US EARLY MORNING: Index futures are higher ahead of heavy central bank speak

EQUITIES: US index futures are firmer (NQ +1.2%, RTY +1.0%, ES +0.8%, YM +0.6%). The focus for today is likely to be on rates and inflation, with Fed Chair Powell, ECB's Lagarde and BoE's Bailey all due to make remarks (note: The Fed’s preferred gauge of inflation, PCE prices, is due for release next week). Desks have been noting how higher bond yields can impact equity performance, and while it has been easy to dismiss the impact of higher rates on equities given the recent resilience of the latter as yields surged, strategists at Citi say that there is hope that the resilience is a reflection of strong underlying fundamentals, and a view that monetary policy tightening will only be bad for bonds; but Citi warns that investors should focus less on the supposed significance of real yields, and more on the liquidity flows, adding that "the reality is that tightening hasn't really started yet." With a 50bps May rate hike fully priced by the market, it might mean that comments around the eventual neutral rate and balance sheet policies will provide the next catalysts. Many expect Powell will stick to the script today, and we might have to wait until May for any new information. Accordingly, technicians at Credit Suisse posit that the S&P 500 is likely to stay in a range in the near-term (4,370-4,496) but still outperform global peers. CS is keeping an eye on macro surprises, and says it is seeing an improvement in the US; "whilst we have seen a notable lack of correlation with the S&P 500 for some time now, nevertheless, we would see a strong trend higher in Macro Surprise data as a positive for the equity market."

TREASURIES: US Treasury yields are higher by 4-5bps across the curve, with underperformance once again centred in the belly of the curve; major curve spreads are modestly widening. Traders were focussing on a call made by BofA on Wednesday; the bank argues that positioning (the market is underweight duration), technical (10yr Tsys most oversold since 1981), and fair-value considerations are favourable for US 10yr Treasuries, and has recommended a 3-month long position (entry 2.83%, targets 2.25% with a stop at 3.1%). The bank's view is premised on the notion that investor focus will shift from inflation concerns to recession concerns in a few months (it cites increased signs of slowdown risks including: consumer and business confidence softening, slowdown concerns from shippers, declining housing and homebuilding activity as mortgage rates climb), and it remains to be seen whether the Fed can orchestrate a hard or soft landing. BofA does note that a risk to this view is that inflation concerns could become unhinged, which could be negative for bonds. 

EQUITY NEWS:

INDUSTRIALS:

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  Tesla (TSLA) - Gained 5.6% after hours. Q1 EPS 3.22 (exp. 2.26), Q1 revenue USD 18.76bln (exp. 17.8bln); Q1 saw record revenues, vehicle deliveries, operating profit. Said challenges around supply chains remained persistent, and in addition to chip shortages, recent COVID-19 outbreaks have weighed supply chain and factory operations. Prices of some raw materials have increased multiple-fold in recent months, and the inflationary impact on its cost structure contributed to adjustments in our product pricing. Plans to grow manufacturing capacity as quickly as possible, and over a multi-year horizon, expects to achieve 50% average annual growth in vehicle deliveries, depending on equipment capacity, operational efficiency and the capacity and stability of the supply chains. Tesla factories have been running below capacity for several quarters as supply chain impact, and this is likely to continue through the rest of 2022. CEO confident of +40% Y/Y vehicle production growth in 2022, adding that there is a reasonable chance of +60% Y/Y. CEO said the automaker was working on a 'Robo-taxi' without steering wheel and pedals, on track to reach volume production of Cybertruck next year.


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  United Continental Holdings (UAL) - Gained 7.6% after hours; despite misses on profits and sales, it forecasts a return to profitability ahead. Q1 adj. EPS -4.24 (exp. -4.21), Q1 revenue USD 7.6bln (exp. 7.68bln). Q1 capacity -19% vs Q1 2019, Q1 TRASM -3% vs Q1 2019, Q1 CASM +21% vs Q1 2019. CEO said that the demand environment was the strongest he has seen in 30 years of working in the industry, and he said UAL is seeing clear evidence that Q2 will be an historic inflection point. UAL sees Q2 capacity -13% vs Q2 2019 levels, sees Q2 TRASM +17% vs Q2 2019, Q2 CASM-ex seen +16% vs Q2 2019.


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  CSX Corporation (CSX) - Rose 2.1% after hours. Reported Q1 EPS USD 0.39 (exp. 0.37), Q1 revenue USD 3.41bln (exp. 3.38bln); revenue per unit was +24% in Q1, volumes were lower by 2% in the quarter. Said market environment continues to be supportive, expects to deliver improved fluidity across our network over the rest of the year.


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  Equifax Inc. (EFX) - Tumbled almost 10% after hours. Q1 adj. EPS USD 2.22 (exp. 2.14), Q1 revenue USD 1.36bln (exp. 1.33bln). For the Q2 quarter, sees adj. EPS between 1.98-2.98 (exp. 2.16), and sees Q2 revenue between USD 1.31-1.33bln (exp. 1.32bln). However, it lowered its FY22 adj. EPS view to USD 8.00-8.30 (exp. 8.63, prev. 8.50-8.80), and lowered its FY22 revenue view to USD 5.15-5.25bln (exp. 5.29bln, prev. 5.25-5.35bln). Lowering of FY outlook reflects the impact of the large and rapid increase in US mortgage rates over the last several months. Expects that the US mortgage market will decline by 37.5% over the remainder of 2022 and exit the year at a run-rate down 40%, which is approaching 25% below the average levels of mortgage market credit inquiries prior to 2020.


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  Landstar System (LSTR) - Jumped over 7% after hours. Q1 EPS USD 3.34 (exp. 3.05), Q1 revenue USD 1.97bln (Exp. 1.83bln). Said headwinds relating to inflation and a potential shift in consumer spending, as well as potential impacts relating to the war in Ukraine, make it difficult to predict the future direction of the US freight transportation environment. But added that throughout March and through the first few weeks of the Q2 2022, customer demand for freight transportation services remained strong.


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  Knight-Swift Transportation Holdings (KNX) - Q1 adj. EPS USD 1.35 (exp. 1.26), Q1 revenue USD 1.83bln (exp. 1.76bln). Raised its FY22 adj. EPS view to between USD 5.20-5.40 (exp. 5.24, prev. 5.10-5.30); sees double-digit truckload contract rate increases.


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  Raytheon Technologies (RTX) - Awarded a USD 482.7mln Navy contract.


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  Valmont Industries (VMI) - Q1 EPS USD 2.90 (exp. 2.44), Q1 revenue USD 980.8mln (exp. 888mln). Raised quarterly dividend +10% to 0.55/shr.

MATERIALS:

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  Alcoa Corporation (AA) - Fell 4.4% after hours. Q1 EPS USD 3.06 (exp. 2.93), Q1 revenue USD 3.29bln (exp. 3.45bln). CEO said AA captured the benefits of strengthened aluminium pricing. Total alumina and aluminium shipments to remain unchanged at 14.2-14.4mln metric tons, and 2.5-2.6mln metric tons respectively. Sees Q2 alumina and aluminium realised third-party prices to be higher than Q1; higher shipments sequentially expected to offset remaining cost pressures. Alcoa lowered its forecast for bauxite shipments by 2mln metric tons; after the cessation of bauxite sales to Russian businesses, it expects to slow production in its Juruti mine in Brazil by approximately 1.1mln dry metric tons, and is also observing Russia-related changes in the Atlantic bauxite market, which may impact shipments by approximately 1mln dry metric tons.


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  Steel Dynamics (STLD) - Q1 adj. EPS USD 6.02 (exp. 5.66), Q1 revenue USD 5.6bln (exp. 5.32bln). Sees continued strength in domestic steel consumption; order entry activity continues is robust; believes steel prices will remain supported by strong demand, balanced customer inventory levels, and elevated raw material costs. Steel fabrication order backlog remains at record volume and forward pricing levels.


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  Anglo American (NGLOY) - Q1 copper production -13% Y/Y, due to planned lower grades. Rough diamond production +25% Y/Y; Iron Ore production -19% Y/Y due to high rainfall and plant issues at Kumba and Minas-Rio; Iron Ore production view revised to 60-64mln/T (prev. 63-67mln/T).


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  Antofagasta (ANFGY) - Q1 copper production 138.8k/T, in-line with guidance; expected to increase Q/Q in 2022. Q1 gold production -35% Y/Y and -40.8% Q/Q at 38.4k/oz. FY22 guidance is unchanged.


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  BHP (BHP) - Quarterly Western Australia iron ore production 66.7mln tons (prev. 66.7mln tons Y/Y), copper output 369.7k tons (prev. 391.4k tons Y/Y). Production guidance for FY22 remains unchanged for iron ore, metallurgical coal and energy coal but lowers copper and nickel guidance. Added that the June quarter was expected to be affected by continued COVID-19 related absenteeism.


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  Akzo Nobel (AKZOY) - Q1 revenue EUR 2.53bln (exp. 2.49bln). Net EUR 154mln (exp. 144mln). Said more Russian operations may be halted in the coming months. Raw material and other cost inflation are expected to ease gradually during the second half of the year.

TECH:

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  Alphabet (GOOG), Mandiant (MNDT) - Mandiant and Google each received a request for additional information from the DOJ in connection with its review of the Mandiant-Google merger. Mandiant and Google expect the closing of the Merger in 2022.


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  Lam Research Corporation (LRCX) - Fell 1.2% after hours following top- and bottom-line misses; Q3 EPS of USD 7.40 (exp. 7.51) and Q3 revenue of USD 4.06bln (exp. 4.25bln). Remains confident in the secular drivers of wafer fabrication equipment investment, expects to return to solid growth as industry constraints ease. Sees Q4 EPS at 7.25 +/- 0.75 (exp. 8.24), and sees Q1 revenue at USD 4.2bln +/- USD 300mln (exp. 4.5bln).


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  ASM International (ASMIY) – The chipmaker reported Q1 revenue at EUR 516.9mln (prev. 394.0mln Y/Y). Operating profit 143mln (prev. 124.5mln). Net 145.7mln (prev. 125.5mln). Gross margin 27.7% (prev. 31.6%). New orders 705.7mln (prev. 410.6mln). Forecasts a rise in Q2 revenue after record Q1; sees revenue in Q2 between EUR 540-570mln.


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  Coinbase Global (COIN) - Coinbase announced that its NFT platform is now in beta.

COMMUNICATIONS:

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  Netflix (NFLX) - Pershing Square liquidated a USD 1.1bln position in Netflix, taking a loss of USD 430mln; said it has lost confidence in its ability to predict the company's future prospects with a sufficient degree of certainty.


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  Disney (DIS) - Florida Senate passed a bill that would eliminate Disney World's self-governing status in response to the company's opposition to a new state law limiting discussion of LGBTQ issues in schools, Reuters reported.


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  Spotify Technology (SPOT) - Former President Barack Obama and his wife time with Spotify is coming to an end. Bloomberg reported that the two will not sign a new deal with SPOT, and is talking to other distributors about a podcasting deal.


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  Sony Group (SONY), Microsoft (MSFT) - Sony plans to run ads in PlayStation games as rival Microsoft plans a similar program with Xbox, Business Insider reports.


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  Zoom Video Communications (ZM) - Announced its new Zoom Events and Zoom Rooms integration.

ENERGY:

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  Kinder Morgan (KMI) - Q1 EPS 0.32c (exp. 0.28), Q1 revenue USD 4.29bln (exp. 3.62bln). CEO noted it was benefiting from commodity price tailwinds, but performance also supported by better budgeting, which is offsetting some higher cost headwinds. Is seeing growth in its base natural gas business. Raised quarterly dividend +3% to 0.2775/shr.

CONSUMER STAPLES:

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  Nestle (NSRGY) - Growth and sales above analyst expectations, and is confident price hikes will help it achieve FY targets. Q1 revenue CHF 22.2bln (exp. 21.688bln). Organic revenue growth +7.6% (exp. +5.8%). FY22 outlook confirmed; expects organic sales growth around 5% and underlying trading operating profit margin between 17-17.5%. Said cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year.


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  Carrefour (CRRFY) - Q1 revenue EUR 20.24bln (exp. 20bln). LFL revenue +3.4%. Metrics supported by solid sales in Brazil. In France revenue was +4.9% Y/Y and LFL sales were stable. Online sales reached a record level. Affirmed target of FCF above 1bln in 2022. Expects price inflation growth in all geographies and suggested inflation will keep growing in Q2.

CONSUMER CYCLICAL:

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  Carvana Co. (CVNA) - Gained 4.6% after hours. Q1 loss per share of 2.89 (exp. -1.43), Q1 revenue USD 3.5bln (exp. 3.4bln). Retail unit sales +14% at 105,185. Said that it was no longer providing specific numeric near-term guidance for the remainder of the year due to industry trends impacting customer affordability, high used vehicle prices, rapid movements in interest rates, rapid increases in fuel prices, and other macroeconomic uncertainty impacting the used vehicle market. Also announced a USD 1bln stock offering; Carvana's CEO, and entities controlled by him, has indicated an interest in purchasing up to USD 432mln of the company's Class A common stock in the offering.


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  Sleep Number Corporation (SNBR) - Fell 3.8% after hours. Q1 EPS 0.09 (exp. 0.33), Q1 revenue USD 527mln (exp. 534.4mln). Said demand exceeded supply for smart beds due to chip constraints, and its backlog is +20% Q/Q. Sees FY22 EPS between 5.00-6.00 (exp. 5.77), and assumes low double-digit net sales growth on flat to low single-digit demand growth, while servicing a significant excess backlog.

HEALTH CARE:

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  AstraZeneca (AZN) - Evusheld significantly protected against symptomatic COVID-19 for at least six months in PROVENT Phase III trial in high-risk populations.


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  Sanofi (SNY) - Rezurock demonstrates a strong, but not universal, correlation between organ clinical responses and clinically meaningful improvements in patient-reported outcomes from a pooled analysis.


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  Tenet Healthcare Corporation (THC) - Q1 adj. EPS USD 1.93 (exp. 1.04), Q1 revenue USD 4.745bln (exp. 4.71bln). Sees Q2 adj. EPS between 1.18-1.45 (exp. 1.54), and sees Q2 revenue between USD 4.8-5bln (exp. 4.91bln). Sees FY22 adj. EPS between USD 5.85-7.03 (exp. 6.56), and sees FY22 revenue between USD 19.5-19.9bln (exp. 19.85bln).

REAL ESTATE:

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  Crown Castle International (CCI) - Slipped half-a-percent in after hours. Reported Q1 EPS USD 0.97 (exp. 0.94), Q1 AFFO USD 1.87 (exp. 1.80), Q1 revenue USD 1.74bln (exp. 1.69bln). Said it was seeing the benefit of a robust 5G leasing environment, which contributed to the +9% AFFO/shr growth it delivered in Q1. Sees FY22 AFFO between 7.31-7.41 (exp. 7.35), and raised midpoint of its FY22 adj. EBITDA view by USD +60mln.

21 Apr 2022 - 09:31- EquitiesResearch Sheet- Source: Newsquawk