US EARLY MORNING: Equity futures are clinging on to most of Monday's gains ahead of a heavy US corporate earnings slate

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  SNAPSHOT: Stocks on Wall Street rallied Monday with tech leading ahead of earnings from the likes of MSFT later today. That helped to support APAC equities, although conditions remained quietened by mass holiday closures. European equity indices opened around flat, and have been lingering just above neutral as generally better-than-expected PMI data is released, with the data not managing to engineer any meaningful bounce in risk sentiment. US equity futures are currently trading around the unchanged level, maintaining the gains seen on Monday; the ES remains above the psychological 4,000 level; many have suggested that the region around 4,150 could prove to be a ceiling from a valuation perspective (assumes an 18x multiple on FY23 EPS expectations of USD 230 for the index). US Treasuries are seeing a modest rally this morning, with yields lower by 2-3bps across the curve, with the belly outperforming. The USD is slightly red, with the Dollar Index trading sub-102.00.


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  FLASH PMI DATA: Flash PMI data for January out of the Eurozone has had a mixed tone; French manufacturing rose above expectations, and back over the 50-mark, which divides expansion and contraction; French services saw a small fall against expectations of a small rise, as did the French composite gauge. German manufacturing disappointed expectations though its services gauge surprised to the upside and back above 50, helping the composite rise, but still not above the 50-mark. The aggregated Eurozone flash PMI data for January surprised to th upside, with the services and composite gauge returning to expansionary territory above 50.0 (only the services was expected to), while the manufacturing index improved by more than expected. The attached commentary was generally constructive, with S&P Global stating that "a steadying of the eurozone economy at the start of the year adds to evidence that the region might escape recession," although added that policy caution was still warranted since a renewed slide into contraction cannot be ruled out as borrowing costs rise.


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  OTHER DATA RELEASES: Other data this morning from Germany showed consumer sentiment at -33.9 in February (exp. -33.0), according to Gfk; "falling energy prices... have ensured consumer sentiment is less gloomy," Gfk said, but it still warned that the consumer outlook for 2023 was difficult. Meanwhile, data out of the UK showed public sector net borrowing was above expectations in December; Capital Economics said it would further limit the chances of any big budget giveaways.

DAY AHEAD:

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  US DATA: The North American day will feature the Richmond Fed's manufacturing gauge for January; the read through from the Empire and Philly Fed Manufacturing surveys has been mixed, with the former heavily disappointing expectations, while the latter was a little better than expected; these regional releases will help inform traders' expectations for the January ISM report, which is due to be released early February – as a reminder, both the manufacturing and services ISM headlines and new orders sub-indices were in contraction territory in December. Elsewhere, the weekly Redbook will be eyed to see how retail spending trends have progressed in January; after a fall at the start of the month, last week's data showed some stability.


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  AUCTIONS: The US will begin this week’s short-end supply, with a sale of 2yr notes today, ahead of 5s on Wednesday and 7s on Thursday. History can be accessed in our G7 bonds note here.


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  SPEAKERS: The ubiquitous ECB President Lagarde will give (another) set of remarks today; she yesterday said the central bank has made it clear interest rates will still have to rise significantly at a steady pace; markets are currently expecting a 50bps rate hike in both February and March. The Fed remains on blackout ahead of its February 1st meeting (+25bps is the base case).


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  INVENTORIES: On the energy front, the weekly API energy inventory data will be released after hours; this week, analysts expect headline crude stocks to build by 1.6mln bbls, distillates to draw by 1.6mln while gasoline is seen building 2.1mln.


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  EARNINGS: Elsewhere, the earnings docket begins picking up; today, numbers are due from Microsoft (MSFT), Verizon (VZ), JNJ (JNJ), General Electric (GE), Lockheed (LMT), Raytheon (RTX), 3M (MMM), Haliburton (HAL), PACCAR (PCAR), Union Pacific (UNP), Texas Instruments (TXN). We have noted some of the main talking points for the major earnings due today below.


• Our full day ahead calendar can be accessed here. Our full daily earnings estimate sheet can be accessed here.

TALKING POINTS FOR TODAY’S MAJOR US EARNINGS:

• Our full sheet of earnings expectations can be accessed here.


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  MSFT: Expected to report revenue +2.4% Y/Y at USD 52.97bln, with EPS of USD 2.30/shr. The company has already joined other tech giants in announcing job cuts, and analysts will be watching to see if they are projecting a margin bounce-back in the second part of the year. Elsewhere, After it confirmed investment in OpenAI, there will also be attention on how the AI segment complements its current cloud offerings; last quarter, MSFT said customers were 'optimising their digital spend' and any further colour around these trends will be helpful. Finally, any commentary on hardware segment will be eyed, with particular focus on updates around Xbox and HoloLens. RBC's analysts say they are confident in Microsoft's ability to protect margins in the near-term, and expect the tech company to confirm demand trends remain lacklustre; "With shares trading at 23x 2023E GAAP EPS and a discount to mega-cap software peers, we believe temporary near-term headwinds are more than priced in."


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  VZ: Analysts at Credit Suisse will be looking to the report to see if 2023 EBITDA growth will be challenging (Street models 2% growth), and argue that FCF expectations (USD 18.4bln expected) also look too high. CS says "management has to balance defending its higher-price premium base vs margins and FCF, though valuation is perhaps supported at this level by its dividend.


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  JNJ: Writing towards the end of last year, Morgan Stanley identified potential upside risks as growth in Pharma and Medtech segments was tracking higher-than-anticipated; JNJ delivers on new product cycles and pipeline, replaces Stelara patent loss; its consumer segment spin-off unlocks trapped value in each of the resulting companies. Downside risks included JNJ facing on going litigation risks related to talc allegations, growth in Pharma and Medtech segments could be slower-than-anticipated.


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  GE: Macro traders will be focussing on efforts to address supply chain bottlenecks and mitigate inflationary pressures.


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  LMT, RTX: Analysts will be focussing on colour on costs and supply chains. Benchmark's analysts say that "given both labour and supply chain costs throughout the quarter, we believe there is still the potential for costs mismatch with contract structures primarily within the defense verticals," adding that "there is early indication that the electronics supply chain constraints are thawing which could drive FY23 defense verticals, although, defense budget political posturing has yet to fully playout in our view."


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  MMM: The industrial conglomerate is likely to report a fall in Q4 revenues, which analysts say will be driven by consumers cutting back on discretionary spending in the face of higher inflation and uncertainties ahead.

TECH:

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  Alphabet Inc. (GOOG) - The DoJ is poised to sue Google over the search giant’s dominance over the digital advertising market, Bloomberg reports. The case is expected to be filed before the end of the week. The case will mark the DoJ's second monopoly case against the company, and would also be the fifth major case in the US challenging the company’s business practices. Bloomberg reminds that state AGs have filed three separate suits against Google, alleging it dominates the markets for online search, advertising technology and apps on the Android mobile platform in violation of antitrust laws.


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  Apple Inc. (AAPL), Walt Disney Company (DIS), Dolby Laboratories, Inc. (DLB) - Apple has discussed developing VR content for its long-anticipated mixed-reality headset with about half a dozen media partners, including Disney and Dolby, while it is also working to update its own Apple TV+ material to work with the headset, Bloomberg reports. The roughly USD 3k device is due later this year, likely under the name of 'Reality Pro', Bloomberg added.


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  Logitech International S.A. (LOGI) - The computer hardware manufacturer's earnings missed analyst expectations in Q3, though it reiterated its guidance. Q3 revenue USD 1.27bln (exp. 1.34bln), Q3 EPS 1.14 (exp. 1.15). Q3 category sales declined in both US dollars and constant currency; gaming sales declined -16% Y/Y in Q3 and 10% Y/Y respectively; video collaboration sales declined -21% Y/Y and 16% Y/Y respectively; keyboards and combos sales declined -22% Y/Y and -17% Y/Y respectively; pointing devices sales declined -14% Y/Y and -8% Y/Y respectively. LOGI said the results reflected consumer purchasing concentrated in promotional weeks throughout the quarter, and lower enterprise and consumer spending.

CONSUMER:

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  Swatch Group AG (SWGAY) - The Swiss watchmaker said it saw strong sales growth in all regions and segments. FY22 revenue CHF 7.5bln (exp. 7.73bln), FY22 EBIT CHF 1.16bln (exp. 1.20bln), NY net income CHF 823mln (exp. 848mln). Sales growth of 25% in local currencies in all regions, with the exception of China, where COVID lockdowns resulted in sales shortfalls of over CHF 700mln. After the end of COVID measures, consumption quickly recovered, not only in China, but also in the surrounding markets of Hong Kong SAR and Macau. However, said that Group brands in all segments worldwide were in a strong position, and it had robust numbers in January for Mainland China, and therefore sees the Group achieving a record year in 2023, with strong FY23 sales growth seen in all regions and segments.


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  Swiss Watch Manufacturers - Swiss watch exports +5.8% Y/Y in December to CHF 2.025bln (prev. +10.9% Y/Y to CHF 2.41bln).


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  Associated British Foods (ASBFY) - Group revenue for the 16 weeks through January 7th was GBP 6.698bln, +20% Y/Y vs comparable period at actual exchange rates, +16% higher at constant currency. Said it continued to encounter significant cost pressures, but inflation had become less volatile and recently some commodity costs declined. Said consumer spending has proven to be more resilient than anticipated at the start of the financial year.. Continues to expect FY aggregate profits of its Food businesses to be up Y/Y, but with a lower margin.

FINANCIALS:

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  Goldman Sachs Group, Inc. (GS) - Goldman Sachs asset management arm will significantly reduce the USD 59bln of alternative investments that weighed on the bank's earnings, Reuters reports, and the bank is planning to divest its positions over the next few years and replace some of those funds on its balance sheet with outside capital, its CIO of asset and wealth management said.


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  Credit Suisse Group AG (CS) - The Qatar Investment Authority has doubled its stake in the Swiss bank, and now has a shareholding of just under 7%, the FT reports.


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  Blackstone Group L.P. (BX) - The private investment banking company is in talks with Bain Capital to sell a 12% stake in Indian REIT Embassy Office Parks, which could fetch USD 480mln, according to Reuters. Blackstone currently holds a 24% stake in that REIT.


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  Zions Bancorporation (ZION) - Earnings topped expectations, though its NII outlook was light. Q4 EPS 1.84 (exp. 1.64), Q4 net interest income +30% Y/Y at USD 720mln (exp. 712mln), Q3 net interest margin 3.53% (exp. 3.45%). Q4 loan loss provisions USD 43mln (exp. 52mln), Q4 tax rate 20.9% (exp. 22%), Q4 operating expenses USD 472mln (exp. 486mln). Exec said it continued to build loss reserves due to both continued loan growth and the prospect of a slowing or recessionary economic environment in coming months, but remains optimistic that it is well prepared for a more challenging economy, and expects the coming year to reflect strong results. In FY23, sees NII growth of 7-9% (exp. 14%).

INDUSTRIALS:

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  Crane Co. (CR) - Machine industry company reported Q4 EPS of 2.13 (exp. 1.90), Q4 revenue of USD 824mln (exp. 822.6mln), Q4 operating margins 18.6% (exp. 17.0%). Q4 core sales +11% Y/Y, core orders +15% Y/Y, core backlog +28% Y/Y. Exec said leading indicators remain strong, but despite strength, based on broader macroeconomic trends and general uncertainty, it is planning for somewhat constrained and mixed activity in 2023 paired with gradual supply chain relief throughout the year. CEO noted continued progress toward its planned separation, remains on-track for completion in April 2023. FY23 EPS outlook is seen between 3.40-3.70 post separation, and FY23 revenue is seen at USD 1.98bln post separation (exp. 3.45bln, might not compare).

MATERIALS:

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  BHP Group Ltd. (BHP) - The world’s biggest mining company won a deal to search for copper in Serbia, Bloomberg reports.

UTILITIES:

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  ENGIE SA (ENGIY) - The French utilities company said warmer weather in France resulted in lower Grench gas distribution volumes, and therefore guided FY22 volumes lower Y/Y.

HEALTH CARE:

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  CVS Health (CVS) - Announced David Joyner will re-join the company as Executive Vice President and President of Pharmacy Services; Amy Bricker has been named Executive Vice President and Chief Product Officer of the consumer division.

24 Jan 2023 - 09:20- Research Sheet- Source: Newsquawk