US EARLY MORNING: Equity futures are flat and Treasury yields are lower ahead of the Fed's policy announcement today

SNAPSHOT: US equity futures are a little better than flat after the soft November CPI data published on Tuesday, and ahead of today’s Fed announcement. That said, index levels have pared back from the highs seen following the data release. Some have theorised that the reaction was a function of traders getting ahead of market pricing (expectations for a 50bps today, as well as terminal between 4.75-5.00% were ultimately unchanged in wake of the release), while others cited valuations (SPX has a forward p/e of around 18x, and some believe the index is getting a bit rich above these levels in the face of economic uncertainties), and even technical factors (the 200dma has been influential of late, and ES futures have essentially fallen back to slightly beneath this level, at 4,034). Others suggest that it may have been driven by profit-taking, given the outsized move, ahead of other key risk events. Treasuries continue to rally, with yields lower by 2-5bps (once again, the Fed-sensitive short-end outperforms), major curve spreads are not deviating too far off neutral, while the Dollar Index is a little off flat. While the Fed wants to see inflation cool, it does not want financial conditions to loosen too much – as that undermines the impact of its policy tightening – and as such, it will be interesting to see the extent to which Powell pushes back on the market’s recent risk-on exuberance.

FED PREVIEW: The focus is now on today’s FOMC policy meeting, where it is expected to downshift the pace of rate hikes to +50bps. The updated economic projections will likely show the Committee expects the terminal rate to be higher than the 4.6% it pencilled in within the September forecasts (money markets are pricing terminal at between 4.75-5.00%); Chair Powell will be quizzed about how long the central bank sees rates remaining at peak levels for; for historical context, the Fed has typically stayed at terminal for between 3-15 months, with the average being around 6.5 months. In wake of the soft CPI data, financial conditions have eased, and some are expecting the Fed chief could push back against this, as well as expectations that it would be loosening monetary policy any time soon. Our full Fed preview can be accessed here.

DAY AHEAD: Other than the key Fed meeting (full preview here), weekly US MBA mortgage applications data, US import and export prices for November. On the energy front, weekly DoE inventory data. Our full Daily Economic Releases sheet for December 14th can be accessed here. We also note Thursday’s heavy G10 central bank slate, which includes the ECB policy announcement (our preview is here), the BoE rate decision (preview here); Previews for the SNB and Norges Bank meeting can be found in our week ahead note here (you can also get the preview for Thursday’s Banxico meeting here too).

CHINA:

• China has decided against postponing its key economic policy meeting, which takes place every December, and where top leaders decide on economic and policy and the outlook for the coming year, ahead of its central economic work conference. The meeting will take place December 15-16th, Reuters said. There had been some reports earlier in the week suggesting that the meeting could be delayed due to increasing COVID cases in Beijing.

TECH:

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  Apple Inc. (AAPL) - Apple is preparing to allow alternative app stores on its iPhones and iPads in the EU as soon as late next year to comply with new European competition laws it had fought, Bloomberg reports.


• 
  ASML Holding NV (ASML) - CEO said it has already sacrificed on exports to China; added that US companies had benefited from export restrictions on EUV lithography to China.


• 
  GitLab Inc. (GTLB), MongoDB, Inc. (MDB) - GitLab (GTLB) appoints MongoDB CTO Mark Porter to its board.


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  Braze, Inc. (BRZE) - Q3 EPS -0.15 (exp. 0.22), Q3 revenue USD 93.1mln (exp. 90.5mln). Q4 EPS seen between -0.19 and -0.18 (exp. 0.20), and Q4 revenue seen between USD 95-96mln (exp. 95mln), and FY EPS seen between -0.69 to -0.68 (exp. -0.77), and FY23 revenue seen between USD 352-353mln (exp. 349.3mln).


• 
  Cohu, Inc. (COHU) - Announced a strategic collaboration with Chunghwa Precision to deliver advanced probe card and interface products to the semiconductor test market.

COMMUNICATIONS:

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  Meta Platforms, Inc. (META) - Facebook's algorithm helped fuel the viral spread of hate and violence during Ethiopia's civil war, ccording to a legal case being brought against Meta, BBC reports. The case seeks a USD 2bln fund for victims of hate on Facebook, and changes to the platform's algorithm.


• 
  Warner Bros. Discovery, Inc. (WBD), Amazon.com, Inc. (AMZN) - WBD Brands and Experiences division unveiled the global leadership for its consumer products business, formalising the marriage of legacy Warner Bros. and Discovery operations, Deadline reports. It also launched its Discovery+ streaming service on Amazon.com's Prime Video platform in Canada, Reuters said.


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  Orange SA (ORAN) - Cerberus is reportedly mulling a bid for Orange's mobile banking unit, Les Echos reports.


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  Twitter - CEO Musk has been shaking up Twitter’s legal department, has disbanded a council that advised the social media company on safety issues, and is continuing to take drastic steps to cut costs, NYT reports, adding that Musk appears to be gearing up for legal battles and has instructed employees to not pay vendors in anticipation of potential litigation.

FINANCIALS:

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  Morgan Stanley (MS) - Banks led by Morgan Stanley that lent Elon Musk USD 13bln to buy Twitter are preparing to book losses on the loans this quarter, but are likely to do so in a way that it does not become a major drag on their earnings, according to Reuters. The lenders could face billions of dollars in losses if they tried to sell these loans to investors now as investors are shying away from buying risky debt during a period of economic uncertainty, Reuters said.


• 
  Carlyle Group LP (CG) - Carlyle is struggling to raise the USD 22bln by March 2023 it had targeted for what it hopes will be its largest fund, as it grapples with a succession crisis and a market downturn, FT reports. CG has reportedly asked investors for an extension until the end of August; FT says that so far, it had raised about USD 17bln for the fund.


• 
  Assurant, Inc. (AIZ) - Finalises restructuring plan, sees charges of up to USD 65mln. Will provide FY23 guidance during its Q4 2022 earnings call in February.

CONSUMER:

• 
  Industria De Diseno Textil SA (IDEXY) - The world's biggest fashion retailer Inditex posted 9-month net profits +24% as its store and online sales rose 19% Y/Y, above analyst expectations, after it raised prices by more than 5% in the spring to combat inflation. Nine-month sales EUR 23.1bln (exp. 22.8bln), EBITDA EUR 6.5bln (exp. 6.4bln), net income EUR 3.1bln.


• 
  Tesla, Inc. (TSLA) - Goldman Sachs lowers price target to USD 235 (prev. 305), maintains Buy Rating; says GS analyst said he was switching its valuation model to a price-to-earnings basis, and the new estimates reflect softer supply and demand. GS lowered its FY23 EPS estimate to USD 4.50 (prev. 4.90), and lowered his FY24 estimate to USD 5.60 (prev. 6.00). Analyst said that if Tesla can show that its demand levers and the US Inflation Reduction Act can drive strong growth and margins, the stock could rise to around USD 300 (vs current USD c.160).


• 
  Ford Motor Company (F) - Ford has added a third work crew at a Detroit plant as it boosts production of its F-150 Lightning electric pickup truck, Reuters reports. Ford previously said it was targeting annual production of 150k Lightning electric pickups by Autumn 2023.


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  Mercedes-Benz (MBG) - Facilities in Germany, Romania and China will build electric drive units. A third German site is planned. It will investing over EUR 1bln in adapting powertrain production network for EVs from 2024.


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  Volkswagen (VWAGY) - Will replace chief designer Klaus Zyciora with his predecessor Mauer, Handelsblatt rpeorts; this is not a surprise to insiders following the criticisms from CEO Blume that the brand does not have a uniform design language.


• 
  Geely Automobile Holding (GELYF) - Geely's upmarket electric car brand Zeekr has confidentially filed for a US IPO; aims to raise more than USD 1bln, according to Reuters.


• 
  Flowers Foods, Inc. (FLO) - To acquire Papa Pita Bakery, subject to regulatory approval and customary closing conditions; expected to complete in Q3 2023. Transaction to be funded with cash on-hand and existing credit facilities.

MATERIALS:

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  WD-40 Company (WDFC) - Boosts quarterly dividend +6% to 0.83/shr. Also names Gregory A. Sandfort as non-executive board chairman, replacing Garry O. Ridge following his retirement.


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  Holcim (HCMLY) - To sell Russian business to local management; terms undisclosed. Will have no significant business or financial impact.

INDUSTRIALS:

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  Boeing Company (BA) - Boeing said it would continue to push Congress to pass legislation for the Boeing 737 MAX 7 and MAX 10 to win certification, even if a key December 27th deadline passes, Reuters reports.


• 
  ABM Industries Incorporated (ABM) - Q4 adj. EPS 0.89 (exp. 0.88), Q4 revenue USD 2.01bln (exp. 1.96bln). Exec said it will continue to face labour-related pressures in the near-term. FY23 adj. EPS seen between 3.40-3.60 (exp. 3.66).


• 
  WillScot Corporation (WSC) - WillScot Mobile Mini to divest its UK Storage segment to Algeco UK Holdings for an enterprise value of approximately GBP 335mln. Proceeds from the sale will be used to support growth investments in the company's North American Modular and Storage operating segments and other capital allocation priorities.


• 
  Quanta Services, Inc. (PWR) - Boosts quarterly dividend +14% to 0.08/shr.


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  The Toro Company (TTC) - Boosts quarterly dividend +13% to 0.34/shr.

ENERGY:

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  Weekly Energy Inventories - API weekly energy inventory data reportedly showed Crude +7.8mln (exp. -3.6mln), Gasoline +0.9mln (exp. +2.7mln), Distillate +3.9mln (exp. +2.5mln), Cushing +0.6mln, according to Citi.


• 
  Tullow Oil (TUWOY) - Signed a production sharing contract for a new offshore exploration licence in Cote d'Ivoire.

HEALTH CARE:

• 
  Pfizer Inc. (PFE) - Awarded a USD 1.96bln US Army contract modification for its oral therapeutic Paxlovid.


• 
  Pfizer Inc. (PFE), Roche (RHHBY) - The two are to collaborate in an effort to boost awareness of COVID testing and treatment.


• 
  Illumina, Inc. (ILMN) - Illumina defended its USD 7.1bln acquisition of Grail Inc, pledging to keep selling its DNA sequencing services to other firms, as it seeks to head off a potential vote by US antitrust regulators to kill the deal, Reuters reported.


• 
  Amgen Inc. (AMGN) - Amgen to present results from E1910 randomised Phase 3 trial.

REAL ESTATE:

• 
  Mid-America Apartment Communities, Inc. (MAA) - Boosts quarterly dividend +12% to USD 1.40/shr.

14 Dec 2022 - 09:11- Data- Source: Newsquawk