US EARLY MORNING: Risk-off after Russia shells Ukraine nuclear plant; NFP will likely play second fiddle to geopolitics today

EQUITIES: Equity index futures are lower (ES -0.7%, NQ -0.7%, YM -0.7%, RTY -0.9%), but off lows. The overnight downside came after Russian forces shelled Europe's largest nuclear plant, Zaporizhzhia. The plant has now been seized by Russian military forces; authorities said that the facility is safe and radiation levels are normal. The attack has drawn condemnation from global leaders and there are calls for an emergency UN Security Council Meeting. The upshot for traders is that it will likely be another headline-driven session, which will result in lesser focus on the usually blockbuster US jobs reports (our preview is here). Meanwhile, peace talks yesterday only yielded minimal results; Ukraine said it has a "joint understanding" with Russia on evacuating civilians which could involve a temporary ceasefire. Geopolitical analysts at Stratfor said a diplomatic end to the war remains distant: "As long as both Russia and Ukraine think further developments on the battlefield will work in their favour, they will avoid making diplomatic concessions that the other side, as well as their respective citizenries, could misperceive as weakness or capitulation," it said, "therefore, on-the-ground military realities will dictate the future of the conflict in the coming days and weeks."

TREASURIES: Treasury yields are lower by 3-6bps, rallying most in the belly; the shape of the curve is mixed, but not too far off neutral. While there will be less attention on today’s jobs data, given the seemingly escalating geopolitical tensions relating to Russia, there could still be some repercussions for Fed rate pricing ahead. NOTE: Before the Ukraine crisis, markets had expected the FOMC would lift rates by 50bps at the March 16th confab, and were pencilling in seven 25bps rate rises through the end of this year. Now, however, markets are pricing in a 25bps move in March–which Chair Powell has given a nod to in his Congressional testimonies this week–and are pricing five 25bps rate hikes by the end of this year. We’ll be watching the wages metrics within the jobs report very carefully – the rationale that if we continue to see upside, traders could begin to price a steeper rate trajectory. The February jobs data is the last before the March FOMC; there is also a CPI report next week that will be framed with the same dynamics.

DOLLAR: Geopolitical tensions have seen the Dollar catch a bid, and the Dollar Index is now trading with a 98.00 handle. The AUD and NZD are trading firmer, insulated from the fallout in risk proxies, likely underpinned as commodity prices continue surging, and their geographical distance from events in Europe. Other activity currencies like the SEK, CAD and GBP are softer, the latter despite crude prices again rising. There is not very much green on EMFX screens that we monitor, but we do take note of coordinated FX intervention in the PLN and CZK; their fortunate are currently mixed, with the PLN still softer vs the EUR by around 0.5%, although the CZK is higher vs EUR by around 0.5%. Oil importers are coming under pressure amid further rises in crude prices: the TRY and ZAR have slid by around 1% vs the USD. China’s yuan is once again showing its haven properties, trading a touch higher against the greenback.

COMMODITIES: Major crude benchmarks are between 0.90-1.30 higher, supported by geopolitics. US President Biden is also coming under pressure to ban US imports of Russian oil. While Russian geopolitics is offsetting hopes of an Iran nuclear deal, Thursday afternoon’s price action shows the potential that any constructive updates on Iran can have, particularly in an environment where crude prices have surged higher very quickly, leaving the complex vulnerable to some sharp bouts of profit-taking on hints of Iranian progress. Sides tell us that there are still issues to be ironed out, but the tenor of news flow is suggesting a deal could be just days away. In terms of what this might mean for the supply dynamic, an Iranian official has recently said that if US sanctions are lifted, Iran could boost oil output to 4mln BPD from 2.5mln in about 3 months. Bank of America has suggested that a full return of production estimated at around 3.8mln BPD, of which around 500–800k BPD could return "fairly quickly" (other views here).

EQUITY NEWS: 

INDICES:

• 
  DAX 40 Reshuffle- Daimler Trucks (DTRUY) and Hannover Rueck (HVRRY) will replace Beiersdorf (BDRFY) and Siemens Energy (SMNEY) in the DAX 40. (Deutsche Boerse)

CONSUMER CYCLICALS:

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  Amazon (AMZN) - Moves to force FTC antitrust decision on USD 6.5bln MGM deal. If FTC doesn't challenge before mid-March, Amazon could be free to consummate the deal. But FTC can still challenge M&A after closure. (WSJ)


• 
  Gap (GPS) - Rose 7.6% in after hours trade. Q4 adj. EPS -0.02 (exp. -0.14), Q4 revenue USD 4.52bln (exp. 4.49bln). Said strategic permanent store closures and divestitures reduced net sales by approximately 9ppts vs 2019. Online sales +44% vs Q4 2019. Q4 comp sales +3% vs 2019, and +3% Y/Y. Sees FY22 adj. EPS between 1.85-2.05 (exp. 1.86), sees diluted EPS between 1.95-2.15 (exp. 1.75). FY22 revenue growth seen in the low single-digits vs 2021 levels; Q1 net sales seen down mid to high-single digits vs Q1 2021. (GPS)


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  Nike (NKE) - Closes Russian stores amid sanctions and trade restrictions. (Reuters)


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  Pirelli (PRLLY) - Has no plans to halt any production in reaction to the Russia-Ukraine conflict. (Newsquawk)

CONSUMER STAPLES:

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  Costco (COST) - Q2 EPS 2.92 (exp. 2.74), Q2 revenue USD 50.94bln (exp. 51.5bln). Q2 comp sales +14.4%, E-commerce sales +12.5%. February US comp sales +12.9% (exp. +10%). (COST)


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  Sprouts Farmers Market (SFM) - Announced a USD 600mln share repurchase authorisation. (SFM)

FINANCIALS:

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  Credit Suisse (CS) - Responds to FT article alleging it asked investors to destroy documents linked to oligarch and tycoon yacht loans, CS said that relates to a transaction where parties signed NDAs; the bank's request was one they were entitled to under this agreement. (Newsquawk)


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  Deutsche Bank (DB) - Performing internal stress tests and disaster recovery for scenario that its Russian technology centre, which employs around a quarter of the bank's IT specialists, can longer operate. Says Ukrainian crisis will clearly have an impact, but is confident that day-to-day trading operations will not be affected. (FT)


• 
  ING (ING) - Total Russia exposure EUR 5.3bln. Total exposure, including potential effect of liquidity/currency controls, EUR 6.7bln. Says EUR 700mln outstanding loans affected by new sanctions. Currently no material effect of SWIFT blockage for ING. (Newsquawk)


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  Visa (V) - To cut consumer credit interchange rates for US small businesses by 10%. (Reuters)

CRYPTO:

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  Riot Blockchain (RIOT) - February 2022 BTC production +189% Y/Y at 436; as of February 28th, held approximately 5,783 BTC; currently has approximately 38,310 miners, with a hash rate capacity of 3.9 exahash per second. (RIOT)


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  Shake Shack (SHAK) - Shake Shack tests Bitcoin (BTC) rewards to lure younger consumers, is running the cryptocurrency promotion through mid-March. (WSJ)

HEALTH CARE:

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  Cooper Companies (COO) - Q1 EPS 3.24 (exp. 3.10), Q1 revenue USD 787mln (exp. 744mln). Reiterates FY22 EPS view of 13.60-14.00 (exp. 14.36), and sees FY22 revenue between USD 3.26-3.33bln (exp. 3.29bln). (COO)

INDUSTRIALS:

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  AeroVironment (AVAV) - Q3 EPS 0.32 (exp. 0.30), Q3 revenue USD 90.1mln (exp. 107mln). Leaves FY22 EPS view unchanged between 1.23-1.37 (exp. 1.30), sees FY22 revenue midpoint at USD 450mln (exp. 451mln). (AVAV)


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  Dassault Aviation (DASTY) - FY21 revenue EUR 7.25bln (prev. 5.49bln Y/Y). EPS 8.34 (prev. 4.76). Adj. operating profit 527mln (prev. 261mln). (Newsquawk)


• 
  Jacobs Engineering Group (J) - Announces new three-year strategy. Sets Fiscal 2022-2024 organic net revenue growth target of 7-10% CAGR; reiterates sees 2025 adj. EPS of 10.00. (J)


• 
  Melrose (MLSYY) - Melrose indicated it could float separately GKN’s automotive and aerospace businesses. (Times)


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  Rivian Automotive (RIVN) - Rolled back price hikes on EVs booked before March 1st after facing customer backlash. (Reuters)


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  Spirit Airlines (SAVE) - Plans to open crew bases in Atlanta and Miami this year, been studying ways to improve staffing after crew shortages. (CNBC)


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  Tesla (TSLA) - CEO challenged the United Auto Workers union to try and organise employees at Fremont plant in California, stepped up criticism of Biden administration policies. (CNBC)


• 
  Tesla (TSLA), Panasonic (PCRFY) - Panasonic looking at land in either Oklahoma or Kansas for a mega factory that will make a new type of high-capacity lithium-ion batteries for Tesla vehicles that significantly increases the range of EVs. (NHK)

MATERIALS:

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  BASF (BASF) - Will not conclude any new deals within Belarus or Russia. (Newsquawk)

TECH:

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  Alphabet (GOOGL) - Google has stopped selling online advertising in Russia, a ban that covers search, YouTube and outside publishing partners. (Reuters)


• 
  Broadcom (AVGO) - Rose 2.8% in after hours trading. Reported Q1 adj. EPS 8.39 (exp. 8.08), Q1 revenue USD 7.7bln (exp. 7.6bln). Q1 semi revenues +20% to USD 5.87bln (exp. 5.76bln), software revenue +5% to USD 1.83bln (exp. 1.85bln). Noted strong enterprise demand. Sees Q2 revenue at USD 7.9bln (exp. 7.4bln). (AVGO)


• 
  Cognex Corporation (CGNX) - Board authorised USD 500mln share purchases. (CGNX)


• 
  Duolingo (DUOL) - Q4 EPS -0.46 (exp. -0.68), Q4 revenue USD 73mln (exp. 69mln). Q4 total bookings USD 90.8mln, paid subscribers +56% Y/Y to 2.5mln at year-end. MAUs +15% to 42.4mln in Q4, DAUs +20% to 10.1mln - both rising to all-time highs. (DUOL)


• 
  Elastic N.V. (ESTC) - Q3 adj. EPS -0.12 (exp. -0.21), Q3 revenue USD 223.9mln (exp. 209mln). Sees Q4 adj. EPS midpoint at -22c (exp. -0.26), and sees Q4 revenue between USD 230-232mln (exp. 224mln). Sees the FY22 adj. EPS between -42c and -38c (exp. -53c), and sees FY22 revenue between USD 853-855mln (exp. 833mln). (ESTC)


• 
  FleetCor Technologies (FLT) - Acquires airline software platform company Levarti; no terms. (FLT)


• 
  Marvell Technology Group (MRVL) - Q4 adj. EPS 0.50 (exp. 0.48), Q4 revenue USD 1.34bln (exp. 1.32bln), Q4 adj. gross margin 65.3% (exp. 65%). Sees Q1 adj. EPS at 0.51c +/- 0.03c (exp. 0.50), and sees Q1 revenue at USD 1.425bln +/- 3% (exp. 1.38bln). Adj. gross margins expected to be 65%-66% (exp. 64.7%). (MRVL)

COMMUNICATIONS:

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  Disney (DIS) - Mulls launching a cheaper, ad-supported tier of its Disney+ in the US to fire-up slowing subscriber growth as it seeks to achieve its goal of profitability for its direct-to-consumer business in 2024. (The Information)


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  Telecom Italia (TIIAY) - Confirms that investors led by Ardian make a binding offer of EUR 1.3bln for indirect stake in INWIT. (Newsquawk)


• 
  Vodafone (VOD) - Vodafone's NZ unit is reportedly seeking a towers sale worth USD 1bln. (Bloomberg)


• 
  Yandex (YNDX) - Updated on the impact of current Ukraine/Russia developments. Noted that Yandex or its subsidiaries, Board, management, principal shareholders are a target of sanctions. Does not currently expect the blocking of certain financial institutions in Russia from the SWIFT system to affect its day-to-day operations. Warns that if its Class A shares are suspended on Nasdaq for more than five trading days, holders of certain notes would have the right to require YNDX to redeem these at par plus accrued interest; the current principal amount outstanding is USD 1.25bln. (YNDX)

04 Mar 2022 - 10:13- EquitiesGeopolitical- Source: Newswires