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.

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11 Sep 2023 - 09:30- EquitiesExclusive- Source: Newsquawk

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