US EARLY MORNING: Risk assets are trading cautiously ahead of more earnings reports and a whole lot of central bank speak

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  OVERNIGHT: Wall Street saw another choppy session, with initial losses pared gradually as the VIX hit lows not seen since 2021 (see our US market wrap here). Overnight, APAC stocks were rangebound following a flat handover from Wall Street (see our APAC wrap here). New Zealand CPI cooled to 1.2% Q/Q (exp. 1.7%, prev. 1.4%), with the annual measure paring to 6.7% Y/Y (exp. 7.1%, prev. 7.2%); Westpac noted that inflation was weaker than expected, and has now fallen short of the RBNZ's forecasts for a second quarter. European equities opened around flat/mixed after a heavy morning of corporate earnings, and ahead of ECB meeting minutes as well as a heavy dose of commentary from ECB officials today. Data released this morning showed German Producer Prices falling 2.6% M/M in March (exp. -0.5%, prev. -0.3%) with the annual gauge paring to 7.5% Y/Y (exp. 9.8%, prev. 15.8%). From France, the manufacturing business climate index cooled to 101 in April (exp. 103.0, prev. 104.0); flash PMI data on Friday will help refine analysts’ views (our European equity open note can be accessed here). 


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  US PRE-MARKETS: Global markets are trading cautiously on Thursday morning, with US equity futures and Treasury yields both lower, while the Dollar Index is around flat. Earnings reports have been mixed; in autos, Tesla (TSLA) is trading lower after its earnings report showed margin compression. The banks that reported afterhours (DFS, ZION) are both lagging; the REIT names that reported after the close yesterday (BDN, CCI, SLG) said nothing to suggest that higher yields and concerns around commercial real estate are impacting performance just yet.. The tech landscape is also mixed, with the Big Blue (IBM) higher after its earnings report, though Nokia Oyj (NOK) is lower in European trade after warning that it was starting to see some signs of the economic environment impacting customer spending. In semis, LRCX is higher but TSM lower after their respective updates. In materials, AA and STLD are both lower. And amid the mixed earnings, there are reports noting the uncertainties regarding global central banks and their normalisation curves. Over the next couple of weeks, we are due to get policy announcements from the Fed, ECB and BoE; the Fed is expected to fire its final 25bps hike in May, although the BoE will likely remain hawkish after hot inflation and wages data, while the ECB's trajectory remains subject to uncertainty, though sell-side desks have been raising expectations of the terminal rate this week. Today's events – more earnings and more central bank speak – is likely to see the anxiety continue.


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  VIX VS MOVE: Traders note that the VIX has printed fresh 52-week lows, while MOVE has been trending upwards, and many have cited the divergence is due to uncertainties around central bank policy. The dynamic is worth watching as we head into a number of key G10 central banks updates over the coming weeks. The VIX index has fallen to 52-week lows, seemingly falling on expectations of a soft landing, while the recent banking crisis makes it more likely that the Fed will eventually relent on its hawkishness; some however, make the point that the Fed may not be eager to lower rates with volatility so low (the Fed typically cuts when volatility spikes, like in 1990, 1998, 2002, 2008, 2020). The volatility of bond markets, judged by the MOVE index, however, is high; Evercore says the index is in recessionary territory, and is consistent with a volatile economic climate and financial shocks whipsawing Treasury yields. Bloomberg notes that divergence between the VIX and MOVE are not unprecedented (2015, 2020, 2021 for instance), but the recent episode has lasted longer than expected. Indeed, Evercore notes that the gap is now almost 14 months old, and is several months past due to narrow.

DAY AHEAD:

• Our full interactive calendar can be accessed here; a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: The main event is the meeting minutes from the ECB’s March meeting; ahead of the May 4th policy meeting, the debate seems to be on whether it lifts rates by 25bps or 50bps, and traders will look for clues within the minutes. That said, it is worth noting that we have had more timely commentary from key ECB officials this week, most notably, chief economist Lane who essentially reiterated the central bank's data dependent stance, adding that the April bank lending survey will be an important input for the May meeting. We have more thoughts detailed below. Elsewhere, Eurozone flash consumer confidence for April and trade data for February will be released. On the speaker’s front, ECB President Lagarde will give (another) set of comments, though today’s will be from a pre-recorded event; ECB’s markets chief Schnabel will speak again today too. On the supply front, Spain will sell between EUR 5.5-6.5bln of 2029, 2033 and 2048 debt; France will sell between EUR 10-11.5bln of 2026 and 2029 debt, as well as between EUR 1.25-1.75bln of 2028 and 2053 linkers.


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  NORTH AMERICAN DATA/SPEAKERS: Weekly initial jobless claims data coincides with the survey window for the monthly US jobs data, and is expected to be little changed in the week; similarly continuing claims (next week’s continuing claims data will coincide with the monthly jobs data) are seen little changed. The April Philly Fed survey will help to shape expectations for the ISM data due early May; this week, the Empire Fed equivalent surprised to the upside, giving hopes the ISM Data could look decent too. Existing home sales for March are seen poaring a touch vs Feb levels. The US leading index for March is expected to worsen. It is a busy docket for Fed speakers, as they clamour to get their commentary in ahead of the blackout window that begins at the end of this week ahead of the May policy meeting: Fed's Waller (voter) will speaking on Global Interdependence; he recently backed an interest rate hike in May, and said high inflation and a strong jobs market meant that policy needed to be tightened further. Fed 2023 voter Logan has not made policy related remarks since February, when she was arguing that the Fed’s primary focus was to reduce inflation. Fed 2024 voter Mester will speak on the economic policy outlook; she recently argued that an interest-rate cut – as money markets are pricing – would be 'bad policy' at this point. Fed's Bowman (voter) is also due to make comments, as is Fed's Bostic - both have spoken in recent days. From Canada, the BoC’s Macklem and Rogers are due to make comments. On the supply front, the US will sell USD 21bln of 5yr TIPS.


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  US CORPORATE EARNINGS: Earnings reports are due from BX, TSM, T, PM, AXP, UNP; our full earnings estimates are available here. Other notable companies reporting this week include PG on Friday; our full Weekly US Earnings Estimates can be accessed here.


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  ENERGY: WTI May 2023 futures expire today. The EIA will release weekly NatGas inventory data; this week, the street looks for a build of 69BCF after last week's build of 25BCF.


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  PREVIEW – ECB MEETING MINUTES (12:30BST/07:30EDT): Despite market pricing ahead of the meeting being around 65% in favour of a 25bps hike at the meeting, the ECB defied calls for such a move and stuck with its February guidance of a 50bps increase. The Governing Council justified such a move by noting that inflation was projected to remain too high for too long. With regards to financial stability, the statement noted that “the euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed”. From a guidance perspective, the GC is no longer guiding towards rate hikes and merely refers to “rate decisions”, which will be data-dependent. At the follow-up press conference, Lagarde noted the Board proposed no other option compared to the one taken. This decision was adopted by a very large majority, though three or four did not support the decision and wished to wait for more time. In the wake of the meeting and press conference, Reuters ECB sources noted the debate at the meeting was for either 50bps, or an unchanged decision, and that policymakers opted for the 50bp move after the SNB lifeline to Credit Suisse, while there was no discussion of a 25bp move. Bloomberg sources also noted that policymakers feared that ditching their 50bp hike guidance might panic investors, while on the terminal rate, hawkish officials still saw rates well above the current 3% level, although the doves questioned whether the peak may be lower than initially thought. Any further colour on these discussions and what they could mean for the May meeting will be of note for the market, however, as always, the account of the decision may be deemed as stale in some quarters.

EQUITY NEWS:

FINANCIALS:

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  Discover Financial Services (DFS) - Q1 EPS 3.58 (exp. 3.91), Q1 revenue net of interest expenses USD 3.75bln (exp. 3.67bln). Raises dividend +17% to USD 0.70/shr, approves new USD 2.7bln share buyback programme over 5 quarters. Q1 consumer deposits +7% Q/Q. 30-day card delinquencies +23bps Q/Q, personal loans delinquencies +11bps. Q1 loans were +0.5% Q/Q at USD 112.7bln (exp. USD 110.96bln); Q1 provisions for credit losses was USD 1.1bln (exp. USD 968mln). Q1 charge-offs were 2.72% (exp. 2.9%). Q1 net interest income USD 3.13bln, non-interest income USD 621mln. Expects loan growth to be low to mid teens (prev. saw loan growth to be low double digits).


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  Zions Bancorporation (ZION) - Shares slipped afterhours as it reported quarterly profits that missed expectations due to higher provisions, NIM gained though still short of expectations, while it saw a 3% Q/Q decline in deposits. Q1 EPS 1.33 (exp. 1.51), management said EPS was impacted by 0.06 worth of headwinds; Q1 total deposits USD 69.21bln (exp. 69.49bln), Q1 total loans and leases USD 56.33bln (exp. 56.18bln). Q1 net interest income 3.33% (exp. 3.37%), Q1 net interest income USD 635mln (exp. 670mln).

REAL ESTATE:

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  Brandywine Realty Trust (BDN) - Q1 FFO/shr 0.29 (exp. 0.29); backs FY23 FFO view. Exec said it continues to see positive mark-to-market rent increases of 14.9% and 4.2% on an accrual and cash basis. Continues to make progress on all active development and redevelopment projects, with two scheduled for delivery later this year. Saw a +10% rise in its leasing pipeline, exec said it was evidence of tenant preferences in flight to quality workplaces.


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  Crown Castle Inc. (CCI) - Q1 adj. FFO/shr 1.91 (exp. 1.94), Q1 revenue USD 1.62bln (exp. 1.8mln). Sees FY23 adj. FFO/shr between 7.58-7.68 (exp. 7.64).


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  SL Green Realty Corp. (SLG) - Q1 FFO/shr 1.53 (exp. 1.41). Signed 504.6K sqft of leases in Q1 (exp. 500k). Mark-to-market on signed Manhattan office leases was +5.3% in Q1. Manhattan same-store office occupancy 90.2%; backs goals to increase Manhattan same-store office occupancy to 92.4% by end-2023.

TECH:

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  Alphabet Inc. (GOOG) - Google will deploy generative AI to create sophisticated ad campaigns, FT reports, as big tech groups race to incorporate the groundbreaking new technology into their products.


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  Calix, Inc. (CALX) - Q1 EPS 0.31 (exp. 0.28), Q1 revenue USD 250mln (exp. 245.6mln). Sees Q2 EPS between 0.28-0.34 (exp. 0.29), and sees Q2 revenue between USD 255-261mln (exp. 249.3mln).


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  F5, Inc. (FFIV) - Tumbled almost 5% in afterhours trading on weak guidance. Q2 EPS was 2.53 (exp. 2.42), Q2 revenue USD 703mln (exp. 699mln). Management said that given the persistent macro uncertainty, impact on customer spending, now sees Q3 EPS between USD 2.78-2.90 (exp. 3.05), and sees Q3 revenue between USD 690-710 (exp. 747mln); for the FY23, lowers revenue growth outlook to 'low-single-digits' (prev. saw growth of 9-11%). Also announced on Wednesday that it was lowering its workforce by around 9% (620 employees).


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  Hon Hai Precision Industry (HNHPF), Apple Inc. (AAPL) - Apple supplier Foxconn plans to set up a new facility in the southern Indian state of Karnataka to produce as many as 20mln iPhones a year, and is expected to employ 50,000 people, according to the WSJ.


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  International Business Machines Corp (IBM) - Q1 EPS 1.36 (exp. 1.26), Q1 revenue USD 14.25bln (exp. 14.35bln); Q1 software revenue +2.6% Y/Y to USD 5.92bln (exp. USD 5.76bln); Q1 consulting segment revenue +2.8% Y/Y to USD 4.96bln (exp. USD 5.01bln); Q1 infrastructure revenue -3.8% Y/Y to USD 3.10bln (exp. USD 3.26bln); Q1 financing revenue +27% Y/Y to USD 196mln (exp. USD 160.2mln), Q1 adjusted gross margin 53.7% (exp. 53%), and Q1 free cash flow +8.1% Y/Y to USD 1.34bln (exp. USD 2.18bln). Exec said it was seeing some deceleration in consulting from the previous robust growth levels, especially in the US. Still sees free cash flow about USD 10.5bln (exp. 10.28bln), and sees FY constant currency revenue growth of 3-5%; saw growth consistent with its mid-single digit model.


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  Lam Research Corporation (LRCX) - Q3 adj. EPS 6.99 (exp. 6.54), Q3 revenue 3.87bln (exp. 3.83bln). Q3 systems revenue USD 2.26bln (exp. USD 2.27bln). Q3 customer support-related revenue and other USD 1.61bln (exp. USD 1.54bln). Q3 adj. gross margin 44% (exp. 43.8%). Q3 adj. operating margin 28.3% (exp. 27.5%). Q4 EPS seen between 4.25-5.75 (exp. 5.55), and Q4 revenue seen between USD 2.8-3.4bln (exp. 3.45bln).


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  Nokia Oyj (NOK) - Nokia said it was starting to see some signs of the economic environment impacting customer spending. Exec said that "given the ongoing need to invest in 5G and fibre, we see this primarily as a question of timing; nevertheless will maintain our cost discipline to ensure we can successfully navigate this uncertainty." Q1 sales EUR 5.859bln (exp. 5.72bln), adj. EPS 0.06 (exp. 0.07), EBIT EUR 426mln (exp. 532mln). FY23 guidance unchanged in constant currency. CEO said expectation is that H2 profitability will be stronger than H1. Sees 5G North American slowdown continuing in Q2. Cloud and Network Services achieved net sales growth of 3% in constant currency, but profitability was impacted by product mix. Nokia Technologies net sales declined 22% in the quarter, which was largely due to a long-term license no longer contributing.


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  Seagate Technology Holdings (STX) - US Commerce Department imposed a USD 300mln civil penalty on Seagate, and said the company had sold 7.4mln hard disk drives to Huawei between August 2020-September 2021 in violation of export controls.


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  Taiwan Semiconductor Manufacturing Company (TSM) - The world's largest contract chipmaker reported profit rose in Q1 by 2%, exceeding consensus expectations, but was still the smallest quarterly profit growth in around four years as global economic conditions weighed on demand for chips; revenues slipped by almost 5% Y/Y, in line with the company's guidance. Q1 net profit TWD 206.9bln (exp. 192.8bln), Q1 sales TWD 508.6bln (exp. 517.9bln), Q1 gross profit TWD 286.5bln (prev. 273.2bln), Q1 EPS TWD 7.98 (exp. 7.41), Q1 gross margin 56.3% (exp. 54.5%). In USD terms, sees Q2 revenue between USD 15.2-16.0bln (exp. 17.3bln, prev. 18.2bln Y/Y), and sees Q2 gross margin between 52-54% (exp. 52.5%), sees Q2 operating margins between 39.5-41.5% (exp. 40%).

COMMUNICATIONS:

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  Publicis Groupe SA (PUBGY) - The advertising group said sales rose as data-driven businesses saw strength. Q1 revenue EUR 3.08bln (prev. 2.80bn). FY23 guidance confirmed.

CONSUMER:

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  Bed Bath & Beyond Inc. (BBBY) - Bed Bath & Beyond is preparing to file for bankruptcy as early as this weekend, WSJ reports, sending shares lower by 23% in afterhours trading.


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  British American Tobacco PLC (BTI) - Continues to expect FY constant currency organic Group revenue growth of +3-5% ex-Russia and Belarus; sees EPS growth of mid-single digits. "Given the macro-economic outlook, and in line with our February 2023 guidance, we expect our performance, on an organic basis, to be second half weighted."


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  Continental AG (CTTAY) - Has reportedly found a buyer for its Russian tire factory.


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  Las Vegas Sands Corp. (LVS) - Rose in extended trading after reporting Q1 EPS of 0.19 (exp. 0.18), Q1 revenue USD 2.12bln (exp. 1.82bln). Exec said a robust recovery in travel and tourism spending across was underway. Continues to see recovery in Singapore, and in Macao, is seeing an ongoing recovery in all gaming and non-gaming segments.


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  L'Oreal (LRLCY) - Sales rose 13% LFL in Q1 (exp. 8.08%), supported by US and Europe markets. Q1 sales EUR 1.38bln; North America sales +16.6% (exp. +7.73%). Said it saw Chinese consumer demand and store traffic resume in February. Professional products LFL sales +7.60% (exp. +4.33%). Consumer products LFL sales +14.7% (exp. +9.5%). North Asia comp. sales +1.9% (exp. +6.96%). South Asia Pacific, Middle East, North Africa, Sub-Saharan Africa comp. sales +26.7% (exp. +15.4%). CEO said they are very confident for the rest of the year in China.


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  Renault SA (RNLSY) - Sales rose 30% in Q1 on higher prices. Q1 revenue EUR 11.50bln (exp. 11.31bln), Q1 automotive revenue EUR 10.52bln (exp. 10.88bln). Strong Group's orderbook in Europe remains at record levels. Confirms its 2023 financial outlook.


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  Tesla, Inc. (TSLA) - Fell after publishing results as Q1 top- and bottom-line results missed consensus expectations, with margins dipping as the automaker cut vehicle prices. Q1 adj. EPS 0.85 (exp. 0.85), Q1 revenue USD 23.33bln (exp. 23.29bln), Q1 FCF USD 441mln (exp. 3.24bln), Q1 gross margin 19.3% (exp. 21.2%); CEO Elon Musk said it has taken a view that pushing for higher volumes and a larger fleet is the right choice, versus a lower volume and higher margin. Q1 CapEx USD 2.07bln (exp. 1.76bln). Still sees FY production 1.80mln vehicles (exp. 1.84mln). Expects to remain ahead of the long-term 50% CAGR on production. Continues to make progress on next generation platform. Continues to believe that its operating margin will remain among the highest in the industry. Quarter-end cash, cash equivalents and investments increased sequentially by USD 217mln to 22.4bln in Q1. Q1 profitability was positively impacted by growth in vehicle deliveries despite margin headwind from underutilisation of new factories. Over time, expects hardware-related profits to be accompanied with an acceleration of software-related profits.

MATERIALS:

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  Alcoa Inc (AA) - Fell in afterhours trade as top- and bottom-lines missed expectations. Q1 adj. EPS -0.23 (exp. -0.10), Q1 revenue USD 2.67bln (exp. 2.73bln). Exec said Q2 earnings are likely to benefit from favourable raw materials, volume and lower production costs. Backs FY23 outlook for aluminium shipments at between 2.5-2.6mln tons.


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  Rio Tinto (RIO) - Quarterly Pilbara iron ore output 79.3mln tons (prev. 71.7mln Y/Y), shipments 82.5mln tons (prev. 71.5mln Y/Y), mined copper 145k tons (prev. 125k Y/Y), aluminium output 785k tons (prev. 736k Y/Y). Said commodity prices found further support during Q1, and China consumption was expected to normalise and recover further with household incomes.


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  Steel Dynamics, Inc. (STLD) - Q1 adj. EPS 4.01 (exp. 3.52), Q1 revenue USD 4.9bln (exp. 5bln). Exec said it remains confident that market conditions are in place for domestic steel consumption to be solid. Exec noted that Q1 order entry activity continued to be strong across all businesses. North American steel consumption seen increasing in 2023. Automotive, non-residential construction, and energy sectors set to remain solid steel consumers, exec said.

INDUSTRIALS:

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  Equifax Inc. (EFX) - Q1 adj. EPS 1.43 (exp. 1.37), Q1 revenue USD 1.3bln (exp. 1.28bln). Exec said it was off to a strong start in 2023, remains confident in long-term 8-12% growth framework, and is confident that will deliver higher margins and free cash flow. Q2 adj. EPS seen between USD 1.60-1.70 (exp. 1.81), and sees Q2 revenue between USD 1.31-1.33bln (exp. 1.34bln). For FY23, sees adj. EPS between USD 7.05-7.35 (exp. 7.16), and sees FY23 revenue between USD 5.275-5.375bln (exp. 5.3bln).

HEALTHCARE:

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  Amgen (AMGN) - Wins patent appeal on Otezla and court affirms validity of patent expiring in 2018.


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  Roche (ROG SW) - FDA approves Polivy in combination with R-CHP for people with certain types of previously untreated diffuse large B-cell lymphoma.

20 Apr 2023 - 09:30- EquitiesData- Source: Newsquawk