US EARLY MORNING: Equity futures are flat, Treasuries are little changed; Walmart earnings, weekly claims data, Philly Fed, and debt ceiling updates in focus

OVERNIGHT: On Wall Street, stocks rallied Wednesday amid optimism around progress on raising the US debt ceiling, more promising consumer earnings reports, and a constructive regional banks update. Our US wrap is here. APAC stocks rose, taking impetus from Wall Street, although gains were capped as participants digested soft data releases. Aussie jobs data showed a surprise contraction in the Employment Change, and saw an uptick in the Unemployment Rate; some suggested that the data would give credence to the argument that the RBA's tightening cycle was likely to have concluded. Japanese stocks were supported by news of potential Japanese subsidies for chipmakers following PM Kishida’s meeting with foreign chip executives, though weaker-than-expected trade data saw enthusiasm curbed; the data showed imports fell for the first time in 27 months, while exports grew at the slowest pace in 26 months. In China, the positive mood was capped by disappointing earnings from Tencent, as well as the news that Montana became the first US state to ban TikTok. Our APAC wrap is here. With many European traders away for Ascension Day, there was a quiet feel to Thursday’s start. Equities rose after the open ahead of a heavy slate of central bank speak in Europe, from both the BoE and ECB, where the central bank’s chiefs are both scheduled to speak today. Our European cash open note is here.

US PRE-MARKETS: US equity futures are around flat, Treasury yields are not far off unchanged levels, the dollar Index is a little better than flat around 103.00, while crude futures are a touch softer following this week’s surprise inventory builds. Wednesday's equity market rally was underpinned by hopes that a US debt ceiling deal could be wrapped up by the weekend, but US equity futures are around flat in pre-market trade, and are ultimately continuing the traversal seen since mid-April as traders await resolutions on the debt ceiling and some of the uncertainty around the Fed's trajectory to become clearer. While debt talks will continue to be in focus, traders will also be eying other key data releases: today’s weekly initial jobless initial claims data coincides with the BLS survey window for the May jobs report; the Philly Fed's manufacturing data follows a horrific report from the NY Fed on Monday, and traders will be looking to see if this is a broad theme given that these reports help shape expectations for the more widely followed ISM manufacturing data (due June 1st); additionally, earnings are due from Walmart (WMT), which traders will use to gauge the health of the consumer given other more mixed reports this week (HD numbers were disappointing, TJX and TGT numbers have more encouragement to traders, but weren't particularly great, while the retail sales data released this week was mixed, with a soft headline but stronger underlying details). We are also entering a window full of influential Fed speakers; today, the VC nominee Jefferson will deliver remarks, and on Friday, Chair Powell and NY Fed President Williams are on the docket. Some have been noting some subtle changes in recent Fedspeak, where a divergence of views could be emerging: SocGen, for instance, notes that Fed's Williams (perma voter) was advocating for a wait-and-see approach on rates, Logan (voter) called for a slower pace of tightening, Goolsbee (voter) said it was too soon to be talking about the Committee's next decision, while Bostic (2024) said there was still a ways to go to beat inflation.

DAY AHEAD: 

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


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  EUROPEAN DATA/SPEAKERS: Ascension Day in Europe means that there are limited closures, though France and Spain are still open. There is not much on the slate in terms of data releases. Spain will sell EUR 5.5-6.5bln of 2025, 2027, 2028, and 2043 Bonos. BoE's boss Bailey (Neutral), Broadbent (Neutral) and Ramsden (Hawkish) will speak at a Treasury Select Committee hearing on QE; BoE's chief economist Pill (Neutral) will speak on Macroeconomics & Finance; BoE outgoing MPC Tenreyro (Dove) will appear at a EUI Conference in Italy. ECB President Lagarde (Dovish) at an Awards Ceremony, while we also expect another round of comments from ECB Vice President de Guindos.


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  US DATA/SPEAKERS: Weekly initial jobless claims are seen at 254k from 264; this week's initial jobless claims data coincides with the BLS survey window for the May jobs data. Meanwhile, continuing claims are expected to rise a touch to 1.818mln from 1.813mln. There will also be a great deal of attention on the Philly Fed manufacturing survey for May given the grim Empire Fed data out earlier in the week; the latest industrial production data, however, offered a more constructive mood. After the open, US existing home sales for April are seen paring to 4.3mln from 4.4mln. The US leading index is expected to slip 0.6% M/M. On the speakers slate, there is a lot of Fedspeak due: Fed's Vice Chair nominee Jefferson (Voter, Neutral) speaks on the Economic Outlook, Fed's Barr (Voter, Neutral) will give the second leg of testimony at the Senate Banking Committee, and Fed's Logan (2023 Voter, Neutral) will also give remarks. It is worth noting that on Friday, Fed boss Powell and the influential NY Fed chief Williams will speak. BoC's Macklem and Rogers will speak on the Financial System today, while in EM central banks, Banxico is expected to hold rates at 11.25% (our Banxico primer can be accessed here).


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  CORPORATE EARNINGS: Earnings are due today from BABA, WMT and AMAT; our Daily US Earnings Estimates note can be accessed here.


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  ENERGY: EIA NatGas storage change data for the week ending May 8th is expected to show a build of 108 BCF (prev. 78 BCF).

EQUITY NEWS:

TECH:

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  Cisco Systems (CSCO) - Cisco shares fell in afterhours trading, with analysts citing concerns around declining orders, while some expected FY revenue view to be raised. Q3 adj. EPS 1.00 (exp. 0.97), Q3 revenue USD 14.60bln (exp. 14.39bln). Exec said the environment was dynamic, saw record revenue in the quarter, and double-digit growth in both software and subscription revenue, though Q3 orders were -23%. Cisco expects normalised order patterns and backlog in H2 of FY24; adds it is seeing elongated sales cycles, though has seen progress on gross margin throughout the year. Cisco said its healthy backlog, recurring revenue streams and RPO, as well as the improving availability of supply, underpin confidence to increase guidance. Sees Q4 adj. EPS between 1.05-1.07 (exp. 1.03), sees Q4 revenue growth of 14-16% (exp. 14.1%), Q4 adj. gross margins between 64.5-65.5% (exp. 64.4%). Raises FY adj. EPS outlook to between 3.80-3.82 (exp. 3.75) from 3.73-3.78, and revises its FY revenue growth view to between 10-10.5% (exp. 9.7%) from between 9-10.5%. CEO told CNBC that it has not seen any declines in demand from customers from Q2 to Q3, and does not expect demand to fall in Q4. Said Cisco was better positioned than others to take advantage of AI, has already received some design wins.


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  Micron Technology (MU) - Micron will reportedly receive approximately USD 1.5bln in financial incentives from the Japanese government to help install advanced chipmaking equipment and produce next-generation memory chips in Hiroshima, Bloomberg reports. Though a Japanese Industry Ministry official said no decision had yet been made. Micron said it will bring EUV technology to Japan, advancing its next-generation memory manufacturing, and expects to invest up to JPY 500bln in 1-Gamma process technology over the next few years.


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  New Relic (NEWR) - Private-equity firms Francisco Partners and TPG are working together on a USD 5bln+ bid to acquire software company New Relic, WSJ reports. Deal could be reached in the next few weeks. New Relic closed +11% on Wednesday as the news hit before the close.


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  Samsung Electronics (SSNGY) - Samsung announced that it has begun production of its advanced 12nm-class DDR5 DRAM chips, which will optimise next-generation computing, including AI applications, with greater power efficiency and productivity.


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  Sony (SONY) - Sony mulls partial spin-off and listing of its financial unit to help raise funds for investments in gaming and electronics, Bloomberg reports. The plan involves retaining less than 20% of Sony Financial Group and selling the shares on a Japanese exchange, reversing a USD 3.7bln take-private deal in 2020.


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  Take-Two Interactive Software (TTWO) - Q4 EPS -3.62 (exp. 0.68), Q4 Bookings USD 1.39bln (exp. 1.34bln). Sees Q1 net bookings between USD 1.15-1.2bln (exp. 1.31bln), and sees Q1 adj. EPS between 0.24-0.34 (exp. 0.80). For the FY, sees FY24 net bookings between USD 5.45-5.55bln (exp. 5.89bln), and sees FY24 adj. EPS between 3.00-3.25 (exp. 4.42). Further out, FY25 revenue seen above USD 8bln (exp. 7.7bln).


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  Snowflake (SNOW) - The database software provider is in talks to buy search startup Neeva, The Information reports. This acquisition could allow Snowflake to offer AI software that helps companies search for information in their own documents and data, the report said.


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  Synopsys (SNPS) - Q1 adj. EPS 2.54 (exp. 2.46), Q1 revenue USD 1.39bln (exp. 1.38bln). Sees Q3 adj EPS between 2.7-2.75 (exp. 2.68), and sees Q3 revenue between USD 1.47-1.50bln (exp. 1.48bln). For the FY, revenue seen between USD 5.79-5.83bln (exp. 5.8bln) from 5.78-5.83bln, and FY EPS between 7.44-7.60 from 7.12-7.30.


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  ViaSat (VSAT) - Q4 adj. EPS 0.17, Q4 EPS 15.56 (exp. 9.49), Q4 revenue USD 666.1mln (exp. 672.8mln). Overall, while there are positive developments and growth expectations, the concerns expressed by CEO revolve around managing costs, overcoming constraints, successfully integrating acquisitions, aligning investments with growth, and achieving positive cash flow.

COMMUNICATIONS:

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  ByteDance - Montana Governor signed a law that bans TikTok from operating in the state. The ban will have broader consequences compared to existing bans on government devices in other states, and at the federal level, AP reports. TikTok has around 200,000 users and 6,000 businesses in Montana. There are doubts about the state's ability to enforce the law, and it could lead to a legal battle with TikTok. TikTok said Montana's law infringed on the First Amendment rights of the people of Montana.


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  Netflix (NFLX) - Netflix's ad-supported tier, launched last November at USD 7/month, has gained almost 5mln active users per month, Reuters reports.

CONSUMER:

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  Amazon (AMZN) - AWS plans to invest around USD 13bln in India by 2030, doubling down on its past investments to cater to an ever-growing demand, Reuters reports. The investment will be used to build its cloud infrastructure and will support over 100,000 full-time jobs annually, the report added.


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  Automakers - Germany's VDA auto industry group said adjustments must urgently be made to the post-Brexit agreement as the European battery industry has not developed quickly enough and tariffs would be a significant disadvantage regarding competition.


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  Volkswagen (VWAGY) - VW plans a EUR 3bln cost savings programme, Handelsblatt reports.


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  Tesla (TSLA) - Reportedly held talks on local incentive plans and auto sector policies as part of a meeting with Indian officials, Reuters reports. The automaker asked officials how they can avail auto sector incentive scheme, with discussions reportedly taking place on taxes on imported cars.


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  Boot Barn (BOOT) - Q4 EPS 1.53 (exp. 1.43), Q4 revenue USD 425.7mln (exp. 441.2mln), SSS -5.5% Y/Y. Sees FY24 comps -5.5% (exp. +1.3%), sees FY EPS between 4.70-5.00 (exp. 5.80).

FINANCIALS:

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  Deutsche Bank (DB) - will pay USD 75mln to settle Jeffrey Epstein accusers' suit, WSJ reports.

REAL ESTATE:

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  Boston Properties (BXP) - Files for a mixed shelf, and said that it may offer and sell shares of common stock of up to USD 600mln.

HEALTH CARE:

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  Prescription Drug Prices - FTC is investigating how pharmacy benefit managers (PBMs) influence the prices of prescription drugs. They have requested information from two companies, Zinc Health Services and Ascent Health Services, which negotiate drug rebates for PBMs. The inquiry focuses on unfair practices like steering patients to PBM-owned pharmacies and using complex reimbursement methods. The goal is to understand how these practices affect the cost of drugs for patients and payers.


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  Pfizer (PFE) - Pfizer chief development officer warned that a crackdown on M&A by antitrust regulators would be a disaster for the system of innovation that underpins the pharmaceutical industry, FT reports. The exec said M&A was an important part of the funding ecosystem that supports the development of innovative therapies by scientists.

18 May 2023 - 09:00- EquitiesData- Source: Newsquawk