US EARLY MORNING: Equity futures have been trading cautiously in US premarkets ahead of Powell

SNAPSHOT: US equity futures are trading a little lower, Treasury yields are rising by a couple of basis points across the curve. The Dollar Index is flat. Major crude benchmarks are off 20-30c. The start of 2023 has been characterised by weak activity data and cooling inflation data, which has helped to underpin a rally in risk assets, as traders bet the Fed will need to pivot its focus onto growth to support the economy. However, it appears we are pausing on that narrative today ahead of commentary from Fed Chair Powell, who in all likelihood will reiterate that the central bank’s focus remains on combatting high inflation, and the economy remains in decent shape as evidenced by the solid labour market, and while growth is expected to slow, the Fed’s base case is not a recession – that is if Powell comments on policy at all (given the subject he is speaking about, there is a risk he could disappoint those looking for any fresh monetary policy insight).

POWELL PREVIEW: Recent data releases (specifically, the trading reaction to these data) suggest that markets have completely discounted the ‘peak inflation’ narrative, and are now becoming more focussed on the dynamic of slowing growth. Accordingly, we will be on the lookout for any commentary that suggests that the Fed is laying the groundwork for a policy pivot in the months ahead (perhaps March, when the FOMC updates its economic projections). To be clear, we do not think the policy pivot comes today, or even this week, but there are some factors we are looking for that will telegraph the way there. This will include commentary from officials on: how much more substantial evidence they need to see that price pressures have peaked, whether they signal 'ongoing hikes' or begin to temper that view, how long they expect to keep rates at terminal, whether concerns on some loosening of financial conditions is abating, whether they begin seeing scenarios where growth could slowdown by more than current forecasts. We detail our thoughts in a little more detail here.

DAY AHEAD: There are heavy hitting central bank speakers on the docket today, with remarks from Fed Chair Powell and BoE Governor Bailey due from a Riksbank conference. Powell will be speaking on 'central bank independence and the mandate – evolving views', and accordingly, some believe that there is a risk that he disappoints those who are looking for fresh insight on the current monetary policy outlook. Nevertheless, we have a primer here discussing the areas of commentary we will be focussing on (any hints of laying the groundwork for a policy pivot). Elsewhere, the ECB’s markets chief Schnabel will deliver remarks at the Riksbank’s conference too, while BoC’s Governor Macklem is also on today’s speaking slate. Data-wise, the release of the NFIB small business optimism gauge, weekly RedBook retail sales data, and the Fed’s discount rates minutes are due. Energy traders will note the EIA’s STEO report, and after the US close, API energy inventories for the week. The Treasury auctions 3s today, ahead of 10yr and 30yr supply later in the week. Our full day ahead schedule can be accessed here.

FINANCIALS:

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  Jefferies Financial Group Inc. (JEF) - Ahead of the start of US corporate reporting this week, when major US banks will publish Q4 numbers, Jefferies saw EPS in line and revenue above expectations, but profits were knocked as the slump in deal making continues. Reported Q4 EPS of 0.57 (exp. 0.57), Q4 revenue -18% Y/Y at USD 1.44bln (exp. 1.25bln). Q4 advisory revenue -35% Y/Y at USD 381.4mln; Q4 underwriting revenue -71% Y/Y to USD 171.1mln; Q4 equities trading revenue -13.7% Y/Y to USD 251.3mln; Q4 fixed income revenue +70% at USD 226.7mln; Q4 asset management revenue rose around 160% Y/Y at USD 395.2mln, supported by the sale of Oak Hill investment. Exec said that 2022 total investment banking revenues, down 38% Y/Y, but that was vs a record 2021, and was still substantially above 2019 levels. Advisory net revenues were 5% down Y/Y, underwriting revenues were down 59% due to the IPO and leveraged finance markets being substantially closed for much of the year.

TECH:

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  Apple Inc. (AAPL), Broadcom Inc. (AVGO), QUALCOMM Incorporated (QCOM) - Apple's plans to replace chips inside its devices with homegrown components will include dropping a part supplied by Broadcom in 2025, Bloomberg reported. Apple is Broadcom's largest customer, accounting for around 20% of its revenue. Apple also aims to ready its first cellular modem chip by the end-2024/early-2025, allowing it swap out parts from Qualcomm - Apple was always expected to replace the Qualcomm parts this year; Apple currently accounts for around 22% of Qualcomm's annual sales, but that figure was also expected to wane. BBG added that Apple's moves will further upend a chip industry that makes billions of dollars supplying Apple components, after Apple already removed most Intel processors from its Mac computers.

HEALTH CARE:

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  CVS Health Corporation (CVS), Oak Street Health, Inc. (OSH) - CVS mulls acquisition of Medicare primary care centres operator Oak Street Health, Bloomberg reports; USD 10bln+ deal could be struck including debt.


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  Johnson & Johnson (JNJ) - CEO said JNJ seeks opportunities to merge with or acquire firms in the eye care, surgical robots, orthopaedics and cardiovascular sectors, Reuters reports, and many of these deals will be small "tuck-in" acquisitions.


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  Danaher Corporation (DHR) - Danaher President and CEO Blair will comment on Q4 performance today at JPMorgan's Healthcare Conference. Pre-announced that Q4 revenue seen up low-single digits (exp. up around 5%, or USD 7.71bln); core revenue growth be up 7-9%, exceeding prior guidance for flat-to-down 3%. Exec noted better than expected growth in Cepheid's molecular diagnostics business, driven by more than USD 1bln in respiratory testing revenue in the quarter.


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  Pfizer Inc. (PFE) - CEO told JPMorgan's health care conference that it was working with a partner in China to make its COVID drug Paxlovid available there starting in H1 2023, Bloomberg reports. CEO also dismissed a report from last week that said companies are working to make generic versions available in China.


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  Agilent Technologies, Inc. (A) - Board approves new share repurchase programme of up to USD 2bln of common stock.


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  PerkinElmer, Inc. (PKI) - Now expects Q4 results to meet or exceed the guidance provided in November.


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  Sotera Health Company (SHC) - Settled its ethylene oxide litigation in Illinois for USD 408mln.


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  Bayer AG (BAYRY) - Activist investor Ubben has calls on Bayer to hire a new CEO from outside of its management; adds that management has been unable to drive the stock price, even though business divisions are performing well. Breaking-up the company was not necessary to create value, but should be on the table.

MATERIALS:

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  WD-40 Company (WDFC) - Q1 EPS 1.02 (exp. 1.09), Q1 revenue USD 124.9mln (exp. 140.7mln). Exec said Q1 gross margin improved sequentially by 400bps Y/Y, evidencing the positive impact of the gross margin restoration plan it put into place to combat the current inflationary environment. Regionally, it saw topline growth in Asia-Pacific and Americas segments, but EMEA segment reported sales that were softer than it was seeking; said that in EMEA, it experienced significant headwinds from fluctuating FX rates, a lower level of customer orders, weaker economic conditions, reduction in sales linked to its decision to suspend sales in Russia. Reiterates its FY23 EPS outlook between USD 5.09-5.24 (exp. 5.17), and reiterates its FY23 revenue outlook of between USD 545-570mln (exp. 544.2mln).

INDUSTRIALS:

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  Southwest Airlines Co. (LUV) - Southwest said it has made leadership changes across several departments in a bid to strengthen operations amid a recent technology troubles which forced it to cancel more than 16,700 flights, and for which it will take a charge of between USD 725-825mln, Reuters reports. LUV promotes VP of network planning Adam Decaire to the role of SVP of network planning and Network Operations Control, effective immediately, which it hopes will create a tighter feedback loop between schedule design and schedule execution while adding resiliency and reliability to the network.


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  AZZ Inc. (AZZ) - Q3 adj. EPS 0.88 (exp. 0.79), Q3 revenue USD 373.3mln (exp. 359.8mln). Raises FY23 adj. EPS outlook to USD 4.05-4.25 (exp. 3.81), and reaffirms our annual sales guidance range of USD 1.27-1.32bln.


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  Virgin Orbit Holdings, Inc. (VORB) - Down over 20% in afterhours trade after failure of first flight from the UK, where an anomaly prevented it from reaching orbit.

CONSUMER:

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  China Autos Sales - China PCA says 2022 passenger vehicles sales were +1.6% Y/Y (vs prelim 1.8%).


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  Tesla (TSLA) - PCA said it exported 13.87k China-made vehicles in December (vs 37,798 in November).


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  Bayerische Motoren Werke AG (BMWYY) - FY22 brand sales -5.1% Y/Y at 2.1mln units; fully EV sales of 215k units, more than doubling. Group Sales -4.8% Y/Y at 2.4mln units. By region, Europe sales were -7.5% Y/Y, China -6.4% Y/Y, US -1.3% Y/Y.


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  Urban Outfitters, Inc. (URBN) - Holiday sales +2.3% (exp. 1.9%). Total Retail segment net sales +1%, comparable retail segment net sales +2%, partially offset by a -1% impact of FX.


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  Conagra Brands, Inc. (CAG) - CEO told CNBC that demand was resilient, and sales were strong. Prices were higher vs two years ago, but were still value vs dining out. CEO added that we are currently in an "inflation super cycle" and the issue will not be fixed overnight.


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  Planet Fitness, Inc. (PLNT) - Reports end-2022 members +1.8mln Y/Y at about 17mln (exp. 17.3mln), which exec said was its largest Q4 membership growth on record, driving strong momentum heading into 2023.


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  Udemy, Inc. (UDMY) - CEO and Chairman Gregg Coccari is to retire at the end of February; President of Udemy Business Greg Brown will succeed Coccari as CEO; Senior VP of Customer Success for Udemy Business Stephanie Stapleton Sudbury will be promoted to President, effective March. Company sees Q4 revenue between USD 164-167mln (exp. 166mln), consistent with the outlook provided in November, but adj. EBITDA margin is now expected to exceed the previously issued guidance range of -17% to -15%.


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  Wolverine World Wide, Inc. (WWW) - Lowers FY22 revenue outlook to USD 2.685bln (prev. guidance was for USD 2.74-2.79bln, street was expecting 2.68bln), and Q4 revenue around USD 665mln (exp. 660mln). Now sees Q4 and FY22 EPS at the low-end of its prior guidance range (for Q4, -15c to -5c vs street expectations of -11c; for FY22, 1.41-1.51 vs street expectations of 1.45). Exec said the acceleration of its inventory reduction efforts was expected to pressure Q4 earnings. Is in active talks with buyers for its Keds and Wolverine leather business.

ENERGY:

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  ONEOK, Inc. (OKE) - ONEOK reached an agreement with its insurers to settle all claims for physical damage and business interruption related to the Medford incident that occurred in July 2022; agreed to resolve its claim for total insurance payments of USD 930mln, including USD 100mln received to date.


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  Shell (SHEL LN) - Confirmed that the UK energy profits levy will factor into their decision making on the North Sea, is now assessing projects on a case-by-case basis, City AM reports.

10 Jan 2023 - 09:20- Research Sheet- Source: Newsquawk