US EARLY MORNING: Index futures are flat; megacap earnings are the highlight of the week, as well as PCE/wages data which are released as the Fed is in blackout

SNAPSHOT: Asia-Pac stocks traded higher, but gains were capped amid mass closures for the Lunar New Year holidays. European equities began the week on the front foot, but saw early gains faded. US equity futures are around flat, seeing some downside as European stocks pared gains. Treasury yields are slightly lower, as is the Dollar Index. Crude futures are a touch beneath neutral. 

FED IN BLACKOUT: The Fed is now in its pre-meeting blackout window ahead of the February 1st confab, where money markets price a 25bps rate hike. There are still a couple of data points that will be released in the blackout window that has the potential to influence policymaker’s thinking (the PCE data, along with wage costs data being the two key releases) – accordingly, we will keep a close eye on the Fedwatchers (WSJ's Nick Timiraos and NYT's Jeanna Smialek are the two that the investment community seems to focus on) in wake of these data releases to understand how officials may respond. With the Fed in the quiet period, focus should fall on large cap earnings in the US, while there are still central bank events in G10 that could influence the macro landscape (see our week ahead preview here).

FOCUS ON EARNINGS: Bank of America notes that 14% of S&P 500 companies have published Q4 earnings numbers so far, and they have reported a 1% miss vs a historical 50bps beat post week one. And while it is still early, BofA says corporate guidance is in the 10th percentile historically. The bank notes that this week will be the second busiest of this earnings season, with 25% of earnings due, with 30%+ of Industrials, Tech, and Materials earnings reports due to be published – sectors that are heavily exposed to China. "It may be too early to see China reopening in numbers, but we are listening for whether companies can match the market’s growing optimism on China," it writes. Meanwhile, Morgan Stanley's celebrity strategist Michael Wilson on the weekend reiterated his view that while many investors are still fundamentally bearish and questioning whether negative fundamentals have already been priced into stocks, Morgan Stanley still thinks the path of US earnings will disappoint both consensus expectations and current valuations. Wilson said he welcomed the change in sentiment and positioning over the past few weeks as a necessary condition for the last stage of this bear market to play out, and advised investors "to stay focused on fundamentals and ignore the false signals and misleading reflections in this bear market hall of mirrors," and added that "we find the shift in investor tone supportive of our call for new lows in the S&P 500, which will bring this bear market to a close later this quarter or early in 2Q."

DEBT CEILING: With the US Treasury now taking extraordinary measures to meet its obligations, analysts say the stage is being set for a debt ceiling stand-off between the White House and Capitol Hill in a few months, with the House being controlled by Republicans and the Senate by the Democrats, and that risks the US defaulting on its debt. The Treasury currently has USD 400bln of cash on hand to meet its obligations, and Treasury Secretary Yellen has said that it was unlikely to run out of cash until early June. House Republicans are looking to use the debt ceiling as a negotiating token to compel the administration into accepting its policies, which include budget cuts. While there is much hyperbole from political reporters, Pantheon Macroeconomics, writing from the market's point of view, says its base case in these situations is always the same: "A deal will be done, but the nature of the deal is unknowable, and it will be done at the very last minute," adding that "everyone has a short-term political incentive to see if the other side blinks first, and a positive disincentive to do the blinking." If however, we get to May/June and the situation still is not resolved, many will be looking to the Fed. Last week, NYT noted that while the central bank was not speaking about what it what do in the event of a default ("in part because the mere suggestion they will bail out warring politicians could leave lawmakers with less of an incentive to reach a deal"), it noted that the Fed has a series of options for mitigating the disaster. Still some banks think that even the brinksmanship may be enough for credit rating agencies to downgrade the US credit rating in the months ahead.

DAY AHEAD: It is a quiet start to a busy week, with the only notable stateside release being December’s series of leading indicators. In terms of speakers, the ECB’s omnipresent President Lagarde will deliver (another) set of remarks after the European close, following her numerous speeches from Davos last week, and ECB’s Panetta is also due; the debate is currently whether the central bank will downshift the pace of rate hikes in March, a notion that received much pushback from the hawks last week; the most recent polling from Reuters revealed that the central bank is expected to hike by 50bps in both February and March. There are no Fed speakers as officials enter blackout ahead of the February 1st FOMC meeting, where officials may discuss a downshift in the pace of hikes ahead. See our Calendar for all of today’s main events. Looking ahead to the rest of the week, US PCE and GDP, BoC, Flash PMIs, Aus and NZ CPI are the main highlights, and we provide previews in our week ahead note here. The North American earnings slate will pick-up too, with updates due from the likes of JNJ, MMM, GE, RTX, VZ, MSFT, T, BA, FCX, LRCX, TSLA, IBM, CMCSA, MA, INTC, V, CVX, AXP; our Weekly Earnings Estimates can be accessed here.

TECH:

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  Salesforce.com, Inc. (CRM) - Activist investor Elliott Management has built a multibillion-dollar stake in Salesforce, WSJ reports, adding pressure facing the software maker. The goals of Elliott's position are unclear, and it is not known whether Elliott has made recommendations to the board; Elliott has previously said Salesforce was "one of the pre-eminent software companies in the world," and it had "deep respect" for CEO Marc Benioff, adding that it looks forward to working constructively with CRM to realise its value. Activist Starboard Value disclosed a stake in Salesforce in October, and called on the company to boost profit margins.


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  Apple Inc. (AAPL) - WSJ profiles Apple's hiring practices, noting that while layoffs have hit the tech industry hard, it had not impated Apple, which has so far avoided job cuts as it has been better positioned than rivals in part because it added employees at a much slower clip than those companies during the pandemic, the Journal wrote, adding that it also tends to run lean, with limited employee perks and businesses focused on hardware products and sales that have so far largely dodged the economic downturn. The tech giant is expected to next month to report its first quarterly sales decline in more than three years, while the WSJ also adds that it has slowed hiring in some areas.


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  Western Digital Corporation (WDC) - Western Digital and Kioxia Holdings Corp. are progressing merger talks, and have reportedly agreed on a corporate structure that would eventually involve a dual-listing in Japan, Bloomberg reports. Under the plan, Western Digital would spin off its flash business and merge it with Kioxia, creating a publicly traded company in the US, and would also plan a second stock listing in Japan, with Western Digital's management expected to run the combined company.


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  Nokia Corporation (NOK), Samsung Electronics Co. (005930 KS) - Nokia and Samsung sign a new cross-license patent agreement following the expiry of the previous agreement at the end of 2022.

COMMUNICATIONS:

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  Spotify Technology S.A. (SPOT) - Spotify is planning layoffs as soon as this week, Bloomberg reports. The number of cuts was not specified; the music streaming giant currently has about 9,800 employees.


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  Advertising Names, Twitter Inc. (not listed) - Twitter owner Elon Musk said a higher priced subscription of the social media platform will not carry advertisements, Reuters reported, with Musk adding that ads were "too frequent on Twitter and too big," and measures will be taken to address those issues in the coming weeks.


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  Live Entertainment - Senate Judiciary Committee to hold a hearing on January 24th on "Promoting Competition and Protecting Consumers in Live Entertainment."

CONSUMER CYCLICALS/STAPLES:

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  Tesla Inc. (TSLA) - WSJ reports that the automaker’s recent price cuts in the US was pressuring rivals and affecting purchase decisions for new- and used-car buyers. The Journal wrote that the price cuts have drawn mixed reactions from investors and analysts, with some suggesting the move was made in response to waning demand, while others viewed it as Tesla squeezing competitors by sacrificing some of its strong operating-profit margins—which are larger than most car companies—while also lowering prices enough to qualify many models for a USD 7,500 federal tax credit.


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  Volkswagen (VWAGY) - The automaker said it was keeping all of its long-term options for its energy/charging business open, including a a possible IPO.


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  Amazon.com, Inc. (AMZN) - Amazon Web Services plans to invest USD 35bln in Virginia by 2040 to expand data centre campuses, Governor Glenn Youngkin announced.  Separately, Amazon will expand its India cargo service to boost faster deliveries; has made monetary investment in India's quickjet, and will add one additional Quickjet plane from Tuesday (vs one currently), exec said.


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  Egg Producers, Cal-Maine Foods (CALM) - US farm groups say FTC should investigate high egg prices for signs of price gouging from top egg companies. Recent data showed egg prices have soared +138% Y/Y.


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  Ferrari N.V. (RACE) - Received a positive mention in this week's edition of Barron's; the newspaper said the stock was a 'buy' as Ferrari was 'shifting into a higher gear'.

FINANCIALS/CRYPTO:

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  Value Stocks - Barron's identified ten value stocks which are being eyed by investors, including Walt Disney Company (DIS) and Wells Fargo (WFC). Other notable names mentioned included Philip Morris International (PM), Altria Group (MO), ConocoPhillips (COP), Halliburton (HAL).


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  Bank Hiring - Banks under pressure to slash costs following a collapse in investment banking revenues are preparing for the largest round of job cuts since the global financial crisis, FT reports. The lay-offs are expected to be in the tens of thousands across the sector.


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  Silvergate Capital Corporation (SI) - Silvergate Capital announced a business update in connection with the recently announced Following the bankruptcy filing by crypto lender Genesis, Silvergate said its deposit relationship with Genesis was less than USD 2.5mln, and Genesis was not a custodian for Silvergate's bitcoin-collateralized SEN Leverage loans, Silvergate has no outstanding loans to nor investments in Genesis.

ENERGY/INDUSTRIALS/MATERIALS:

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  CNH Industrial N.V. (CNHI) - United Auto Workers union said that members of two local unions at CNH Industrial factories in Wisconsin and Iowa reached an agreement over a new labour contract, ending a strike that has been ongoing since last May, Reuters reports.


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  Airbus SE (EADSY) - Airbus is planning to spin off its high-altitude drone programme Zephyr, with the aim of creating a standalone telecoms and earth observation business that will start commercial operations by the end of next year, FT reports.


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  Glencore's (GLNCY) - Antapaccay copper mine in Peru faces a new attack, and the camp's worker's area was set on fire, according to Reuters sources.


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  PBF Energy Inc. (PBF) - PBF said it had extinguished a fire at its 190k BPD Chalmette refinery in Louisiana on Saturday. No injuries were reported.

HEALTH CARE:

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  Abbott Laboratories (ABT) - DoJ is conducting a criminal investigating conduct at Abbott's infant-formula plant in Michigan that led to its shutdown last year, and worsened a nationwide formula shortage, WSJ reports. Abbott said it was cooperating with the probe.


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  Bayer Aktiengesellschaft (BAYRY) - Investor Union Investment has criticised the health care company for a lack of engagement, such as when exploring a spin-off of the consumer's consumer health unit, WirtschaftsWoche reports.

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