US EARLY MORNING: Index futures are around flat; focus is pivoting back onto the Fed/data as banking fears ease

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  OVERNIGHT: On Wall Street, stocks firmed on Tuesday with the NDX outperforming as the Tech sector prospered while Financials saw some notable loss paring from Monday’s bloodbath (see here). Asian stocks were mostly positive (see here), following the gains in global counterparts after banking contagion fears eased and markets found some relief in the absence of any additional bank failures, although the advances in the region were limited as participants also digested mixed Chinese activity data (see below). European equity futures opened around flat (see here), with traders noting an ECB sources article which continues to suggest that the central bank will hike by 50bps at Thursday’s confab, in line with its guidance and jawboning from officials (see below).


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  US PRE-MARKETS: US equity futures are around flat, with the S&P 500 E-Mini clinging to the 3,900 handle; action has been capped by its 200dma (rolling contract) at around 3,946 ahead of key upcoming data releases, which include the PPI and retail sales reports today, weekly jobless claims data on Thursday, and the University of Michigan prelim sentiment data on Friday. There is a sense that the banking issues relating to the smaller, regional financial institutions are indeed contained; the larger banks appear to be in good shape, and many have seen deposit inflows as a result of recent fears. Additionally, announcements yesterday that private equity names were looking at parts of SVB’s loan book, as well as Blackstone’s purchase of Cvent, and Apollo’s purchase of Univar have been taken as a positive, indicating that a) there was still interest in acquiring some parts of the failed banking groups, and b) the recent woes and choppy trade in rates has not dissuaded deal-making activity in the near-term. Given that sentiment is seemingly recovering, it may mean traders begin to re-focus on the inflation metrics and their role in the Fed’s tightening policy. In reaction to yesterday’s CPI data, money markets tilted towards pricing a 25bps hike rather than an unchanged decision, while pricing for a more aggressive 50bps move remains negligible. Looking further out, while sentiment is becoming more constructive this week, pricing for the Fed’s trajectory still looks off to some participants; currently, money markets are pricing rates peaking at 4.75-5.00% by June, and there is pricing for 50bps of easing by the end of the year. Credit Suisse says the market is too optimistic on rates: “We struggle to justify market expectations of a 4.4% rate in 6 months’ time (this was 5.7% just a week ago) unless overall financial conditions tighten much more (and so far they have only marginally tightened),” it writes, adding that it still thinks a +25bps rise by the Fed this month is quite likely.


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  ECB SOURCES: Ahead of Thursday’s policy meeting, sources cited by Reuters said that the ECB was still leaning towards a 50bps rate hike, given calming markets, stubborn inflation and credibility concerns, via Reuters citing sources. The report added that new economic projections will still show inflation significantly above 2% target in 2023, and slightly above target in 2025, which will see the central bank raising its underlying inflation projections. Analysts said that a 50bps hike would be in-fitting with the guidance provided at the last meeting, and commentary from officials, including President Lagarde since then. The guidance from the last gathering was for a 50bps hike in March and thereafter will evaluate the subsequent path of monetary policy. As a reminder, the underlying assumptions for the ECB’s forecasts are generally set around three-weeks prior to the meeting, with the data cut-off generally just after the release of HICP. Our full preview ahead of Thursday’s meeting can be accessed here.


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  CHINA ACTIVITY DATA: China’s monthly activity data metrics showed Industrial Output rising from 1.3% in January to 2.4% Y/Y in February, a little short of the 2.6% expectation; Urban Investment rose to 5.5% Y/Y from 5.1%, topping expectations for 4.4%; Retail Sales rose 3.5% Y/Y YTD (exp. 3.5%, prev. -1.8%). Capital Economics said the data for the first two months of the year have come in broadly as expected, showing a jump in consumer spending coupled with modest gains in investment and industrial output. “High-frequency data suggest that this recovery has continued in March,” it writes, “and while the NPC signalled a relatively restrained approach to policy support this year, we think that growth of 5.5% is still within reach.”

DAY AHEAD:

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  EUROPE: Eurozone industrial production for January is expected to bounce back. Germany will auction EUR 2.5bln of 2050 and 2053 debt. In the UK, the Chancellor will announce the Spring Budget (our full preview is here); Reuters said that dealers expect the UK to ramp up issuance in the coming financial year, though by less than suggested by DMO forecasts published in November: 2023/24 gilt issuance seen at GBP 231.9bln, up from the GBP 169.5bln in 2022/23.


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  NORTH AMERICA: Retail sales data for February, and Producer Prices for February are the main releases; the consensus looks for February producer prices to rise at a rate of +0.3% M/M (prev. +0.7%); the annual measure is expected to pare back to 5.4% Y/Y from 6.0% previously. The ex-Food and Energy measure is seen rising 0.4% M/M, cooling from 0.5% prior, while the annual measure is seen easing to 5.2% Y/Y from 5.4%. Retail sales are seen falling -0.3% M/M in February, a significant cooling vs the +3.0% M/M seen in January. Analysts have noted that warm weather conditions were supporting economic conditions in January, but that support is not likely to be repeated in the February data. The NY Fed’s manufacturing survey for March, the NAHB housing market data for March, Business Inventory data for January, as well as TIC Flows data for January are also due today.


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  ENERGY: The DoE will report weekly energy inventories; as a guide, the weekly API energy inventory data reportedly showed crude stocks building 1.5mln (exp. 1.5mln), while distillates drew down 2.9mln (exp. -1.4mln), and gasoline stocks drew by 4.6mln (exp. -1.6mln).

STOCK NEWS:

FINANCIALS:

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  US Banks - S&P said rated US banks had not seen widespread deposit outflows, but uncertainty continues. The rating agency said it has not seen evidence that the unmanageable deposit outflows experienced at some banks is widely spread. It believes the Fed’s emergency measures has equipped banks with additional liquidity sources. It is not placing other rated US banks on Credit Watch, as it has not seen significant indications of unmanageable deposit outflows.


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  Signature Bank (SBNY) - US regulators have begun soliciting interest from potential buyers of Signature Bank, Bloomberg reports, adding that the FDIC has enabled potential bidders to begin due diligence. Bloomberg also said that Signature reportedly faced a criminal probe ahead of its collapse.


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  SVB Financial (SIVB), Goldman Sachs (GS) - SVB said Goldman Sachs had bought its bond portfolio before federal regulators placed SVB into receivership.


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  Bank of America (BAC) - The bank received over USD 15bln in deposits in a matter of days, Bloomberg said, emerging as one of the big winners after the collapse of three smaller banks dented confidence in the safety of regional lenders.


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  Charles Schwab (SCHW) - CEO said they the bank has liquidity, and is nowhere near any forced selling situation. CEO said it had not raised capital, was not in the market for an M&A transaction at this point. the bank is adding market share, seeing clients move from other firms. The bank received USD 4bln net new asset inflows on Friday, and 82% of deposits were insured. CEO said there was an extremely low probability that it would sell government securities.


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  Discover Financial Services (DFS) - Credit card charge-off rate 1.52% at February-end (prev. 1.33% at January-end); delinquency rate 1.39% (prev. 1.33%); net charge-offs 3.4% (prev. 2.81%); 30-day+ delinquencies 2.74% (prev. 2.67%).


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  Wells Fargo (WFC) - Files for a USD 9.5bln mixed securities shelf.


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  Annaly Capital Management, Inc. (NLY) - Lowers quarterly dividend to USD 0.65/shr (prev. 0.88/shr), as guided on its Q4 earnings call where it said it would reduce the common dividend to a level in line with its historical yield on book value.

COMMUNICATIONS:

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  ByteDance (private) - TikTok is reportedly considering divesting from parent ByteDance if a deal cannot be reached with the US government, Bloomberg reports. Elsewhere, ByteDance is reportedly valued at USD 220bln in a stake purchase by Abu Dhabi’s G42, which has acquired more than USD 100mln worth of shares in recent months, according to Bloomberg and Reuters.


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  Walt Disney Company (DIS) - Some Disney executives have been telling CEO Bob Iger to sell the Hulu platform, FT reports, with some also suggesting Iger spin off its ESPN unit, which is profitable but a declining piece of Disney.

TECH:

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  Foxconn International Holdings (FXCNY) - FY22 Revenue TWD 6.63tln (exp. 6.57tln), FY22 net FY22 141.5bln; Q4 net TWD 40bln (exp. 40.9bln). For Q1, sees flat Y/Y sales for cloud/networking products revenue, sees computing product sales slightly declining Y/Y, components and other products revenue to have a slight Y/Y decline, and smart consumer electronics revenue to see significant Y/Y growth. Sees FY23 revenue to be flat Y/Y, expects cloud and networking products revenue to have significant growth in FY23 Y/Y, and FY23 components and other products revenue likely to see significant growth.


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  Apple Inc. (AAPL) - Will delay some bonuses and expand hiring freezes to further roles; it is monitoring more closely how often staff come to the office, Bloomberg reports.


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  Samsung Electronics (SMSN) - Will build five new domestic semiconductor plants in a KRW 300tln (USD 230bln) investment over the next 20 years, as part of the global race to secure supply chains in the chip industry, Nikkei reports. Some of the five plants will be for foundry chipmaking, but it has not decided on the total. Elsewhere, Samsung said chip demand might decline citing the economy and inventory adjustment, while it is to continue essential R&D investment this year.


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  Microsoft (MSFT) - Announces a new lead independent director Sandra Peterson; independent directors re-elected Satya Nadella as Chairman. MSFT declares quarterly dividend of USD 0.68/shr (unch).


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  SentinelOne, Inc. (S) - Q4 adj. EPS -0.13 (exp. -0.16), Q4 revenue USD 126.1mln (exp. 124.7mln). Sees Q1 revenue at USD 137mln (exp. 136.9mln), and sees FY24 revenue between USD 631-640mln (exp. 648.7mln).


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  Smartsheet Inc. (SMAR) - Mike Gregoire named board Chair, succeeding Geoffrey Barker, who will remain a member of the board. Q4 adj. EPS 0.07 (exp. -0.01), Q4 revenue USD 212.3mln (exp. 206.2mln). Q1 adj. EPS seen between USD 0.08-0.09 (exp. -0.06), and Q1 revenue seen between USD 213-215mln (exp. 217.1mln). FY24 adj. EPS seen between USD 0.31-0.38 (exp. -0.09), and FY24 revenue seen between USD 943-948mln (exp. 955.7mln).


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  SAP (SAP) - SAP announced the SAP Datasphere solution, the next generation of its data management portfolio, which gives customers easy access to business-ready data across the data landscape. SAP also introduced strategic partnerships with industry-leading data and AI companies – Collibra NV, Confluent Inc., Databricks Inc. and DataRobot Inc. – to enrich SAP Datasphere and allow organizations to create a unified data architecture that securely combines SAP software data and non-SAP data.

HEALTH CARE:

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  Albertsons Companies, Inc. (ACI), Costco Wholesale Corporation (COST), CVS Health Corporation (CVS), Rite Aid Corporation (RAD), Kroger Co. (KR), Walgreens Boots Alliance, Inc. (WBA), Walmart Inc. (WMT) - US Senators sent letters to seven of the nation’s largest retail pharmacies urging them to provide the strongest possible legal access to abortion drug mifepristone for patients, and communicate clearly about their plans and policies. Senators requested more information about the companies’ plans to provide customers access to mifepristone and underscore the importance of ensuring patients are able to get the safe and effective FDA-approved drug.

CONSUMER CYCLICAL:

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  Industria De Diseno Textil SA ADR (IDEXY) - The world’s largest clothing retail group saw profits jump in 2022 as consumers splurged post-COVID. FY22 sales EUR 32.6bln (exp. 32.65bln), FY22 net income EUR 4.1bln (exp. 4.2bln), FY22 EBITDA EUR 8.6bln (exp. 8.55bln), FY22 EBIT EUR 5.5bln (exp. 5.6bln). Announced a dividend of two equal 0.60/shr payments for a total 1.20/shr (exp. 1.35/shr). Sees strong growth opportunities in FY23, expects increased sales productivity in stores going forward, with stable gross margins.


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  Hennes & Mauritz AB (HNNMY) - The retailer saw net sales increase above expectations. Q1 2023 revenue SEK 54.872bln (exp. 54.443bln). Analysts were disappointed by the organic growth figure of +3%, which was below the expected 4.5%, while currency adjusted sales were also short of what some were expecting.


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  Bayerische Motoren Werke (BMWYY) - Q4 revenue EUR 39.52bln (vs prelim. 39.5bln). Sees FY automotive EBIT margin between 8-10% (exp. 8.67%). Dividend EUR 8.50/shr (prev. 5.80 Y/Y). Expects profitable growth in 2023 through dynamic BEV ramp-up and high-end premium segment. Exec said the automotive segment benefited from increased sales of high-revenue models in 2022, as well as better pricing and continuing positive development in used car markets. Revenues were also lifted by currency tailwinds.


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  Lennar Corp (LEN) - Q1 adj. EPS 2.12 (exp. 1.55); Q1 revenue USD 6.49bln (exp. 5.93bln); Q1 net new orders -9.9% Y/Y at 14,194 (exp. 12,687); Q1 gross margin on home sales 21.2% (exp. 20.9%); Q1 backlog -29% Y/Y at 19,403 (exp. 18,873). Exec said sales volume and pricing were impacted by rising interest rates, but there remains a significant national shortage of housing. Exec said that during the quarter, it saw a generally strong economy at the intersection of high inflation and strong employment, while the housing market continued to try and find its footing. In December, interest rates and sticker shock continued to constrain sales activity, while in January and early February, lower interest rates energized sales. Exec added that in late February, a spike in rates impacted website and community traffic, had a slight impact on sales. Sees Q2 new orders seen between 16-17k, and sees Q2 deliveries between 15-16k (exp. 14.1k); sees FY deliveries between 62-66k (exp. 60k).


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  Guess’, Inc. (GES) - Q4 adj. EPS 1.74 (exp. 1.30), Q4 revenue USD 818mln (exp. 772mln). Sees Q1 adj. loss per share between -0.31 and -0.25 (exp. 0.52), and Q1 revenue is expected to be lower by 6-7% (exp. 616mln). For the FY24, sees adj. EPS between USD 2.45-2.80 (exp. 3.40), and sees FY24 revenue growth of +1-3% (exp. +5.5%).

MATERIALS:

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  Univar Solutions (UNVR) - S&P places ratings on credit watch ‘Negative’ from ‘Stable’; rating ‘BB-’.

INDUSTRIALS:

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  Caterpillar (CAT) - CEO expects sales and profit performance to improve Y/Y; notes that a lot of good performance has been driven by healthy backlogs. Said that chips availability was not back to pre-pandemic levels yet, and some real challenges in supply chains remain, though pockets had improved.

REAL ESTATE:

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  Realty Income (O) - Raises monthly dividend to USD 0.255/shr (prev. 0.2545).

15 Mar 2023 - 09:00- Research Sheet- Source: Newsquawk