US EARLY MORNING: Equity futures have pared back pre-market losses seen in wake of hawkish Bullard to trade slightly higher

NOTE: Your friendly neighbourhood analyst is taking a week off; this note will return on November 21st. We wish you a pleasant Thanksgiving.

SNAPSHOT: US equity futures have pared back pre-market losses and are trading slightly higher, Treasury yields are higher by 3-4bps, with the short-end continuing to underperform in wake of hawkish remarks from the FOMC’s 2022 voter Bullard, who Thursday suggested that rates were not yet “sufficiently restrictive”, “even under the most generous interpretation”. The Dollar Index is neutral. The Day Ahead sees a lower volume of speakers and economic releases, leaving traders to digest recent Fed commentary and data ahead of next week’s FOMC meeting minutes, where we will be looking for clues on the size of the December rate hike (50bps now seems the consensus after the recent slowdown in CPI and PPI, and in line with remarks from key Fed officials), as well as views of the eventual terminal rate (Powell suggested it could be higher than the Fed has previously forecast).

FLOWS: Bank of America's weekly flows report notes the biggest inflow into equities seen in the last 35 weeks, but European equities have seen their 40th straight week of outflows. It's 'Bull & Bear Indicator' rose to 0.4 from 0.0, the first rise in nine weeks, which BofA says is driven by improving bonds and credit flows, as well as equity market breadth over the past two weeks; with the indicator is at its highest level since September 2022, BofA says that it suggests that "fair chunk of bear market rally behind us." Other details of the report can be accessed here.

THEMES FOR 2023: As we approach year-end, Goldman Sachs has told its clients what it sees as the top ten market themes for 2023. We summarise Goldman's main points to watch: (1) The bank's central case is for a softish US landing, but says there are large risks on either side. (2) GS expects to see improving valuations, but cyclical conditions for a trough remain unclear. (3) The bank has told clients to expect downside risks until the inflation situation cools, and activity stops slowing. (4) It sees lower rates market volatility, and warns that an extended cycle could result in mediocre returns. (5) There is still room for USD strength to extend, but with stretched valuations, moves higher are likely to mean a lower Sharpe ratio. (6) GS still sees an energy drag, telling its clients that it is hard to move beyond energy capacity constraints. (7) The bank seems to be cautiously constructive on China, writing that it has tactical potential, though there are still structural concerns. (8) In EMs, GS says the upside will be constrained. (9) From a policy perspective, Goldman sees lower risks, although growth risks are increasing, and it believes these recession risks combined with the inflation risks will favour fixed income and cash for now. (10) Finally, on real yield, GS says the upside is capped without any deep cheapness or a large output gap, while deep downside cases for the global economy and markets may be avoided, but deep upside case remains limited given less room to grow, and only moderate asset cheapness.

DAY AHEAD: The docket for scheduled data releases is thin on Friday, with nothing notable out during European hours. The ECB will announce the size of bank's TLTRO III repayments, with the street looking for around EUR 600bln, though the range of expectations is wide (between EUR 200-1500bln). The North American day will see the release of Existing Home sales data for October, Canadian Producer Prices data for October, and the weekly Baker Hughes Rig Count. The speaker’s slate is also thinner than in recent days; ECB President Lagarde has already spoken, and BoE’s Haskel due to make remarks later; Fed’s Collins will give some remarks in the US morning. Our full Daily Economic Releases note can be accessed here. 

CONSUMER CYCLICALS:

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  Amazon (AMZN) - Amazon CEO said there would be further headcount reductions in early 2023, Verge reported, though it was unclear exactly how many roles will be impacted.


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  The Gap (GPS) - Q3 adj. EPS 0.71 (exp. 0.77), Q3 revenue USD 4.04bln (exp. 3.8bln); total comp. sales +1% (exp. -3.44%); online sales +5% Y/Y, representing 39% of total net sales. By unit, Old Navy comps -1% Y/Y (exp. -5.1%), Gap comps +4% (exp. -5%), Banana Republic comp sales +10% (exp. +12%). Exec said it was continuing to take a prudent approach in light of the uncertain consumer and increasingly promotional environment, remains focused on reducing inventory. Q4 revenue seen down mid-single digits (exp. 4.5bln); continues to expect FY22 CapEx of approximately USD 650mln.


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  Farfetch Limited (FTCH) - Q3 adj, EPS -0.24 (exp. -0.28), Q3 revenue USD 593.4mln (exp. 596.6mln). Exec said the luxury industry has proven to be resilient. Lowers digital platform GMV outlook to down 5-7% (prev. saw growth of 0-5%).


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  Ross Stores (ROST) - Q3 EPS 1.00 (exp. 0.81), Q3 revenue USD 4.6bln (exp. 4.37bln). Sees Q4 EPS between 1.13-1.26 (exp. 1.13). FY22 EPS seen between 4.21-4.34 (exp. 4.00, prev. 3.84-4.12).


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  Dillard's, Inc. (DDS) - Announced a special dividend of USD 15.00/shr payable January 9th, 2023.


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  Williams-Sonoma, Inc. (WSM) - Q3 EPS 3.72 (exp. 3.71), Q3 revenue USD 2.19bln (exp. 2.15bln), Q3 SSS +8.1% (exp. +6.7%), and +25% on a 2-year basis. Backs FY22 revenue growth view of mid-to-high single digits, but given the macro uncertainty, it is not reiterating or updating its guidance through FY24 (prev. guided for "long-term financial outlook of mid-to-high single digit annual net revenue growth, increasing revenues to USD 10bln by FY24"); will provide guidance FY23 and beyond in its Q4 results.

TECH:

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  Palo Alto Networks (PANW) - Q1 adj. EPS 0.83 (exp. 0.69), Q1 revenue USD 1.6bln (exp. 1.65bln). Sees Q2 adj. EPS between 0.76-0.78, and sees Q2 revenue between USD 1.63-1.65bln (exp. 1.65bln). FY23 adj. EPS outlook is between 3.37-3.44 (exp. 3.17), and FY23 revenue outlook is seen between USD 6.85-6.91bln (exp. 6.87bln, prev. 6.85-6.9bln). Announced that it had agreed to acquire Cider Security for USD 195mln in cash, and said with its software supply chain security capabilities, Prisma Cloud becomes a "must-have cloud security platform".


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  Applied Materials Inc (AMAT) - Q4 EPS 2.03 (exp. 1.74), Revenue 6.75bln (exp. 6.45bln). Exec said it was slowing the rate of spending growth in the near term amid geopolitical and macroeconomic challenges. Sees Q1 adj. EPS between 1.75-2.11 (exp. 1.83), and sees Q1 revenue around USD 6.7bln +/- USD 400mln.


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  Keysight Technologies, Inc. (KEYS) - Q4 adj. EPS 2.14 (exp. 1.99), Q4 revenue USD 1.44bln (exp. 1.4bln). Q1 adj. EPS seen between 1.81-1.87 (exp. 1.81), Q1 revenue USD 1.36-1.38bln (exp. 1.34bln).

COMMUNICATIONS:

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  Live Nation Entertainment, Inc. (LYV) - Taylor Swift has reportedly cancelled her ‘Eras Tour’ ticket sale to the general public after Ticketmaster glitches, where the presale for her first tour in five years saw historic demand, overwhelming ticketing systems and leaving few available seats, WSJ reports.


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  Vivendi SE (VIVHY), Orange (ORAN) - Vivendi's Canal+ is in talks to buy the film and pay TV operations of Orange, Variety reports.

MATERIALS:

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  BHP (BHP) - Sweetened its offer for Oz Minerals (OZL AX) to AUD 28.25/shr (vs last close of AUD 26.30), with an enterprise value of AUD 9.6bln.


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  Rio Tinto (RIO) - Rio has abandoned securityholder deal in Turquoise Hill bid.

FINANCIALS:

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  Credit Suisse (CS) - Swiss IB unit to be largely unaffected by the recently announced restructuring.


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  Visa (V) - Ryan McInerney named CEO, effective February 1st, 2023; current CEO Alfred Kelly to become executive Chairman.

HEALTH CARE:

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  Evolent Health, Inc. (EVH), Centene (CNC) - Evolent Health to acquire Centene-owned, specialty benefit management NIA for USD 650mln and USD 150mln in potential milestone payments. After the announcement, Evolent said it expects FY23 revenue growth to exceed +25% (exp. USD 1.64bln). The upfront consideration will be funded in part by USD 250mln in Evolent equity issued to the sellers at a price of USD 29.50/shr.


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  Sanofi (SNY) - European Commission approves Sanofi's Enjaymo.

INDUSTRIALS:

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  Woodward, Inc. (WWD) - Q4 adj. EPS 0.84 (exp. 0.76), Q4 revenue USD 640mln (exp. 628.2mln). Exec said it saw strong demand in the quarter, but profitability was impacted by the challenging industry-wide operating environment, including labour and material inflation as well as global supply chain and labour disruptions. FY23 EPS seen between 3.15-3.60 (exp. 3.58), and FY23 revenue seen between USD 2.6-2.75bln (exp. 2.6bln).


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  Dolby (DLB) - Q4 EPS 0.54 (exp. 0.60), Q4 revenue USD 278.2mln (exp. 305.2mln). Sees Q1 EPS between 0.76-0.91 (exp. 1.10), and sees Q1 revenue between USD 300-330mln (exp. 364.1mln). FY23 revenue growth seen in low single digits Y/Y.

ENERGY:

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  Total (TTE) - CEO thinks oil prices will likely stay high next year.

18 Nov 2022 - 09:08- Research Sheet- Source: Newsquawk