US EARLY MORNING: Equity futures are beneath neutral, Treasury yields mixed; cautious trading ahead of more earnings, data, and before the Fed enters blackout

OVERNIGHT: Stocks were pressured on Wall Street amid disappointing earnings, soft economic data, and hawkish monetary policy commentary from Fed officials. Traders were also said to be mindful of option expiries on Friday. (Our US wrap can be accessed here). The overnight APAC session saw stocks mostly lower, tracking the losses on Wall Street. Aussie stocks were pressured by weakness in Financials, and underperformance in Miners after BHP's quarterly production figures. Japanese stocks traded indecisively following mixed PMIs, and as participants digested inflation data, which were mostly in line. Chinese shares underperformed amid ongoing US-China frictions, and as President Biden is to unveil China investment curbs prior to the G7 summit in May, while Treasury Secretary Yellen said national security may come at a cost in the US-China relationship. There was also fierce rhetoric from Chinese Foreign Minister Qing Gang who said that both sides of the Taiwan Strait belong to China, and warned that those who play with fire on Taiwan will eventually get themselves burned. (Our APAC wrap is here). European equities have opened flat/mixed (our European opening note is here). Flash PMI data released this morning showed Eurozone, German and French manufacturing underperforming expectations in April, although the services and composite indices were better than expected. Markets reacted hawkishly given some of the commentary within the release alluded to dogged inflation pressures, and that will likely keep the ECB on course to tighten policy in its upcoming meetings. Meanwhile, UK retail sales declined by 0.9% M/M in March (exp. -0.5%, prev. +1.1%).

US PRE-MARKETS: US equity futures are lower, Treasury yields are mixed, and the Dollar Index is slightly higher. The caution in recent sessions has been a function of some disappointing corporate earnings reports, softer economic data, as well as hawkish monetary policy commentary from Fed officials, who seem intent on continuing rate hikes to manage price pressures. Officials will go into blackout at the end of this week, ahead of its May 3rd policy meeting. But there will be key data releases between now and the confab which could help shape expectations of what the Fed will do through the rest of this year. Next week, advanced GDP data for Q1, PCE price for March (as well as the Q1 metrics in the GDP report), and Q1 employment costs data will be released; these are expected to show a slowing of growth and prices trends, though prices are still running at a rate well-above policymakers' targets, while the ECI is seen registering an uptick in remuneration, which won't be welcomed at Fed towers. More immediately, today's S&P Global PMI data will help provide some clarity after this week's mixed Empire Fed (upside surprise) and Philly Fed (downside surprise) data; these regional metrics help to shape expectations of how the more widely followed ISM data will look like when it is released in early May.

DAY AHEAD:

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


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  EUROPEAN DATA/SPEAKERS: There are a few items on the credit ratings schedule the desk will be monitoring: Moody's is due to review France (Aa2) and the UK (Aa3); S&P are due to review the UK (AA), Italy (BBB), the Netherlands (AAA) and Greece (BB). On the speaker's slate, ECB's Elderson and ECB's Vice President de Guindos are scheduled to speak today.


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  NORTH AMERICAN DATA/SPEAKERS: Although not something traders usually watch all that closely (the ISM data is considered a ‘better’ data print), the S&P Global PMI data will be of note to help guide expectations of what the ISM data will look like when it is released in early May, given the mixed performance that we have already seen from regional Fed manufacturing indices (decent Empire Fed survey, weak Philly Fed survey). On the speaker's slate, Fed's Harker (voter) will speak, and Fed's Cook (voter) will speak after the market close. Elsewhere, weekly Baker Hughes rig count data is due.


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  US CORPORATE EARNINGS: Earnings reports are due today from HCA, SLB, PG, FCX; daily earnings estimate can be accessed here.

EQUITY NEWS:

TECH:

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  Alphabet Inc. (GOOG) - In a filing, said it has completed an assessment of the useful lives of our servers and network equipment, resulting in a change in the estimated useful life of our servers and certain network equipment to six years. Expects that the effect of this change will be a reduction of depreciation expense of approximately USD 3.4bln for the FY23.


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  Network International Holdings Plc ADR (NWITY), Brookfield Asset Management Ltd. (BAM) - Brookfield is exploring a potential counterbid for Middle Eastern credit card processor Network International Holdings, in a challenge to a GBP 2.1bln proposal from a rival buyout consortium, Bloomberg reports. BAM has held prelim talks Network International. Network this week said it had received a non-binding bid of GBP 3.87/shr from a consortium of CVC Capital Partners and Francisco Partners.


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  SAP SE (SAP) - The German business software maker SAP reported Q1 sales rose 10%, topping estimates, though operating profit declined 45%, and adjusted profits were short of expecations. Q1 revenue EUR 7.44bln (exp. 7.34bln), Q1 Cloud Revenue EUR 3.18bln (exp. 3.22bln), Q1 adj. EPS 1.08 (exp. 1.20). Sees FY23 Cloud Revenue between EUR 14.0-14.4bln (vs 11.43bln Y/Y), sees Cloud & Software Revenue between EUR 26.9-27.4bln (vs 25.4bln in 2022), and sees non-IFRS Operating Profits between EUR 8.6-8.9bln (vs 7.99bln in 2022).

COMMUNICATIONS:

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  Meta Platforms Inc. (META) - CEO Mark Zuckerberg told employees that he has not ruled out further layoffs ahead, does not expect to hire as quickly as it did previously, WSJ reports, adding that since November, META has announced layoffs of 21,000 employees, or almost a quarter of its workforce. Separately, Italy regulators has taken measures against Meta regarding a probe for possible abuse of position within Italy, and has ordered Meta to resume negotiations with domestic authors and publishers.

CONSUMER:

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  Autos in Canada - Volkswagen AG (VWAGY) received a USD 10bln pledge from Canada for EV battery plant, and Canada will provide around CAD 700mln in grants towards VW's factory's capital cost, Reuters reported; Stellantis NV (STLA) and LG Electronics (LGEIY) are also in talks with Canada on aid for a battery plant, Bloomberg said.


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  EssilorLuxottica SA (ESLOY) - Sales rose in Q1; Q1 revenue EUR 6.15bln (exp. 5.94bln). APAC sales +12% amid a recovery in China. CFO said China was "considerably stronger" this quarter.


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  Ferragamo SpA (SFRGY) - The Italian luxury goods company reported Q1 revenue EUR 278mln (exp. 280mln); sales down 4% at current exchange rates. CEO said it saw improvement in sales towards the end of Q1 that continued through the start of April. Europe is still in recovery mode and hopes in Q2/Q3 tourism will pick up pace in the region.


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  Renault SA (RNLSY) - The automaker has reportedly tapped banks to work on a planned listing of its electric car unit, Ampere. A planned listing in Paris could be valued up to EUR 10bln, Reuters reports.


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  Tesla Inc. (TSLA) - The automaker raised US price of its Model X to USD 97,490 (from 94,990), raised the price of its Model X Plaid to USD 107,490 (from 104,990), raised the price of its Model S to USD 87,490 (from 84,990), and raised prices of its Model S Plaid to USD 107,490 (from USD 104,990).

FINANCIALS:

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  Bank OZK (OZK) - Rose 1.2% after hours following results. Reported Q1 EPS of USD 1.41 (exp. 1.38), and Q1 total loans +16.5% at USD 22.06bln, Q1 deposits +9.6% to USD 22.28bln, Q1 total assets +9.1% to USD 28.97bln.


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  Credit Suisse Group AG (CS), UBS Group AG (UBS) - Credit Suisse bondholders launch legal challenge in Switzerland against regulators’ decision to write down USD 17bln in securities as part of its rescue by UBS, WSJ reports, with bondholders wanting the decision to write down bonds revoked or amended; they are alleging the total write-down was disproportionately punitive and violated property rights.


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  Horace Mann Educators Corporation (HMN) - Pre-announced Q1 metrics, sees core EPS between USD 0.21-0.23 (exp. 0.38), and sees catastrophe losses for Q1 between USD 22-23mln; said there were 23 events designated as catastrophes by Property Claims Services in this year's Q1 vs 11 events Y/Y. Reiterates FY23 core EPS outlook between USD 2.00-2.30 (exp. 2.10). Sees a double-digit return on equity in 2024 as core EPS approaches UDS 4.00.

MATERIALS:

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  BHP Group Ltd. (BHP) - Quarterly iron ore WAIO production 66.2mln tons (prev. 66.7mln tons Y/Y), nickel output 19.6k tons (prev. 18.7k tons Y/Y), copper output 405.9k tons (prev. 369.7k tons Y/Y) and metallurgical coal output 6.9mln tons (prev. 7.9mln tons Y/Y). Said 2023 production guidance for iron ore, copper metallurgical coal and energy coal remained unchanged, while nickel output guidance was lowered. China economic rebound and solid momentum in India's steelmaking growth is helping to offset the impact of slowing growth in US, Europe and Japan. Provisions related to Samarco Dam failure and Germano Dam decommissioning subject to ongoing assessment totalled USD 3.3bln as of end-2022 and has expected outlay of USD 1.95bln for 2023.


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  Glencore (GLNCY) - Q1 Copper production -5% Y/Y, nickel production -32% Y/Y, zinc production -15% Y/Y, Ferrochrome +3% Y/Y. Said Q1 production was broadly in line with their forecasts, FY guidance remains unchanged.

INDUSTRIALS:

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  Boeing Company (BA), United Airlines Holdings (UAL) - United said more Boeing 737 Max deliveries may be delayed from Q3, and that the six scheduled for delivery in Q2 were delayed due to a manufacturing process issue.


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  CSX Corporation (CSX) - The railroad company's shares rose 2.6% afterhours following results which topped expectations. Q1 EPS 0.48 (exp. 0.43), Q1 revenue USD 3.71bln (exp. 3.58bln). Exec said it had an encouraging start to the year. Q1 operating ratio 60.5% (exp. 59%). Q1 merchandise revenue +13% (volumes +4% ), Q1 coal revenues +19% (volumes +19%), Q1 intermodal revenues -5% (volumes -9%), due to soft international demand and elevated inventories. Ahead execs see the Merchandise and Coal segments acting as tailwinds, while the Intermodal unit is to remain tepid.


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  Knight-Swift Transportation Holdings Inc. (KNX) - The freight transportation company slipped in afterhours trade after earnings missed expectations and it lowered its outlook. Q1 adj. EPS 0.73 (exp. 0.81), Q1 revenue USD 1.64bln (exp. 1.61bln). Exex said that the "the unusually soft demand experienced in Q4 continued through Q1, as demand proved worse than expected," adding that the weakness in demand has continued in April. Additionally, exec said the general lack of import activity, especially on the West Coast, negatively impacted freight volumes and led to a more competitive bid season. Anticipates general weakness in shipping demand will persist through the Spring, while ongoing rate pressure and cost inflation will continue to drive capacity from the market. Lowers FY23 adj. EPS outlook to 3.35-3.55 (exp. 3.85) from 4.05-4.25.


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  PPG Industries, Inc. (PPG) - Q1 earnings topped expectations, and it sees strong FY earnings. Q1 adj. EPS 1.82 (exp. 1.53), Q1 revenue USD 4.4bln (exp. 4.4bln). Exec notes that the pace of its operating margin recovery accelerated during the quarter, driving a 33% Y/Y increase in adj. EPS. Said macroeconomic conditions remained challenging. Noted outperformance in its aerospace coatings business, and the Latin America region; said its automotive OEM coatings business benefited from solid global production growth. Strong earnings growth was across most business units and was aided by higher incremental margins that were driven by higher selling prices, improving manufacturing efficiencies and overall cost discipline. These factors also resulted in record first quarter operating earnings in its EMEA region. Sees Q2 adj. EPS between 2.05-2.15 (exp. 1.96), and sees Q2 aggregate sales volume flat, with equal potential for slight improvement or decrease of low single-digits Y/Y. For the FY, sees FY23 adj. EPS between 6.95-7.25 (exp. 6.89).


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  Valmont Industries, Inc. (VMI) - The industrial conglomerate reported Q1 EPS of 3.47 (exp. 3.33), and Q1 revenue of USD 1.06bln (exp. 1.04bln). Lifts FY23 EPS outlook to 15.45-16.00 (exp. 15.57) from 15.35-15.90; backs FY23 revenue growth outlook of +4-7%. Boosts quarterly dividend by 5c to USD 0.60/shr, and announced USD 400mln of share repurchases.

21 Apr 2023 - 09:30- EquitiesData- Source: Newsquawk