (JPM), Goldman Sachs (GS), Apple (AAPL) - A Bloomberg piece says that Chase Bank is an ideal replacement for Goldman Sachs, which the iPhone maker dropped for its Apple Card.


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  LSEG (LNSTY), Intercontinental Exchange (ICE) - Insurer Aspen, owned by Apollo (APO), plans a USD 4bln IPO in New York, bypassing London due to valuation concerns and stricter listing rules, FT reports. The move follows a trend of companies favouring US listings.


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  UBS (UBS) - Swiss bank UBS plans to expand its presence in the US as part of its strategy to hit USD 150bln inflows per year, NZZ Am Sonntag reports. The bank intends to invest heavily over the coming years. Separately, the bank seeks to find a replacement for CEO Sergio Ermotti within the next three years, Bloomberg reports.


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  European Risk Managers - ECB aims to empower risk managers in controlling banker bonuses, aligning with calls to ease post-financial crisis restrictions, FT reports. Supervisory board member Elizabeth McCaul highlights plans for risk compliance in bonus decisions.

TECH:

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  Nvidia (NVDA), Super Micro (SMCI) and Vertiv (VRT) - Positive mention in Barron's; the newspaper says Nvidia still looks undervalued, and is the the clear beneficiary from the AI buildout. Barron’s also said Super Micro and Vertiv were two under-the-radar AI-linked stocks that were also well placed.


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  OpenAI (not listed), Microsoft (MSFT) - OpenAI postpones GPT Store launch to early 2024, attributing the delay to CEO Sam Altman's reinstatement, BBG reports. The online platform will allow customisation of chatbots, which was initially set for late 2023 release.


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  Tech Funds - Silicon Valley VC firms adopt private equity-like structures to manage extended investment periods amid delayed returns, FT reports. Amid prolonged startup stays, firms like New Enterprise Associates and Insight Partners establish "continuation funds" to navigate the uncertain economic landscape.


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  Semiconductors - Dutch PM Rutte leads a trade-focused US visit, emphasising semiconductor industry collaboration, Sputnik reports. The delegation includes Flemish officials and tech companies, planning visits to Phoenix, San Francisco, Stanford University, Microsoft, and a US air base training Dutch F-35 pilots.

COMMUNICATIONS:

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  Advertising, Twitter (not listed) - Walmart (WMT) says it is not advertising on social platform X due to advertising inefficiency, opting for better customer outreach elsewhere, Reuters reports. Elsewhere, the FT reports that X is intensifying its efforts to court smaller businesses for ad support after Elon Musk's clash with major brands boycotting the platform.

INDUSTRIALS:

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  Boeing (BA) - The US Air Force removes Boeing from competition for the E-4B Nightwatch successor, leaving Sierra Nevada Corp (private) as the sole contender for the "Doomsday Plane" contract, Reuters reports.


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  Amazon (AMZN) - Amazon secures three Falcon 9 rocket launches from SpaceX to deploy its satellite constellation, competing with SpaceX's Starlink. Project Kuiper plans testing by mid-2025, aiming for a satellite internet service akin to Starlink.


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  Alaska Air Group (ALK), Hawaiian Holdings (HA) - Alaska Air plans to purchase Hawaiian Airlines for USD 1.9bln, igniting potential regulatory scrutiny, CNBC reports. The deal involves acquiring Hawaiian shares at USD 18 each, plus assuming USD 900mln of debt, amid Hawaiian's challenges from wildfires, competition, and pandemic-related travel woes.


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  RTX Corporation (RTX) - RTX awarded USD 145mln hybrid contract for Qatar Phased Array Tracking Radar to Intercept of Target, or PATRIOT, depot operations, technical assistance, and new equipment training.


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  Howmet Aerospace (HWM), Lockheed Martin (LMT) - Howmet Aerospace responds to Lockheed Martin's lawsuit regarding the F-35 Programme, asserting compliance with obligations. Howmet faced titanium supply challenges due to the Ukraine-Russia conflict, alleging Lockheed permitted customers to sell revert scrap at inflated prices.

ENERGY:

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  Methane Emissions - The Biden administration announced a final methane rule for US oil and gas producers, requiring them to plug methane leaks and stop burning excess gas with flares, WSJ reports, adding that the regulations also mandate regular inspections of facilities to make sure the planet-warming compound isn’t escaping into the atmosphere. Major oil companies have pledged 80% methane emission reduction by 2030 at COP28, WaPo reports; the agreement involves global giants like Saudi Aramco and ExxonMobil, aligning with US plans to curb emissions. ExxonMobil CEO criticised UN talks' focus on renewable "electron solution," highlighting hydrogen, biofuels, and carbon capture, FT reports.


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  Petrofac (POFCY) - Petrofac is Examining a range of strategic and financial options to strengthen balance sheet, and is securing bank guarantees and improving short-term liquidity. No longer expects to meet guidance previously provided for FY cash flow. Considering sale of non-core assets. Is in talks with investors to take non-controlling positions in some of the business portfolio.

CONSUMER:

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  Autos - WSJ noted battery-powered vehicles face longer wait times and bigger repair bills than gasoline-engine vehicles.


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  Sixt (SXTSY), Tesla (TSLA) - Sixt is to remove Tesla cars from its fleet, citing higher repair costs for EVs that hurt resale values, Bloomberg said. Sixt still aims to electrify as much as 90% of its fleet in Europe by the end of the decade. 


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  Tesla (TSLA) - China's CPCA reports Tesla (TSLA) sold 82.4k China-made vehicles in November (prev. 72.1k M/M).


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  Toyota Motors (TM) - Toyota temporarily stops some production lines at a China joint venture with FAW, clarified as a planned adjustment due to changes in vehicle models, Reuters reports. the move follows reports of sales-driven adjustments for gasoline-engine cars.


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  Continental (CTTAY) - Continental is under pressure to find an EV path as it is attempting to turn around its struggling automotive unit, Bloomberg reports.


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  Kraft Heinz (KHC), General Mills (GIS), Kellanova (K), Nestle (NSRGY) - Food giants Kraft, General Mills, Kellogg, and Nestle win USD 17.7mln damages in a Chicago federal jury trial, alleging overcharging for egg products in a price-fixing scheme by major US egg producers. The potential tripled award could reach over USD 53mln.


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  PepsiCo (PEP) - Positive mention in Barron's; the newspaper said PepsiCo's stock was a buy, and its share price could climb by more than 12%, as its growth appears ready to accelerate after investments made over the past five years start to pay off.


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  MGM Resorts (MGM) - MGM Grand Detroit casino workers, part of the Detroit Casino Council, end a 47-day strike after approving a five-year deal with an immediate 18% pay raise, reduced workloads, and no healthcare cost hikes for about 1,700 employees, ABC reports.

HEALTHCARE:

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  AstraZeneca (AZN), Absci Corporation (ABSI) - The pharma company signed a deal with Absci, worth as much as USD 247mln, to design an antibody to combat cancer.


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  Eli Lilly (LLY) - The FDA grants approval to Eli Lilly's Jaypirca for treating adult patients with chronic lymphocytic leukemia or small lymphocytic lymphoma, having received specific prior therapies.


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  Roche (RHHBY), Carmot Therapeutics (CRMO) - Roche is to acquire Carmot Therapeutics for USD 2.7bln, and additional milestone payments of up to USD 400mln.

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