US EARLY MORNING: It's a flattish landscape ahead of key US jobs data and Services ISM

SNAPSHOT: US equity futures are trading with modest gains, Treasuries are mixed, with the short-end and belly slightly red, while the long-end is slightly green. The Dollar Index is a little better than flat. The tone of trading today will likely be shaped by Eurozone inflation data and the US jobs report, both to be released in premarket trade. We preview these events below.

GLOBAL STOCKS: Citi told its clients that it expects global equities to be range-bound this year, forecasting the MSCI AC World local index will trade between 680-780, vs current levels of around 730). The bank says that the good news is that interest rates should peak; the bad news is that it is modelling a 5-10% decline in global EPS. Citi favours European equities (where it says that more bad earnings news is priced) over the US, which it has cut to Underweight; it notes that consensus forecasts are looking for a mild recession and US inflation to fall to 3%. "This is expected to lead to slightly higher equities, slightly higher Fed Funds, lower 10yr UST yields, slightly lower USD, and lower oil and higher gold prices," it says. In terms of sectors, Citi likes defensives and cheap cyclicals (like Energy, Financials) over expensive cyclicals (Tech, Consumer Discretionary, Industrials). Meanwhile, in terms of fund flows at the start of the year, Citi's said that USD 4.6bln of outflows were seen from equity funds in the week ending January 4th, while bond funds saw inflows of USD 6.5bln. The equity redemptions were mostly from US funds, where USD 6.0bln of outflows was reported. Global funds, however, attracted inflows of USD 1.2bln, the bank says.

DAY AHEAD: In Europe, flash inflation metrics for December are expected to cool, as seen in regional updates from Germany, France, Spain and Italy; the consensus looks for the annual rate of HICP to pare back to 9.7% from 10.1%, while the core rate is seen cooling only moderately, to 6.5% Y/Y from 6.6%. European retail sales data, published at the same time as the inflation metrics, will largely be ignored given it is for November. EU sentiment surveys will be released around the same time. The US Day Ahead features the crucial US jobs data for December (our full preview can be accessed here); the expectation is for the headline rate of payrolls growth to cool, despite a few key labour market gauges suggesting the potential for upside; there will also be heavy attention on the unemployment rate and the average hourly earnings data, where the Fed wants to see wage pressures cool and the unemployment rate rise a bit to help manage inflation. The labour market report may take the sting out of the ISM services data due later in the afternoon as traders wind down for the week ahead of corporate earnings season getting into full swing next week when the banks begin reporting; traders will also be cognizant of the US CPI data due next week. On the speakers front, Fed’s Barkin (2024), Bostic (2024), and Cook (voter) will give remarks. Full Day Ahead schedule can be accessed here.

PREVIEW - US NONFARM PAYROLLS (08:30EST/13:30GMT): The rate of payrolls growth is expected to cool, with the street looking for the addition of 200k nonfarm jobs in December, which would be beneath the prior 263k rise as well as recent averages. The unemployment rate is likely to be unchanged at 3.7%, although regional Fed activity surveys suggest there are upside risks. The Fed forecasts unemployment will rise to 4.6% by the end of this year, and the central bank is comfortable with seeing the tightness in the labour market ease as it tries to bring rampant inflation back under control. On that note, the street expects average hourly earnings to cool on an annual basis (by 0.1ppts to 5.0%). Traders will interpret the data as hawkish – and therefore a negative for risk assets – if the headline and wages numbers come in above expectations, and conversely, would likely react dovishly (positive for risk assets) if they miss consensus. Our full preview can be accessed here.

TECH:

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  Samsung Electronics (SSNLF) - Samsung expects operating profit to have tumbled almost 70% in Q4 as high inflation sapped global demand for semiconductors and smartphones, the company's two key revenue sources, Nikkei reports. Samsung sees Q4 operating profit at around KRW 4.30tln (exp. 6.65tln), and Q4 revenue of KRW 70.0tln (exp. 72.77tln).


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  Cisco Systems Inc. (CSCO) - The communications equipment company has begun previously announced layoffs, cutting nearly 700 jobs in Silicon Valley last month, according to filings cited by MarketWatch.


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  OpenAI - The research lab that created the ChatGPT chatbot is in talks to sell existing shares in a tender offer that would value the company at around USD 29bln, WSJ reports. The deal would roughly double its valuation from a prior tender offer completed in 2021, when it was valued at about USD 14bln. The tender would make OpenAI one of the most valuable US start-ups on paper despite generating little revenue, the report added.


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  Duck Creek Technologies, Inc. (DCT) - Q1 EPS 0.02 (exp. 0.00), Q1 revenue USD 80.6mln (exp. 76.6mln). Exec said it was encouraged by recent performance, though is mindful of how fluid the macro environment is. Sees Q2 EPS between 0.02-0.03 (exp. 0.03), and sees Q2 revenue between USD 79.5-81.5mln (exp. 81.8mln). For FY23, it sees EPS between USD 0.13-0.14 (exp. 0.12) and sees revenue between USD 331-338mln (exp. 332mln).

COMMUNICATIONS:

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  Warner Bros. Discovery, Inc. (WBD) - CFO said the media giant was entering a new era in 2023, with this year ahead focussed on "relaunching and building" compared to 2022’s "restructuring" focus on lay-offs and content write-offs, following the April acquisition of WarnerMedia.


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  World Wrestling Entertainment, Inc. (WWE) - Controlling shareholder Vince McMahon elected himself executive chairman of WWE, in a bold return to the company after a sexual misconduct scandal, CNBC reports. McMahon said that his return was necessary as WWE prepares for negotiations over media rights and strategic alternatives, and the report adds that the media company has also been mentioned as a potential acquisition target.

CONSUMER:

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  Tesla, Inc. (TSLA) - Cut prices on its Model 3 by 13.5%, and its Model Y by 10% in China; also plans to cut prices of Model 3 and Model Y vehicles in Japan by as much as 9.9%. Additionally, Reuters reported that Tesla was lowering prices in some markets outside of China too, with the view of supporting plant output.


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  Stellantis (STLA) - CEO says the automaker could idle additional manufacturing plants amid inflation and the cost of electrifying its vehicles, Bloomberg reports. Separately, STLA intends to produce heavy duty pickup trucks powered by hydrogen. Elsewhere, it announces the establishment of car software business Mobilisights.


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  Costco Wholesale Corporation (COST) - Costco December (5wks) comparable sales (ex-gasoline, FX) +7.3% (exp, 5.0%, prev. +5.3%).


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  Bunzl plc (BZLFY) - Bunzl receives a positive mention in Barron's, which said the company was an inflation winner, and the stock 'looks like a buy'.


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  Nordstrom, Inc. (JWN) - Appoints Atticus Tysen to its Board. Tysen has more than three decades of engineering and information security experience, currently senior vice president of product development, chief information security and fraud prevention officer for Intuit.


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  Constellation Brands, Inc. (STZ) - Exec told CNBC the stock was radically undervalued, and the declines post earnings were an over rection given it beat on all points. Exec added that STZ has great cash flow.

ENERGY:

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  Shell (SHEL LN) - Ahead of FY results due February 3rd, Europe's largest O&G company said it expects to pay an additional USD 2bln of taxes in Q4 related to EU and UK windfall taxes imposed on the energy sector, Reuters reports. LNG production in the quarter would also be hit by prolonged outages at two major plants in Australia, it added. Upstream production expected to be 1.825-1.925k BOEPD, Renewables & Energy solutions adj. earnings outlook USD -500mln to 100mln, Corporate adj. Earnings Outlook -550mln to -750mln, upstream underlying OpEx USD 2.8-3.3bln. Sees working capital inflow of circa. USD 4bln for the quarter, trading and optimisation expected to be significantly higher Q/Q.

INDUSTRIALS:

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  Southwest Airlines Co. (LUV) - Southwest will update earnings guidance prior to reporting Q4 results on January 26th, Bloomberg reported. Updated guidance will reflect the costs associated with its cancellation of 15,700 flights over eight days during the Holidays.


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  Raytheon Technologies Corporation (RTX) - Raytheon mulls sale of flight controls unit, could fetch about USD 1bln, Bloomberg reports. The unit is expected to attract interest from corporate suitors and private equity firms.


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  Sodexo (SDXAY) - Reported a strong start to the year, with consolidated revenues topping consensus expectations in Q1. Q1 revenue EUR 6.3bln (exp. 6.17bln), organic growth +12.3%. Said growth was expected to be higher in H1 than H2 of 2023; maintains 2023 targets for group and benefits/rewards.

FINANCIALS/REAL ESTATE:

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  Redfin Corporation (RDFN) - Said its US pending home sales fell 32% Y/Y in the four weeks ending January 1st, to the lowest level since at least 2015.


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  Deutsche Bank (DB) - Appoints ex-Morgan Stanley executive Micahel Heaney as US Chairman.


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  Danske Bank (DNKEY) - The bank will pay USD 2bln to end a US probe into money laundering through its Estonia unit, after it plead guilty to the bank fraud conspiracy charges in December.

HEALTH CARE:

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  Pfizer Inc. (PFE) - The pharma giant plans to pull back on early-stage research into treatments for rare diseases, Barron's reports, adding that exactly what will happen to the programs and assets is not yet decided.


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  R1 RCM Inc. (RCM) - Sees FY23 revenues between USD 2.28-2.33bln (exp. 2.3bln), and EBITDA between USD 595-630mln (exp. 591mln).


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  USANA Health Sciences, Inc. (USNA) - Said active customer counts stabilised in Q4, as key markets in the APAC region saw initial signs of easing COVID lockdowns and restrictions. Exec said that as a result of the improving operating environment in most markets, sees net sales and diluted EPS for the year will be above the high end of our previous guidance range. Lifts FY22 EPS outlook to USD 3.65 (from 3.15-3.40), and lifts its FY22 revenue outlook to around USD 995mln (from 955-975mln).


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  QIAGEN NV (QGEN) - Helix announced a global strategic partnership with Qiagen to jointly develop companion diagnostics for hereditary diseases.


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  Roche (RHHBY) - US FDA has granted priority review to the Swiss pharmaceutical company's bispecific antibody Glofitamab.

06 Jan 2023 - 09:30- Research Sheet- Source: Newsquawk