US EARLY MORNING: Index futures a little higher ahead of PPI and Uni. of Mich sentiment; next week's Fed and CPI come into focus

SNAPSHOT: US equity futures are a little higher, Treasury yields are narrowing by a couple of basis points as the curve modestly bull steepens. The Dollar Index is a touch beneath neutral. Crude benchmarks are gaining 25-30c. Next week’s Fed and US CPI comes into focus, but before then, we get PPI data for November today, which may garner attention given traders’ hyper-sensitivity to inflation data; PPI is expected to show easing producer prices (similar to what is seen in other US inflation metrics) – we preview the release below. Additionally, we’ll get the prelim University of Michigan sentiment data, where attention will be on the inflation expectations measures. Elsewhere, the Treasury complex may begin to focus on the 3s and 10s supply due Monday, before 30s on Tuesday. Next week’s major central bank updates (Fed, ECB, BoE, SNB) will also feature in trader’s minds (the aforementioned are expected to downshift, although have the potential to add some hawkishness via forecasts and balance sheet policy). Our full day ahead calendar can be accessed here. 

PREVIEW - US PPI (13:30GMT/08:30EST): November producer prices are expected to pare back to 7.2% Y/Y from 8.0%, while the core measure is seen easing to 5.9% Y/Y from 6.7%. Pantheon Macroeconomics has argued that margin expansion, triggered by supply-chain disruption, explains most of the inflation overshoot over the last year, and that margin re-compression will be the source of disinflation pressure over the next year, a view that will be put to the test over the next few months, given improvements in supply-chain pressures. The consultancy notes that the rate of increase of margins has slowed sharply since the Spring, though the level has only just started to fall (-0.3% in September, -0.5% in October). It says that although the monthly numbers are noisy as they include margins for gas stations, which swing wildly when wholesale gas prices move; "this means that reported margins often spike when wholesale prices fall, then drop when retail prices catch up." Either way, Pantheon says that it is more focussed on the path of margins ex-fuels (-0.2% in October, and flat in September, vs an average 0.5% increases across the previous three months, and 0.9% gains in the three months before that). "We think sustained hefty declines are imminent, pulling down core PPI inflation rapidly next year," it writes, "if we’re right, core PCE inflation will fall sharply too, because it tends to track core PPI inflation quite closely."

WEEKLY FLOWS: Bank of America weekly flow report notes cash, stocks, bonds all recorded outflows; but equities see inflows from private clients for the first time in 11 weeks. Global stock funds see outflows of USD 5.7bln; US saw third week of outflows of USD 2.9bln, Europe had 43rd week of outflows at USD 0.3bln, Japan had 2nd week of outflows at USD 0.2bln, EM saw outflows resume at USD 0.8bln. By sector, Large Caps saw USD 1.9bln of outflows, Growth saw USD 1.7bln of outflows, Value saw USD 0.4bln of inflows, Small Caps also saw USD 0.4bln of inflows. Bonds saw outflows of USD 0.1bln; IG bonds saw a second week of outflows at USD 0.6bln, HY bonds saw outflows of USD 0.2bln, EM debt saw its 16th week of outflows at USD 0.3bln, US Treasuries saw a second week of inflows at USD 1.1bln. BofA Bull & Bear Indicator rises to 2.6, which the bank says ends the contrarian buy signal, but suggests that risk rally may continue at slower pace.

TECH/COMMUNICATIONS:

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  Microsoft Corporation (MSFT), Activision Blizzard Inc. (ATVI) - US regulators voted 3-1 to block Microsoft's USD 69bln move to acquire Activision Blizzard citing competition concerns. Microsoft said it continued to believe that the deal will expand competition, adding that it had been committed to addressing these competition concerns, including by offering earlier this week proposed concessions to the FTC. The tech giant added that it has complete confidence in its case and welcomes the opportunity to present its case in court. Separately, Microsoft said Riot Games (TCEHY) content was coming to its Game Pass service.


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  Broadcom Inc. (AVGO) - Q4 EPS 10.45 (exp. 10.28), Q4 revenue USD 8.93bln (exp. 8.9bln), Q4 cash from operations USD 4.583bln, Q4 FCF USD 4.461bln. Exec said FY22 revenue rose +21% Y/Y due to strong demand from hyperscale, service providers, and enterprise. Exec said despite concerns of a global recession, overall infrastructure spending remains strong, and it continues to experience sustained demand in most of our end markets, and has seen this continue in Q1. "We have talked to multiple CIOs at the largest enterprise customers we have out there," exec said, and "we have not seen them talk about a reduction in their IT spending." Raises quarterly dividend +12% to USD 4.60/shr. Sees Q1 revenue at USD 8.9bln (exp. 8.8bln).


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  DocuSign, Inc. (DOCU) - Q3 adj. EPS 0.57 (exp. 0.42), Q3 revenue USD 645.5mln (exp. 626.9mln), Q3 Billings +17% Y/Y at USD 659.4mln. Sees Q4 revenue between USD 637-641mln (exp. 640.5mln), sees Q4 subscription revenue between USD 624-628mln, and sees Q4 billings between USD 705-715mln. For the FY23, sees revenue between USD 2.493-2.497bln (exp. 2.5bln), sees FY23 subscription revenue between USD 2.423-2.427bln, and FY23 billings between USD 2.626-2.636bln.

CONSUMER CYCLICAL:

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  Lululemon Athletica Inc. (LULU) - Q3 EPS 2.00 (exp. 1.97), Q3 revenue USD 1.86bln (exp. 1.8bln), Q3 SSS +22%, Q3 FXN SSS +25% (exp. 16%). Exec said he was pleased with its early holiday season performance. It continues to see improvements across supply chains, and its factories have now returned to pre-pandemic levels of production efficiency, it said, while ocean delivery times were continuing to improve. Expects Y/Y improvement in product margins, driven by lower air freight expense (which will be partially offset by continued FX pressure). Sees Q4 EPS between 4.20-4.30 (exp. 4.30), and sees Q4 revenue between USD 2.61-2.66bln (exp. 2.65bln); for the FY22 expects EPS between 9.87-9.97 (exp. 9.92), and expected FY22 revenue between USD 7.94-7.99bln (exp. 7.96bln).


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  Bath & Body Works, Inc. (BBWI) - rose 5% afterhours on news that Third Point reported a 6.02% stake. Third Point said certain decisions by the Board raise questions about the adequacy of current governance practices, and the Board has made errors in structuring its executive compensation such that excessive awards have been made that are untethered to important performance metrics, adding that it had significant concerns about financial discipline, investor communication, and Board composition, including the ability of current Board members to make long-term value-maximizing decisions through responsible and thoughtful capital allocation. Third Point said it reserves the right to seek changes in Board composition and/or take other measures at or before the Company's next annual meeting.


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  RH (RH) - Q3 EPS 5.67 (exp. 4.70), Q3 revenue USD 869mln (exp. 838mln). CEO to exercise expiring options, will sell approximately 0.7mln shares. To acquire Dmitriy & Co. Narrows FY22 revenue growth outlook to betwen -4.5% and -3.5% (prev. saw -5.5% to -3.5%).


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  Chewy, Inc. (CHWY) - Q3 revenue USD 2.53bln (exp. 2.46bln). Sees Q4 revenue between USD 2.63-2.65bln (exp. 2.64bln). Lifts FY22 revenue outlook to USD 10.02-10.04bln (exp. 9.99bln); exec said as consumer spending in the pet category remained resilient, current outlook assumes these trends continue, does not see any material change in current economic circumstances, consumer behavior, or key inputs like fuel prices.


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  Penn National Gaming, Inc. (PENN) - Board authorised a new USD 750mln share repurchase programme, in addition to the company's existing USD 750mln programme; plans to use the remaining capacity under current plan prior to effecting any repurchases under the new programme.


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  Vail Resorts, Inc. (MTN) - Q1 EPS -3.40 (exp. -3.43), Q1 revenue USD 279.4mln (exp. 255mln).

CONSUMER STAPLES:

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  Tesla Inc. (TSLA) - To suspend Model Y production at Shanghai Plant between 25 Dec and Jan 1stl suspension to reduce December monthly production by 30%, sources cited by Reuters said.


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  Costco Wholesale Corporation (COST) - Q1 EPS 3.07 (exp. 3.11), Q1 revenue USD 54.44bln (exp. 54.6bln), Q1 comparable sales +6.6%, Q1 comparable e-commerce sales -3.7%. Said November sales slowed due to tougher comparisons and weakness in big-ticket discretionary items. Noted an improvement in inflation; last quarter it saw annualised inflation at about 8% Y/Y, now sees 6-7% Y/Y.


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  Walmart Inc. (WMT) - Walmart plans to offer 'Buy Now, Pay Later' loans as soon as next year via its fintech venture, The Information reports. That could put the world’s largest retailer in competition with fintech lenders like Affirm and Klarna, as well as Apple, which plans to launch its own installment loans.


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  National Beverage Corp. (FIZZ) - Q2 EPS 0.39 (exp. 0.34), Q2 revenue USD 300mln (exp. 294mln).


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  Associated British Foods plc (ASBFY) - Maintains FY outlook, continues to expect significant growth in group sales and adj. Operating Profit and adj. EPS to be lower Y/Y. Continues to expect further significant input cost inflation, though said the volatility of input costs had diminished. Primark trading for the FY, at this early stage, has been encouraging.

MATERIALS:

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  Anglo American (NGLOY) - Said 2022 production was down by around 3%; expects higher production in 2023 by +5%. In 2024, production seen increasing +5%, while 2025 production seen in line with 2024 levels.

INDUSTRIALS:

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  Boeing Company (BA), United Continental Holdings, Inc. (UAL) - United Airlines plans to announce a major Boeing 787 Dreamliner order next week, Reuters reports. United has invited reporters to a "historic announcement" to take place next Tuesday at Boeing's South Carolina factory that builds the 787; the event will feature UAL CEO and Boeing's Commercial Airplanes CEO.


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  Automakers - US regulators are asking automakers about potentially defective air-bag inflators estimated to be in tens of millions of cars, following a string of recall campaigns and accidents, WSJ reports. NHTSA has this week sent letters to about a dozen automakers and suppliers seeking information on inflators used for both passenger and driver-side air bags that were made by ARC Automotive.


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  Waste Management, Inc. (WM) - Announces new share buyback authorisation for up to USD 1.5bln, replacing prior USD 1.5bln authorisation that was fully used in 2022. Lifts quarterly dividend to 0.70/shr (prev. 0.65/shr).

FINANCIALS/ REAL ESTATE:

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  Credit Suisse (CS) - Has raised CHF 2.24bln in the second part of its capital hike. The bank said it was a key milestone, and will allow further support for strategic priorities from a position of capital strength and the creation of a simpler, stable and more focused bank.


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  Douglas Emmett, Inc. (DEI) - Announced USD 300mln share repurchase authorisation; cuts quarterly cash dividend to 0.19/shr (prev. 0.28/shr). Analysts noted that DEI was the second REIT to this week cut its dividend, following SL Green Realty Corp.

HEALTH CARE:

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  Cooper Companies, Inc. (COO) - Q4 EPS 2.75 (exp. 3.11), Q4 revenue USD 848.1mln (exp. 839mln). Sees FY23 EPS between 12.30-12.60 (exp. 13.05), and sees FY23 revenue between USD 3.455-3.515bln (exp. 3.45bln).


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  Phreesia, Inc. (PHR) - Q3 EPS -0.76 (exp. -0.61), Q3 revenue USD 73.1mln (exp. 70.9mln). Boosts FY23 revenue outlook to at least USD 278mln (exp. 274.3mln, prev. guidance 273-275mln).

09 Dec 2022 - 09:09- EquitiesResearch Sheet- Source: Newsquawk