US EARLY MORNING: Equity futures are flat; debt ceiling talks make progress but still no breakthrough; more retail earnings ahead

OVERNIGHT: On Wall Street, it was a risk off session on Tuesday, with the majority of stocks and indices in the red; the only pockets of strength were in Tech and large-cap names. US retail sales data was mixed while Industrial production and manufacturing output were above expectations; the Fedspeak was also heavy. Our US wrap can be accessed here. Overnight, Asia-Pac stocks were mixed with the region cautious after the weak handover from the US, where risk appetite was clouded amid debt ceiling concerns; a meeting between US President Biden and congressional leaders achieved no major breakthroughs (see below). On the data front, Japan emerged from recession in Q1, growing more quickly than analysts had anticipated. Our APAC wrap is here. Stocks start the European day beneath the neutral line ahead of final Eurozone inflation metrics, which are expected to be unrevised. Our European cash open note is here.

US PRE-MARKETS: US equity futures have given up the modest upside seen overnight, and are trading around flat, continuing the horizontal action that has been seen since April. Debt ceiling talks were being framed as constructive by officials, and while some pockets of progress were cited, the impasse remains (see below). Hawkish Fedspeak continues post the May policy meeting, with officials keen to impress that the Committee has not concluded rate rises, and will act if inflation dynamics warrant further tightening; Chair Powell will likely reiterate this theme in remarks due Friday. We get a breather from the Fedspeak today, but the docket for Thursday (VC nominee Jefferson, VC Barr, Logan) and Friday (Chair Powell, Williams, Bowman) is busy. Treasuries are mixed, with the short-end a little off neutral, though the longer end is seeing yields down by around 3bps; we get 20yr supply later today. The Dollar Index is a little higher,; analysts cite the lack of progress in Washington which will keep defensive dollar positions in focus. Crude benchmarks are lower after API data reportedly showed a surprise build in crude stocks; the more widely viewed DoE data is released later today.

US DEBT CEILING: President Biden and Republican leaders expressed cautious optimism that a deal to raise the US debt ceiling was within reach, following talks at the White House on Tuesday, BBC reports. But House Speaker Kevin McCarthy said that the two sides remained far apart. That said, it appears that the threat of a default has been taken off the table: McCarthy was asked about the risk, and he said that "we've already taken default off the table." McCarthy said that a Biden-appointed representative would negotiate directly with his staff, which he said was a sign that the structure of how the sides negotiate has improved. Biden has also cut short his Asian visit, cancelling a visit to Australia and Papua New Guinea to focus on the debt limit standoff; the President will however still travel to Japan on Wednesday for the G7 meetings, and will return to the US on Sunday. Separately, over 140 leaders of the biggest US companies including Goldman Sachs (GS), Pfizer (PFE) and KKR (KKR), have urged the White House and congressional leaders to raise the debt ceiling and avoid a “potentially devastating scenario”, FT reports.

GS ON MARGINS: In its outlook for S&P 500 profit margins, Goldman Sachs said that in the near-term, the worst of the profit margin reset is likely behind us. The bank notes that Q1 saw margins improve and are now expected to stabilise, though there remain some challenges to margin expansion due to factors like wage growth, interest rates, and inventories, as well as the risk of a recession. In the long-term, Goldman says that the major margin tailwinds of the last 30 years are unlikely to provide much boost in coming years. It says that since 1990, profits for companies in the S&P 500 have increased by 700bps, contributing to 40% of the overall stock market gains. The main factors behind that was the cost of goods sold, taxes, and interest rates. However, these factors may reverse in the future, GS warns, risking a decline in returns. The bank says AI is seen as a potential long-term solution to support profit margins, with estimates suggesting it could increase profits by nearly 400bps over ten years, but there remains uncertainty regarding the economic impact of AI and the regulations it may face.

DAY AHEAD:

• Our full interactive day ahead calendar can be accessed here, a pdf version can be accessed here.


• 
  EUROPEAN DATA/SPEAKERS: Final Eurozone HICP metrics for April are expected to be unrevised. The ECB's Economic Bulletin covering monetary policy and housing investment will be released, ahead of its Publication of its supervision newsletter. The ECB speakers slate is busy, and includes Vice President de Guindos, de Cos, Elderson, Panetta. Riksbank's Floden will be speaking again, while from the UK, BoE Governor Bailey will address the Chambers of Commerce. On the supply front, UK will sell GBP 3.75bln of 2027 Gilts, while Germany will sell EUR 4.0bln of 2033 Bunds.


• 
  US DATA/SPEAKERS: Weekly MBA mortgage applications data, Building Permits and Housing Starts for April. On the supply front, the Treasury will auction USD 15bln of 20yr Bonds. Today’s corporate earnings docket includes TGT, TJX, CSCO, SNPS; our expectations sheet can be accessed here.


• 
  ENERGY: The DoE weekly energy inventory stats will be out in the US morning; afterhours on Tuesday, API data reportedly showed Crude +3.7mln (exp. -0.9mln), Gasoline -2.5mln (exp. -1.1mln), Distillate -0.9mln (exp. +0.1mln), Cushing +2.9mln.

EQUITY NEWS:

FINANCIALS:

• 
  Western Alliance (WAL) - Rose 7.5% in extended trading after it reported QTD deposit growth over USD 2bln, as of May 12th. It said deposit balances stabilised by March 20th, and resumed growth. It added that Insured Deposit Strenghth was greater than 79% as of May 12th, up from 68% as of March 31st.


• 
  Republic First Bancorp (FRBK) - The bank said it has an adequate capital position at this time, after recent initiatives included winding down both its New York City commercial lending business and mortgage origination business. Intends to implement additional initiatives. In March it announced a USD 125mln capital raise that requires the participation of additional accredited investors; Board will wait for market conditions to stabilise before identifying additional participants to round out the capital raise on acceptable terms.


• 
  National Western Life (NWLI) - Is exploring strategic alternatives in order to maximise value for its stockholders. Has engaged Goldman Sachs (GS) as an advisor to assist with its review process. No decision has been made to enter into a sale, merger or other strategic transaction.


• 
  New York Community Bancorp (NYCB) - The bank announced that FDIC, as receiver for Signature Bridge Bank, has agreed to sell, in an underwritten public offering, 39,032,006 shares of the Company's common stock owned by the FDIC Receiver.


• 
  Coinbase (COIN) - SEC issued a response to Coinbase’s complaint requesting that the agency establish regulatory clarity for the industry, blockworks reports. In an April mandamus petition, Coinbase demanded federal courts to instruct the SEC to act and issue clear guidelines for crypto exchanges and companies; the SEC this week alleged Coinbase has no right to mandamus, which orders a government agency to fulfil certain duties.


• 
  Everest Re (RE) - Everest raised equity from the public markets as it seeks to attack the harder reinsurance market, Insurance Insider reports.


• 
  London Stock Exchange Group (LNSTY), Blackstone (BX), Thomson Reuters (TRI) - Blackstone and Thomson Reuters are part of a consortium looking to sell GBP 2.4bln worth of stock in LSE, Bloomberg reports. Stock offered represents a 5.1% stake; Barclays announced results of placing of 33mln voting ordinary shares, where aggregate gross sales proceeds were circa. GBP 2.7bln.


• 
  Euronext (ERNXY) - Adjusted profits topped expectations, set to launch 'dark' trading by Q4. Q1 adj. EPS 1.37 (exp. 1.29), Q1 revenue EUR 372.3mln (exp. 371mln), adj. EBITDA margin 58.7% (exp. 57.9%), adj. EBITDA 218.5mln (exp. 215mln).


• 
  Commerzbank (CRZBY) - Higher interest rates helped the German lender to double quarterly profits. Q1 revenue EUR 2.67bln (exp. 2.63bln), Q1 net income EUR 580mln (exp. 571.4mln). CET1 14.2% (exp. 13.8%). Corporate Clients segment continued growth driven by the positive development of net interest income from deposits. Raises NII guidance to EUR 7bln (prev above EUR 6.5bln). Said that the ECB and the Finance Agency approved its first share buyback programme of EUR 122mln. Said


• 
  HSBC Holdings (HSBC) - Has reportedly abandoned plans for a UK pensions business, FT reports.


• 
  Munich Re (MURGY) - Profits slipped, hit by Turkey earthquake claims. Q1 Operating EUR 1.76bln (exp. 1.72bln), Net EUR 1.27bln (exp. 1.30bln). FY23 guidance unchanged.


• 
  UBS (UBS), Credit Suisse (CS) - UBS is set to win unconditional EU antitrust approval for the Credit Suisse takeover, Reuters reports. Separately, UBS said it sees mark-down of USD 9.9bln in fair value adjustments on financial assets related to the Credit Suisse deal. A reduction in AUM and deposits at Credit Suisse will likely lead to a substantial loss in Credit Suisse's wealth management division in Q2. Fair value of net assets acquired in Credit Suisse deal is USD 38.24bln.


• 
  Zurich Insurance (ZURVY) - Gross premiums +6% in Q1 on higher prices. Q1 Property & Casualty Gross Premiums EUR 12.0bln (prev. 11.3bln Y/Y). Commercial insurance margins improve as a result of higher prices and higher interest rates, partially offset by continued elevated loss cost trends in retail.

TECH:

• 
  Big Tech - Big tech companies have resumed hiring foreign workers just weeks after layoffs, according to public policy journalist Lee Fang. Fang said new disclosures released show Google (GOOG), Amazon (AMZN), Facebook (META), and others requesting foreign worker H-1B visas this year.


• 
  SAP SE (SAP) - Provided an update on its medium-term plans through 2025; raised outlook and announced a share buyback programme of EUR 5bln. Sees FY25 Cloud revenue view above EUR 21.5bln (prev. above 22bln; exp. 21.48bln), sees FY25 total revenue view above EUR 37.5bln (prev. 36bln; exp. 37.14bln), and maintains FY25 non-IFRS Op view of EUR 11.5bln, while it sees FY25 FCF of EUR 7.5bln (prev. 8bln; exp. 7.54bln). Execs said supply chain constraints eased further, and it continues to anticipate a relatively high order backlog at the end of FY23, adding it was on course for a strong H2.


• 
  Software AG (STWRY) - Minority investor groups oppose Silver Lake's planned delisting of the company.


• 
  ServiceNow (NOW) - ServiceNow will initiate its first ever share repurchase programme for up to USD 1.5bln. It said the programme's primary objective was managing the impact of dilution from future employee equity grants and employee stock purchases. CFO added that the programme reflects its conviction in the trajectory of the business and its commitment to driving exceptional shareholder value.


• 
  Lyft (LYFT) - Erin Brewer named CFO, effective July. Brewer served as Managing Director Enterprise Finance at Charles Schwab & Co (SCHW).


• 
  Keysight Technologies (KEYS) - Q2 adj. EPS 2.12 (exp. 1.95), Q2 revenue USD 1.39bln (exp. 1.38bln). Q3 EPS view 2.00-2.06 (exp. 1.96).


• 
  Gen Digital Inc (GEN) - Q4 adj. EPS 0.46 (exp. 0.44), Q4 revenue USD 948mln (exp. 940.05mln). Sees Q1 EPS between 0.45-0.47 (exp. 0.46), and sees Q1 revenue between USD 940-950mln (exp. 954.1mln).


• 
  Kyndryl Holdings (KD) - Q4 EPS -3.24 (exp. -1.03), Q4 adj. EBITDA USD 476mln (vs 536mln Y/Y), Q4 revenue USD 4.3bln (exp. 4.16bln). Sees FY24 revenue between USD 16.0-16.4bln (exp. 16.47bln).

COMMUNICATIONS:

• 
  Twitter (private), Tesla (TSLA) - Twitter chief Elon Musk confirmed that former NBCUniversal chief of advertising Linda Yaccarino will become new Twitter CEO. Musk added that she will start her new role in six weeks, and he will transition to Exec Chair and CTO roles.


• 
  Meta (META) - Announced a 'testing playground' for generative AI ad tools called AI Sandbox. Tools will initially be available to a small group of advertisers, and plans to expand into products later this year. Meta is also expanding AI-powered ad targeting features to include video options and new audience parameters.


• 
  Manchester United (MANU) - Qatar's Sheikh Jassim Bin Hamad al Thani has upped his bid to buy the world's best football club Manchester United to GBP 5bln, which reportedly still falls short of the Glazer family's valuation of GBP 6bln, Sky reports. INEOS' offer values MANU at a higher price, but its offer is not for the entire club, and would allow the Glazer family to retain a 20% ownership stake, Sky added.


• 
  News Corp (NWSA) - Q1 adj. EPS 0.09 (exp. 0.05), Q1 revenue USD 2.45bln (exp. 2.37bln); sees 160mln in yearly savings from staff cuts.


• 
  Zoom Video Communications (ZM) - CFO Kelly Steckelberg sold 3,224 shares at USD 63.88/shr for a total USD 206k.


• 
  Ubisoft (UBSFY) - Posted a record operating loss in the year, but maintained guidance. Will expand Assassin's creed development, and promised a large game this year, which some speculate could be a Star Wars title.

CONSUMER:

• 
  Tesla (TSLA) - CEO Elon Musk said that macro conditions will remain difficult for at least a year, although he is confident Tesla can navigate through the uncertainties, CNBC reports. Musk said he was not considering stepping down as Tesla CEO. Musk said the automaker could consider giving advertising a shot. Tesla aims complete design of next-gen Roadster model this year, though it would not be a significant revenue contributor. Musk added that Tesla intends to roll out an insurance product later this year too.


• 
  Auto Names - EU27 New Car Registrations eased to a rate of 17.2% Y/Y in April (prev. 28.8%); Volkswagen Group (VOW3 GY) +31.6%, Stellantis (STLAM IM/ STLAP FP) +8.2%, Renault Group (RNO FP) +39.5%, BMW (BMW GY) +4.4%, Merecedes-Benz Group (MBG GY) +2.4%.


• 
  Volkswagen (VWAGY) - Has reportedly been in discussions regarding the use of Huawei software within its vehicles in China, FT reports, and discussions have also been held with other Chinese companies.


• 
  Stellantis (STLA) - The automaker said it was no longer able to meet Brexit trade rules on where parts are sourced, BBC reports.


• 
  Watches of Switzerland (WOSG) - Enters FY24 significantly ahead of its long-term plans, it said. FY revenue GBP 1.5bln (exp. 1.53bln).


• 
  Booking Holdings (BKNG) - CEO Glenn Fogel sold 750 shares for a total USD 1.98mln, and CFO David Goulden sold 550 shares for a total USD 1.44mln.

MATERIALS:

• 
  Nutrien (NTR), Bunge (BG) - Bunge and Nutrien Ag Solutions announced an alliance to support US farmers in the implementation of sustainable farming practices that will help increase the development of lower carbon products. The initiative is expected to expand sustainable agriculture across shared supply chains in North America, bringing more whole-acre solutions to food, feed and fuel customers and end-consumers. The initial programme will focus on soybeans grown in the regions close to Bunge's crushing facilities in Iowa and Indiana.


• 
  Thyssenkrupp (TKAMY) - Incoming CEO Miguel Angel Lopez Borrego, set to take the position on June 1st, warned of 'tough, far-reaching' decisions that were needed, Reuters reports.

HEALTH CARE:

• 
  Doximity (DOCS) - Q4 EPS 0.20 (exp. 0.17), Q4 revenue USD 111.0mln (exp. 110.1mln). Doximity announced an integration with MEDITECH, an electronic health record system in the US. Sees Q1 revenue between USD 106.5-107.5mln (exp. 112.1mln), Q1 adj. EBITDA seen between USD 39-40mln. For FY24, sees revenue between USD 500-506mln (exp. 507.1mln).


• 
  Roche (RHHBY) - BTK inhibitor fenebrutinib significantly reduced brain lesions in people with relapsing forms of multiple sclerosis; the only reversible BTK inhibitor currently in Phase III multiple sclerosis (MS) trials . Phase II study met its primary and secondary endpoints.

ENERGY:

• 
  Hess Midstream Partners (HESM) - Announced the start of an underwritten public offering of 11.1mln shares representing limited partner interests in HESM by a subsidiary of Hess Corporation and an affiliate of Global Infrastructure Partners. The selling shareholders to grant underwriters a 30-day option to purchase up to 1.665mln additional shares. HESM will not receive any proceeds from the sale of Class A shares in the offering.

INDUSTRIALS:

• 
  Siemens (SIEGY) - Q2 sales topped expectations and it raises its outlook. Q2 revenue EUR 19.4bln (exp. 18.75bln), Net EUR 3.6bln (exp. 3.25bln), Orders EUR 23.6bln (exp. 22.95bln), Industrial Profit EUR 2.61bln (exp. 2.70bln). Lifts guidance: now sees comparable Revenue Growth of 9-11% (prev. 7-10%), EPS between 9.60-9.90 (prev. 8.90-9.40).


• 
  United Airlines (UAL) - Expects nearly 2.9mln people to fly with them between May 25th-30th; plans to hire 15k more employees this year, and has already hired 7k new employees through April.


• 
  Northrop Grumman (NOC) - Boosts quarterly dividend +8% to USD 1.87/shr.

REAL ESTATE:

• 
  WeWork (WE) - CEO Sandeep Mathrani will step down, Board member David Tolley has been appointed interim CEO. WE reaffirmed its Q2 revenue outlook between USD 840-865mln (exp. 867mln), and its adj. EBITDA view between USD -10mln and -15mln, while it still expects its available cash at end-Q2 to be consistent with, or slightly better than projections provided with its debt restructuring transactions.

17 May 2023 - 09:01- Fixed IncomeData- Source: Newsquawk