US EARLY MORNING: Futures are moving sideways ahead of key PCE data and Fedspeak

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  OVERNIGHT: Asian stocks were mostly higher heading into quarter-end (see here), and amid a slew of data including better-than-expected Chinese PMIs, which we recap on below. European equities opened with a note of caution, but are on course for a second straight week of gains; the narrative is subject to change given the key Eurozone inflation data out later in the morning. Both the French and German inflation metrics for the month slowed on an annual basis, though were still a touch above consensus, sending the EUR and EGB yields higher, and leaving some upside risk relative to consensus for today’s Eurozone-wide release (see here).


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  US PRE-MARKETS: US equity futures are around flat ahead of key PCE data released before the market open (see below for our primer). Treasury yields are rising by 2-6bps, with much of the underperformance in the short-end; yields have risen in sympathy with European counterparts, which saw upside in wake of higher than expected annual French inflation metrics, which in combination with the similar dynamic seen in Germany, leaves some upside risks for today's Eurozone-wide release, relative to consensus. The inflation theme will remain in focus with the release of the US February PCE data - the Fed's preferred gauge of inflation. The Fed remains data-dependant, so the release will help shape expectations regarding the May 3rd meeting, where markets are unsure whether the central bank will keep rates unchanged or will lift them by 25bps. Any hawkish reading in today's data may also put hawkish pressure onto expectations through the end of this year, where money markets are still discounting around 40bps of rate cuts despite Fed officials leaning back on such a notion. It is also worth noting that we have crucial labour market data next week, and some other monthly releases that will shape expectations into the May meeting, so today's release will not be the final piece of the puzzle. Fed officials will likely remind us of this in remarks later today (see day ahead, below).


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  RECESSION RISKS: Citi has upgraded US equities and the Global Tech sector to overweight, it downgraded European equities and Global Financials to neutral. It said that the recent stresses in financials highlights the impact monetary tightening can have, and argues that investors will turn their attention towards risks of recession ahead. “This should catalyse a change in market leadership, with Defensives and high-quality sectors/regions continuing to outperform,” the bank writes, noting the cyclical nature of European equities and Global Financials. The bank adds that “further downgrades to consensus EPS forecasts remain likely,” and it looks for a 5% EPS contraction, from a top-down view. But Citi sees the potential for a bounce-back later: “Global equities should remain range-bound to year-end, with volatility set to continue in the near term before an eventual rebound in the back half of this year.”

DAY AHEAD:

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


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  EUROPEAN DATA/SPEAKERS: The Eurozone inflation print for March is expected to show a cooling in the headline rate to 7.1% from 8.5%, but analysts will likely be paying greater attention to the core measures, where the core and super core are seen rising by one-tenth of a percent apiece to 7.5% Y/Y and 5.7% Y/Y respectively. There are also some noting upside risks relative to consensus after the hotter-than-expected German and French inflation data in the month. Elsewhere, Germany’s March labour market data is likely to be little changed on the month. On the speakers’ slate, ECB President Lagarde will be delivering some remarks at a student event, but no text is expected, and she has already spoken on quite a few occasions post the ECB’s policy meeting.


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  NORTH AMERICAN DATA/SPEAKERS: The US Personal Consumption Expenditures Price Index for February is the highlight, and the core component is expected to be unchanged at 4.7% Y/Y, while the monthly core reading is seen rising +0.4% M/M, cooling from he previous pace of 0.6%. With the FOMC in a data-dependent, meeting-by-meeting approach to setting policy, the data will help inform expectations about what the Fed will do on the May 3rd meeting, where it is currently 50-50 as to whether it lifts rates; additionally, pricing for rate cuts over the course of 2023 seems at odds with official commentary too. It is worth noting that this inflation data will not be the final piece of the puzzle, with other data ­– like next week’s NFP – is due to be released ahead of the meeting. There are a number of Fed officials due to speak in wake of the data, including Fed’s Collins (non-voter), Fed’s Williams (voter), Fed’s Waller (voter), and Fed’s Cook (voter). Elsewhere, final Michigan consumer sentiment data is released, where there will be attention on the inflation expectations components.  The docket also contains the Chicago PMI, and monthly GDP data out of Canada.


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  RATINGS: Fitch is set to review Germany’s sovereign debt rating (currently AAA), while S&P may review Turkey (currently at B).


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  ENERGY: Brent May 2023 futures expire. Baker Hughes weekly rig count data will be out after the European close.


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  PREVIEW - US PCE (13:30BST/08:30EDT): Core PCE is expected to rise 0.4% M/M in February, cooling vs the +0.6% in January; the annual rate of core PCE is seen unchanged at 4.7% Y/Y. Credit Suisse notes that “goods prices continue to be the key driver of disinflation, with shelter and other services remaining stubbornly strong,” adding that “monthly headline inflation should be similar to core, but the annual measure should drop to 5.1% Y/Y owing to an easy base effect.” Meanwhile, US Personal Income is expected to rise 0.2% M/M in February, cooling vs the +0. 6% M/M in January; Personal Spending is also seen rising 0.3% M/M, which would be cooler than the +1.8% prior - that January reading was supported by a one-off rise in social security payments; CS says it does not expect a mean- reversion lower, although in the months ahead, growth will likely stagnate. “Personal spending likely stabilised – a positive outcome after extreme strength last month,” the bank writes, “there are also likely to be some upward revisions to January consumer spending, further solidifying the outlook for Q1 GDP growth.”


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  REVIEW - CHINA OFFICIAL PMIs: The official NBS PMI data saw the non-manufacturing index rise to the highest since 2011 at 58.2 (from 56.3), above the expected 55.0; manufacturing index ease to 51.9 (from 52.6), a little above the expected 51.5; that helped the composite index to rise to 57.0 from 56.4 (also the highest since 2011). Analysts said the manufacturing gauge was weighed on by the weak global manufacturing landscape, while the services sector is being supported by a bounce-back in consumer spending, while construction was supported by fiscal policy. “This strength won’t be sustained indefinitely, however,” Capital Economics said, “with much of the immediate boost from dismantling virus restrictions now already passed and policy set to turn less accommodative, the recovery is likely to moderate over the coming months.”

STOCK NEWS:

TECH:

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  AI Names, Microsoft Corporation (MSFT) - The Center for Artificial Intelligence and Digital Policy asked the FTC to stop Microsoft-backed OpenAI from issuing new commercial releases of GPT-4, calling GPT-4 “biased, deceptive, and a risk to privacy and public safety.”


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  Chipmakers - Japan is to impose new restrictions on 23 types of chip-making equipment from July, part of a three-way agreement with the US and the Netherlands. The scope of restrictions went further than the US measures imposed in 2022, Japanese officials said. Exporters would need licenses for all regions. The measures will affect a broader range of companies than previously expected, FT says.


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  Siltronic AG (SLTCY) - Claudia Schmitt will become the new CFO, effective July 1st.


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  BlackBerry Limited (BB) - Fell in afterhours following publication of its results. Q4 adj. EPS -0.02 (exp. -0.07), Q4 revenue USD 151mln (exp. 156.7mln). Exec said the royalty backlog reaching USD 640mln. Despite near-term macro and supply chain challenges for vehicle production, revenue increased by 16% Y/Y.

COMMUNICATIONS:

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  Meta Platforms, Inc. (META) - A US judge dismissed a lawsuit against Meta that alleged Facebook drove a now-defunct photo software application startup, Phhhoto Inc, out of business in violation of federal antitrust law.


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  Netflix Inc. (NFLX) - The streaming company is to restructure its film group to make fewer movies each year and centralize decision-making, Bloomberg reports. It will combine units that produce small and midsize pictures, which will result in a handful of layoffs and the departure of two of its most experienced executives Lisa Nishimura and Ian Bricke.


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  World Wrestling Entertainment, Inc. (WWE) - CEO told CNBC that there has been a robust response to a possible sale of the company. Added that it remains optimistic on the proposition of betting.

FINANCIALS:

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  Fed Balance Sheet - Weekly data showed the size of the Fed’s balance sheet fell to USD 8.765tln (prev. 8.784tln) in the week, the BTFP facility rose to USD 64.4bln (prev. 53.7bln), while lending at the Discount Window eased to USD 88.2bln (prev. 110.2bln).


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  First Republic Bank (FRC) - Massachusetts regulators opened an investigation into sales of company stock by top executives at First Republic in the weeks leading up to the recent banking turmoil, Reuters reports. Regulators have subpoenaed First Republic, and are seeking details about the firm’s insider trading policies, and how officers handled their stock sales from January 1st.


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  Chubb Limited (CB) - Announced that Frances O’Brien has been appointed Executive Vice President, Chubb Group and Chief Risk Officer, effective April 1st.


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  HSBC Holdings PLC (HSBC) - CEO Noel Quinn accused of pressuring staff to give a GBP 40mln loan to the real estate company his daughter worked at, The Telegraph reports. CEO and senior managers at HSBC allegedly intervened in 2014 to give struggling housebuilder Mar City a credit facility, and handed the couple behind the business a GBP 10mln personal loan.

MATERIALS:

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  ArcelorMittal (MT) - ArcelorMittal’s AMNS Luxembourg Holding has signed a USD 5bln loan agreement with consortium of Japanese banks.


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  Rio Tinto (RIO) - Rio and First Quantum Minerals are to partner on advancing the La Granja copper project in Peru.

INDUSTRIALS:

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  Boeing Co (BA) - Boeing’s head of its commercial airplanes business said the jetmaker will increase 737 MAX production rates above the current rate of 31 jets per month very soon, Reuters reports. Boeing is also making progress with the new 737 MAX 7 model, is in the process of completing final submissions for FAA certification.


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  Nikola Corporation (NKLA) - Nikola slipped by 7% in afterhours trade after it announced a USD 100mln common stock offering; intends to use the net proceeds for working capital and other general corporate purposes.


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  Raytheon Technologies Corporation (RTX) - Awarded a USD 650.4mln Navy contract for the production and delivery of low rate initial production Lot III Next Generation Jammer Mid-Band.


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  Rolls-Royce (RYCEY) - McCabe to join later in 2023 as CFO, Kakoullis to remain as CFO and board member until at least end-August. Watson appointed as Civil Aerospace president and Riddle as N. American President/CEO.


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  Virgin Orbit Holdings, Inc. (VORB) - Virgin Orbit is ceasing operations for the foreseeable future after failing to secure a funding lifeline, CNBC reports. The company will lay off all but 100 employees.

ENERGY:

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  Marathon Oil Corporation (MRO), Chevron Corporation (CVX) - Marathon signs agreements with the Republic of Equatorial Guinea and Chevron’s Noble Energy to progress the next phases (Phases II and III) in the development of the Equatorial Guinea Regional Gas Mega Hub.


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  Shell Plc (SHEL) - Shell is splitting up its global renewable power business as CEO Wael Sawan puts his imprint on the energy giant, Bloomberg reports.

CONSUMER CYCLICAL:

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  Ford Motor Company (F) - Ford has withdrawn a self-driving vehicle petition that sought an exemption from seven safety standards to deploy vehicles that would be used to support mobility services such as ride-sharing and package delivery, Automotive News reports.


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  BMW (BMWYY) – CFO said the automaker sees strong Q1 EV sales, no reason to doubt the ability to reach the 8-10% margin target.


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  Tesla, Inc. (TSLA) - Tesla denied a Wood Mackenzie report that said it had missed big on solar-roof installation targets due to stiff competition from rivals, Reuters reports. Elsewhere, the automaker reportedly discussed factory plans with White House officials recently, and is pursuing building an EV battery plant in Texas with China’s CATL, Bloomberg said; CEO Musk also plans to visit China as early as April, and his team are said to be making efforts to meet Chinese Premier Li Qiang, Reuters reports.

CONSUMER STAPLES:

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  Walmart Inc. (WMT) - Walmart is being sued by the US Equal Employment Opportunity Commission, its second lawsuit this week accusing WMT of discrimination against workers with disabilities, Reuters reports.


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  Nu Skin Enterprises, Inc. (NUS) - Announced the resignation of its chief financial officer, Mark Lawrence, effective March 31st. Lawrence will pursue an outside opportunity, but will remain as a senior advisor through April. Company reiterates Q1 and FY23 guidance provided in February.

HEALTH CARE:

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  EMIS Group plc (EMIS LN), UnitedHealth Group Incorporated (UNH) - UK regulators refer UnitedHealth-EMIS GBP 1.2bln merger for a Phase 2, in-depth investigation after remedies offered by UNH did not go far enough to mitigate the possible competition impact.


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  Eisai (ESALY), Biogen (BIIB) - Biogen announced detailed analyses from its Phase 2 study of Lecanemab for mild cognitive impairment due to Alzheimer’s disease and mild AD. The companies are poised to realise USD 12.9bln in revenue from Leqembi through 2028, according to FiercePharma citing analysts at GlobalData Healthcare.


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  Sanofi (SNY) - The healthcare company reportedly mulls spinning-off its Indian consumer healthcare unit into a listed entity via a demerger, Economic Times reports.

31 Mar 2023 - 09:30- Research Sheet- Source: Newsquawk