US EARLY MORNING: Equity futures are higher, Treasury yields wider; CPI and retail sales this week

9/11 MOMENT OF SILENCE: The NYSE will observe a one-minute moment of silence at 09:20EDT to recognise the anniversary of 9/11 and honour the victims, survivors and their families.

US PREMARKETS: US equity futures are trading with gains, with the Nasdaq-100 leading the upside. Treasury yields have higher overnight amid some hawkish commentary from BoJ Governor Ueda, who hinted that policy could tighten later this year. Treasury yields are up by between 2-3bps, with the 10s sector underperforming ahead of this week's note supply (3s today, 10s tomorrow, 30yr bonds on Wednesday). The Dollar Index is a little beneath neutral, likely being weighed on by the Japanese yen, which has firmed after Ueda's remarks. WTI and Brent are mixed, though not too far off neutral; while there have been some jitters about fuel demand from China weighing on the complex, analysts continue to cite tightening supply dynamics. The day ahead is thin, but the NY Fed's survey of consumer expectations is due to be published ahead of CPI data this week.

SOFT LANDING: Goldman Sachs said that ongoing progress towards a soft landing will support S&P 500 earnings and lift the index to its 12-month target of 4,700. "While we believe the balance of risks to our year-end price target of 4,500 is tilted to the upside, the economic growth and inflation data flow could create a choppy path for equities in the next few months," the bank writes. It highlighted three investment recommendations heading into Q4: (1) Take advantage of low options prices to reduce risk while maintaining upside exposure; (2) Own stocks returning cash to shareholders vs firms spending on capex and R&D; (3) Avoid stocks with high leverage, low interest coverage, and negative EPS revisions.

MS REITERATES LATE CYCLE PLAYBOOK: Morgan Stanley equity strategist Michael Wilson reiterated his view that markets are in a late cycle backdrop. "More importantly, equity markets are starting to agree based on relative performance under the surface," the bank notes, adding that it recommends sticking with a barbell of defensive growth and Industrials/Energy. MS sees this year as an extension of the late cycle period often experienced when the Fed is expected to pause or reverse its hawkish policy stance. "As is typical in such periods, multiple expansion has moved ahead of where macro fundamentals dictate fair value to be, placing the burden on a growth reacceleration and/or incremental policy support that's not already in the price in order to keep multiples elevated." And the bank says equity market internals are shifting, with late cycle/more conservative factors are outperforming once again. "Specifically, we note that high cash, low debt and low capex factors have performed well over the last month; long term growth and strong sales/earnings revisions factors are also working." MS says it is interesting that despite the rate move higher since July, growth has outpaced both value and cyclicals, while a broad set of early cycle winners have seen relative underperformance recently, which it says supports its preference for a late cycle playbook. As part of that playbook, MS recommends overweight Health Care sector, which has underperformed YTD but is showing some strength recently against other defensives.

REVIEW - CHINA CPI: Chinese inflation data showed headline CPI Y/Y was softer than expected. CPI +0.3% M/M (exp. 0.3%, prev. 0.2%), CPI +0.1% Y/Y (exp. 0.2%, prev. -0.3%). Analysts noted that China exited deflation in August, while PPI rose for the first time in nine months, though core inflation was unchanged after rising to 11-month highs in July. Services inflation picked-up to the highest in 18-months. Ahead, Capital Economics expects inflation to rebound further over the coming months, as policy support drives a modest recovery in China’s economic momentum.

TODAY’S AGENDA:

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  DAY AHEAD: The docket for the Day Ahead in Europe is thin; BoE's chief economist Pill will appear at Kent Invicta Chamber of Commerce. The US Day is also thin, with the Fed on blackout; the NY Fed's Survey of Consumer Expectations will provide a glimpse on inflation trends ahead of this week's CPI report. WSJ Fed watcher Timiraos wrote an article suggesting that an important shift in officials’ rate stance was under way, and the Fed was likely to pause rate increases in September (this is in line with market pricing, so is not surprising), and then take a harder look at whether more are needed (money markets are already discounting this). Afterhours, ORCL will publish numbers. On the supply front, the US will sell USD 44bln of 3yr notes. Our full day ahead calendar is here; a pdf version can be downloaded here.


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  WEEK AHEAD: Highlights include US CPI and Retail Sales, ECB, Chinese Activity Data, UK labour market report; our week ahead briefing can be accessed here. Notable corporate earnings this week include ORCL, ADBE, LEN, CPRT; our weekly US earnings estimates note is here. This week, Baird will be hosting a Healthcare conference, Bank America will host a Media, Communications, and Entertainment conference, Barclays will host a Financial Services event and an AI conference, Goldman Sachs will host a Global Retail conference, Morgan Stanley will also host a Healthcare event, and RBC will host an Industrials conference.

EQUITY NEWS:

ENERGY:

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  Chevron (CVX) - Chevron Australia will not make a deal with unions at its Gorgon and Wheatstone LNG facilities. Instead, it plans to use untested legal strategies to halt strikes, Reuters reports. Workers have already started short strikes, and unions are preparing for longer ones. Chevron aims to seek help from Australia's Fair Work Commission to resolve the dispute and dictate an agreement if necessary.

INDUSTRIALS:

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  Boeing (BA) - Vietnam Airlines is expected to sign an agreement to purchase around 50 Boeing 737 Max jets, valued at about USD 7.5bln, CNBC reports. The exact terms and discounts were not disclosed in the report. The agreement coincides with President Biden's visit to Hanoi to strengthen ties with Vietnam. Boeing and Vietnam Airlines have not officially commented.


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  Raytheon (RTX) - RTX will host a conference call today at 08:30EDT to provide an update on the impact to the Pratt & Whitney GTF fleet arising from the previously disclosed rare condition in powdered metal used to manufacture certain engine parts, including an update on the operational and financial impacts associated with this matter. Earlier in July, RTX said more than 1,000 engines must removed from Airbus (EADSY) planes and checked for microscopic cracks.


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  AAR (AIR) - Positive mention in Barron's; said air travel was still recovering, and the airplane parts stock AAR was a buy.

MATERIALS:

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  Covestro AG (COVTY) - The German chemical company is considering an acquisition by Abu Dhabi's ADNOC after it increased its offer to around EUR 14bln, FT reports. ADNOC's latest offer is EUR 60/shr, up from EUR 55/shr offered in June. The deal's conditions and sustainability strategy are still under negotiation, along with ADNOC's commitment to Covestro's growth.


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  Glencore (GLNCY) - The miner plans to expand Democratic Republic of Congo exposure as it pushes into lithium market, according to the FT.

CONSUMER:

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  Automakers (GM, F, STLA) - UAW President on Friday said workers want deals to avoid walkouts at the Detroit Three automakers, but expect to go on strike against all of them next week if they do not improve their contract offers, Reuters reports. Contracts set to expire Thursday at 23:59EDT; the union has rejected General Motors (GM), Ford (F) and Chrysler (STLA), and reportedly remain far apart.


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  Automakers - China August vehicle sales +8.4% Y/Y (prev. -1.4%); January-August YTD +8% Y/Y (prev. +1.7%).


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  Tesla (TSLA) - Axios carried an exclusive excerpt from Walter Isaacson's biography of Elon Musk; Musk wanted to create self-driving Robotaxis that didn't need a steering wheel. Initially, his team was unsure, but they convinced him to add a steering wheel for safety and regulatory reasons. They also convinced him to build an affordable USD 25k car alongside Robotaxis. Musk eventually got excited about the idea and decided to build both in Austin, Texas, with a highly automated manufacturing process.


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  Walmart (WMT) - Walmart is in discussions to purchase a majority stake in ChenMed, a company that runs primary care clinics for seniors, Bloomberg reports. The deal is still in progress and could value ChenMed at several billion dollars, but it's not finalised. BBG said that the move aligns with the trend of retailers, insurers, and pharmacies expanding into healthcare to connect with consumers and adapt to changes in traditional business due to e-commerce. Separately, a Walmart store in Atlanta, damaged by a fire from suspected arson, is putting a police workspace inside the store to combat shoplifting, NY Post reports. Police can use it for paperwork, meetings, and charging devices when the store reopens in May.


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  Alibaba (BABA) - Alibaba postponed the Hong Kong IPO of its Freshippo grocery chain due to weak consumer stock sentiment. Now expects a valuation of around USD 4bln, below its earlier target of between USD 6-10bln, Bloomberg said, Alibaba's focus is on other unit listings for now. Elsewhere, shares of Alibaba tumbled by over 3% in Asia trade after the outgoing CEO unexpectedly quits cloud business.


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  Archer-Daniels-Midland (ADM) - ADM said there was an explosion at its East Plant at its processing complex in Decatur; several employees were injured; is yet to confirmed the cause of the incident.


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  JM Smucker (SJM), Hostess Brands (TWNK) - JM Smucker in a deal to buy Hostess Brands, which is likely to be worth around USD 4bln, according to the WSJ.


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  Food Stocks - Campbell Soup (CPB), Conagra Brands (CAG), General Mills (GIS), Kellogg (K), Kraft Heinz (KHC), Mondalez (MDLZ) were mentioned in a Barron's article of food stocks that have recently been bit, but it was time to "chow down" on them.


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  European Ags names - EU is reportedly considering dropping the proposed regulations to improve animal welfare in farming, FT reports, due to concern about the potential impact on food inflation.

FINANCIALS:

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  Bank M&A - Barron's writes that a wave of mergers could be coming as banks try to bulk up and grow amid one of the toughest operating climates in years.


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  Banks, Real Estate Companies - The IRS will this month begin auditing 75 large partnerships, including hedge funds and real-estate firms, as the tax agency tries to build its case for keeping what is left of a pot of money Congress gave it last year, WSJ reports.


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  Barclays (BCS) - Barclays is getting ready to cut hundreds of jobs, around 5% of trading and dealmaking staff, to reduce costs due to quieter markets, Bloomberg reports. They're also planning to restructure teams in their UK consumer banking unit. Elsewhere, the bank is near private credit partnership with AGL, according to Bloomberg.


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  Coinbase (COIN) - The crypto exchange has indirectly refuted reports that it is shuttering India services, and said that warnings of account closures were only sent out to specific customers, according to Cointelegraph.


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  Societe Generale (SCGLY) - SocGen and Brookfield Partners to launch a EUR 10bln private debt fund. Initial fund is targeting a total of EUR 10bln over next four years and will launch with EUR 2.5bln of seed funding at inception.

TECH:

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  SoftBank (SFTBY) - SoftBank's USD 50bln IPO of Arm Ltd is five-times oversubscribed, with strong investor interest despite recent profit drops, FT reports. Arm expects revenue growth driven by AI. Many investors are eager to buy due to its inclusion in indices.


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  Enphase (ENPH) - Positive mention in Barron's; said the beaten-down solar stock could surge by 80%.


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  Nokia (NOK) - The telecommunications equipment maker announced charging software solution targeting enterprises to drive monetisation capabilities.

COMMUNICATIONS:

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  Meta Platforms (META) - Meta is developing a powerful AI system to rival OpenAI, WSJ reports. It aims to create an AI model more advanced than their recent Llama 2 release, with a focus on generative AI for human-like text and analysis. This system could assist other companies in creating sophisticated services. Training for this large language model is expected to begin in early 2024.

HEALTHCARE:

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  AstraZeneca (AZN) - CEO has discussed leaving the firm with a number of people, though has not spoken to the board yet. In other news, Datopotamab deruxtecan plus Imfinzi showed promising clinical activity in the first-line advanced non-small cell lung cancer setting in TROPION-Lung04 Phase Ib trial.


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  GSK (GSK) - Momelotnib filing accepted in Japan. Regulatory submission for momelotnib  for treatment of Myelofibrosis accepted for review by Japanese regulator.


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  Novartis (NVS) - Sandoz unit has entered an exclusive deal to commercialise biosimilar ustekinumab with Samsung Biopis.


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  Bayer (BAYRY) - Bayer receives US FDA NDA supplement 12 approval for Aliqopa.

11 Sep 2023 - 09:30- Research Sheet- Source: Newsquawk