US EARLY MORNING: Equity futures are lower after hawkish Fed; weekly jobs data, Philly Fed are the highlights, but traders will also take note of heavy G10 central bank activity today

• 
  US PRE-MARKETS: US equity futures are red following the Federal Reserve’s hawkish hold, where it left rates unchanged, but still sees scope to hike later this year, while it also envisages fewer rate cuts in 2024 than both its previous forecasts had suggested, as well as the market’s assumption of the Fed’s rate trajectory (our recap is below). Treasury yields are higher, but off highs, with 2yr yields remaining above 5.15%. The Dollar Index is around flat, however. The focus has remained on G10 central banking, with a heavy slate due today: already, the Riksbank and Norges Bank lifted rates by 25bps, in line with expectations, though the SNB surprised consensus expectations by leaving its policy rate unchanged; ahead, the BoE’s rate decision is finely poised, with markets split between a hike or a hold following cooler than expected inflation metrics reported earlier in the week (our preview links can be accessed below). In emerging market central banks, the CBRT is expected to fire 500bps worth of hikes later today, while the SARB is likely to be unchanged. On the domestic data front, weekly initial jobless and continuing claims data (the former coinciding with the BLS jobs report survey window) will be eyed, as will the Philly Fed manufacturing report following an upside surprise seen in the Empire survey earlier in the week.


• 
  FOMC RECAP: The Fed voted unanimously to keep interest rates steady at 5.25-5.50%, in line with expectations. The central bank upgraded its language about the economy, stating it's growing at a "solid" pace instead of a "moderate" one. It also recognised that job gains have slowed recently, but are still strong. Policymakers continue to believe that inflation is high, and the unemployment rate is low. In its updated economic forecasts, it raised expectations for real GDP growth in 2023 and 2024, and lowered its unemployment rate projections. Inflation is expected to be 3.3% in 2023, 2.5% in 2024, and 2.2% in 2025 for headline PCE inflation. Core inflation is projected at 2.6% in 2023, 2.6% in 2024, and 2.3% in 2025. The "dots," were revised hawkishly, and the central bank still sees a further rate hike this year, whilst for next year, it now only sees the prospect of 50bps of rate cuts (vs 100bps in its previous SEP). During his press conference, Fed Chair Powell emphasised the central bank’s cautious approach, though noted strong economic growth and tight labour markets. Powell mentioned that inflation remains above the 2% target but has eased slightly. He said that most policymakers believe another rate hike is likely, even though markets were sceptical. Powell declined to discuss when rate cuts might happen and suggested the neutral rate may have risen in the short term, contributing to the economy's resilience. Overall, the Fed's message is one of cautious optimism, with an eye on inflation and a willingness to adjust policy as needed. However, its updated projections have drawn scepticism; Capital Economics notes that in order to justify its higher rate projections in future years, officials have had to upgrade economic forecasts quite significantly. "We doubt that economic growth will be anywhere near that strong over the next 12 months – with a mild recession or near-recession still the more likely outcome," CapEco writes, "most notably, even though the three-month annualised rate of core PCE inflation is on track to fall to around 2.4% in August, the median projection for core PCE inflation shows it still as high as 2.6% in 2024 and 2.3% in 2025, and only in 2026 does it finally drop back to the 2% target." CapEco's economists argue that if the Fed is right about the economic outlook, then rates can stay higher for longer, but "we just don’t believe those forecasts," it says, adding that "the real economy will be considerably weaker and, regardless, core inflation is going to fall back to target much more quickly – under those circumstances, we still expect rate cuts of closer to 200bps next year."

TODAY’S AGENDA:

• 
  EUROPE DAY AHEAD: Europe's focus will be on the heavy central bank reporting docket, which includes the BoE (markets are split between a hike and a hold; preview here), SNB (+25bps expected; preview here), Norges Bank (+25bps expected; preview here) and Riksbank (+25bps expected; preview here). There is also a policy announcement due from the CBRT (+500bps expected; preview in our weekly note, here), while South Africa’s central bank is expected to keep its Repo rate unchanged. On the speakers' front, ECB President Lagarde is due to speak at Rencontres Méditerranéennes, and ECB's Schnabel will speak at an event entitled "postwar reconstruction assistance and local governments in Ukraine."


• 
  US DAY AHEAD: The US day will begin with digesting the hawkish FOMC pause from Wednesday, whilst also taking into account the heavy slate of central bank activity in Europe. Weekly initial jobless claims and continuing claims (the former coincides with the BLS survey window for the September jobs data) are both seen ticking up a touch. The Philly Fed manufacturing survey will be eyed in the context of an upside surprise seen in the Empire manufacturing report – these will help to inform expectations for the September ISM, due early October. August existing home sales will also be out after the open. The US will sell USD 15bln of 10yr TIPS, while the Treasury will also announce sizes for next week's 2yr, 5yr and 7yr sales.

EQUITY NEWS:

INDUSTRIAL:

• 
  FedEx Corp (FDX) - Shares gained almost 6% after it reported better than expected profits, and boosted its outlook. Q1 adj. EPS 4.55 (exp. 3.73), Q1 revenue USD 21.7bln (exp. 21.80bln). Said Q1 results improved primarily due to execution of company's DRIVE programme initiatives and continued focus on revenue quality. It added about 400k in average daily volume by end of Q1, aided by the threat of a strikes at UPS (UPS). Says cost per package -2% in Q1. Expects to maintain majority of volume added in Q1, and that DRIVE actions will gain traction throughout the remainder of the year; is on track to complete One FedEx in June 2024. Expects to repurchase an additional USD 1.5bln of common stock during fiscal 2024. Raises FY 24 adj. EPS outlook to USD 17.00-18.50 (exp. 17.50, from 16.50-18.50), and raises FY 24 revenue outlook to approximately flat Y/Y (vs prior forecast of flat to low-single-digit-percent revenue growth).


• 
  Norfolk Southern (NSC) - President Biden issued an order to make Norfolk Southern responsible for a train accident in Ohio, Fox reports. The government will also help affected communities if they need more assistance because of the accident's lasting impact. Separately, Federal regulators have approved Norfolk Southern acquisition of Cincinnati Southern; city voters will also have to approve the USD 1.62bln deal to sell the municipally owned railroad.


• 
  AAR Corp. (AIR) - AAR signs exclusive multi-year foreign military distribution agreement with Pall Corporation.

MATERIALS:

• 
  US Steel (X), Cleveland-Cliffs (CLF) - US Steel is having a disagreement with rival company Cleveland-Cliffs over a confidentiality agreement, Reuters reports. US Steel wants Cleveland-Cliffs to sign a standstill agreement to prevent them from challenging US Steel's board while exploring a potential purchase. Cleveland-Cliffs refuses to sign this agreement, as they want to keep their options open. US Steel is insisting on this condition for Cliffs to access their sale process, and they're treating all bidders equally in this regard, the report added.


• 
  Mosaic (MOS), CF Industries (CF), Nutrien (NTR) - Analysts at RBC said that the US Court of International Trade ruling that the ITC's decision to impose duties on Russian and Moroccan phosphate imports lacked enough evidence, and could be bad news for US phosphate producers, especially Mosaic, as it introduces uncertainty in US pricing compared to global standards.

CONSUMER:

• 
  Amazon (AMZN) - Amazon has decided not to charge a 2% fee to sellers who ship their own products, a move that might help it avoid antitrust issues, Reuters reports. The fee was supposed to start on October 1st.


• 
  Starbucks (SBUX) - Starbucks raises its quarterly dividend to USD 0.57/shr from USD 0.53.


• 
  Nio (NIO) - Chinese electric car brand Nio has launched an Android smartphone priced between USD 900-1,000, which it expects many of their users to buy, especially those who currently use iPhones or flagship Android phones like Huawei, CNBC reports. The new phone is USD 150 cheaper than a similar Huawei device, the report added.


• 
  General Motors (GM) - GM reportedly lays off 2,000 workers in Kansas due to ripple effect from UAW strike, according to the FT.


• 
  KB Home (KBH) - Slipped 2% afterhours despite topping earnings eastimates, raising its outlook and noting steady demand. Q3 adj. EPS 1.80 (exp. 1.38), Q3 revenue USD 1.59bln (exp. 1.46bln), Q3 homes delivered -7% to 3,375 (exp. 3,126), Q3 net orders +52% Y/Y to 3,097 (exp. 3,385), Q3 backlog -35% Y/Y to 7,008 (exp. 7,540), Q3 average selling price -8.3% Y/Y to 470k (exp. 470k), Q3 adj. housing gross margin 21.5% (prev. 27% Y/Y). Lifted its FY23 housing revenue outlook to about USD 6.31bln (prev. saw 5.8-6.2bln), and sees FY23 average selling prices at USD 481k (prev. saw 485k), sees FY23 average community count +9% Y/Y, and sees homebuilding operating income at around 11.3% (prev. saw 11.0%).


• 
  Keurig Dr Pepper (KDP) - Appointed Tim Cofer as COO, as part of its CEO succession plan. Cofer will work closely with the current CEO Bob Gamgort, and is expected to become CEO in Q2 2024, while Gamgort will become Executive Chairman.


• 
  D.R. Horton (DHI) - Paul J. Romanowski will become President and CEO of D.R. Horton, effective October 1st; David V. Auld will transition to Executive Vice Chair.

TECH:

• 
  Crowdstrike (CRWD) - Crowdstrike rose 4% in afterhours trading following the announcement of new targets to be achieved within 3-5 years. It announced a New Target Model of Subscription gross margin at 82%-85% of revenue (+400bps vs prior target), operating margins of 28-32% (+900bps vs prior target), and free cash flow margin of 34-38% (midpoint is +500bps vs prior target).


• 
  Samsung (SSNLF) - Goldman Sachs raised price target to KRW 93l (prev. 88k), with a Buy rating; G said it has a more constructive long-term outlook for Samsung Electronics due to AI, but in the near-term, sees weaker earnings driven by costs related to larger memory production cuts on slow non-AI demand recovery.


• 
  GlobalFoundries (GFS) - Received USD 3.13bln contract from the Defense Microelectronics Activity (DMEA) for a 10-year period, provides access to advanced microelectronics and trusted processes for the Department of Defense and other federal agencies.


• 
  Splunk (SPLK) - President and CEO Gary Steele sold 9,600 shares on September 18th at a price of USD 120.08/shr.


• 
  Nutanix (NTNX) - CEO Rajiv Ramaswami sold 138K shares on September 18th for a total USD 4.68mln. COO David Sangster sold 45.6K shares for a total USD 1.54mln. General Counsel Tyler Wall sold 31.7K shares for a total USD 1.07mln.

COMMUNICATIONS:

• 
  Snap Inc (SNAP) - COO Jerry Hunter sold 124.7K shares on September 18th for a total USD 1.1mln.

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