US EARLY MORNING: Equity futures are a tad lower; yield spike pauses

EQUITIES: APAC equities traded higher after a positive lead from Wall Street; European bourses opened on the front foot, but gains are being pared as the morning progresses. US index futures are trading marginally negative. The VIX has continued to ease over the last seven trading sessions, now trading in the low-23s, and some desks have been advising their clients to load-up on downside protection, with the cost of hedging cheapening in recent days amid the upside in stocks, and as positioning surveys show institutional investors reducing exposure to stocks recently. Bank of America’s equity strategists said they do not see recent risk-on trading conditions as a “rallying cry”, but instead an opportunity to reload on hedges. Others have noted that the VIX curve is flat going into the end of this year, which some interpret as a sign that trading conditions could remain choppy through 2022. There is also risk events on the radar that threaten recent gains in equities, as many have widely noted recently: the Fed is on a trajectory to tighten policy significantly this year, which some fear could hit growth and particularly weigh on duration sensitive stocks; inflation continues to run rampant crimping Americans’ purchasing power – the wages metrics in next week’s NFP report will be eyed, with some arguing that if there is evidence of strong second-round effects, it may compel the Fed to hike rates above its estimates of neutral this year. Elsewhere, the Russia-Ukraine War is also showing no signs of any short-term resolution, and while financial market exposure to Russia is minimal, it still presents risks of disruption, particularly in energy markets; US President Biden will be in Europe on Thursday meeting with regional allies, and is expected to announce further sanctions, although reports suggest that an exclusion from G20 is not likely at this point.

TREASURIES: Treasuries have seen a gradual bid overnight, and yields are towards lows for the session, with major curves marginally widening. There doesn’t appear to be any specific catalyst; Natixis’ strategists have pointed out that markets can have a tendency to overshoot (Bloomberg notes that yields have this week surged in a way that has not been seen since the credit crisis of 2007-08), and what we may be seeing is some settling before other risk events – like Biden’s visit to Europe tomorrow, more clarity around Fed policy (magnitude of the May hike, aggression of the balance sheet reduction, etc - next week's data will help shape expectations), while others also note that the mid-term elections in November are beginning to come into focus, which may also shape the way the US administration can respond to events. But none of these matters are likely to be resolved today; we do have another dose of Fedspeak by way of 2022 voting hawk Bullard and 2024 voter Daly; both have spoken recently, so it is unlikely that they'll be adding anything significant to the debate today. Other data releases are scant. The US will auction 20yr bonds in the afternoon. Full Day Ahead here. 

EQUITY NEWS:

KEY LEVELS (via Credit Suisse):

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  SPX: 4391, 4403, 4417, 4425, 4465/75, 4490/91, 4519, 4526/30, 4550, 4577.


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  NDX: 13680/20, 13708, 13827/793, 14014, 14343, 14451, 14625/48, 14770, 14810, 14893.


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  RUT: 1963, 1978, 2027/19, 2038, 2057, 2079/76, 2105/10, 2120/26, 2133/38, 2162.

INDUSTRIALS:

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  Boeing (BA) - NTSB to support Chinese probe into China Eastern Airlines' Boeing 737-800 jet crash. (Reuters)


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  Tesla (TSLA) - CEO expects to launch FSD Beta software in Europe later this year depending on regulatory approval. Sees challenge with battery production next year, and said batteries would be a limiting factor in 2-3 years. CEO said the automaker will expand to other markets and add new models after satisfying demand in existing markets. (Newsquawk)


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  Nielsen (NLSN) - Rose 2.7% after hours following reports that Elliott and Brookfield were considering raising offer for Nielsen, after previous offer was rejected. (Bloomberg)


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  AAR Corp. (AIR) - Fell 0.4% in after hours. Cited improvement in government and commercial businesses, where demand in parts activities accelerated throughout the quarter, and its largest commercial customers were optimistic about the recovering demand for business and leisure travel; it expects this momentum to continue. (AIR)


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  Worthington Industries (WOR) - Fell almost 6% in after hours. Q3 EPS 1.11 (vs 1.27 Y/Y), Q3 revenue USD 1.38bln (vs 759mln Y/Y). Steel Processing faced headwinds due to continued steel pricing volatility and choppy but improving automotive demand, it said, and that while steel price volatility is expected to remain a headwind, overall, businesses is performing well and underlying end market demand remains healthy. (WOR)


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  Renault (RNLSY) - French government reportedly seeing backlash after allowing Renault to continue operations in Russia. (Telegraph)

MATERIALS:

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  Steel names - US agreed to ease Trump-era tariffs on UK steel and aluminium, following earlier deals with the EU and Japan. Under the agreement, the US will replace the 25% tariffs on steel with a quota system, letting UK metal imports into the country duty-free up to a certain level. (BBC)


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  Rio Tinto (RIO) - Macquarie thinks Rio Tinto will need to raise its offer for Turquoise Hill. (AFR)


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  Air Liquide (AIQUY) - Plans to buyback around 1.2mln shares at EUR 150.74/shr (Tuesday's closing price). (Newsquawk)

ENERGY:

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  TotalEnergies (TTE) - To stop purchasing Russian oil by end-2022 at the latest. Will retain ownership of its minority stakes in two LNG plants, does not see a way of securing a non-Russian purchaser for the stakes. (FT)


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  BP (BP) - Expected to announce on Friday an additional GBP 1bln for new EV charging points within the UK. (FT)


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  Energy Traders - BoE, ECB have been talking with energy trading firms on market strains, but are unlikely to provide immediate support. (FT)


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  Petrofac (POFCY) - FY21 revenue USD 3.05bln (4.08bln). Achieved targeted cost savings of 250mln. Well positioned with a pipeline of USD 37bln for award in 2022, USD 7bln of which is new energies. Market outlook improving, recovery in energy prices supportive of increased capex by clients. Made significant progress on strategic objectives. (Newsquawk)

TECH:

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  Big Tech - EU to unveil Digital Markets Act to tackle power of Big Tech; expected to target core online platforms with market caps of at least EUR 75bln. (FT)


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  Adobe (ADBE) - Slipped around 2.5% in after hours following soft guidance for the next quarter. Q1 adj. EPS 3.37 (exp. 3.34), Revenue 4.26bln (exp. 4.24bln); subscription revenue USD 3.96bln (exp. 3.95bln), product revenue USD 145mln (exp. 133.8mln), digital media annualised recurring revenue USD 12.57bln (exp. 12.52bln), creative ARR USD 10.54bln (exp. 10.51bln), document cloud ARR USD 2.03bln (exp. 2.01bln), R&D expenses USD 701mln (exp. 678.8mln), adj. operating income USD 1.99bln (exp. 1.95bln). Sees Next quarter adj. EPS around USD 3.30 (exp. 3.35), and sees Q2 revenue about USD 4.34blb (exp. 4.4bln). (ADBE)


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  Microsoft (MSFT) - After the hacker group Lapsus$ claimed to have stolen source code from Microsoft, the tech giant said it had found that a single account had been compromised, granting "limited access", and "no customer code or data was involved in the observed activities". (MSFT)


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  ZTE (ZTCOY) - Completed five years’ probation in the US following 2017 guilty plea deal for illegally shipping US technology to Iran; surged over 60% in HK trade. (Reuters)


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  NetApp (NTAP) - At its investor day on Tuesday, said it sees FY25 revenue betwen USD 7.98-8.4bln, 8-10% CAGR; public cloud revenue seen between USD 1.3-1.4bln, 50% CAGR; Hybrid Cloud revenue of USD 6.6-7bln, 4-6% CAGR. Sees FY25 gross margin between 69-70%, Public Cloud gross margin seen between 75-80%, Hybrid Cloud gross margin seen around 68%. Sees FY25 operating income over USD 2bln, operating cash over USD 2bln. Sees FY25 capital returns of 100% of FCF. (NTAP)

HEALTH CARE:

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  Abbott (ABT) - FDA in September reportedly found unsanitary conditions at a Michigan plant that manufacturers infant formula, five months after Abbott recalled products associated with the deaths of two babies. (Bloomberg)


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  Centene Corporation (CNC) - Fell 3.4% in after hours. It anounced that Vice Chairman Sarah London has been appointed Chief Executive Officer, effective immediately, succeeding Michael Neidorff; Neidorff remains on a previously announced medical leave of absence from his position on the Board. (CNC)


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  HealthEquity (HQY) - Rose 2.5% in after hours after decent revenue guide for FY23. Q4 EPS 0.20 (exp. 0.22), and Q4 revenue USD 203.3mln (exp. 200mln), the highest revenue quarter in its history. Said that with record HSA and asset growth in FY22, pandemic headwinds beginning to subside, and the emergence of potential tailwinds, believes it is well-positioned for continued growth in FY23. Sees FY23 EPS between 1.21-1.30 (exp. 1.41), and FY23 revenue seen between USD 820-830mln (exp. 817mln). (HQY)


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  Argenx (ARGX) – Fell 2.3% overnight after it announced that it had commenced a global offering of USD 500mln of ordinary shares. (ARGX)


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  MorphoSys (MOR), Incyte (INCY) - Companies announced Swissmedic temporary approval of Minjuvi in combination with lenalidomide for the treatment of adults with r/r DLBCL. (MOR)

CONSUMER CYCLICAL:

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  Starbucks (SBUX) - Workers voted to unionise a Starbucks location in Seattle, the coffee giant's home city. (Indy)


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  AutoZone (AZO) - Announced an additional USD 2.0bln repurchase of its common stock. (AZO)


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  Etsy (ETSY) - Raina Moskowitz, who has been with Etsy since 2018, named COO. (ETSY)


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  Draft Kings (DKNG), Flutter Entertainment (PDYPF) - NY Court of Appeals reversed a decision that stated daily fantasy sports violated the state constitution's ban on gambling. (Gambling)


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  Poshmark (POSH) - Fell almost 10% in after hours following results. Q4 EPS -0.19 (exp. -0.18), Q4 revenue USD 84.2mln (exp. 80.6mln). Said it had its strongest-ever holiday performance, and record trailing 12 months Active Buyers of 7.6mln. Sees Q1 revenue between USD 86-88mln (exp. 90.5mln), and sees a Q1 adj. EBITDA loss of USD 7-9mln. (POSH)


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  Churchill Downs (CHDN) - To acquire Chasers Poker Room in Salem, New Hampshire. (CHDN)


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  Kingfisher (KGFHY) - Announced a GBP 75mln share repurchase programme. (Newsquawk)

CONSUMER STAPLES:

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  Brown-Forman (BF) - Commends Biden Administration for tariff agreement with Great Britain, where American whiskey will again enjoy tariff-free trade between the US and the UK. (BF)

UTILITIES:

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  Southwest Gas Holdings (SWX) - Investor Carl Icahn said he does not think he'd walk away from Southwest Gas Holdings. (CNBC)

FINANCIALS:

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  UK Stocks - Dividend taxes to rise by 1.25ppts next month. (Telegraph)

23 Mar 2022 - 09:19- EquitiesResearch Sheet- Source: Newsquawk