US EARLY MORNING: Equity futures are subdued amid Middle East tensions, offsetting solid China activity data; heavy Fedspeak, key earnings due later today

US PRE-MARKETS: US equity futures are trading off neutral, Treasury yields are little changed, the Dollar Index is flat. A positive macro impulse from better-than-expected activity data out of China (see below) is being offset by geopolitical concerns in the Middle East, after a summit in Jordan between the US, Egypt and Palestinian leaders was called off following a Gaza hospital bombing; President Biden will instead only visit Israel on his trip. Oil futures are being supported by the tensions in the Middle East, while weekly inventory data reported by the API were also supportive for the complex (crude -4.4mln vs exp. -0.3mln, with Cushing -1mln; gasoline -1.6mln vs exp. -1.1mln, though distillates -0.6mln vs exp. -1.4mln). As the US day gets underway, traders will continue to monitor geopolitics, while there are also other key events to digest, including the weekly MBA mortgage applications, September Building Permits and Housing Starts, and weekly energy inventory data; the Fedspeak slate is also busy ahead of the blackout window which kicks in at the end of this week), with Governors Waller and Bowman (voters), NY Fed’s Williams (voter), and 2023 voters Cook and Harker due to give remarks. We will also get earnings reports from the likes of Netflix (NFLX), Tesla (TSLA), Morgan Stanley (MS), Abbott (ABT) and Procter & Gamble (PG) today. The Treasury will auction USD 13bln of 20yr debt.

TODAY’S AGENDA:

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


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  EUROPE DAY AHEAD: Final Eurozone HICP data for September are expected to see the annual rates of inflation unrevised. ECB President Lagarde, ECB’s Elderson, Riksbank governor Thedeen, Riksbank’s Floden, Norges Bank Governor Bache are due to speak today. Germany will sell EUR 4bln of 2033 Bunds.


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  US DAY AHEAD: Weekly MBA mortgage applications, September Building Permits and Housing Starts, and weekly energy inventory data are due. It is a busy day for Fedspeak ahead of the blackout window (which kicks in at the end of this week), with Governors Waller and Bowman (voters), NY Fed’s Williams (voter), and 2023 voters Cook and Harker due to give remarks. The Treasury will auction USD 13bln of 20yr debt. Today, key earnings reports are due from ELV, PG, MS, ABT, NFLX, TSLA; our Daily US Earnings Estimates note can be accessed here. Jordan cancelled a summit it was scheduled to host with leaders from the US, Egypt and Palestine to discuss Gaza, after hundreds were killed in Gaza hospital blast; Biden will only visit Israel on his trip, as a result, and Jordan said a summit will be held at time when parties could agree to end the ‘war and massacres against Palestinians’, Al Jazeera reports.


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  RECAP - UK CPI: Data out of the UK showed consumer prices rising by 6.7% Y/Y in September (unch), above the expected 6.6%, while the all services gaige rose at a rate of 6.9% Y/Y (prev. 6.8%). Core CPI eased to 6.1% Y/Y from 6.2%, but was still above the expected fall to 6.0%. Pantheon Macroeconomics said the pick-up in M/M growth in prices won’t be sustained, and it continues to think that CPI will rise slowly enough over the coming months to drag down the headline rate of CPI inflation to an average rate of 4.5% in Q4 and 4.0% in Q1. "Then we expect the headline rate to hover between 2.0% and 3.0% for the rest of 2024," adding that if that is the case, the MPC needn’t leave Bank Rate at 5.25% for very long next year.


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  RECAP - CHINA ACTIVITY DATA: Chinese Q3 GDP 4.9% Y/Y (exp. 4.4%, prev. 6.3%), 1.3% Q/Q (exp. 1.0%, prev. 0.8%); China September industrial output 4.5% Y/Y (exp. 4.3%, prev. 4.5%); China September retail sales 5.5% Y/Y (exp. 4.9%, prev. 4.6%). Commentary in the Global Times newspaper said that "China has full confidence in achieving its stated annual GDP growth target of around 5% in 2023, with economic growth of 5.2% in the first three quarters setting a solid foundation." Oxford Economics said the data underscored the narrative that a stimulus-led cyclical pickup in China was underway. "Retail sales in particular was a strong beat, as spending in festivities-related segments accelerated ahead of the extended Golden Week holiday, but property indicators remained very weak in September, with no signs of bottoming out - such is the divergence between the relatively decent macro data versus weak sentiment in the sector, that it is challenging to envision that growth momentum would see a further sequential acceleration in Q4 in the absence of meaningful stimulus." OxEco still looks for a further round of 10bps rate cuts in Q4 from the PBOC, a step-up in the easing of homebuying restrictions, and modest increases in state-directed infrastructure spending. "That, alongside favourable base effects going into Q4, should ensure that our 5.1% growth forecast (and authorities’ growth target) remains intact."

EQUITY NEWS:

TECH:

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  Nvidia (NVDA) - After the US confirmed a new rule expanding license requirements for chipmaking equipment to 21 countries other than China, and restricted the sale of Nvidia made-for-China chips, with more chips and equipment covered by the new restrictions, Nvidia said licencing requirement may impact its ability to complete development of products in a timely manner, but does not anticipate additional restrictions will have a near-term meaningful impact on its financial results.


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  Nvidia (NVDA), Foxconn (HNHPF) - The world's largest contract manufacturer Foxconn and Nvidia are partnering to build AI data factories using Nvidia chips and software for self-driving cars and other applications. The AI factories will create and improve software for autonomous electric vehicles, with data collection and updates to enhance the technology.


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  ASML (ASML) - Q3 revenue EUR 6.67bln (exp. 6.71bln), Q3 bookings EUR 2.6bln (exp. 4.5bln), Q3 net income EUR 1.9bln (exp. 1.8bln), Q3 gross profit EUR 3.46bln, margin 51.9%. Declares an interim dividend of EUR 1.45/shr. Sees Q4 net sales between EUR 6.7-7.1bln (exp. 6.86bln), sees Q4 gross margin between 50-51%. Exec said the semiconductor industry was currently working through the bottom of the cycle, and customers expect the inflection point to be visible by the end of this year. Customers continue to be uncertain about the shape of the demand recovery in the industry, and therefore, ASML expects 2024 to be a transition year. It is taking a more conservative view, expect a revenue number similar to 2023. Exec added that it also looks at 2024 as an important year to prepare for significant growth that we expect for 2025.


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  Microsoft (MSFT), Amazon (AMZN) - Microsoft is reportedly making a deal worth over USD 1bln with Amazon to provide its cloud productivity tools, Reuters reports. Amazon plans to buy over a million Microsoft 365 licenses for at least five years, starting in November, to replace its current on-premise Office products.


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  Infineon (IFNNY), Hyundai Motor (HYMTF), Kia Motors (KIMTF) - Hyundai, Kia, Infineon sign multi-year supply agreement for power semiconductors.


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  E2open (ETWO) - Responding to Elliott Investment Management's Schedule 13D filing, emphasised its commitment to open dialogue with all shareholders, and its goal of creating long-term shareholder value.

CONSUMER CYCLICAL:

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  Amazon (AMZN) - Amazon last year offered to settle an antitrust investigation by the California attorney general by changing its seller notices and pricing policies to clarify it doesn't require price parity with other websites, Bloomberg reports. California didn't respond and filed a lawsuit accusing Amazon of policies that lead to high consumer prices. Amazon contested the suit, as well as a federal antitrust suit filed by the US Federal Trade Commission and 17 state attorneys general.


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  Adidas (ADDYY) - Prelim. Q3 revenue EUR 6bln (exp. 5.88bln); and raises FY guidance. FY operating loss now seen at EUR 100mln (prev. saw loss of EUR 450mln). FY revenues seen declining low-single-digits (prev. saw mid-single-digit decline). Including positive impact from two Yeezy drops in Q2 and Q3, the potential write-off of remaining Yeezy inventory is around EUR 300mln (prev. saw around EUR 400mln).


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  Hella (HLE GY) - 9-month sales EUR 5.9bln (prev. 5.3bln Y/Y), mainly due to higher production volumes in all regions and especially the increased demand for the latest lighting technologies from manufacturers of electric vehicles. Electronics business saw sales of EUR 2.5bln (prev. 2.3bln), Lifecycle solutions saw sales of EUR 0.8bln (prev. 0.7bln).


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  Just Eat Takeaway (JTKWY) - Q3 orders EUR 217mln (prev. 235mln), Total GTV EUR 6.47bln (prev. 6.92bln). Launches new share buyback of up to EUR 150mln. Long term objectives unchanged. Upgrades FY23 adj. EBITDA view to around EUR 310mln (exp. 254mln), expects to be cash flow break-even in H2 and positive thereafter.


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  BMW (BMWYY) - The automaker will adopt NACS for battery EV in the US and Canada beginning 2025.


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  Stellantis (STLA) - Having previously negotiated agreements with Ford (F) and General Motors (GM), Canadian union Unifor, which represents over 8,200 members, is starting contract negotiations with Stellantis, the last of the Detroit Three automakers. Talks are to begin on October 18th, with a strike deadline set for October 29th.


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  Volvo (VLVLY) - Q3 operating profit SEK 18.32bln (exp. 16.42bln), Q3 net sales SEK 132.41bln (exp. 126.66bln), Q3 order intake -27% due to lower demand in Europe and China, whereas North America saw strong order intake following the opening of order books for 2024. Affirms FY23 North American truck orders, raises European heavy-duty truck orders by 10k, and raises China medium and heavy-duty truck orders by 30k.


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  Continental (CTTAY) - Continental reportedly mulls divestment of its autonomous mobility arm, will evaluate dozens of automotive units, according to Bloomberg.


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  Booking Holdings (BKNG) - CEO Glenn Fogel sold 750 shares for a total USD 2.23mln, and CFO David Goulden sold 550 shares for a total USD 1.64mln.

CONSUMER STAPLES:

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  J.M. Smucker (SJM), TreeHouse Foods (THS) - TreeHouse to acquire several brands, including Bick's pickles, from J.M. Smucker for around USD 20mln; the acquired brands generated around USD 60mln in sales for Smucker in the last fiscal year. The deal is expected to close in Q4, pending customary conditions.

ENERGY:

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  Chevron (CVX) - An Australian union alliance has agreed to pay and conditions deals at Chevron's LNG facilities, ending the threat of strikes. Talks mediated by Australia's Fair Work Commission resolved the impasse after a previously agreed deal fell apart due to union claims that Chevron reneged on commitments. The Gorgon and Wheatstone projects supply 6% of the world's LNG.


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  Shell (SHEL) - QatarEnergy and Shell sign two long-term LNG agreements for the supply of up to 3.5mln tons per annum of LNG from Qatar to the Netherlands.


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  TotalEnergies (TTE) - CEO is confident it will manage any consequences of conflict in the Middle East.

MATERIALS:

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  BHP (BHP), Whitehaven (WHITF) - BHP Group is selling two Australian coking coal operations to Whitehaven Coal for at least USD 3.2bln, with additional payments based on pricing performance. Whitehaven is considering a joint venture with steel producers. The move is part of BHP's shift away from fossil fuels.


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  BHP (BHP) - Reported quarterly production stats; quarterly iron ore WAIO production 69.4mln tons (prev. 72.1mln Y/Y), nickel output 20.2k tons (prev. 20.7k Y/Y), copper output 457.0k tons (prev. 410.1k Y/Y), metallurgical coal output 5.6mln tons (prev. 6.7mln Y/Y). Says FY24 production guidance remains unchanged; FY24 copper production seen between 1.72-1.91M tons, and FY24 iron ore production seen between 254-264.6mln tons.

INDUSTRIALS:

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  United Airlines Holdings (UAL) - Q3 2023 adj. EPS 3.65 (exp. 3.35), Q3 revenue USD 14.50bln (exp. 14.44bln); Q3 revenue passenger miles +15% Y/Y to 67.69bln (exp. 67.8bln). United said it saw strong and steady domestic demand environment in the quarter, and saw strength in close-in bookings in August and September, with both months well ahead of Y/Y demand; profits in both the Atlantic and Pacific regions were at record highs. Sees Q4 adj EPS, if Tel Aviv ban lasts until December, at USD 1.50 (exp. 2.10), and sees Q4 Operating Revenue growth of +9% Y/Y, assuming Tel Aviv Ban through year-end (exp. +9.3%).


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  J.B. Hunt (JBHT) - Q3 2023 EPS 1.80 (exp. 1.84), Q3 revenue USD 3.16bln (exp. 3.19bln). Integrated Capacity Solutions unit saw revenue fall 48% to USD 298mln (exp. 365mln). Said demand for intermodal service improved throughout the quarter across both the Eastern and Transcontinental networks, supported by moderating destocking trends, seasonal activity, and strong performance from rail providers.


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  European Airlines - At least one major European airline group has reportedly considered a move into eastern Europe and a bid for a national airline in the region, FT reports.

HEALTHCARE:

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  Illumina (ILMN), Icahn Enterprises (IEP) - Activist-investor Carl Icahn is suing Illumina's board, claiming it breached its duties regarding Illumina's acquisition of Grail, Reuters reports. Illumina is reviewing the complaint, and Icahn and Grail have not commented. Illumina previously repurchased Grail despite antitrust opposition, leading to Icahn's proxy fight. Last week, Illumina agreed to divest Grail in 12 months if it did not win its legal challenge.


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  Bristol Myers Squibb (BMY) - BMY's three-year follow-up of a Phase 3 trial showed sustained event-free survival and promising overall survival with Opdivo in neoadjuvant treatment for lung cancer, regardless of PD-L1 levels.


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  Takeda Pharmaceutical (TAK) - Takeda has agreed to settle a tax dispute with the Irish Revenue Commissioners regarding a break fee related to Shire; settlement reduces Takeda's tax expenses by approximately JPY 63bln. Separately, Takeda's Phase 3 study for Crohn's Perianal Fistulas treatment with Alofisel did not meet its primary goal; is evaluating the financial impact and will provide updates in October.


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  Roche (RHHBY) - Alecensa reduces the risk of disease recurrence or death by an unprecedented 76% in people with ALK-positive early-stage non-small cell lung cancer. Elsewhere, IL-6 is the first immunoassay approved to aid sepsis diagnosis in newborns.


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  BeiGene (BGNE) - Phase 3 RATIONALE 315 study showed significant improvements in patients with lung cancer treated with tislelizumab in combination with chemotherapy before and after surgery, compared to chemotherapy alone.

FINANCIALS:

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  Interactive Brokers (IBKR) - Q3 results topped estimates as customer accounts climb. Q3 adj. EPS 1.55 (exp. 1.51), Q3 revenue USD 1.145bln (exp. 1.11bln). Customer accounts +21% to 2.43mln, customer margin loans +8% to USD 43.6bln; Q3 net interest income +55% to USD 733mln, driven by higher interest rates and customer credit balances.


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  Pinnacle Financial (PNFP) - Q3 EPS 1.79 (exp. 1.71), Q3 revenue USD 408mln (exp. 421.8mln), Q3 adj. Pre-provision Net Revenue (PPNR) USD 204.6mln (vs 211mln Y/Y), Q3 net interest margin of 3.06% (vs 3.47% Y/Y). The company experienced positive deposit trends in the quarter, where core deposits grew faster than peers, noninterest bearing deposits decreased at a slower rate, and the increase in deposit costs lessened. Exec said these improvements were expected to continue in Q4.


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  US Bancorp (USB) - Analysts at UBS said US Bancorp's change from a Category II bank by the Federal Reserve was a "game changer" and a significant regulatory win which allows the bank to avoid certain regulatory requirements, and be grouped with larger peers for certain impacts.

COMMUNICATIONS:

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  Omnicom (OMC) - Omnicom Q3 results topped expectations as it increased spending on advertising due to an improved economic outlook. Q3 EPS 1.86 (exp. 1.84), Q3 revenue USD 3.58bln (exp. 3.55bln). YTD organic growth of 4.0% remains in line with its full-year expectations. Exec said it was very well positioned for a recovery in business conditions.

18 Oct 2023 - 09:30- Research Sheet- Source: Newsquawk