US EARLY MORNING: Equity futures continue lower amid fears of a more hawkish Fed

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  OVERNIGHT: Wall Street was lower Thursday in wake of a hawkish reaction to PPI data, exacerbated by hawkish Fedspeak (see here). APAC stocks traded negatively after taking cues from the weak performance stateside (see here). European stocks started the last session of the week on the defensive following hawkish ECB speak and German PPI data that did not fall by as much as expected in January (see here) - we recap the data release, as well as UK retail sales data, below.


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  US PRE-MARKETS: US equity futures have tilted to the downside, and Treasury yields are rising (curve bear-flattens) with traders citing fears of a more activist Federal Reserve in wake of a hot PPI report, exacerbated by hawkish Fedspeak from Mester and Bullard. The data this week follows on from other hawkish January data prints (the CPI data, jobs report, as well as the Services ISM being the most notable). The run of data has resulted in a hawkish repricing of market-implied expectations of the Fed’s rate trajectory; the terminal rate is now seen at 5.30% (in the 5.25-5.50% FFR target range bracket) as traders reason that the Fed may need to hike further to take the heat out of price growth. This morning, wires have been citing research from Goldman Sachs, which has raised its own projection of where US rates will peak; the bank expects three more 25bps hikes from the Fed in March, May and in June, which will take the FFR target range to a peak of 5.25-5.50%; GS said that it raised its view due to stronger growth and firmer inflation news. Meanwhile, while many talking heads debate whether the US economy will see a 'hard landing', a 'soft landing', or even 'no landing' as some have recently argued, the folks at BofA remain unconvinced (BofA's own view is that a no landing in H1 would result in a hard landing in H2); its equity strategists renew a warning that stocks will tumble in the weeks ahead amid a possibility of a recession in H2 of this year; BofA projects the S&P 500 will slide to 3,800 in March after failing to rise above 4,200 this week, adding that the Fed's job thus far remains "unaccomplished."

DAY AHEAD:

• The data slate quietens down on Friday the European docket includes Current Account data for December; there are no scheduled ECB speakers. Options traders will note expiries for FTSE 100, Euro Stoxx 50, DAX 40 and CAC 40 February options. For the US Day, January import and export prices, and the leading index for January; from Canada, PPI and RMPI data for January is due. Fed Governor Bowman and 2024 voter Barkin will be speaking before the cash open. After hours, Moody's may review Switzerland's Sovereign Debt Rating (currently Aaa), and S&P may review Poland's rating (A-). Our full Day Ahead calendar can be accessed here; a PDF version can be accessed here.


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  GERMANY PPI REVIEW: German Producer Prices fell in January, printing -1.0% M/M from a prior -0.4%, although this was not as deep as the -1.6% M/M the street was expecting. The annual rate for producer prices eased to +17.8% from 21.6%, but once again, was not as deep as the street was modelling (exp. 16.4%); and accordingly, Bund futures declined by around 20-25 ticks in wake of the data.


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  UK RETAIL SALES REVIEW: UK Retail Sales rose +0.5% M/M in January (exp. -0.3%), seeing the annual rate of decline pare to -5.1% Y/Y (exp. -5.5%) from -6.1% Y/Y previously. Capital Economics said 2023 may be better than 2022 for the UK's retailers, but it will still be a struggle. "On the face of it, these data add to the view that activity is holding up fairly well, but there are two reasons not to get too carried away," CapEco writes: 1) retail sales were very weak last year, but overall consumer spending held up due to stronger non-retail spending; "when households’ finances are under pressure, it possible that any improvement in retail sales will be just be met by a softening in non-retail spending," the consultancy writes. 2) The full drag on activity from higher rates has yet to be felt (albeit, it adds that the largest falls in real incomes are now behind us). "As such, it is too soon to conclude that the retail sector is coming out of its funk and that the economy won’t yet fall into a recession."

STOCK SPECIFIC NEWS:

TECH:

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  Applied Materials, Inc. (AMAT) - Q1 adj. EPS 2.03 (exp. 1.93), Q1 revenue USD 6.74bln (exp. 6.23bln). Exec said that while the economy and semiconductor industry are facing challenges in 2023, Applied Materials delivered strong first quarter results, and we believe Applied is well positioned to outperform our markets this year. Noted a large backlog of differentiated products, and growing service business. Sees Q2 EPS between 1.66-2.02 (exp. 1.75), and sees Q2 revenue between USD 6.0-6.8bln (exp. 5.9bln).


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  Dropbox, Inc. (DBX) - Q4 adj. EPS 0.40 (exp. 0.39), Q4 revenue USD 598.8mln (exp. 593.7mln). Exec said it was operating from a position of strength. Sees further signs of macro-related weakness impacting business. Q1 revenue seen between USD 600-603mln (exp. 590mln), and USD 616-619mln at constant currency levels. FY23 revenue seen between USD 2.475-2.49bln (exp. 2.44bln), and between USD 2.51-2.525bln on a constant currency basis; FY23 gross margins seen between 81-82%. Exec said FY23 guidance does not assume turnaround in the economy. Targets long-term targets: annual FCF of USD 1bln+, gross margins between 80-82%, operating margins between 30-32%.


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  HubSpot, Inc. (HUBS) - Q4 EPS 1.17 (exp. 0.82), Q4 revenue USD 469.7mln (exp. 445.6mln). Sees Q1 EPS betwen USD 0.82-0.84 (exp. 0.59), and sees Q1 revenue between USD 476-475mln (exp. 469.5mln). For the FY23, sees EPS between USD 4.24-4.32 (exp. 2.86), and FY23 revenue between USD 2.05-2.06bln (exp. 2.05bln).


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  Leidos Holdings, Inc. (LDOS) - Awarded a contract by the Transportation Security Administration to upgrade its full fleet of Pro:Vision Advanced Imaging Technology systems used at airport security checkpoints.


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  Cognex Corporation (CGNX) - Q4 adj. EPS 0.27 (exp. 0.32), Q4 revenue USD 239.4mln (exp. 245.7mln). Exec noted it was navigating through a challenging business environment, where a few of large e-commerce customers paused most of their investments. Exec added that at the end of 2022, it saw slower trends across our broader factory automation business, and this has carried into the beginning of 2023. Sees Q1 revenue between USD 180-200mln (exp. 238.8mln), and sees Q1 gross margins in the low-70% range.

COMMUNICATIONS:

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  Tencent Holdings (TCEHY) - Tencent is abandoning plans to venture into virtual reality hardware, as a sobering economic outlook prompts the Chinese tech giant to cut costs and headcount at its metaverse unit, Reuters reports.


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  DoorDash, Inc. (DASH) - Q4 EPS -1.65 (exp. -0.68), Q4 revenue USD 1.82bln (exp. 1.77bln). Q4 Orders +27% to USD 467mln (exp. 435mln), Q4 Gross Merchandise Value +29% to USD 14.446bln (exp. 13.75Bbln). Board authorised share repurchase programme for an aggregate USD 750mln; programme is in addition to its prior USD 400mln authorisation (completed in Q3). See Q1 Gross Merchandise Value between USD 15.1-15.5bln (exp. 14.5bln). FY23 Gross Merchandise Value seen between USD 60-63bln (exp. 61.3bln).

FINANCIALS:

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  Visa Inc. (V) - Vice Chair and CFO Vasant Prabhu will depart in September, and will assist with the search for and onboarding of his replacement.


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  Allianz (ALIZY) - Swings into Q4 profit. Q4 revenue EUR 36.8bln (exp. 38.8bln), Q4 operating profit EUR 4bln (exp. 3.5bln), Q4 net income EUR 2.0bln, Q4 adj. EPS EUR 4.99.


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  NatWest Group (NWG) - Profit jumps after boost from rate rises. Q4 revenue GBP 3.71bln (exp. 3.60bln), Q4 net profit GBP 1.26bln (exp. 940mln). Launches a GBP 800mln share buyback programme.

CONSUMER DISCRETIONARY:

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  Mercedes-Benz (MBG) - Sales and profits topped expectations in Q4, but warned of market uncertainty in 2023. Q4 revenue EUR 41.0bln (exp. 37.87bln), Q4 net profit EUR 4.03bln (exp. 3.74bln). Announced EUR 4bln buyback. Announced global charging network, realigned production network to scale EVs, Level 3 conditionally automated driving approved in Nevada, new partnerships for sourcing raw materials and semiconductors established. Expects FY23 FCF of industrial business at the previous year's level. Sees 2023 EBIT slightly below prior year's level. FY dividend 5.20/shr (exp. 4.92).


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  DraftKings Inc. (DKNG) - Q4 EPS -0.53 (exp. -0.59), Q4 revenue USD 855.1mln (exp. 800.2mln), Q4 monthly unique payers (MUP) 2.6mln (exp. 2.49mln), Q4 average revenue per MUP was USD 109.00 (exp. 103.70). Lifts FY23 revenue outlook to USD 2.85-3.05bln (exp. 2.95bln) from USD 2.8-3bln.


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  Texas Roadhouse, Inc. (TXRH) - Q4 EPS 0.89 (exp. 1.03), Q4 revenue USD 1.01bln (exp. 1.02bln), Q4 comparable restaurant sales +7.3% at company restaurants, +7.2% at domestic franchise restaurants (exp. +8.5%). Boosts dividend +20% to 0.55/shr. Sees FY23 commodity cost inflation of +5-6%. Sees 25-30 Texas Roadhouse company restaurant openings in FY23.


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  Hermes (HESAY) - Sales top analyst expectations. Q4 revenue EUR 2.99bln (exp. 3.06bln), Q4 net profit +38% Y/Y at EUR 3.37bln. Proposes a dividend of 13/shr, which includes the 3.50/shr interim.

UTILITIES:

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  Uniper (UNPPY) - Reported deeper than expected net income loss, expects volatile 2023 as gas prices remain uncertain. Adj. net income EUR -7.4bln (exp. -5.8bln), net debt EUR 3bln as of end-December. Deconsolidation of Unipro is results in deconsolidation loss of EUR 4.4bln. 18bln KfW faciliity has been replaced with a 16.5bln facility with a maturity until 2026. Gas replacement cost issue will be overcome by end-2024, state support via KfW will be phasing out over time.


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  EDF (ECIFY) - Sees record loss after lower nuclear output. FY22 revenue EUR 143.5bln (exp. 88.1bn), FY EBITDA EUR -4.99bln (exp. 9.42bln), FY net EUR -17.9bln (exp. -3.4bln). Noted that the significant downturn in results was in the context of French power output shortfall, high market prices. Sees EBITDA significantly higher vs 2021 in FY23 results.

INDUSTRIALS:

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  Safran (SAFRY) - Revenue and operating income above expectations, dividend light, but sees recurring operating income of EUR 3bln. FY revenue EUR 19.04bln (exp. 18.9bln), FY operating income EUR 2.4bln (exp. 2.2bln), dividend 1.35/shr (exp. 1.51/shr). FY23 revenue seen above EUR 23bln (exp. 22.4bln), FY23 operating income seen at EUR 3.0bln (exp. 2.9bln). Said it was on track to deliver 2025 commitments.


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  Rolls-Royce (RYCEY) - The head of passenger jet engine has been removed from his position as part of the new CEO’s shake-up, The Times reports.

ENERGY:

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  Aker ASA (AKRYY) - Per share NAV decreases, proposes NOK 15 dividend. Q4 NAV NOK 66.9bln, proposes FY22 dividend of NOK 15/shr, will propose to pay an additional cash dividend in H2-2023.


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  TechnipFMC plc (FTI), Equinor ASA (EQNR) - TechnipFMC awarded subsea contract for Equinor's Irpa development.

MATERIALS:

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  Sika (SXYAY) - Saw a record annual profit in FY22. FY22 revenue CHF 10.5bln (prev. 9.3bln), FY22 net profit CHF 1.16bln (prev. 1.05bln), FY22 EBIT CHF 1.58bln.

HEALTH CARE:

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  Phillips (PHG) - FDA classifies recall of its respiratory machines as the most serious, remarking that their use could cause injury/death.


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  Pfizer (PFE), Valneva (VALN) - Valneva and Pfizer to discontinue a significant percentage of US participants enrolled in Vaccine Against Lyme for Outdoor Recreationists (VALOR) Phase 3 clinical study following violations of Good Clinical Practice at certain clinical trial sites run by a third-party clinical trial site operator. The discontinuation of these participants was not due to any safety concerns with the investigational vaccine and was not prompted by a participant-reported adverse event.


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  Bio-Rad Laboratories, Inc. (BIO) - Q4 EPS 3.31 (exp. 3.45), Q4 revenue USD 730.3mln (exp. 742.3mln). Q4 gross margin 54.9% (exp. 56.6%). Sees FY23 revenue growth of +6.5% on an FXN basis, and sees operating margins at 19.5% (vs 18.7% Y/Y).


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  Dentsply Sirona Inc. (XRAY) - Announced a restructuring plan, where it will reduce its workforce by up to 8-10%; plan anticipated to achieve at least USD 200mln in annual cost savings over the next 18 months. Company expects to incur up to USD 165mln in non-recurring charges, the majority of which will be expensed in 2023.

REAL ESTATE:

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  Life Storage, Inc. (LSI), Public Storage (PSA) - Life Storage board rejects unsolicited USD 11bln proposal from Public Storage. LSI said proposal significantly undervalues Life Storage and its prospects for future growth and value creation.

17 Feb 2023 - 09:31- Data- Source: Newsquawk