US EARLY MORNING: Index futures are a little below neutral ahead of JOLTs and Wednesday's FOMC

OVERNIGHT: On Monday, stocks on Wall Street closed flat after trading conditions were lighter than average, amid holiday closures in Europe. The US ISM manufacturing survey for April spurred a hawkish reaction, and Treasuries were sold; a Fed rate hike on Wednesday is now priced with 90%+ certainty, while bets on rate cuts through the end of this year were pared back. APAC stocks were slightly positive, with gains limited ahead of this week's upcoming risk events, as many of the regional participants returned to the market from the long weekend. The ASX 200 was under pressure after the RBA surprised the market with a 25bps rate increase (our RBA review can be accessed below), while the Nikkei 225 pulled back after touching its highest level since January last year, and the Hang Seng initially surged but later faded most of its gains. In Europe, stocks start Tuesday trading on a slightly positive footing, as European traders return from the long-weekend, but the narrative is likely to be shaped by today’s Eurozone flash inflation data for April (05:00EDT/10:00BST); ahead of that data, the central bank’s Bank Lending Survey said that banks had indicated that their credit standards for loans or credit lines to enterprises substantially tightened further in Q1, which analysts said was a dovish contributor to Thursday's ECB meeting, where the debate is currently centred around a +25bps or a +50bps rate rise, with the former currently seen as the more likely scenario (see our review, below).

US PRE-MARKETS: US stock futures have picked-up off lows seen in wake of the hawkish manufacturing ISM data released on Wednesday, though are trading sub-neutral in Tuesday's pre-markets session, as we await more economic data today (JOLTs is out after the open, Europe releases inflation metrics which will help shape expectations for Thursday's ECB) and the rest of the week (ISM Services on Wednesday, Quarterly Refunding Announcement, FOMC all on Wednesday; ECB on Thursday; NFP on Friday). This week, Goldman Sachs noted that US stocks face two-way risks (upside catalysts include: better-than-expected Q1 earnings, potential end of the Fed hiking cycle, reopening of share buyback windows, declining inflation; negative catalysts include looming US debt ceiling deadline, seasonality, decline in market breadth, possibility of a US recession), which the incoming data may help tilt one way or the other. Before then, technicians have been reluctant to chase rallies as the S&P 500 rises towards (and above 4,200). Treasury yields are a little lower; on Monday, the US Treasury its quarterly estimates, ahead of Wednesday's refunding announcement; the Treasury needs increased issuance of longer-term securities this year as the budget deficit worsens, but for now its plans are frozen by the partisan standoff in Washington over raising the debt limit, Bloomberg explained.

DAY AHEAD: Our real-time calendar is available here, and a PDF version can be accessed here. While manufacturing PMI data out of Europe would usually be the key focus, traders may be more tuned into the ECB Bank Lending Survey for Q1 (we review below), which the central bank's officials have signalled will be a key input into its decision making for Thursday's policy meeting, where markets generally expect a +25bps rate hike, though there are risks that it could hike by +50bps. Eurozone flash inflation metrics will be released shortly afterwards, and the annual headline rate is seen ticking up, although the super-core rate is seen unchanged. As the US day comes into focus, traders will be waiting for the March JOLTs data, and although we have had more timely weekly claims numbers, the labour market data comes before Friday's NFP report, and Fed officials are said to like the JOLTs series and use it in their policy deliberations. Afterhours, the API will release its weekly gauge of energy inventory data. Today's corporate earnings slate includes MPC, ETN, MAR, PFE, UBER, ITW, PGR, SBUX, AMD; our full Daily US Earnings Estimates note can be accessed here.

FED BOARD NOMINATIONS: The White House is considering two nominations for the Federal Reserve's Board of Governors, including World Bank official Adriana Kugler for Governor, and Philip Jefferson for the role of Vice Chair, NYT reports. These decisions are not yet final.

DEBT CEILING: Treasury Secretary Yellen said debt limit measures may be exhausted by June 1st. The actual date for exhaustion of these emergency measures could be a number of weeks later than the most recent estimates. She added that the Treasury was suspending the issuance of state and local government series securities to avoid breaching the debt limit. On Monday, Goldman Sachs said that despite a recent shift in tax collections, it is likely that the Treasury can pay all its bills until late July without an increase in the debt limit, but there is a chance that the Treasury's cash balance could dip as low as USD 25-30bln in June, which would tip the decision in favour of an early June deadline. GS notes that some financial markets have begun to reflect debt limit-related risks, but implied equity volatility shows little debt limit effect. GS expects that Congress will raise the debt limit on the day of the deadline, plus or minus one day. The bank thinks a deal will be made that pushes the next debt limit deadline into 2025 and caps discretionary spending, although the spending restraint from these caps would likely be more modest than the recent House-passed bill.

ECB BLS: The ECB's Q1 bank lending survey revealed that a net 27% of Eurozone banks had reported a tightening of lending standards for companies, 38% reported a fall in demand for credit from companies. Banks indicated that their credit standards for loans or credit to enterprises substantially tightened further in the quarter, while banks also reported a substantial further net tightening of credit standards for housing loans, though the net tightening became less pronounced for consumer credit. Firms’ net demand for loans fell strongly in Q1, and the decline in net demand was stronger than expected by banks in the previous quarter. The net decrease in housing loan demand remained strong, close to the sharp net decrease in Q4 2022, which was the highest since the start of the survey in 2003. Banks’ overall terms and conditions for new loans to firms and households tightened further. Analysts said that the survey would be a slightly dovish contribitor to the ECB's decision making at Thursday's meeting; Pictet's analysts said that the survey shows "more tightening than expected and 'persistent weakening' of loan dynamics," and that is "likely to cement the case for a step-down to 25bps ECB rate hike(s)."

RBA REVIEW: The Reserve Bank of Australia unexpectedly increased its cash rate to 3.85% from 3.60%, stating that inflation remained "too high." The bank's forecast projects inflation at the upper end of its 2-3% target by mid-2023, and leaves the door open for further tightening in monetary policy, analysts said. The RBA's emphasis of returning inflation to target "within a reasonable timeframe" seems to be a direct consequence of the recent independent review of the Bank, Capital Economics writes, which emphasised both the importance of returning inflation to the mid-point of the target rather than just into the target range, as well as recommending that the RBA better explain how long any over or under-shooting of its inflation target will last.

EQUITY NEWS:

INDEX:

• 
  S&P 500 (SPX), Axon Enterprise (AXON) - Axon Enterprise will replace First Republic Bank (FRC) in the S&P 500, STAG Industries (STAG) will replace Axon in the S&P Mid-Cap 400.

TECH:

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  NXP Semiconductors NV (NXPI) - The stock rallied in afterhours trading as its results and guidance surpassed analyst expectations. Q1 adj. EPS 3.19 (exp. 3.02), Q1 revenue USD 3.12bln (exp. 3.00bln), Q1 adj. gross margin 58.2% (exp. 58%), Q1 adj. free cash flow USD 381mln (exp. 649.6mln), Q1 auto revenue +17% Y/Y. Sees Q2 EPS between 3.07-3.49 (exp. 2.92), and sees Q2 revenue between USD 3.10-3.30bln (exp. 3.03bln).


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  Lattice Semiconductor Corporation (LSCC) - Q1 adj. EPS 0.51 (exp. 0.50), Q1 revenue USD 184.3mln (exp. 180mln). Sees Q2 revenue between USD 183-193mln (exp. 183.9mln). Exec said it was not immune to macro-economic challenges, but has specific growth drivers, which apparently position it well for long-term growth.


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  IBM (IBM) - CEO said to pause hiring for jobs AI could do, roughly 7,800 IBM jobs could be replaced by AI in the coming years, Bloomberg says.


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  AI Names - Samsung Electronics has banned its staff from using AI tools, including ChatGPT, after discovering a data leak, SCMP reports. The decision was made following a company survey, where 65% of respondents felt that such tools posed a security risk.


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  Apple Inc. (AAPL) - A mistrial was declared in Masimo Corp's smartwatch trade secret lawsuit against Apple, Reuters reports. The suit claimed that Apple misused confidential information related to the use of light to measure biomarkers in its smartwatches. Masimo plans to retry the case.


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  Ams-OSRAM AG (AMSSY) - Reported Q1 results in line with guidance, reflecting difficult market environment; sees continued subdued demand trends and seasonal effects in second quarter. Q1 revenue EUR 927mln (exp. 989mln), adj. EPS 0.02 (exp. -0.04), adj. EBIT EUR 50mln (exp. 55mln). Sees Q2 revenue between EUR 0.8-0.9bln (exp. 1.0bln), including Q/Q disposal related de-consolidation effects. Sees continued subdued demand trends ahead.


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  BlackBerry Ltd (BB) - The Canadian tech company will initiate review of its portfolio of businesses, and the Board will consider various strategic alternatives. Some options include a possible separation of one or more of its businesses. Has not set a timetable for completing the process, does not intend to disclose developments unless it approves a specific plan. Will continue with previously announced sale of non-core patents.


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  Arista Networks Inc (ANET) - Q1 adj. EPS 1.34 (exp. 1.34), Q1 revenue USD 1.35bln (exp. 1.31bln), Q1 gross margin 60.3% (exp. 60.1%). See Q2 revenue between USD 1.35-1.4bln (exp. 1.35bln), Q2 gross margin at 61% (exp. 61%), operating margin 40% (exp. 40.5%).


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  ZoomInfo (ZI) - Q1 EPS 0.24 (exp. 0.22), Q1 revenue USD 300.7mln (exp. 300.3mln). Q2 adj. EPS seen between 0.22-0.23 (exp. 0.23), Q2 revenue seen between USD 310-312mln (exp. 311mln). FY23 adj. EPS view narrowed to 0.99-1.01 (exp. 0.98) from 0.98-1.00, and backs its FY23 revenue outlook between USD 1.275-1.285bln (exp. 1.3bln).

COMMUNICATIONS:

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  Meta Platforms (META) - The social media company launched a USD 8.5bln five-part (5yr, 7yr, 10yr, 30yr, 40yr) USD offering; initial reports suggesting a smaller USD 7bln size.


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  AT&T Inc. (T), Apollo Global (APO) - AT&T announced an agreement to purchase group annuity contracts from two Athene Holding subsidiaries to transfer USD 8.1bln in US pension plan liabilities, Pensions & Investments Online reported.

FINANCIALS:

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  HSBC Holdings PLC (HSBC) - Profits tripled in Q1 amid higher rates, with the bank restoring its dividend and announcing a USD 2bln buyback. Q1 pre-tax USD 12.9bln (exp. 8.6bln), Q1 revenue USD 20.2bln (exp. 16.7bln), Q1 CET1 ratio 14.7% (exp. 14.4%), Q1 NII USD 8.96bln (prev. 6.48bln Y/Y). Approved a first interim dividend of USD 0.10 per share. Notes a provisional gain of USD 1.5bln on the acquisition of Silicon Valley Bank UK Limited. Net Interest Income expectations unchanged vs FY guidance. CEO said the issues with banks are not a globally systemic one.


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  Morgan Stanley (MS) - The bank is said to be planning a further 3,000 jobs (around 5% of its workforce), amid the continued slump in dealmaking activity, according to Bloomberg. The cuts will reportedly be carried out by the end of June, and will likely impact the investment bank unit more than other parts of the business.


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  UBS Group AG (UBS), Credit Suisse Group AG (CS) - Saudi National Bank will hold a 0.5% stake in UBS (UBSG SW) once the Credit Suisse (CSGN SW) merger has completed; prior to the announced merger, Saudi National Bank held a 9.88% stake in Credit Suisse.


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  First Republic Bank (FRC) - Moody's downgrades First Republic Bank, and will withdraw the ratings.


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  Everest Re Group Ltd (RE) - Q1 adj. EPS 11.31 (exp. 12.51), Q1 revenue USD 3.29bln (exp. 3.21bln).

REAL ESTATE:

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  Invitation Homes Inc (INVH) - Q1 AFFO/shr 0.44 (exp. 0.44), Q1 revenue USD 590mln (exp. 580mln). FY23 revenue growth seen between +5.25-6.25% (exp. 5.85%), and FY AFFO/shr seen between 1.73-1.81 (exp. 1.78). Q1 same store NOI +5% Y/Y, Q1 same store core revenues +7.7% Y/Y, Q1 occupancy +50bps Q/Q, Q1 rental growth +7.3% Y/Y from +9.1% in the previous quarter; Q1 rents +5.7% Y/Y from +7.4% in the prior quarter). Exec said favourable supply and demand fundamentals continued. Maintains FY guidance.


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  SBA Communications Corp (SBAC) - Q1 AFFO/shr 3.13 (exp. 3.11). Raised FY outlook for site leasing revenue, adj. EBITDA, and AFFP. Said may spend additional capital in 2023 on acquiring revenue producing assets not yet identified or under contract.


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  VICI Properties Inc (VICI) - Q1 FFO/shr 0.52 (exp. 0.60), Q1 revenue USD 878mln (exp. 822mln).


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  Vornado (VNO) - Q1 adj. FFO/shr 0.60 (exp. 0.62), Q1 revenue USD 445.9mln (exp. 444mln). Q1 leased office space in NYC 777K sqft, and Q1 total retail space leased 25K sqft.

CONSUMER:

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  Chegg, Inc. (CHGG) - Slipped by almost 40% in afterhours trading as it warned that although it saw no noticeable impact from ChatGPT on new account growth in the first part of the year, since March, it has seen a significant spike in student interest in ChatGPT, and exec not believes that it is having an impact on its new customer growth rate. It is not moving aggressively to incorporate AI into its products, and has partnered with OpenAI. Q1 adj. EPS was 0.27 (exp. 0.26), Q1 revenue USD 187.6mln (exp. 185.2mln). Sees Q2 revenue between USD 175-178mln (exp. 193.6mln).


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  Tesla (TSLA) - The automaker has increased the prices of its Model 3 sedan and Model Y SUV slightly in the US and China. The Model 3 in China rose to CNY 231,900, while the Model Y now starts at CNY 263,900, with prices rising by CNY 2,000. In the US, prices increased by USD 250 across the board. Bloomberg said the latest adjustments follow a series of steep price cuts that have shaved almost a third of the cost off its top-selling model in the US. Tesla is also raising the price of Model Y real-wheel-drive in Austria to EUR 47.99k (prev. 44.89k), and the long-range to EUR 55.99k (prev. 54.99k)


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  German Automakers - The VDA sees domestic car sales +4% in 2023, raising its forecast from the prior +2% view.


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  Mercedes-Benz (MBG) - CEO said it would be unthinkable for almost all German industry to cut ties with China, and added that it would be impossible, and not desirable, FT reports.


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  MGM Resorts International (MGM) - Q1 adj. EPS 0.44 (exp. 0.10), Q1 revenue USD 3.90bln (exp. 3.59bln). Q1 MGM China net revenue +130% Y/Y at USD 617.6mln (exp. 382.9mln), with EBITDA margins surpassing Q1 2019 levels. Repurchased 12mln shares in the quarter for USD 487mln.


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  Rivian (RIVN) - Said 2023 production guidance of 50,000 vehicles remains on track.


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  Sprouts Farmers Market (SFM) - Q1 EPS 0.73 (exp. 0.85), Q1 revenue USD 1.73bln (exp. 1.72bln), Q1 comp sales +3.1%. Q2 adj. EPS seen between 0.61-0.65 (exp. 0.59), and Q2 comp sales seen +3%. FY23 adj. EPS seen between 2.58-2.68 (exp. 2.48), FY23 revenue seen +5-6%, FY23 comp store sales growth seen +2-3%.


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  Sonoco Products (SON) - Q1 EPS 1.40 (exp. 1.32), Q1 revenue USD 1.73bln (exp. 1.84bln). Sees Q2 EPS between 1.45-1.55 (exp. 1.53), and sees FY23 EPS between 5.70-6.00 (exp. 5.75).

ENERGY:

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  BP (BP) - Profits rose in the quarter after it pared back its share buyback programme, while it sees Q2 oil prices remaining elevated; however, revenue missed expectations, and BP said it sees Q2 refining margins below Q1 levels amid weaker middle distillate margins. Q1 adj. net profit USD 4.96bln (exp. 4.28bln), Q1 revenue USD 57.0bln (exp. 57.5bln), Q1 adj. EPS 0.28 (exp. 0.24). Announces a further USD 1.75bln share buyback programme. Remains committed to using 60% of 2023 surplus cash flow for share buybacks, subject to maintaining a strong investment grade credit rating.


• 
  Repsol (REPPY) - The energy company will acquire a 49% interest in shares of RSRUK from Sinopec for USD 2.1bln, becoming the 100% owner. It will have no significant impact on earnings as Repsol made a provision in its accounts for the arbitration.


• 
  Shell (SHEL), BP (BP) - Shell will sell its 27% stake in the Browse natgas project to BP (BP/ LN), increasing BP’s stake in the project to 44%.

MATERIALS:

• 
  CF Industries (CF) - Q1 EPS 2.85 (exp. 2.51), Q1 revenue USD 2.01bln (exp. 1.84bln). Exec said despite downward pressure in the global nitrogen market compared to the unprecedented pricing environment in 2022, industry fundamentals remain positive and forward global energy curves suggest attractive margin opportunities.


• 
  FMC Corporation (FMC) - Q1 adj. EPS 1.77 (exp. 1.75), Q1 revenue USD 1.34bln (exp. 1.43bln). Q2 guidance was short of expectations: sees Q2 EPS between 1.66-1.86 (exp. 1.92), and Q2 revenue seen between USD 1.42-1.48bln (exp. 1.53bln). Narrows its FY23 adj. EPS outlook to 7.34-7.94 from 7.20-8.00, and reiterates its FY23 revenue outlook between USD 6.08-6.22bln (exp. 6.15bln).

INDUSTRIALS:

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  Air Lease (AL), Airbus (EADSY), Boeing (BA) - Air Lease CEO said the company remains cautious in its outlook from both Airbus (EADSY) and Boeing (BA) on deliveries in 2023 and 2024, expects delays to persist for several years.


• 
  Avis Budget (CAR) - Q1 EPS 7.72 (exp. 3.00), Q1 revenue USD 2.56bln (exp. 2.54bln). Exec said Q1 demand was strong, international inbound and commercial customers continued improved growth. Saw the most rental transactions in its Q1 history. Despite the growth in activity, it improve utilisation, and controlled costs.


• 
  Terex (TEX) - Q1 EPS 1.60 (exp. 1.04), Q1 revenue USD 1.2bln (exp. 1.13bln). Lifts FY23 EPS outlook to 5.60-6.00 (exp. 4.91) from 4.60-5.00, and lifts FY23 revenue outlook to 4.8-5bln (exp. 4.7bln) from 4.6-4.8bln.


• 
  Woodward, Inc. (WWD) - Q2 EPS 1.01 (exp. 0.72), Q2 revenue USD 718mln (exp. 649.5mln). Exec noted robust demand in Q2 for products and services across aerospace and industrial markets. Raises FY23 guidance; EPS seen between 3.50-3.75 (exp. 3.18), and FY23 revenue seen between 2.7-2.8bln (exp. 2.64bln).


• 
  Flowserve (FLS) - Q1 adj. EPS 0.40 (exp. 0.25), Q1 revenue USD 980.3mln (exp. 899mln). Raises FY23 adj. EPS outlook to 1.65-1.85 (exp. 1.69) from 1.50-1.75, and raises FY23 revenue growth outlook to +10-12% from +9-11%.


• 
  Kennametal (KMT) - Q3 EPS 0.39 (exp. 0.34), Q3 revenue USD 536mln (exp. 529.6mln). Exec noted macroeconomic headwinds in the quarter, such as a slower recovery in China and high inflation. Still raised its FY23 adj. EPS outlook to 1.50-1.70 (exp. 1.43) from 1.30-1.70, and lifted its FY23 revenue outlook to 2.07-2.1bln (exp. 2.1bln) from 2.05-2.1bln.


• 
  Forward Air (FWRD) - Q1 EPS 1.37 (exp. 1.31), Q1 revenue USD 427.1mln (Exp. 460.7mln). Q2 EPS seen between 1.28-1.32 (exp. 1.67). Exec said it would not have made guidance if not for a one-time benefit of approximately 0.24/shr from the substantial reversal of an accrual for an incentive plan established for employees in 2021. The reversal was driven by the headwinds we continue to experience from the weaker-than-expected freight environment. The softer than anticipated demand throughout Q1 weighed on revenue.

HEALTH CARE:

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  GSK plc (GSK) - US AG for the Western District of Virginia subpoenaed GSK for documents relating to its electronic health record programmes amid an investigation into alleged fraud within the records market.


• 
  Stryker Corp (SYK) - Q1 adj. EPS 2.14 (exp. 2.00), Q1 Revenue USD 4.80bln (exp. 4.56bln). Exec said demand remained strong, supply chain pressures were gradually improving. Raised FY guidance: now sees organic revenue growth of +8-9% from +7-8.5%), and sees FY EPS between 10.05-10.25 from 9.85-10.15.


• 
  Vertex Pharmaceuticals Inc (VRTX) - Q1 adj. EPS 3.05 (exp. 3.00), Q1 revenue USD 2.37bln (exp. 2.34bln). Reiterates FY23 guidance: sees adj. effective tax rate between 21-22% (exp. 21.5%), and still sees product revenues between USD 9.55-9.7bln (exp. 9.74bln).


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  Hologic Inc (HOLX) - Q1 adj. EPS 1.06 (exp. 0.88), Q1 revenue USD 1.03bln (exp. 958.6mln). Sees Q3 revenue between USD 930-980mln (exp. 959.5mln), and sees Q3 adj. EPS between 0.83-0.93 (exp. 0.88). Raises FY23 outlook: sees FY revenue between USD 3.925-4.025bln (exp. 3.966bln) from 3.85-4bln, and now sees adj. EPS between 3.75-3.95 (exp. 3.75) from 3.55-3.85.


• 
  Community Health (CYH) - Q1 adj. EPS -0.43 (exp. -0.16), Q1 revenue USD 3.1bln (exp. 3.09bln). Reiterates FY23 guidance.

02 May 2023 - 09:30- Data- Source: Newsquawk