US EARLY MORNING: Index futures are lower and yields are higher ahead of key PCE data and Fed Chair Powell at Jackson Hole

SNAPSHOT: US index futures are lower by 0.2-0.4%, with the NQ underperforming as US yields climb by 1-5bps, with much of the underperformance coming along the long-end of the curve. The Dollar Index is a smidge firmer. The focus is on PCE data and the Fed’s gathering at Jackson Hole, both of which we preview below.

PCE: Before we hear from Fed Chair Powell at Jackson Hole, US PCE data for July will be released at 13:30BST/08:30EDT; the data is considered the Fed’s ‘preferred’ gauge of inflation. The consensus expects Core PCE prices to ease to a rate of 0.3% M/M (prev. 0.6%), and for the annual Core PCE measure to pare to 4.7% Y/Y (prev. 4.8%). The cooling in core prices would be in keeping with the themes seen in the US CPI Data for July. Credit Suisse has warned that although it would be encouraging to see a slowdown in core goods prices, some of the slowdown in July PCE data will be driven by temporary factors, like falling travel and transport prices; “a downside surprise is a welcome development, but persistent strength in shelter and service prices should keep core PCE inflation above the Fed’s 2.0% target at least through next year,” the bank writes. Meanwhile, Personal Income is seen rising 0.6% M/M, in line with the prior reading, and personal consumption is seen easing to a rate of +0.3% M/M from a previous +0.6%. “Income growth is likely to remain strong – a pickup in wages and above-trend job gains drove a large increase in aggregate labour income in July,” CS says, “we also expect consumer spending to show positive growth for a second-consecutive month after a sharp drop in May.”

JACKSON HOLE: Fed Chair Powell’s opening remarks at the Jackson Hole Economic Symposium are scheduled for 15:00BST/10:00EDT. There are three broad areas traders will be looking for comments on: The size of the September rate hike, what the Fed’s thinking is on where the terminal rate now lies, and how long the Fed will be staying at terminal.

SEPTEMBER HIKE SIZE: Traders are seeking clues on the size that the Fed will raise rates at the September 21st FOMC. Currently, the market is pricing around 40% chance of a 50bps rate rise, and a 60% chance of a 75bps move (the Federal Funds Rate target is presently at 2.25-2.50%, which the Fed considers neutral). However, Powell will likely reiterate that the Fed's decision will be based on incoming data within the context of its goal to bring inflation back down to target. Accordingly, the US jobs report on September 2nd and the US CPI Report on September 13th will be the prime catalysts, and therefore, there is a chance that Powell could disappoint on that front today.

TERMINAL RATE: Additionally, traders will be looking for clues on where the Fed now thinks the Terminal Rate is; in its June forecasts, the Fed estimated that this was between 3.75-4.00% (note: these forecasts will be updated at the September meeting). The question of where terminal is will help traders gauge where the 'pivot' from rate hikes, to rate cuts will be. There is also the question about how long the Fed will stay at Terminal; the recent Fed meeting minutes said "some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2%." Analysts note that historically, the Fed has usually stayed at Terminal for between 3-15 months, with an average of around 6.5 months; this suggests that rate cuts could be a possibility in H2 2023. Money markets currently think the Fed will raise rates to 3.50-3.75% by the end of this year, and will have cut rates at least once by the end of 2023. 

EQUITY NEWS:

TECH:

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  Intel Corporation (INTC) - CEO Patrick Gelsinger purchased 14,800 shares at USD 33.86/shr for a total USD 501,153.


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  Lam Research (LRCX) - Raises quarterly dividend +15% to USD 1.725/shr (prev. USD 1.50).


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  Dell Technologies Inc (DELL) - Q2 Adj. EPS 1.68 (exp. 1.64), Revenue 26.4bln (exp. 26.49bln). CFO said it was seeing customers become more cautious given the current macroeconomic environment, and it saw a softening in CSG specific to consumer and Chrome in Q1 and in Q2; the decrease in demand velocity extended to commercial clients, and it is seeing more cautious spending within the ISG business. FX also continues to be a headwind, roughly 500bps in Q3 and roughly 400bps for the full year. Sees Q3 EPS between 1.53-1.79 (exp. 1.65), sees Q3 revenue between USD 23.8-25.0bln (exp. 26.3bln); sees FY23 EPS between 6.60-7.00 (exp. 7.01), and sees FY23 revenue flat to +2% (exp. 106.2bln).


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  Marvell Technologies (MRVL) - Q2 adj. EPS 0.57 (exp. 0.56), Q2 revenue USD 1.52bln (exp. 1.52bln). Data centre revenue USD 643.4mln (exp. 657.3mln). Consumer revenue 164.4mln (exp. 169.3mln). Carrier infrastructure Revenue 285.2mln (exp. 272.5mln). Enterprise networking Revenue 340.3mln (exp. 322.9mln). Automotive/industrial Revenue 83.6mln (exp. 94.3mln).


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  Synopsys (SNPS) - To expand into Vietnam amid the Chinese tech war, according to Nikkei.


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  Workday Inc (WDAY) - Q1 adj. EPS 0.83 (exp. 0.80), Q1 revenue USD 1.54bln (exp. 1.52bln). Exec said it continued to see a strong global demand and continued momentum. Reaffirms FY23 subscription revenue guidance of USD 5.537bln-5.557bln (exp. 6.2bln), lifts FY23 adj. view to 19.0%.


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  VMware Inc (VMW) - Q2 Adj. EPS 1.64 (exp. 1.57), Q2 Revenue USD 3.34bln (exp. 3.30bln). Said next week at VMware Explore, it will showcase new offerings.


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  Affirm Holdings, Inc. (AFRM) - Q4 EPS -0.65 (exp. -0.59), Q4 revenue seen between USD 364.1mln (exp. 354.8mln). GMV +77%. Q1 revenue seen between USD 345-365mln (exp. 386mln), and Q1 GMV seen between USD 4.2-4.4bln (exp. 4.5bln). FY23 revenue seen between USD 1.625-1.725bln (exp. 1.9bln), and FY23 GMV seen between USD 20.5-22bln.


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  Open Text Corporation (OTEX) - To acquire Micro Focus International for GBP 5.32/shr, implying an enterprise value of around USD 6bln on a fully diluted basis. Acquisition seen closing in Q1 2023.


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  Salesforce.com, inc. (CRM) - Chair Marc Benioff sold 2,300 shares at USD 176.02/shr for a total USD 404,846.


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  Elastic NV (ESTC) - Q1 adjusted EPS -0.15 (exp. -0.17), Q1 revenue USD 250.1mln (exp. 246.1mln). Exec said Q1 was strong, and despite increased FX headwinds, it was on track to achieve USD 2bln revenue by FY25. Sees Q2 adj. EPS between -0.11 and -0.09 (exp. -0.09), and sees Q2 revenue between USD 260-262mln (Exp. 260.7mln). Lifts FY23 EPS outlook to -0.31 to -0.25 (prev. seen between -0.36 and -0.28), and reiterates FY23 revenue outlook of USD 1.08-1.086bln (exp. 1.08bln). Ken Exner named chief product officer.

COMMUNICATIONS:

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  Meta Platforms, Inc. (META) - Mark Zuckerberg confirmed that new Meta VR headset will launch in October - probably around the Connect conference, according to The Verge.


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  DoorDash, Inc. (DASH) - Recently became aware that a third-party vendor was the target of a sophisticated phishing campaign and that certain personal information maintained by DoorDash was affected. The phishing campaign did not compromise sensitive information, DoorDash said, and it had no reason to believe that affected personal information had been misused.

CONSUMER CYCLICAL:

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  Starbucks Corporation (SBUX) - National Labor Relations Board accused  Starbucks of illegally discriminating against unionised employees by denying them wage and benefit increases that the company put in place for nonunion employees, NYT reports. NLRB wants affected employees be made whole for the denial of benefits and wage increases, and is asking that CEO Schultz read a notice to all employees informing them that some had been unlawfully denied benefits and pay increases and explaining their rights under federal labour law.


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  The Gap (GPS) - Q2 adj. EPS 0.08 (exp. -0.04), Q2 revenue USD 3.86bln (exp. 3.82bln). Expects Q3 ending inventory growth to moderate substantially. Remains cautiously optimistic in light of consumer environment as it relates to its revenue in H2 of fiscal 2022. Seen an improvement in sales trends in July and into August consistent with many other retailers. Withdraws its prior fiscal 2022 outlook. Targeting negative inventories versus last year by the end of fiscal 2022. Taking action to reduce operating expenses, which is expected to have more significant impact in fiscal 2023. Does not anticipate further share repurchases for the remainder of the year.


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  Ulta Beauty Inc (ULTA) - Q1 EPS 5.70 (exp. 5.00), Q1 Revenue USD 2.3bln (exp. 2.21bln). SSS +14.4% (exp. 10.0%). Exec said strong consumer demand and broad-based momentum across its business continued; sees H2 as a dynamic environment. Raises FY22 outlook. FY22 EPS seen between 20.70-21.20 (exp. 20.22, prev. guidance 19.20-20.10), and sees FY22 between USD 9.65-9.75bln (exp. 9.5bln, prev. guidance 9.35-9.55bln); FY22 comparable sales seen up 9.5-10.5% (prev. guided up 6-8%). Gross margin 40.4% (exp. 39.3%, prev. 40.6% Y/Y).


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  Bed Bath & Beyond (BBBY) - Will provide a strategic update on August 31st.


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  Farfetch Limited (FTCH) - Q2 EPS -0.21 (exp. -0.32), Q2 revenue USD 579.3mln (exp. 548mln). Q2 GMV +1.3% to USD 1.0bln (exp. 1.05bln), Q2 Digital Platform GMV -3.3% to USD 883.1mln. Exec said it was navigating a volatile macro environment, and is "extremely bullish" for 2023 when it will lap its closure of our Russia operations, expect China to turn into a tailwind.

CONSUMER STAPLES:

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  Keurig Dr Pepper Inc. (KDP) - Keurig Dr Pepper is scouting for a new energy drink brand after ending talks to buy Bang Energy, Axios reported, with potential targets including C4 Energy, a subsidiary of Nutrabolt which has been held by private equity firm MidOcean Partners since 2014.

HEALTH CARE:

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  Merck & Co., Inc. (MRK), Seagen, Inc. (SGEN) - Merck's talks to buy Seagen stalled as the companies have so far failed to agree on a price, according to Bloomberg, threatening what would be the pharmaceutical giant’s biggest deal in more than a decade. Failing to complete a deal would still leave Merck with a formidable presence in oncology, BBG added.

INDUSTRIALS:

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  Panasonic Holdings Corp. (PCRFY), Tesla, Inc. (TSLA) - Tesla supplier Panasonic is in talks to build an additional USD 4bln EV battery plant in the US, according to the WSJ. Panasonic is looking at Oklahoma as the location, though there are no guarantees that an agreement will be reached, the report added.


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  Mercedes-Benz Group (MBG) - Mercedes-Benz is said to be in the final stages of selling its car assembly plant in the Moscow region, according Kommersant.

REAL ESTATE:

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  The Blackstone Group (BX) - Blackstone's Home Partners of America will stop buying homes in 38 US cities, Bloomberg reported, becoming the latest institutional investor to back away from an overheated housing market.

26 Aug 2022 - 09:28- Research Sheet- Source: Newsquawk