US EARLY MORNING: Equity futures are lower; US CPI on Thursday will shape Fed expectations into March meeting

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  EQUITIES: The APAC session was mixed as Chinese participants returned from extended market holidays, while the European session saw a positive start, but gains were faded after the open. US stock futures gave up an early foray in positive territory, and now trade in the red by between -0.2% (NDX) and -0.6% (RTY), with the former likely more supported as yields ease, while the underperformance in the latter is not escaping investors’ attention. Goldman Sachs said its client conversations had focussed on the small-cap underperformance, and the bank attributes this to decelerating GDP growth, while small-caps tend to suffer amid bouts of yield curve flattening and as financial conditions tighten – themes which are expected to continue playing out this year as the Fed pulls back emergency monetary policy support. GS advised its own clients to be more selective, favouring small-caps with fast growth, high profit margins and moderate valuations. Meanwhile, the impact of yields on equities will be a crucial dynamic to monitor this week with the US CPI report due Thursday (we discuss in the Treasury section below). Elsewhere, while the earnings docket quietens down, there are still a few big hitters on the slate for this week, including DIS, TWTR, UBER, PEP, PM; analysts have generally been encouraged by this seasons earnings, and Barclays said that although there had been some big misses, overall Q4 results were not that bad, adding that inflation was hitting margins, but guidance has generally been positive and companies remain upbeat on end demand; JPMorgan, meanwhile, sees gains for earnings this year, arguing that the 2022 consensus is too low, and sees equity yields attractive relative to credit and bond yields.


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  TREASURIES: Treasury yields are lower by 2-3bps, with much of the rally in the rate-sensitive belly of the curve and the long-end; there is a mild bias towards a steeper curve, however, the moves are not significant. This week's CPI data is the primary catalyst; it will not change the narrative around a March Fed rate hike, but it will help shape expectations about the magnitude of the hike (50bps could be in play if surging inflation follows Friday's blow-out jobs report), as well as the number of times the central bank will raise rates in the months ahead. The street is looking for a record 7.3% Y/Y for the headline, and although many analysts have noted that base effects imply headline inflation will begin to cool in the months ahead, somewhat taking the pressure off of the Fed, there will still be near-term pressure for the central bank to address high prices. Some have accused the central bank of already being behind the curve, given that monetary policy has a lagged impact (with many estimates suggesting 12-24 months). These debates will continue to feature ahead.


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  DOLLAR: The Dollar Index is a little above unchanged, still below 96.00, and there doesn't seem to be too many deviations away from relatively unchanged levels in G10, with most majors only marginal deviating from neutral. The Chinese yuan has been garnering much attention after the PBoC surprised with a significantly softer fix (USDCNY reference set at 6.3580 vs exp. 6.3328), amid recent haven inflows into the currency, as well as its relative interest rate advantage. Citi notes that the fix appears to be in line with the central bank's recent efforts to limit the appreciation of the yuan to help stabilise growth. The Bank says that the Chinese New Year celebrations failed to spur a meaningful pick-up in travel spending and tourism, and expects further easing measures ahead, and sees the PBoC cutting its MLF rate by another 10bps at its February 18th meeting, and it will likely renew the CNY 200bln of maturing central bank loans; these moves are likely to be followed by same size cuts in its 1yr and 5yr LPR levels on February 21st. Meanwhile, weekly positioning data for the week-ending Tuesday (pre-ECB, pre-US jobs report) showed Dollar longs continued to be scaled back, while EUR positioning was around neutral before the ECB confab. ING said it was reasonable now to expect some rise in EURUSD net positioning in the upcoming report, as the ECB shifted to a more hawkish tone, and that should allow the pair to trade in a higher range; ING sees this to be 1.13-1.15 into the March ECB meeting; President Lagarde is due to deliver further remarks today.


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  CRUDE: Major crude benchmarks are lower by between USD 1.00-1.50, with WTI underperforming, perhaps as fears of the Texas cold snap ease somewhat. Sentiment on crude remains constructive due to the widely discussed limited spare capacity OPEC and its partners has to boost output, where some nations have been significantly over-complying with the deal. Geopolitical developments should be eyed, with Reuters reporting that the oil complex is eyeing a potential conclusion of US-Iran nuclear talks, which could take the steam out of the crude rally as prices hit fresh highs. Against the background of crude reaching multi-year highs, some profit-taking is not to be unexpected. Elsewhere, in a sign of solid Asian demand conditions, Saudi Aramco raised OSPs for all grades to Asia in March.

DAY AHEAD 7TH FEBRUARY:

• US President Biden meets German Chancellor Scholz


• 08:00GMT/03:00EST: China Foreign Exchange Reserves (JAN)


• 09:30GMT/04:30EST: EZ Sentix Index (Feb)


• 11:00GMT/06:00EST: UK BBA Mortgage Rate (JAN)


• 11:30GMT/06:30EST: Brazil BCB Focus Market Readout


• 13:00GMT/08:00EST: Brazil Car Production, New Car Registrations (JAN)


• 13:00GMT/08:00EST: Russia FX Reserves (JAN)


• 14:30GMT/09:30EST: Turkey Treasury Cash Balance (JAN)


• 15:00GMT/10:00EST: US Employment Trends (Jan)


• 15:45GMT/10:45EST: ECB's President Lagarde


• 16:30GMT/11:30EST: US 3-Month, 6-Month Bill Auction


• 20:00GMT/15:00EST: US Consumer Credit Change (DEC)


• Newsquawk Daily Economic Releases (7/Feb)


• Newsquawk Week In Focus (7-11 Feb)

EQUITY NEWS:

TECH:

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  Alphabet (GOOG) - To be sued by Swedish price comparison website PriceRunner for EUR 2.1bln; alleges breach of antitrust by manipulating search results in favour of its own comparison shopping services. (Reuters)


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  Apple (AAPL) - Making plans for its first 2022 product launch in March which would see the release of a low-cost 5G phone and iPad, according to reports. (CNBC)


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  Tech, Meta Platforms (FB) - Market swings leave high-profile stock pickers wrongfooted; FB's disappointing results deepened the pain. (FT)


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  Renishaw (RNSHY) - Expects semiconductor shortage to continue for two more years; CEO sees strong investment from chipmakers continuing. (FT)

COMMUNICATIONS:

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  Discovery (DISCA), WarnerMedia (T) - CEO said that assuming the pending merger with WarnerMedia closes, combined company seen having an adj. EBITDA of around USD 14bln by 2023. (Discovery)


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  Meta Platforms (FB) - Cautious commentary in Barron's; says that although the stock looks cheap, that’s no longer a good reason to buy. (Barron's)


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  Vodafone (VOD) - Embarked on a secret overhaul as it faces mounting pressure from activist investor Cevian; Execs also discovered VOD overestimated income from its global enterprise division. (The Mail on Sunday)


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  Streaming, Apollo (APO), Blackstone (BX) - PE investing in capital-light, cash generative Hollywood production companies. (FT)

INDUSTRIALS:

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  Boeing (BA), Airbus (EADSY) - Shipping lines investing in jets as the pandemic's hit to supply chains enters a third year. (WSJ)


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  Ford (F) - Chip shortage forces Ford to cut production of F-150, Bronco and other vehicles. (CNBC). Separately, CEO constructive on the outlook in a Barron's interview, says not at peak earnings. (Barron's)


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  Volkswagen (VWAGY) - Automaker does not expect the global shortage of semiconductors to end this year, but should ease in H2. (Reuters)


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  Porsche (POAHY) - Sales Chief suggests sales could top the 2021 record despite the chip challenges. (Reuters)


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  Electric vehicles - Surging metals prices used in production of electric vehicle batteries end decade-long decline; price increases could weigh on growth. (WSJ)

ENERGY:

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  Saudi Aramco - Reportedly considering USD 50bln stake sale via share listing, would be the largest share sale ever; secondary listing in London/Singapore/other is possible. (WSJ)

MATERIALS:

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  Steel names - US finalising exempting part of Japan's steel imports from tariffs. (Kyodo)

CONSUMER STAPLES:

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  Unilever (UL) - Two of its largest investors call for radical shake-up after failed USD 50bln pursuit of GSK's consumer health business. (FT)


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  Reckitt Benckiser (RBGLY) - Mulls sale of baby-food business; sale would reverse the USD 17bln acquisition of Mead Johnson Nutrition, its largest-ever purchase made 5yrs ago. (Bloomberg)


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  Boston Beer Company (SAM) - Positive mention in Barron's; says stock is now a buy. (Barron's)


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  Tesco (TSCDY) - Chair says "worst is yet to come" for food price inflation. (Guardian)

CONSUMER CYCLICALS:

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  Peloton (PTON), Nike (NKE LN), Amazon (AMZN) - Amazon and Nike opportunistically evaluating separate bids to buy Peloton as the latter faces activist pressure; no talks yet, considerations said to be preliminary. (FT)


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  Kohls (KSS) - After Kohl’s rejected offers and adopted a poison pill, activist Macellum wants majority control of retailer’s board. (Bloomberg)


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  Reopening Stocks - Barron's positively mentions Booking Holdings Inc. (BKNG), Chevron Corporation (CVX), Intuitive Surgical, Inc. (ISRG), McDonald's Corporation (MCD), Raytheon Technologies Corporation (RTX), United Parcel Service, Inc. (UPS). (Barrons)


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  Luxury - Chanel raising prices faster than rivals, citing higher materials costs, but prompts consumer outcry. (WSJ)


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  Restaurant Brands International (QSR) - BK Portugal terminated the Burger King brand development contract in Portugal, invoking the default of an obligation to open two restaurants and refurbish three others in 2021. (Bloomberg)


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  HelloFresh (HLFFF) - Positive mention in Barron's; said the beaten-down stock is now a buy. (Barron's)


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  Home Depot (HD) - Worker swapped nearly USD 400k in fake money for real bills over four years, officials say. (NYT)

FINANCIALS:

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  Corporate Bonds - Investors braced for turbulence in US corporate bond market; surge in CDS trading points to nervousness that equity sell-off will spill into fixed income. (FT)


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  Regulation - SEC to push PE firms for more robust fee disclosures, plans to take up private fund adviser rules on February 9th. (Bloomberg)


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  Short-sellers - Vast DOJ probe looks at almost 30 short-selling firms. (Bloomberg)


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  Apollo (APO) - Co-Chief Operating Officer Civale to retire. (Bloomberg)


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  Credit Suisse (CS) - Said to have securitised a portfolio of loans linked to its wealthiest customers’ yachts and private jets, in an unusual use of derivatives to offload risks associated with lending to ultra-rich oligarchs and entrepreneurs. (FT)

HEALTH CARE:

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  Medtronic plc (MDT) - Positive mention in Barron's; argued that the stock can gain 20% as COVID subsides. (Barron's)


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  Sanofi (SNY) - FDA approves Enjaymo first treatment for use in patients with cold agglutinin disease. (Sanofi)

07 Feb 2022 - 09:47- EquitiesResearch Sheet- Source: Newsquawk