US EARLY MORNING: Index futures are lower. More retail earnings from LOW and TGT ahead

US index futures are giving back some of the gains booked on Tuesday. Fedspeak continues to threaten rate hikes until inflation is under control, even if that means a market sell-off or a hard landing. More retail earnings due today, weekly energy inventory data, and expect geopolitical jawboning as G7 finance ministers meet.

After Tuesday’s solid rally, US equity futures are currently trading with losses (YM -0.2%, ES -0.3%, RTY -0.4%, NQ -0.5%), the Treasury curve is mixed ahead of today’s 20yr supply, while the dollar is gaining; crude futures are also higher after API data reportedly showed a surprise draw in crude stocks, and continues to allude to a very tight gasoline market. Regarding risk assets, analysts were looking to this week’s Fedspeak for signs that officials might ease up on their hawkishness amid some of the recent downside. There has been no sign of that in this week’s jawboning however. Chair Powell Tuesday insisted that the FOMC will raise rates until there is a sign of an inflation slowdown–a sentiment has been expressed by the influential NY Fed President Williams this week too, as well as the hawk Bullard (Bullard still thinks 50bps increments of hikes is appropriate for now, rather than a larger 75bps increment). Crucially, Powell again suggested that the Fed would not hesitate to move rates above neutral (and into restrictive territory) if it had to. Even the usually dovish Evans (who votes next year) Tuesday acknowledged that the Fed may need to take rates above neutral to win the battle against inflation. This is not really new information, of course, and has been suggested by some officials recently. The takeaway, however, is that the central bank is not renewing its so-called ‘put’ with benchmark stocks just shy of bear-market territory, suggesting that its strike is much lower than in previous normalisation episodes as it tries to battle inflation (over the weekend, BMO suggested that with inflation at current levels it could take a fall of around 50% before the Fed changes tack). Stocks took the latest commentary in its stride, closing Tuesday trading with decent gains. “Broad-based market recoveries like this are a potent reminder of the value of staying invested, the market’s best-performing days often tend to occur alongside the worst,” UBS said, noting that in the last five trading days, the S&P 500 has rallied +4% from its low, while the Nasdaq has rallied over 5%. “Investor sentiment and confidence remain shaky, and as a result, we are likely to see volatile and choppy markets until we get further clarity on the 3Rs,” the bank writes, “rates, recession, and risk.”  Accordingly, UBS continues to recommend its clients tilt their portfolio exposures to the segments of the market we expect to outperform in an environment of high inflation, rising policy rates, and elevated volatility, which it says will be favourable for value stocks, commodity and commodity-linked stocks, as well as defensive styles. The Day Ahead has US housing starts and building permits, Canada inflation, weekly DoE crude inventories, and 20yr supply; on the speakers front, Fed’s Harker will give remarks. G7 Finance Ministers meeting today may generate further geopolitical headlines on Ukraine/Russia. On the corporate earnings front, retailers Target (TGT) and Lowe’s (LOW) are the highlights, and will be eyed after mixed showing from Home Depot (HD, decent report) and Walmart (WMT, cut its outlook) yesterday; Cisco (CSCO) reports after hours. Our full Day Ahead calendar can be accessed here.

Q1 EARNINGS:

• With the bulk of Q1 earnings season now complete, Goldman Sachs researchers say that there were four dominant themes in the quarter: 1) Firms have begun to weigh the possibility of tightening financial conditions tipping the US economy into recession, 2) firms are prioritising margin protection amid a historic inflationary backdrop, 3) supply chain disruptions remain a concern, and firms see risks of further bottlenecks, 4) these stretched supply chains and geopolitical shocks have called into question whether the trend of globalisation will continue. Regarding the Q1 scorecard, the bank notes that heading into earnings season, analysts were looking for Q1 EPS growth of +5% Y/Y, but that number has been revised up to +11% as we approach the end of the season (others have argued that the bar was very low for Q1). Of the 90% of S&P 500 constituents that have reported, 54% beat estimates by one standard deviation or more (vs a 15yr average of 49%), GS says, with the average revenue surprise 3% and the average EPS surprise of 9%, which the bank says reflects better-than-expected margins.

TECH:

• 
  Apple Inc. (AAPL) - Apple delayed a plan to require workers to come back to the office three days a week, citing a resurgence in COVID cases, Bloomberg reported.


• 
  Darktrace Plc (DRKTF) - A senior executive at the company has been linked to one of the UK’s largest ever frauds in a High Court ruling.


• 
  Ericsson (ERIC) - Has announced changes in its corporate structure. Has introduced a new business area - Cloud Software and Services.


• 
  Keysight Technologies, Inc. (KEYS) - Q2 EPS 1.83 (exp. 1.67), Q2 revenue USD 1.35bln (exp. 1.3bln). Sees Q3 EPS between 1.74-1.80 (exp. 1.75), and sees Q3 revenue between USD 1.33-1.35bln (exp. 1.34bln). Raised outlook for the year, now sees FY22 EPS rising between 14-15% (exp. +12.5%), and sees FY22 revenue growth approaching +8% (exp. +8.7%).


• 
  Xiaomi (XIACY) - China’s Xiaomi, Vivo and Oppo cut 20% of orders amid lockdown and inflation woes, according to Nikkei.

HEALTH CARE:

• 
  Doximity, Inc. (DOCS) - Fell 16% after hours after lowering guidance for the next quarter. Q4 adj. EPS 0.21 (exp. 0.15), Q4 revenue USD 93.7mln (exp. 90.1mln). Announced a USD 70mln share buyback. Sees Q1 revenue between USD 88.6-89.6mln (exp. 96.8mln), and sees Q1 adj. EBITDA between 28.6-29.6mln (exp. 37.3mln). Lifts its FY23 revenue outlook to between USD 454-458mln (exp. 452mln, prev. 450mln), and sees FY23 adj. EBITDA between USD 192-196mln (exp. 183mln.).

ENERGY:

• 
  Inventories - API data reportedly showed US crude stocks drawing in the week by -2.4mln (exp. +1.4mln), Cushing stocks -3.1mln, gasoline stocks -5.1mln (exp. -1.3mln), and distillates inventories +1.1mln (exp. unchanged), according to Citi; the bank said the larger-than-expected drop in gasoline stocks would constitute a bullish surprise if confirmed by the more definitive DOE report, released later on Wednesday.


• 
  Saipem (SAPMY) - A reverse stock split of Saipem’s ordinary shares will take place on May 23rd; the ratio will be 21 new ordinary shares for every 100 outstanding ordinary shares.


• 
  Siemens Gamesa (GCTAY), Siemens Energy (SMNEY) - Siemens Energy plans to bid for the shares of Siemens Gamesa it doesn’t already own, a long-speculated step, Bloomberg reported citing sources.


• 
  Talos Energy Inc. (TALO) - Temporarily suspended an arbitration claim against Mexico amid high-level talks over one of the country’s flagship offshore projects, according to sources cited by Reuters news.

FINANCIALS:

• 
  ABN AMRO (AAVMY) - Q1 net EUR 295mln (prev. -54mln Y/Y). Q1 revenue EUR 1.93bln (prev. 1.85bln). Q1 CET1 Ratio 15.7% (prev. 17.4%). Said costs were higher due to additional AML provision, regulatory levies; remains fully committed to cost target below EUR 4.7bln in 2024. First share buyback programme of EUR 500mln has been finalised.


• 
  Aviva (AVVIY) - Q1 net inflows to wealth business GBP 2.7bln, remained strong. Said it was on track to meet the upgraded guidance outlined in its FY21 report.


• 
  Euronext (ERNXY) - Q1 revenue EUR 395.7mln (exp. 390mln), Q1 adj. EBTIDA +66.8% to EUR 252.2mln. Q1 adj. EPS +7.3% to EUR 1.544/shr.


• 
  JPMorgan Chase & Co. (JPM) - Shareholders voted against CEO Jamie Dimon’s retention bonus announced last year, with just 31% of holders participating in the vote backing his USD 52.6mln award (1.5mln share options that he can exercise in 2026). The results of the vote are nonbinding, but JPM said it took the feedback on board, and the CEO bonus was a one-time event.


• 
  Societe Generale (SCGLY) - After a 15yr run, CEO Frederick Oudea will not renew his term when it ends in May 2023.


• 
  UniCredit (UNCRY), Commerzbank (CRZBY) - The two banks were reportedly planning informal merger discussions of their German operations. An early 2022 meeting was arranged but did not occur due to the Ukraine war, FT said.


• 
  Visa Inc. (V), Mastercard Incorporated (MA), Western Union Company (WU), Fidelity National Information Services, Inc. (FIS), Global Payments Inc. (GPN), Fiserv, Inc. (FISV) - Goldman Sachs initiates Visa with a Conviction Buy rating, and a USD 283 price target. Mastercard initiated with a Buy rating, PT USD 460. Initiates Western Union with a Sell rating, and a PT of USD 18. FIS initiated with a Buy, PT USD 128. Global Payments and Fiserv were initiated with Neutrals.

CONSUMER CYCLICAL:

• 
  Burberry (BURBY) - FY22 revenue GBP 2.83bln (prev. 2.34bln Y/Y). FY operating profit GBP 543mln (prev. 521mln). FY retail comp sales +18% (exp. +18.7%). Maintains guidance of high single-digit revenue growth, meaningful margin accretion at CER in the medium-term. Plans a GBP 400mln share buyback.


• 
  McDonald’s Corporation (MCD) - Shareholder advisory Glass Lewis recommended investors back McDonald’s in its battle with activist investor Carl Icahn. Glass Lewis said Icahn had failed to make a sufficiently compelling case to warrant the boardroom changes he is seeking, according to Reuters. A separate shareholder group ISS this week also backed MCD over Icahn.


• 
  Tesla, Inc. (TSLA) - CEO Musk announced the automaker would host its second AI Day on August 19th, and promised “so many cool updates!” Musk explained that the purpose of the AI Day was to “convince great AI/software/chip talent to join Tesla.”

COMMUNICATIONS:

• 
  Netflix, Inc. (NFLX) - The streaming giant is laying off around 150 employees, or around 2% of its US workforce, amid a slowdown in revenue, Variety reported. The cutbacks reportedly include an elimination of 70 part-time roles in streamer’s animation studio, Variety said.


• 
  Sony Group Corporation (SONY) - CEO said that it plans to continue share repurchases in a flexible manner, Bungie acquisition will be a catalyst for live game service capabilities.


• 
  The Walt Disney Company (DIS) - Disney, ESPN & XFL reach exclusive multi-year agreement. TWDC/ESPN platforms will carry all league games starting with 2023 return season.


• 
  Twitter, Inc. (TWTR) - Elon Musk negotiated his USD 44bln Twitter deal over the weekend of April 23-24 without carrying out any due diligence, including a lack of questions regarding fake accounts, according to Twitter’s account of events within it laid out in a proxy statement. Twitter claims 5% of its user base are spam accounts, Musk claims it is around 20%, while some other researchers suggested it is between 9-15%.

INDUSTRIALS:

• 
  Air France-KLM (AFLYY) - French container transportation company CMA CGM is to take as much as a 9% stake in Air France, Bloomberg said.


• 
  Automakers - Europe New Car Sales -20.6% Y/Y in April (prev. -20.5%) amid supply chain issues. VW Group (VWAGY) -28%, Stellantis (STLA) -31%, Renault (RNLSY) - 16.3%, BMW Group (BMWYY) -17.6%, Mercedes Benz Group (MBG) -22.6%.


• 
  Northrop Grumman Corporation (NOC) - Boosted quarterly dividend by +10% to USD 1.73/shr, represents the 19th consecutive annual increase.

CONSUMER STAPLES:

• 
  United Natural Foods, Inc. (UNFI) - COO Eric Dorne is to retire from the company in late October.

18 May 2022 - 09:28- Exclusive- Source: Newsquawk