US EARLY MORNING: Index futures a little lower as traders return from long-weekend; bank earnings from GS and MS, Empire Fed and policymaker jawboning from Davos ahead

SNAPSHOT: US equity index futures are lower, though the ES is lingering around the psychological 4,000 level. The Nasdaq-100 is leading the downside as Treasury yields rise 5-6bps at the long-end of the curve. The Dollar Index is flat; the JPY is also flat as the BoJ starts its two-day policy meeting (our preview is here). Crude futures are mixed (note: there was no WTI settlement on Monday due to MLK holidays). Overnight, China activity data surprised to the upside, but this has not engineered any significant risk-on given the data is seen as backwards looking and policymakers have already announced stimulus measures to support the economy this year. In the UK, labour market data continues to tee up a 50bps BoE rate hike next month. The focus today will be on large bank earnings (MS and GS report), while the January Empire Fed report may offer clues as to whether the more widely followed ISM data will rebound in January following December’s tumble into contraction (at both the headline and new orders level). Fed’s Williams (voter) speaks later in the session. There will also be distractions from Davos, as global policymakers tell us what they have already told us in earlier speeches (for those who care, the schedule for the events can be accessed here).

BOFA GLOBAL FMS: Bank of America’s January survey notes that global fund managers were the most underweight on US equities since October 2005, and most bullish on the Eurozone EZ since February 2022. Allocators were overweight cash and bonds, and remained underweight global stocks, and had the biggest overweight in Emerging Markets since June 2021. Recession fears eased to a six-month low, while growth optimism was at a one-year peak. The survey suggests that inflation expectations have peaked, although higher CPI is still seen in the next 12-months. The USD was seen as the most overcrowded trade.

JPM STILL BEARISH: JPM’s strategists continue to tell clients that the current market rally will start fading through Q1. “The positive catalysts that we were highlighting from October ... are now in the open,” and warned that “potential curveballs could come from the Fed, politics, disinflation phase not progressing smoothly, weaker earnings, weaker capex and renewed rollover in activity momentum.” The bank notes that January still offers favourable seasonals, while positioning is supportive, but says investors should be using this window to reduce exposure. JPM says the market is behaving as if we were in an early cycle recovery phase, but points out that the Fed has not even concluded its hiking cycle yet. “Typically, [an early cycle recovery phase] is seen only after a period of Fed cuts, and we think the up move will hit an air-pocket, and end up looking premature.” JPM is sticking to its October call that bond yields have likely peaked, and will continue to inch lower in the first half of this year, along with further yield curve inversion as Fed has started hiking late, and could finish hiking late. “This suggests better performance of Defensives and Growth stocks tactically,” JPM says, and “within this, we stay bullish on Commodity equities – Mining and Energy, driven by USD peaking, China reopening, low inventories and still cheap valuations, despite the good run.” The bank says Cyclicals stocks appear to be pricing in the rebound in PMIs back to solid expansion territory in the first half of the year, “but our lead indicators point to more softness, PMIs are unlikely to sustainably advance in the near term,” adding that “flat/down PMIs are consistent with better performance of lower beta stocks.”

DAY AHEAD: The release of the Empire Fed Manufacturing survey for January will help inform expectations of the more widely followed ISM data (released February 1st), after the December ISMs for services and manufacturing both saw the headline and the forward-looking new orders components slump into contraction. Elsewhere, Canadian CPI data for December will help shape expectations for next week’s BoC meeting; Monday’s release of the Business Outlook survey showed near-term inflation expectations were still increasing amid a glum outlook. Today’s US corporate earnings docket includes financial heavyweights Goldman Sachs (GS) and Morgan Stanley (MS), while United Airlines (UAL) will also report. Elsewhere, policymaker’s annual back-patting fest that takes place at Davos is underway will see commentary from key officials including China Vice Premier Liu, German Vice Chancellor Habeck and Finance Minister Lindner, IEA’s chief Birol, IMF’s Gopinath. Fed’s Williams (voter) will also be speaking later in the session. Our full Day Ahead schedule can be accessed here.

CONSUMER CYCLICAL:

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  Alibaba Group Holding Limited (BABA) - Activist investor Ryan Cohen builds stake in the second half of last year worth “hundreds of millions of dollars” and is privately pushing the Chinese e-commerce giant to accelerate and further boost its share-repurchase programme, WSJ reports.


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  XPeng Inc. (XPEV), Tesla, Inc. (TSLA) - Chinese automaker Xpeng announced price cuts for some models in China, Reuters reports. The move follows automaker Seres Group cutting prices for its Aito electric cars last week, and follows earlier price cuts by Tesla, fuelling expectations of a wider price war.


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  Tesla, Inc. (TSLA) - Tesla has come under fire from German union IG Metall and politicians over allegations by workers of unreasonable working hours and fears over speaking out at its Brandenburg plant, with some calling for inquiries into the carmaker, Reuters reports.


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  Ford Motor Company (F), Volkswagen AG (VWAGY) - Ford is poised to cut its dependence on Volkswagen technology for its next generation of electric cars in Europe, unravelling a core part of the alliance formed between the rival carmakers two years ago, FT reports. Ford is preparing to launch two vehicles this year, and in 2024, that use VW’s system, but from the middle of the decade it expects to launch vehicles that use its own in-house system, FT said.


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  Nissan Motor Co. Ltd. (NSANY), Renault S.A. (RNLSY) - Nissan has reportedly agreed to proceed with a deal to rebalance its alliance with Renault, Bloomberg said. Nissan is to decide how much to invest in Renault’s EV business, and at what price, sources said.


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  Renault S.A. (RNLSY), Geely Automobile Holding (GELYY) - Saudi Aramco mulls taking a 20% stake in the new Renault-Geely JV. The venture would aim to supply up to 5mln engines and hybrid powertrains beginning this year.


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  EVs - Electric-vehicle sales achieved around 10% market share for the first time, driven mainly by strong growth in China and Europe, according to fresh data and estimates cited by the WSJ. EV sales still make up only a fraction of US car sales, but its total market is becoming substantial in Europe and China, and are increasingly influencing the fortunes of the car market as the technology goes mainstream, the Journal added.


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  Hugo Boss (BOSSY) - Reported prelim. FY22 numbers, where currecy adjusted sales rose 27% Y/Y. Prelim FY22 revenue EUR 3.65bln (exp. 3.58bln). EBIT EUR 335mln (it had guided between EUR 310-330mln). FY EBIT margin 9.2% (prev. 8.2% Y/Y). Final results and FY23 outlook to be published March 9th.

CONSUMER:

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  Nestle (NSRGY), Danone (DANOY) - China's population shrank last year for the first time in more than six decades, official data shows.


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  Luxury Names - Official data stated GDP growth of +3.0% Y/Y in 2022; officials said China was able to stabilise the economy, but added that the foundation for economic recovery was not solid yet.

COMMUNICATIONS:

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  Manchester United plc (MANU) - The world’s best football club Manchester United set out a “dazzling” Davos shop front this week, but insisted its lounge was to entertain clients and partners rather than to attract buyers during the annual summit of the World Economic Forum, the Guardian reports.


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  Microsoft Corporation (MSFT), Activision Blizzard, Inc. (ATVI) - Microsoft is likely to receive an EU antitrust warning about its USD 69bln bid for Activision Blizzard, Reuters reports, and the EU Commission is readying a statement of objections setting out its concerns about the deal which will be sent to Microsoft in the coming weeks.


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  Activision Blizzard, Inc. (ATVI), NetEase, Inc. (NTES) - Blizzard China said NetEase had rejected its proposal to extend a 2019 agreement for an additional 6 months, and game services will be discontinued on January 23rd in accordance with NetEase’ earlier announcement, which ended their 14-year partnership, where NTES handled publishing and operations for key Blizzard titles in China.


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  TikTok (not listed) - TikTok has revealed details of a complex, USD 1.5bln plan to reorganise the company’s US operations in a bid to increase transparency, WSJ reports citing sources.


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  Twitter Inc. (not listed) - Twitter is offering advertisers a new incentive in an attempt to woo brands back to the social-media platform, which has seen its ad business deteriorate following Elon Musk’s USD 44bln takeover, WSJ reports.

TECH:

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  Apple Inc. (AAPL) - Apple manufacturing partner Foxconn appointed Michael Chiang as new head for its iPhone assembly business after a tumultuous year in China, highlighting the company’s efforts to ready a new generation of leaders to help it navigate a post-Covid world, Bloomberg said.


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  Endava plc (DAVA) - Receives a positive mention in Barron’s, says the IT support firm is recession-proof, and looks like a Buy.

INDUSTRIALS:

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  Boeing (BA), Airbus (EADSY), Air Lease (AL) - Air Lease exec said Airbus and Boeing will not meet production targets this year or next year.


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  AerCap Holdings NV (AER) - CEO said we will likely see a full return to 2019 traffic levels by mid-year, all airline CEOs spoked to expect a very strong 2023; expects trend of Chinese institutions taking a bigger share on China market will continue. The CEO thinks we have seen Airbus (AIR FP) sell too much, and there is over optimism about what they could deliver. Thinks we will see more consolidation in the aircraft leasing sector. Airlines are buying old aircraft as they cannot take the risk Airbus or Boeing (BA) might be late for the Summer Season.


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  Alaska Air (ALK) - Exec said booking trends looked pretty good through the Spring break; summer booking trends look pretty good as well.


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  Southwest Airlines Co. (LUV) - Strikes deal with two of its union-represented workgroups.

ENERGY AND UTILITIES:

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  TotalEnergies (TTE) - In a trading statement, it said cash flow from LNG business and gas trading activities is expected to be higher than the previous quarter, despite lower gas prices. Hydrocarbon production is expected to exceed 2.8 Mboe/d this quarter (+5% Q/Q), while downstream results are expected to remain strong without replicating the performances reached over the two previous quarters, which benefited from a highly favourable environment. Said the UK Energy Profits Levy (EPL) will be reported in Q4 for USD 0.4bln, excluding a USD 0.3bln negative deferred tax impact accounted as a special item, and the EPL impact in the 2022 adjusted results is therefore expected to be USD 1bln. The EU solidarity contribution for 2022, including the electricity production infra-marginal income contribution for 2022, will be reported in Q4 as part of special items for a total of USD 1.1bln. Elsewhere, the impairment related to the decision to no longer equity account for the 19.4% stake in Novatek starting December 31, 2022 is estimated to be around USD 4bln after taking into account the ruble evolution.


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  Eni SpA (E), Chevron Corporation (CVX) - Eni and Chevron made a new gas discovery in the Eastern Mediterranean sea, offshore Egypt. Egypt’s EGAS said the quantity of reserves was being evaluated.


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  Iberdrola S.A. (IBDRY) - Norway Svereign Wealth Fund will acquire a 49% stake in the utilities' Spanish renewables portfolio.

MATERIALS:

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  Rio Tinto plc (RIO) - Rio Tinto Q4 Pilbara iron ore shipments +4% Y/Y at 87.3 Mt (and unch on a FY22 basis vs FY21), Q4 Pilbara iron ore production +6% Y/Y (+1% on FY basis), Q4 Aluminium production +3% Y/Y (-4% on an FY basis), Q4 Mined copper -1% Y/Y (+6% on an FY basis). Exec said that the global economy continues to slow, but some external pressures have eased, with the change in China’s stance on COVID controls, the fall in energy prices alleviating cost pressures, and markets anticipating a slower pace of interest rate hikes. Global supply chain pressures have also improved, and freight rate pressures have eased. The US economy has been more resilient than previously envisaged despite interest rate hikes. Iron ore market sentiment strengthened after Beijing released three stimulus packages in November to stabilise the real estate market by lifting all previously applied financing constraints on property developers. Iron ore prices trended above USD 110/dmt at year-end as China began dismantling its zero-COVID policy and gradually reopening the economy, while mills also started to replenish in-plant inventories ahead of the Lunar New Year holidays.


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  Martin Marietta Materials, Inc. (MLM) - Receives a positive mention in Barron’s, says the building materials firm can thrive in both inflation and deflation scenarios.

FINANCIALS:

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  Ant Group Co Ltd (6688 HK) - PBoC official said that Chinese fintech firm Ant Group’s revamp has ‘basically completed business rectification’, SCMP reported, adding that the announcement came after Ant received regulatory green light last month to expand the capital base at its consumer credit unit.


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  Discover Financial Services (DFS) - Credit card delinquency rate 1.27% at Dec.-end (prev. 1.21% at Nov.-end), the highest since Feb.-end 2021; credit card charge off falls to 1.25% from 1.30%.


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  UBS (UBS), Credit Suisse Group AG (CS) - Chairman said the bank does not plan to buy Credit Suisse (CS) or other US firms, Bloomberg reports. Chairman added that UBS wants to close the valuation gap to its US peers.


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  Barclays (BCS) - The bank is reportedly turning away applications for bank accounts from all but the smallest companies as it struggles to find staff to complete checks designed to prevent financial crime, The Times reports.


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  HSBC (HSBC) - An HSBC-backed buyout fund has reportedly only raised around half of its GBP 1bln target amid strained ties between Beijing and London, according to Bloomberg.


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  Euronext (ENX FP) - The exchange said it will switch derivatives clearing to Italy in 2024, FT reports.

HEALTH CARE:

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  AbbVie Inc. (ABBV), Eli Lilly and Company (LLY) - The two drugmakers have withdrawn from a voluntary drug-pricing agreement with the UK, Bloomberg reports, as opposition in the industry is rising amid the country’s attempt to control prices.


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  Pfizer Inc. (PFE) - Reuters reports that in China, there is no easy way to get Pfizer’s COVID drug Paxlovid through official channels.


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  Biogen Inc. (BIIB), Eisai Co., Ltd. (ESALY) - Eisai submits marketing authorisation application for lecanemab in Japan.


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  UCB (UCBJY) - The biotech company received US FDA NDA Supplemental 8 approval for Nayzilam.

17 Jan 2023 - 09:20- EquitiesData- Source: Newsquawk