US EARLY MORNING: Index futures bouncing after Friday's sharp downside; big week of catalysts ahead

US index futures are higher by 0.6-0.8% (NQ +0.8%, RTY +0.6%, YM +0.6%, ES +0.6%), seeing some reprieve after Friday’s heavy session, where the S&P 500 saw its sharpest daily decline since June 2020. Overnight, APAC stocks were pressured after China PMI data plunged, where the COVID situation and China’s zero tolerance approach is hitting activity (official manufacturing PMI fell to 47.4 vs exp. 47.3 and prev. 49.5; the official non-manufacturing PMI fell to 41.9 exp. 46.0 and prev. 48.4). It is worth noting that there are a few market closures this week in Asia that could impact overnight liquidity. The European day has started on the back foot, with UK players away today for a bank holiday. The upside action in US futures is being framed as technical after Friday’s selling, and the focus will shift onto a big week full of potential catalysts, including the FOMC meeting (Weds) – which is expected to bring a 50bps rate hike and QT – ISM surveys, and the key US jobs report. There are other global events, like the BoE, RBA, Norges Bank, as well as the OPEC+ monthly confab, while geopolitical tensions continue to linger. In terms of earnings, Goldman Sachs notes that 55% of S&P 500 firms have now reported Q1 results, and have generally been beating low expectations; Q1 EPS growth is currently +9% Y/Y vs expectations of +5% as we were heading into Q1 reporting. The bank says that some of the choppy price action seen of late has been exacerbated by positioning, which could offer the bulls some hope given that very light investor positioning has historically been indicative of a near-term rally. GS also notes that the volatility has coincided with the buyback blackouts, where corporates are restricted from repurchasing shares. "The blackout window has therefore limited a key source of demand for equities," GS writes, but "by next week, most firms will have exited their blackout windows"; GS expects S&P 500 buybacks will grow +12% Y/Y this year and remain the largest source of demand for US equities, supported by solid earnings growth and large corporate cash balances. But it warns that the sector mix of buybacks is likely to see a shift, where bank names are likely to lower buybacks as they build capital ratios, however, tech companies have generally been reassuring on their intentions to return cash to investors through the reporting season (see AAPL and GOOG's recent announcements, for instance). "Stocks returning cash to shareholders typically outperform as economic growth decelerates," GS writes, "Our economists expect the Fed will raise interest rates to engineer a slowdown in economic activity, and when growth slows, a sector-neutral portfolio of stocks spending the most on buybacks and dividends as a share of market cap typically outperforms stocks spending on capex and R&D." Goldman continues to recommend stocks with high dividend yield and growth, noting that the former currently trade at attractive valuations and usually outperform amid high inflation. Our 'Day Ahead' calendar can be accessed here. Notable US earnings today include MCO, NTR; our full daily earnings estimate sheet can be accessed here. Other notable US companies reporting this week include: EL, PFE, SPGI, ABNB, SBUX, AMD, MRNA, CVS, BKNG, ZTS, COP, CI; our full weekly earnings estimate sheet can be accessed here.

FINANCIALS:

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  Berkshire Hathaway (BRK) - Q1 Class A shares EPS USD 3,702/shr (exp. 4,581), Q1 net income USD 5.46bln (exp. 6.76bln); net earnings attributable to BRK holders USD 5.46bln (vs 11.71bln Y/Y), operating earnings USD 7.04bln (vs 7.02bln Y/Y). BRK reported net losses from investments and derivatives of USD 1.58bln (vs profits of USD 4.69bln Y/Y). BRK said around two-thirds of its aggregate fair value of investments was concentrated in American Express (AXP), Apple (AAPL), Bank of America (BAC) and Chevron (CVX) at the end of the quarter. Purchased USD 51.1bln worth of equities in the quarter, and ended to quarter with USD 106.2bln of cash.


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  Berkshire Hathaway (BRK), Warren Buffet, Charlie Munger - At Berkshire Hathaway's AGM, Warren Buffett said Berkshire would always have a lot of cash on hand. Buffett was also critical of current trading dynamics, stating that they resembled a casino, or gambling parlour over the last two years, and this was being encouraged by Wall Street; but still, Buffett said Berkshire's investment opportunities had been sizeable. Shareholders re-elected all 14 directors, rejected a proposal to require more disclosures about climate risks, plans to reduce greenhouse gasses, diversity.


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  Crypto Currencies, Berkshire Hathaway (BRK) - Berkshire exec Charlie Munger at its AGM said if someone advised you to put your retirement money into crypto currencies, just say no. Warren Buffet said investors were attracted to Bitcoin because it has a “magic” to it, and people have attached “magic” to a lot of things; Buffet claimed that he would not buy all the Bitcoin in the world for USD 25.


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  HSBC (HSBC) - The bank leaned-back against calls made by key shareholder Ping An to spin-off its Asia business and list in Hong Kong, SCMP reported. Exec said first and foremost, HSBC remains a global institution, but with strengths within its global franchise, which included Asia, the Middle East, and the UK.


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  Deutsche Bank (DB) - Glass Lewis said Deutsche Bank investors should abstain from a vote approving management actions during FY21 at the upcoming AGM due to ongoing money laundering investigations.


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  UK/EU Financials - City of London Corporation said the UK and EU need to finalise an MOU on regulatory co-operation.


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  Brown & Brown (BRO) - Entered into an agreement to acquire the general insurance operations of Quinlan Insurance.

COMMUNICATIONS:

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  Activision Blizzard (ATVI), Microsoft (MSFT), Berkshire Hathaway (BRK) - Berkshire raised stake in Activision, now owns 9.5% of the game maker. Berkshire's raising stake was a merger arbitrage bet that its acquisition by Microsoft will close. Warren Buffet explained "Occasionally I’ll see an arbitrage deal and do it," adding that "Occasionally it looks like the odds are in our favour, but absolutely we can lose money on that company, fairly large sums of money, depending on what happened if the deal blows up."


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  Nintendo (NTDOY) - Nintendo expects 10% fewer sales of its Switch console due to supply chain woes, Nikkei reported; Shanghai lockdown and chip shortages are complicating its fiscal 2022 production plans.


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  Twitter (TWTR) - Founder Jack Dorsey said the social media company has always tried to do its best given the information it had. Some things with the company can be fixed immediately, others require rethinking and reimplementing an entire system, and said that a transparent system was the way it can earn trust. "Whether it's owned by a company or an open protocol doesn't matter." Dorsey added that "what matters is how the service works and acts, and how quickly it learns and improves. My biggest failing was that quickness part. I'm confident that part at least is being addressed, and will be fixed."


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  Twitter (TWTR), Tesla (TSLA) - Barron's argues that there are plenty of challenges for Elon Musk, and he will need to make the social media giant a financial success. Despite DAUs of 229mln, Twitter has failed to generate significant profits, and financial risks will rise once Musk takes the company private (if his bid succeeds), with Twitter taking on USD 12.5bln of debt to finance what Barron's says amounts to a leveraged buyout. Another piece in the newspaper suggested that Musk could turn the business around after taking it private. While yet another piece argued that Tesla investors' fear about the impact the Twitter deal could have on the automaker are overdone.


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  Spotify (SPOT) - Negative mention in Barron's; says it saw podcasting as a panacea, but instead, it has produced lots of costs, adding that SPOT was falling short in ways that bode poorly for the stock.

TECH:

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  Apple (AAPL) - Apple suppliers are among those taking precedence in efforts to restart factories in the Shanghai, WSJ reports. Separately, the journal says Apple aims to start designing the modems of the iPhone, iPad and Apple Watch as it plans to take another bite of the microchip market; WSJ cites "moves by the tech giant, as well as signals from its suppliers."


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  NortonLifeLock (NLOK) - SEC does not intend to recommend any enforcement actions against NortonLifeLock following an investigation announced in May.


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  Lyft (LYFT) - Restated FY21 results due to an accounting error where it understated cost of revenue, loss from operations, loss before income taxes and net loss of USD 52.8mln for the FY21, USD 28.2mln for Q1 and Q3 2021. The restatement does not affect its previously reported revenue, cash flows, cash position or the adjusted financial measures.

CONSUMER CYCLICAL:

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  Alimentation Couche-Tard (ANCTF), BP (BP), Starbucks (SBUX) - Couche-Tard is reportedly eying UK retailer EG Group at USD 16bln+ valuation including debt, WSJ said; deal would combine BP gas stations, roadside Starbucks, Circle K and Cumberland Farms grocery. But no deal has been reached thus far, and it might not even happen, sources said.


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  Carnival (CCL), Royal Caribbean Group (RCL), Norwegian Cruise Line Holdings (NCLH) - Cruise names, which are still bearing the scars of the pandemic, were positively mention in Barron's; the newspaper said cruise customers have returned, and shares could benefit from this over the summer.


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  Lithia Motors (LAD) - Positive mention in Barron's; says the used-car dealer's stock could rise +65%, and that is a reason to buy it.

ENERGY:

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  Chevron Corporation (CVX), Berkshire Hathaway (BRK) - Berkshire added to its Chevron stake in the quarter, which is now its fourth largest equity holding, boosting its stake from USD 4.5bln to USD 25.9bln by the end of March.

INDUSTRIALS:

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  Lockheed Martin Corporation (LMT) - Awarded a USD 204.7mln US Army Contract, and a USD 223.99mln Army contract modification. The US Missile Defense Agency also awarded LMT a USD 304.9mln contract modification.


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  Raytheon Technologies Corporation (RTX) - Awarded a USD 102.2mln Navy contract.

MATERIALS:

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  ArcelorMittal (MT) - Successfully tested the use of green hydrogen in order to reduce iron ore, a milestone for the industry, FT reported.

REAL ESTATE:

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  Weyerhaeuser Company (WY) - CEO discussed returning 75-80% of cash to shareholders and raising its quarterly dividend in Q1 on CNBC. Said Japan continues to strong, and talked up the company's ESG credentials.

02 May 2022 - 09:23- EquitiesResearch Sheet- Source: Newsquawk