US EARLY MORNING: Nasdaq-100 futures higher after solid Nvidia (NVDA) results; debt ceiling concerns prompt Fitch to revise US outlook; Weekly claims and GDP data eyed

OVERNIGHT: Stocks on Wall Street fell as debt ceiling talks once again failed to yield a breakthrough, while the rising risk of default prompted Fitch Ratings to place the US on rating watch negative (see below for our recap); the FOMC minutes were in keeping with recent commentary made by officials (recap below); afterhours, Nvidia (NVDA) earnings were solid, seeing the company’s stock surge over 20%, and supporting the Nasdaq-100 index, where it holds a 5.5% weight. Our US wrap is here. Asian stocks traded mostly lower with the region cautious following the losses on Wall St. Aussie shares weakened as the commodity-related sectors led broad declines, while sentiment was also dampened on news that households are set to pay more in electricity bills. South Korean shares were subdued after the BoK rate decision, where rates were left unchanged, but six of the seven board members left the door open for further tightening. Our APAC wrap is here. European shares tilted lower after the open; a detailed look at German GDP growth in Q1 saw the headline revised to -0.2% Y/Y (exp. 0.2%) and -0.3% Q/Q, confirming that the German economy entered a technical recession. German GfK Consumer Sentiment improved slightly to -24.2 in June (exp. -24.0, prev. -25.8). In the UK, Ofgem sets the energy price cap for July-September at GBP 2,074 (prev. 3,280); the regulator added that, in the medium-term, the UK was unlikely to see prices return to pre-energy crisis levels. In France, data showed the manufacturing business climate easing to 99 in May (exp. 101.0, prev. 101.0). Our European open note is here. 

US PRE-MARKETS: US equity futures are mixed. The Nasdaq-100 is outperforming after index heavyweight Nvidia (NVDA) reported solid results after Thursday's close; the US chipmaker is seen as a bellwether for the AI sector given its semiconductors are used in powering AI-driven applications. The NVDA (and NDX) outperformance afterhours may be camouflaging the caution in other indices however, with S&P 500 futures more subdued, while Dow and Russell futures are negative as debt ceiling concerns linger; while sides remain optimistic a deal can be reached to avoid a default, Fitch Ratings revised its outlook for US credit to watch negative. Additionally, in Europe, data this morning confirmed that Germany was in a technical recession following two consecutive quarters of negative growth, and that news is keeping enthusiasm curbed on the continent this morning. Treasury yields are up by 2-4bps, with the short-end underperforming in wake of the FOMC's May meeting minutes, which were in fitting with more recent Fed commentary, and revealed mixed views on interest rate hikes. Goldman Sachs said Fed officials were divided on their near-term policy outlook, and that means that they are likely to pause in June. Other analysts have suggested that the data will drive the narrative for the post-June meetings; the Fed is predicting a mild recession, and participants expect below-trend growth in 2023, but inflation is still seen as too high, while core inflation declining slower than expected. Over the next couple of days, economic data will be released to help shape these views; today we will get a second look at US Q1 GDP, and any upward revisions will be used to build a case that growth has been more resilient than feared, while any downside will further catalyse arguments that the Fed will need to lower rates later this year (even though some officials say that this discussion is not on the cards until next year); weekly initial jobless claims will also offer insight into these trends. Meanwhile, Friday sees the release of personal income, spending and PCE prices - the Fed's preferred gauge of inflation, and timelier than what is in the Q1 GDP data.

DEBT CEILING: House Speaker McCarthy remains optimistic about the prospects of reaching a deal to avoid default, and believes an agreement is possible before June 1st. But analysts remain concerned: after the close, Fitch Ratings placed US on ratings watch negative, citing debt ceiling brinkmanship as X-Date approaches, though the CRA still expects a resolution before June 1st (see here). The White House said Fitch's updated reinforced the need for Congress to act quickly to pass a bipartisan agreement. Treasury Secretary Yellen reiterated her stark warnings the consequences of failing to reach a deal. US House Leader Scalise confirmed the planned Memorial Day weekend recess, but said debt ceiling talks will continue, and lawmakers should be prepared to return to Washington within 24 hours if a deal is reached. Members would have 72 hours to review any debt ceiling bill. Other reports said Republican leadership was reportedly optimistic about debt limit negotiations after days of slow progress, according to some reports.

FOMC MINUTES: Whilst Fed policymakers agreed "the extent to which additional increases in the target range may be appropriate after this meeting had become less certain," which resulted in a tweak to its statement guidance, "some" said that "based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings." "Some" thought more hikes would be needed, "several... noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary," whilst "many" recognised "the need for optionality." On the fiscal circus in Washington, officials had "concerns that the statutory limit on federal debt might not be raised in a timely manner, threatening significant disruptions to the financial system and tighter financial conditions that weaken the economy." Analysts said that the minutes were in fitting with more recent Fed commentary, and has revealed mixed views on interest rate hikes. Our full recap is here.

TODAY’S AGENDA:

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  NORTH AMERICAN DATA/SPEAKERS: Weekly initial jobless claims, and continuing claims (the latter coincides with the BLS jobs data survey window). A second look at US GDP in Q1 will be eyed to see if it is revised up, given the constructive tone of US macro data releases recently. Even though the data is for Q1, analysts say that upward revisions could reinforce recent arguments that the US economy is more resilient than was feared at the start of the year. Elsewhere, the Chicago Fed's National Activity Index, and Kansas City Fed monthly activity metrics are due. On the speaker's slate, Fed's Barkin (non-Voter, Neutral) speaks in Virginia, while Fed's Collins (non-Voter, Neutral) will speak at the Rhode Island Community College.


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  CORPORATE EARNINGS: Today's slate includes MDT, BBY, DLTR, RL, ADSK, WDAY, MRVL, ULTA, COST, and GPS. The Daily US Earnings Estimates note is here.


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  ENERGY: NatGas inventories likely rise 100BCF this week (prev. 99BCF), data released at 10:30EDT is expected to show.

EQUITY NEWS:

CHINA RELATED:

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  US-CHINA: China's Commerce Minister Wang is scheduled to meet with US Commerce Secretary Raimondo, according to Reuters. The news follows reports on Tuesday that US National Security Advisor Sullivan proposed a phone call between Presidents Biden and Xi in June, with hopes for in-person talks in September, SGH Macro said. China's Commerce Minister Wentao is set to hold talks with US Commerce Secretary Raimondo and USTR Tai on May 25-26th. However, the Chinese side has reportedly got only modest expectations for this meeting. Additionally, the US and Chinese Defense Ministers are expected to have discussions from June 2-4th. Beijing sources suggest that the justification for the Xi-Biden meeting is the perceived softer tone of the G7's stance on China compared to initial indications.


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  Microsoft (MSFT), Fortinet (FTNT) - Microsoft said it had uncovered targeted malicious activity by Chinese state-sponsored actor Volt Typhoon, aiming at critical infrastructure in the US. The attack focuses on credential access and network discovery, with the potential to disrupt communications infrastructure during future crises. Volt Typhoon achieves initial access to targeted organisations through internet-facing Fortinet FortiGuard devices, MSFT said.


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  US-Listed China Companies - Over a dozen US-listed Chinese firms have shifted auditors to US and Singapore to mitigate delisting risk under the Holding Foreign Companies Accountable Act, Nikkei reports. The law requires compliance with US accounting standards, including auditor inspections by the PCAOB.

TECH:

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  Nvidia (NVDA) - Stock surged in afterhours trading as it topped expectations on high demand for AI chips, and NVDA boosted its forecasts. Q1 adj. EPS 1.09 (exp. 0.92), Q1 revenue 7.19bln (exp. 6.52bln). Q1 Data centre revenue USD 4.28bln (exp. 3.91bln); Q1 Gaming revenue USD 2.24bln (exp. 1.98bln); Q1 Professional Visualization revenue USD 295mln (exp. 246.6mln); Q1 adj. GM 66.8% (exp. 66.6%); Q1 FCF 2.64bln (exp. 2.94bln). CFO said Data centre revenue rise was led by growing demand for generative AI and large language models using GPUs. Automotive design win pipeline has grown to USD 14bln over the next six years, up from USD 11bln a year ago. Exec also said that channel inventory correction was resolved, and it has secured ample data centre chip supply. Sees Q2 revenue at around USD 11bln (exp. 7.18bln).


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  Snowflake (SNOW) - Fell in afterhours trading post-results. Q2 adj. EPS 0.15 (exp. 0.05), Q2 revenue USD 623mln (exp. 610mln). Sees FY product revenue outlook at around USD 2.6bln (exp. 2.71bln, prev. 2.71bln). However, the company cited an unsettled demand environment and cost concerns, and lowered its FY product sales outlook to USD 2.6bln (exp. 2.71bln, prev. 2.71bln). It said that bookings were affected globally, except for North American large enterprise segment, due to customer hesitation in signing long-term deals, not competitive pressures. Snowflake announced that it was to acquires Neeva to bring intelligent search to its cloud data management solution.


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  NXP Semiconductors (NXPI) - Sir Peter Bonfield, the founding chairman of NXP Semiconductors, has retired from the NXP board. Julie Southern has been appointed as the new chair. At the annual general meeting, all nominated directors, including Moshe Gavrielov, were elected to the board.


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  Cadence Design (CSNS) - CEO told CNBC that it was a leader in package design software for complex chips, and expressed enthusiasm for government investment in manufacturing and R&D. Said the CDNS was investing 35% of revenue in R&D.


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  Splunk (SPLK) - Splunk beats expectations in Q1, with surprise profit. Execs said that its focus on cost control was paying off. Shares rose over 8% in late trading. Q1 EPS 0.18 (exp. -0.13), Q1 revenue USD 0.75bln (exp. 0.72bln). Sees FY24 revenue around USD 3.9bln (exp. 3.89bln), and lifted its FY24 adj. operating margin outlook to between 18-18.5% from 16.5-17.5%.


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  Stratasys (SSYS), Desktop Metal (DM) - Stratasys in talks to buy Desktop Metal in all-stock deal to form a top 3D printer company with Stratasys shareholders having a majority, Bloomberg reports. A deal could be worth USD 1.8bln, and an announcement is possible this week.


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  UiPath (PATH) - Fell 8% afterhours. Q1 EPS 0.11 (exp. 0.02), Q1 revenue USD 289.6mln (exp. 271mln), Q1 net new ARR USD 45mln. Sees Q2 revenue between USD 279-284mln (exp. 284mln), and sees Q2 ARR between USD 1.301-1.306bln. For the FY24, lifts view, sees revenue between USD 1.267-1.272bln (exp. 1.25bln) form 1.253-1.258bln.


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  Ericsson (ERIC) - US District Court has dismissed a securities claim against the company.

CONSUMER:

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  Amazon (AMZN) - Amazon investors rejected all 18 shareholder proposals, including workers' rights, union rights, pay equality, and animal welfare, Reuters reports.


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  Nike (NKE) - Announced leadership changes to enhance momentum, focus on innovation, athlete service, brand storytelling, and business integration. President of Consumer & Marketplace Heidi O’Neill will become President of Consumer, Product & Brand; President of the Jordan Brand Craig Williams will become President, Geographies & Marketplace; Matthew Friend, EVP & Chief Financial Officer, will expand his responsibilities to include Procurement, Global Places & Services and Demand and Supply Management.


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  Royal Caribbean (RCL) - Director Arne Wilhelmsen sold 578,800 shares at USD 80.53/shr for a total USD 46.6mln.


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  Guess (GES) - Q1 adjusted EPS -0.07 (exp. -0.28), Q1 revenue USD 570mln (exp. 555.6mln). Boosts quarterly dividend to 0.30/shr (prev. 0.225/shr). Exec said international businesses were particularly strong during the quarter, helping to more than offset softness in its Americas Retail business as a result of slower customer traffic into stores. Sees Q2 adjusted EPS between 0.35-0.42 (exp. 0.48), and sees Q2 revenue down 1.5% to flat (exp. 646mln). Raises FY24 EPS outlook to USD 2.60-2.90 (exp. 2.66) from 2.45-2.80, and lifts FY24 revenue view to growth of between 2-4% from 1-3%.


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  American Eagle (AEO) - Fell 15% afterhours following disappointing guidance. Q1 adj. EPS 0.17 (exp. 0.17), Q1 revenue USD 1.1bln (exp. 1.07bln). Sees Q2 revenue down low single digits (exp. 1.2bln). Sees FY24 sales flat to down low single digits (exp. 5.1bln).

HEALTHCARE:

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  Boston Scientific (BSX) - Boston Scientific has cancelled its USD 230mln deal to buy a majority stake in M.I. Tech, a Korean surgical tools company, STAT News reports. Instead, BSX will buy a smaller share of about 10% and complete the purchase later this year.


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  Illumina (ILMN) - Activist investor Carl Icahn is set to win enough shareholder support to install at least one of his three nominees to Illumina's board, Reuters reports citing sources.


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  Novartis (NVS) - EMA accepts Sandoz marketing authorisation application for proposed biosimilar denosumab.

COMMUNICATIONS:

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  Sony (SONY) - Sony's PlayStation Showcase event featured new game announcements and trailers for PlayStation 5 and PlayStation VR 2, including "Metal Gear Solid: Snake Eater" and "Metal Gear Solid Master Collection," "Final Fantasy XVI" releasing on June 22nd, "Assassin's Creed Mirage" on October 12th, a virtual reality mode for "Resident Evil 4" remake, a reboot of "Marathon," and a new trailer for "Spider-Man 2." Sony also revealed Project Q, a PlayStation 5 controller with an 8-inch screen.


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  DoorDash (DASH) - General Counsel Tia Sherringham sold 12,200 shares for a total USD 818.6k; CFO Ravi Inukonda sold 12,600 shares for a total USD 839.4K.

ENERGY:

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  Crude Prices - Russia Deputy PM does not see new steps being taken at the June 4th OPEC+ meeting, sees Brent crude prices above USD 80/bbl by the end of this year.


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  Aker BP (AKRBY) - Announced a significant oil discovery near Yggdrasil, with a prelim estimate for a GRV between 40-90mln BOE. Eni (ENI IM) and Sonangol are to expand cooperation in decarbonisation and sustainable energy transition areas.

INDUSTRIALS:

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  Rocket Lab (RKLB) - Rocket Lab is readying a second Electron launch deploying storm monitoring satellites for NASA, named Coming To A Storm Near You, scheduled for May 25th from New Zealand's Mahia Peninsula.


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  EnerSys (ENS) - Q4 adj. EPS 1.82 (exp. 1.38), Q4 revenue USD 989.9mln (exp. 951mln). Sees Q1 adj. EPS between USD 1.77-1.87 (exp. 1.34), sees Q1 GM between 24.5-26.5%.

MATERIALS:

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  Antofagasta (ANFGF) - Centinela mine supervisory union accepted contract negotiations in order to avoid strike action.

FINANCIALS:

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  Tradeweb Markets (TW) - Tradeweb confirms it is to acquire Yieldbroker, an Australian trading platform for bonds and derivatives, in an AUD 125mln transaction, which is said would enhance its fixed income markets offerings.


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  Equitable Holdings (EQH) - Boosts quarterly dividend +10% to 0.22/shr.


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  London Stock Exchange (LNSTY) - CFO Manz to step down at the end of her 12-month notice period in May 2024.

REAL ESTATE:

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  WeWork (WE) - WeWork appoints Kurt Whener as CFO, following Andre Fernandez's resignation. No disagreement was cited.

25 May 2023 - 09:01- Fixed IncomeData- Source: Newsquawk