US EARLY MORNING: Equity futures are lower ahead of this week's key data (PCE, GDP), Big Tech earnings (AMZN, GOOG, META, MSFT) and a potential Debt Ceiling vote in the House

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  OVERNIGHT: On Wall Street, stocks traded sideways on Friday, while the VIX remained near lows for the year, despite strong PMI data, where manufacturing activity returned to expansionary territory for the first time in six months (Our US wrap from Friday can be accessed here). Asia-Pac stocks were mixed overnight, with price action mostly rangebound after the lack of fresh macro drivers over the weekend, and as participants brace for this week’s key events, including the big US tech earnings and the first BoJ meeting under Governor Ueda’s leadership (our APAC wrap is here). European equities opened around flat (see our European opening note here); German Ifo data was mixed in April, with the Business Climate only rising to 93.6 (exp. 94.0) from 93.3, while Current Conditions fell to 95.0 (exp. 96.1) from 95.4, while Exepctations rose to 92.2 (exp. 91.5) from 91.0; Ifo said the German economy was lacking momentum.


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  US PRE-MARKETS: US equity indices are lower, Treasury yields are down, and the USD is a little better than flat. US traders will be focussing on three groups of events this week: earnings season will come thick and fast, with several high-profile tech names on the slate including Microsoft (MSFT), Meta Platforms (META), Amazon (AMZN), Alphabet (GOOG); tech names have been one of the weaker performers in Q1 thus far though updates from these giants will refine that narrative (more on earnings below). Key US data this week (the Fed’s preferred gauge of inflation, PCE; we also have advanced Q1 growth numbers, that will give a temperature on how the resilient US economy has been operating in the face of higher rates amid still high consumer prices), and crucially, how much further the Fed will need to go in tightening policy; see our week ahead briefing, which can be accessed in the Day Ahead section below, for more). Additionally, events in Washington will be on the minds of traders, as the Debt Ceiling debacle continues; some are warning that ‘this time may be different’ to previous episodes, where lawmakers quickly came to a deal as a deadline loomed; House Speaker McCarthy’s precarious position as leader means he has less scope for negotiating with Democrats (given the demands of his various factions, and the deal he made to get into power); Bloomberg notes that one- and three-month bills are already reflecting some of investors’ angst, and if this week’s events do not make moves toward any meaningful deal, further anxiety could be in store, particularly as some have argued that the so-called X-Date could be as soon as May (we have a summary of where we currently are in the section below).


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  EARNINGS SCORECARD: At the end of last week, the S&P 500 earnings scorecard shows that although firms have thus far reported Q1 2023 revenues have risen by 1.9%, earnings have declined by 4.7%, according to data from Refinitiv. Earnings are holding up better in the Consumer Discretionary sector (+38%), Industrials (+17%), Energy (+12%) and Financials (+7%). Materials are the laggards, where profits are down 32%, followed by Healthcare (-19%) and Tech (-14%); Utilities, Communications, Real Estate and Consumer Staples are also reporting lower profits. Highlights on today’s US corporate earnings slate includes KO, FRC, CDNS (see here for expectations). It is a very busy week for corporate earnings; major companies reporting include: DHR, PEP, UPS, GE, RTX, MCD, NEE, VZ, GOOGL, TXN, MSFT, V on Tuesday; TMO, BA, META on Wednesday; AZN, LLY, CAT, MRK, BMY, CMCSA, SPGI, ABBV, MA, AMZN, AMGN, INTC, TMUS on Thursday; CVX, XOM on Friday. Our full weekly earnings expectations note can be accessed here.


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  TECH EARNINGS THIS WEEK: US tech earnings are in focus ahead of this week’s quarterly results from the likes of Microsoft (MSFT), Meta Platforms (META), Amazon (AMZN), Alphabet (GOOG). The Tech sector has been one of the laggards in early Q1 reporting, with earnings down 14% as sales fall about 5%, according to Refinitiv data. That said, there are some hopes of a better performance relative to consensus expectations, given around 88% of the eight S&P 500 tech firms reporting thus far have exceeded earnings estimates, which is currently tracking above the S&P 500 as a whole. Wedbush Securities is telling its clients to expect upside in tech earnings, noting the cost cutting and job shedding occurring in the industry, while it also believes that a major narrative of will be the AI ‘arms race’ as companies update investors on their own AI ambitions and monetisation strategies.


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  DEBT CEILING: President Biden is running out of time and options to avert an unprecedented default on the federal debt, as House Republicans make increasingly clear that they are willing to court economic catastrophe unless they secure major policy concessions from the White House, the Washington Post reports, adding that officials in the administration were previously confident that they could force Republicans to raise the limit on federal borrowing without bending to demands to cut spending, though this strategy has not worked. The report added that the White House has explored trying to lift the debt ceiling without Congress; some warn that it could lead to a permanent increase in US borrowing costs as investors would demand higher rates for buying US bonds of legally dubious status. Speaker McCarthy will this week hold a House vote on a GOP Bill that will raise the debt limit into next year, and enforce federal spending cuts to 2022 levels, whilst limiting spending growth to just 1% per year; it would also undo some expensive Biden policies in an effort to save trillions of dollars, such as repealing enhanced IRS enforcement funding, undoing Biden's federal student debt forgiveness, as well as rescinding unspent pandemic relief funds. McCarthy told Fox News that he has the votes to pass his Bill, however, Bloomberg reports that McCarthy is coming up short, and risks having to pull the bill to avoid defeat. And even if his Bill garnered enough support in the House, it would be dead on arrival in the Democrat-controlled Senate. Goldman Sachs recently said that if April tax receipts were down by 35%+ Y/Y, the Treasury could announce an early June debt limit deadline, though if receipts finish down by less than 30% Y/Y, a late July deadline becomes a more likely scenario. Analysts at JPMorgan have said that the so-called x-date could even fall in May, warning that there was a non-trivial risk that the US defaults on its debt, and expects negotiations on the debt ceiling and on federal funding to run dangerously close to final deadline dates; it added that its strategists see the Treasury running out of available cash by mid-August.

DAY AHEAD:

• Our full interactive calendar can be accessed here; a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: It is a quiet day for European data releases, but there will be attention on the German Ifo metrics for April; last week, Eurozone PMI data generally surprised to the upside, with some constructive commentary within the reports, which fuelled expectations that the ECB could opt for a larger-sized rate hike at its May meeting (the debate is currently said to be between 25bps or 50bps). Last week, influential ECB speakers (chief economist Lane and markets chief Schnabel) did not provide any explicit steer, instead advocating a data-dependent approach; speakers today include ECB Vice President de Guindos (subject matter suggests speech will not be relevant for macro) and the ECB’s Panetta (risks his speech could be a snoozer too).


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  NORTH AMERICAN DATA/SPEAKERS: The National Activity Index for March and the Dallas Fed Manufacturing Index for April are the only items of note. The latter will perhaps be more important within the context of an upside surprise in the Empire Fed April survey, a downside surprise in the Philly Fed survey, although the broader PMI indices from S&P Global saw both manufacturing and services top consensus expectations; these data all help shape expectations of what the Manufacturing ISM will look like when it is released on May 1st. NOTE: The Fed is in blackout now ahead of its May 3rd meeting; analysts expect the central bank will lift rates by 25bps at that meeting, but perhaps the more interesting debate centres around whether it will hike again in June (some negligible probability priced in by markets), and whether it will follow-through on market pricing for rate cuts further out this year.


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  US CORPORATE EARNINGS: Highlights on today’s US corporate earnings slate includes KO, FRC, CDNS (see here for expectations). It is a very busy week for corporate earnings; major companies reporting include: DHR, PEP, UPS, GE, RTX, MCD, NEE, VZ, GOOGL, TXN, MSFT, V on Tuesday; TMO, BA, META on Wednesday; AZN, LLY, CAT, MRK, BMY, CMCSA, SPGI, ABBV, MA, AMZN, AMGN, INTC, TMUS on Thursday; CVX, XOM on Friday. Our full weekly earnings expectations note can be accessed here.


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  WEEK AHEAD: In the week ahead, Major releases include: US GDP, PCE, ECI; EZ GDP; Aus CPI; BoJ, BoC mins, CBRT; our full week ahead briefing can be accessed here.

EQUITY NEWS:

INDEX LEVEL:

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  CYCLICALS: Goldman Sachs said it was revisiting its cyclical sector recommendations, tells clients to own Energy and Mining stocks, and avoid Homebuilders. GS said that mixed economic data and uncertainty around banking stress has seen equity markets price in a more downgraded profile for US economic growth, but notes that China economic data has improved. "Investors often ask us how to capture continued strength in China economic growth within the US equity market," GS said, "we recommend investors own mining stocks, which are levered to China growth through rising metals prices." The bank has also upgraded Materials to Neutral from Underweight, and downgraded Consumer Durables & Apparel, which includes Homebuilders, to Neutral. The bank also notes that Energy trades at a discounted valuation, and remains its preferred cyclical overweight.


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  US Dollar - Barron's outlines stocks that can benefit from a falling USD, mentions Caterpillar (CAT), Nvidia (NVDA), Micron Technology (MU) which get at least half their sales from overseas, and have been rising as the dollar has dropped. Philip Morris International (PM), which gets all its sales outside the US, and Estée Lauder (EL) which gets 80% could both be less volatile beneficiaries of a falling dollar.

FINANCIALS:

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  Regional Banks - CRA Moody's said a deterioration in the US operating environment, tighter monetary policy, weaker funding conditions are exacerbating interest rate risk at some US banks. Lowers the Macro Profile for the US banking system to 'Strong +' from 'Very Strong –'. Said there are negative credit implications for the US banking sector that extend beyond immediate funding challenges to downward pressure on banks' earnings, combined in some cases with weaker capitalisation and risks related to commercial real estate. Takes actions on 22 US banks, including downgrading 11 (including ASB, BOH, CMA, FHB, FRC, WAFD, UMBF, USB, ZION). Maintains stable outlooks on most of the affected banks to reflect favourable offsetting characteristics that will help buffer further material credit deterioration, as well as the prospect of enhanced supervision and regulation of regional banks. Moreover, Moody's said that the largest US banks have healthy earnings, strong capital and robust liquidity, which will help support systemic stability in the face of a worsening operating environment.


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  Credit Suisse (CS) - Q1 net income CHF 12.4bln, reported a one-off Q1 pretax profit CHF 12.8bln after a controversial write-off of CHF 15bln of AT1 bonds by the Swiss regulators as part of a forced merger deal with UBS; the adj. pre-tax loss was CHF 1.3bln in Q1. Revenue was CHF 18.5bln in Q1. The bank said it experienced significant net asset outflows in particular during the second half of March. Since then, outflows have moderated but are yet to reverse. Outflows were CHF 61.2bln in the quarter, and customer deposits declined by CHF 67bln.


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  UBS Group AG (UBS) - The Swiss bank is said to be mulling mass job cuts, according to reports in Swiss press, and is suggesting the merger with Credit Suisse is yet to be finalised. Separately, Christian Bluhm will continue as the Group Risk Officer, and Damien Vogel has been appointed to the newly created role of Group Risk Control Head of Integration.


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  PacWest Bancorp (PACW) - PacWest is exploring a sale of its lender finance arm, Bloomberg reports, and is working with advisers to solicit interest in the business. An agreement could be reached within two months, and unloading the unit would shrink PacWest’s balance sheet while freeing up capital.


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  ING Groep NV (ING) - China’s largest bank Industrial and Commercial Bank of China is being sued by ING for losses suffered in a batch of copper deals, FT reports, claiming USD 170mln in damages, alleging it breached contract terms by releasing export documents for copper transactions without collecting payment.


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  Banco Santander SA (SAN) - The bank is reportedly in talks to hire several of Credit Suisse's senior investment bankers located in New York, FT reports.


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  Apple (AAPL), Visa (V), Mastercard (MA) - A profile piece in the FT asks if Apple take a "big bite" out of the banks, as it ventures into financial services signal greater ambitions to take on Wall Street. FT says the question for banks is how worried they should be about a tech company with 1.2bln iPhone users, a USD 2.6tln market cap, and a history of disruptive innovation making moves on to their territory. Sources said the implications may be wider: "if the buyer and the merchant are both using iPhones or iPads to process payments, that gives Apple the capability to create a closed-circuit that doesn’t require banking partners or networks run by Visa and Mastercard."


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  HSBC Holdings PLC (HSBC) - Shareholder advisory group ISS said HSBC investors should vote against a proposal from the bank's largest shareholder Ping An which seeks to spin-off its Asia unit, stating it lacks a detailed rationale.

TECH:

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  Software AG (STWRY) - Private equity company Silver Lake has offered to buy Software AG in a deal that values the German business software developer at EUR 2.2bln, Reuters reports. The offer price of EUR 30/shr represents a premium of 53% vs Software AG's closing price on Thursday. Software AG said its board was highly supportive of the offer, intends to recommend it to shareholders.


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  SoftBank Group Corp. (SFTBY) - Softbank-owned Arm Ltd is developing its own chip to showcase the capabilities of its designs, as it seeks to attract new customers and fuel growth following a blockbuster IPO later this year, FT reports. Arm will team up with manufacturing partners to develop the new chip.


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  Semiconductors - Chinese chipmaking suppliers and state-backed funds plan to spend an estimated USD 7.26bln to strengthen the domestic supply chain as the US curbs tech exports, Nikkei reports. "We cannot avoid decoupling in semiconductors," President of state-backed wafer giant National Silicon Industry Group said, adding that "this will be the greatest opportunity for Chinese enterprises that make production machinery and materials."


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  SAP SE (SAP) - CEO said the software maker was working with OpenAI to deploy ChatGPT in their products.


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  Big Tech - UK is reportedly set to create a new regulator to tackle Big Tech, will reporedly target a small number of tech companies generating at least GBP 25bln in global turnover, or GBP 1bn in the UK, FT reports.


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  EverCommerce Inc. (EVCM) - EverCommerce is exploring a sale after attracting acquisition interest, Reuters reports. EverCommerce is working with Centerview Partners to explore its options.

COMMUNICATIONS:

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  Vivendi SE (VIVHY) - Sales rose 3.3% Y/Y, Q1 revenue EUR 2.29bln (exp. 2.29bln). Said it saw growth across all Canal+ businesses, and particularly Studiocanal which was +13.6% Y/Y driven by the success of several films. Has signed an agreement with IMI for the 100% sale Editis. Ahead, exec said results allow the company to look forward with confidence.


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  Paramount Global (PARA) - Paramount agreed to a UDS 167.5mln settlement of a case stemming from the 2019 merger of Viacom-CBS that created the company, according to a filing.


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  Comcast Corporation (CMCSA) - Comcast said NBCUniversal Chief Executive Jeff Shell is leaving after acknowledging an inappropriate relationship with a woman in the company, following a complaint that prompted an investigation, Reuters reports.


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  Netflix, Inc. (NFLX) - Positive mention in Barron's, which said Netflix has now started a new chapter, and that is likely good news for the stock.


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  Expedia Group, Inc. (EXPE) - Positive mention in Barron's, which said its 'Vrbo' unit was a mini Airbnb.

CONSUMER:

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  Asia Travel - China May Day holiday travel bookings surge past pre-coronavirus levels, SCMP reports, prompting price hike warning. The five-day break is first long public holiday since the Lunar New Year, with major travel agencies saying bookings have equalled or surpassed pre-pandemic levels, leading to several local governments to issue directives against dramatic price hikes.


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  Koninklijke Philips NV (PHG) - Adjusted EBITDA topped expectations in the quarter. Q1 revenue EUR 4.17bln (exp. 3.99bln). adj. EBITDA EUR 359mln (exp. 213mln). Has made EUR 575mln in provisions for recall litigation costs. Comparable revenue +5.7% Y/Y (exp. +2.2%).


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  Adidas AG (ADDYY) - China country brand manager Adrian Siu said 2022 was difficult, and 2023 probably won’t be much easier.


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  Bed Bath & Beyond Inc. (BBBY) - Mulls sales of assets and intellectual property as part of a potential bankruptcy filing, Bloomberg reports. The retailer is looking to secure funding from Sixth Street Partners to support its operations through Chapter 11 proceedings, but the plans could still change.


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  Procter & Gamble Company (PG) - PG is voluntarily retrieving one SKU of Zevo Fly, Gnat and Fruit Fly Flying Insect Killer Value Packs sold at Meijer and Kroger in the US as a precautionary measure after it identified a very limited number of products where the packaging could be compromised.


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  TJX Companies, Inc. (TJX) - Positive mention in Barron's, which said TJX stock is a buy for bargain hunters.

ENERGY:

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  Chevron (CVX), ExxonMobil (XOM), Halliburton (HAL) - Ukraine state energy company Naftogaz has held talks with ExxonMobil, Halliburton and Chevron about projects in the country, as Kyiv looks to lure back foreign investment into its energy sector, FT reports. The talks are part of a strategic push to increase natgas production that Ukrainian officials believe could help replace Russian supply to Europe in the years ahead.

INDUSTRIALS:

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  General Dynamics Corporation (GD) - Was awarded a USD 847.3mln Navy contract to support Navy aircraft carriers in the Mid-Atlantic region.


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  Lockheed Martin Corporation (LMT) - Was awarded a USD 2.45bln Army contract modification for PATRIOT Advanced Capability-3 missile production.

HEALTHCARE:

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  Abortion Pill - SCOTUS has kept the government’s approval of a widely used abortion drug Mifepristone in place, while one of the biggest battles over abortion rights continues in federal courts, The Independent reports.


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  Shockwave Medical, Inc. (SWAV), Boston Scientific Corporation (BSX) - Shockwave is attracting takeover interest from Boston Scientific as it seeks to boost its portfolio of cardiovascular devices, and as health-care dealmaking starts to rebound, Bloombegr reports. A deal could rank as one of Boston Scientific’s largest ever acquisitions, potentially trailing only its 2006 purchase of Guidant Corp. for more than USD 27bln, Bloomberg said.


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  Johnson & Johnson (JNJ) - JNJ is to begin a roadshow to pitch shares of its consumer-healthcare business, Kenvue Inc. in a test for an IPO market that has been in the doldrums for the past year, WSJ reports. The aim is to raise USD 3.5bln+ in the offering, at a valuation close to USD 40bln, WSJ Added. the people said. Assuming the company and its advisers manage to pull off the listing, Kenvue’s stock would trade on the NYSE under the ticker KVUE.


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  Medtronic PLC (MDT) - FDA approves MiniMed 780G system with the Guardian 4 sensor, requiring no fingersticks while in SmartGuard technology. Marks the approval of the only system with meal detection technology that provides automatic adjustments and corrections to sugar levels every 5 minutes for both basal and bolus insulin needs.


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  Sanofi (SNY) - Announced the launch of AVAXIM Junior hepatitis A vaccine in the UK.

UTILITIES:

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  Algonquin Power & Utilities Corp. (AQN) - Algonquin has attracted interest from activist Starboard Value LP after another activist investor publicly called for an asset sale, Bloomberg reports. Starboard is said to have held amicable discussions with the utility. Bloomberg could not determine the size of Starboard’s stake, and the changes it is seeking from the company.

24 Apr 2023 - 09:30- EquitiesData- Source: Newsquawk