US EARLY MORNING: Risk-off ahead of key earnings; MSFT and GOOG to report after the close

OVERNIGHT: On Wall Street, stocks were mixed on Monday with the Nasdaq-100 underperforming, as the tech sector came under pressure ahead of key earnings later this week (including MSFT, GOOG, META and AMZN), while a soft Dallas Fed Manufacturing survey sparked growth fears. Our full US market wrap can be accessed here. APAC stocks were mostly lower after the mixed performance Stateside; conditions were also thinner than normal amid closures in Australia and New Zealand for ANZAC Day. In Japan, BoJ Governor Ueda repeated that the central bank sees it appropriate to maintain YCC and easy monetary policy given the current economic, price and financial developments. KOSPI failed to hold on to early gains after mixed South Korean GDP data. See here for more. European equities opened with losses. Bank earnings season has now started, and UBS (UBS) and Banco Santander (SAN) were both lower after their respective updates. ECB chief economist Lane gave an interview to French press, where he said current data suggests the central bank needs to continue raising interest rates again at the May meeting and beyond, adding that further hikes will be dependent on data. Data out of the UK showed public sector net borrowing (ex-banks) widened to GBP 21.530bln in March (exp. 20.0bln, prev. 13.322bln); Pantheon Macroeconomics said that revisions to prior prints left FY borrowing well below the OBR's forecast. For the Scandies, and ahead of this week's Riksbank rate decision (+50bps hike expected on Wednesday), PPI data cooled to 3.5% Y/Y in March (prev. 9.3%). Our Europe market open note can be accessed here.

US PRE-MARKETS: US equity futures are lower, and Treasuries are rallying, as the cautious setup continues into Tuesday, after the tech sector was pressured at the start of the week ahead of earnings updates, while Dallas Fed manufacturing data missed expectations on Monday, triggering growth concerns (the argument is that the Fed will look through this manufacturing weakness – growth negative – as it remains focussed on tightening policy to cool inflationary pressures in the services sector). With the Fed in data dependent mode, traders have been putting much focus on data releases that, up until recently, may have garnered little market attention. Today, the Richmond Fed manufacturing survey, and consumer confidence data may be framed in that regard, while there are also a few housing-related releases on the docket too. However, headline writers’ chief focus will be on a heavy earnings slate, with numbers due from MSFT and GOOGL after the close (we share a few brief thoughts on both, below); this comes ahead of numbers from META and AMZN later this week - analysts note that the top five tech stocks have accounted for around two-thirds of the S&P 500 gains this year, underscoring the importance of the upcoming earnings at an index level. Other heavyweights that could offer macro insight today include DHR, PEP, UPS, GE, RTX, MCD, NEE, VZ, TXN, and V.

PREVIEW - MICROSOFT EARNINGS (AMC Tuesday): Consensus looks for Q1 EPS of 2.23, on sales of USD 51.02bln. Investors will be focussing on Azure growth rates, Jeffries said, after the tech giant missed consensus expectations for the cloud unit in two of the last three quarters. There will also be attention on any commentary around AI. "Despite a difficult backdrop, we view MSFT better positioned than most and remain fans of LT consolidation story," Jeffries wrote, "the biggest question on valuation remains downside potential to consensus EPS, which we believe was partially alleviated by cost-cutting initiatives NT and AI tailwinds LT."

PREVIEW - ALPHABET EARNINGS (AMC Tuesday): Consensus looks for Q1 EPS of 1.07, on sales of USD 68.9bln. Jeffries said that despite the potential for the macro slowdown to worsen through 2023, it sees several arguments for the stock to work: 1) comparisons should progressively ease each quarter (gross revs from 23% in 1Q22 to 1% by 4Q22) leading to a reaccelerating growth in back half; 2) potential further cost-cutting measures including further headcount reductions to drive upside to current EBITDA estimates; 3) fading of Microsoft AI overhang as GOOGL releases more powerful AI products and sees no meaningful revenue impact from Bing. Jeffires notes that GOOGL’s valuation is below the SPX and represents an approximatly 47% discount to MSFT.

DAY AHEAD:

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


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  EUROPEAN DATA/SPEAKERS: Once again, the European data slate is thin. From the UK, CBI April data is due. BoE's Broadbent will speak at the NIER on monetary policy. ECB's supervisory chief Andrea Enria will speak today. EMFX traders will note that the NBH will make a policy announcement today, with traders expecting the central bank to stand pat on rates at 13.00% (Base Rate). On the supply front, Germany will sell EUR 6bln of 2025 notes.


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  NORTH AMERICAN DATA/SPEAKERS: Today's data slate features a heavy focus on housing data, with Febriary's Case-Shiller and FHFA house price data due. March new home sales are expected to fall a little to 634k. April's Consumer Confidence report from the Conference Board will make for interesting reading ahead of this week's GDP/PCE data, as well as next week's NFP report. Elsewhere, the Richmond Fed's manufacturing report for April is due for release; the regional data has been mixed so far (Empire saw an upside surprise, Philly saw a downside surprise), while the flash broader PMI data was decent. The Treasury will kick-off this week's note sales with an auction of USD 42bln of 2yr notes.


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  US CORPORATE EARNINGS: Highlights on today’s US corporate earnings slate includes DHR, PEP, UPS, GE, RTX, MCD, NEE, VZ, GOOGL, TXN, MSFT, V (see here for expectations). It is a very busy week for corporate earnings; major companies reporting includes: TMO, BA, META on Wednesday; AZN, LLY, CAT, MRK, BMY, CMCSA, SPGI, ABBV, MA, AMZN, AMGN, INTC, TMUS on Thursday; CVX, XOM on Friday. Our full weekly earnings expectations note can be accessed here.


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  ENERGY: Brent June 2023 options are set to expire today. After the US close, the API will publish its weekly gauge of energy inventories. This week, traders expect crude stocks to draw 1.7mln bbls, distillates are seen drawing 1.0mln, while gasoline stocks are expected to decline by 1.5mln.


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  WEEK AHEAD: In the week ahead, Major releases include: US GDP, PCE, ECI; EZ GDP; Aus CPI; BoJ, BoC mins, CBRT; our full week ahead briefing can be accessed here.

EQUITY NEWS:

FINANCIALS:

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  First Republic Bank (FRC) - Q1 EPS 1.23 (exp. 0.72), Q1 revenue 1.2bln (exp. 1.22bln). With closure of several banks in March, experienced unprecedented deposit outflows. Said deposits stood at USD 104.47bln (exp. 136.67bln), down 1.7% Q/Q; execs said deposit flows had begun to stabilise towards the end of March, and remained stable through April 21st. Loans at end-period USD 173.31bln (exp. 168.31bln). Q1 NIM 1.77% (exp. 1.8%), Q1 NII USD 923mln (exp. 889.9mln). Q1 provisions for credit losses USD 16mln (exp. 22.2mln). Said it was working to restructure balance sheet and to reduce expenses, and is pursuing strategic options to expedite that progress, while reinforcing its capital position. It is cutting its workforce by 20-25% in Q2. Withdraws all previous financial guidance, and did not take questions during its conference call. Exec added that uninsured deposits will represent a smaller proportion total than in the past, and that the bank will reduce expenses and executive compensation. CEO said that the bank was moderating loan volumes and aims to reduce reliance on short-term borrowings.


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  UBS Group AG (UBS) - Net profits fell 52%, missing analyst expectations, as the Swiss bank sets aside USD 665mln to cover costs of US RMBS costs; reported inflows of USD 42bln in the quarter, with its wealth management unit seeing inflows of USD 28bln. Q1 WM Net Fee-generating assets USD 19.7bln (exp. 17.67bln). Makes provisions of USD 665mln for RMBS litigation. Total Revenue USD 8.74bln (exp. 8.96bln). ROTE +8.1% (exp. +14.6%), CET1 Ratio 13.9% (prev. 14.3%). MGMT pretax income 1.22bln (exp. 1.28bln). Exec said that in Q1, it maintained positive momentum across the firm, attracted USD 28bn of net new money in GWM, of which USD 7bln came in the last ten days of March, after the announcement of our acquisition of Credit Suisse. Added that it was focused on completing the acquisition of Credit Suisse, most likely in Q2, which will advance our strategy, particularly in Global Wealth Management and Switzerland.


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  Banco Santander SA (SAN) - Net profits rose in Europe, offsetting weaker performance in US and Brazil. Q1 net profit +1% Y/Y EUR 2.57bln (exp. 2.40bln), Q1 pretax profit USD 4.1bln, Q1 total income USD 13.94bln (exp. 13.77bln).


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  Ameriprise Financial (AMP) - Q1 EPS 7.25 (exp. 7.21), Q1 revenue USD 3.74bln (exp. 3.71bln). Raises quarterly dividend +8%. AUM -8% to USD 1.2tln, which AMP said reflected strong client net inflows that were more than offset by market depreciation and unfavourable foreign exchange translation."


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  AGNC Investment Corp. (AGNC) - Q1 EPS -0.07 (exp. 0.66). Exec said that despite the volatility that experienced in March, outlook for Agency MBS continues to be very positive. A key element of its optimism is the belief that Agency MBS spreads to Treasury and swap rates will remain meaningfully wider than historical averages, providing a durable opportunity to generate highly attractive returns.

REAL ESTATE:

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  Alexandria Real Estate Equities Inc (ARE) - Q1 EPS 0.44 (exp. 0.78), Q1 adj. FFO/shr 2.19 (exp. 2.16), Q1 revenue 0.70bln (exp. 0.64bln).

CONSUMER DISCRETIONARY:

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  Packaging Corporation of America (PKG) - Q1 adj. EPS 2.20 (exp. 2.27), Q1 revenue USD 2bln (exp. 2.1bln). Exec said packaging segment demand was below expectations, consumer spending continues to be negatively impacted by higher interest rates and persistent inflation, along with consumer buying preferences skewed more towards services versus durable and non-durable goods. Added that after a strong start in January, consumer spending was increasingly softer as the quarter progressed, similar to our box shipments during the quarter. Looking to Q2, although there is one less shipping day for the corrugated business, expects improved volume in its Packaging segment, however, prices will be lower as a result of the previously published domestic containerboard price decreases along with lower export prices. Q2 EPS seen at USD 1.96 (exp. 2.55).


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  Crown Holdings, Inc. (CCK) - Q1 adj. EPS 1.20 (exp. 1.05), Q1 revenue USD 2.97bln (exp. 3.09bln). Better than anticipated results in European Beverage and Transit Packaging more than offset softer than expected overall volumes, exec said. Volumes in Americas Beverage were +6% during the quarter, with North America +4%, despite lighter than expected consumer promotional activity to date. Sees Q2 adj. EPS between USD 1.60-1.70 (exp. 1.76). Reiterates FY23 adj. EPS outlook between USD 6.20-6.40 (exp. 6.28).


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  Whirlpool Corp (WHR) - Q1 EPS 2.66 (exp. 2.28), Q1 revenue USD 4.65bln (exp. 4.50bln); North America Q1 EBIT margin 10% (prev. 5.8%). Keeps FY guidance unchanged. Exec said demand for appliances was beginning to stabilise.


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  Bed Bath & Beyond (BBBY) - Receives court approval for a USD 40mln bankruptcy loan.


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  General Motors (GM) - GM and Samsung SDI (006400 KS) are expected to announce plans to build new JV battery plant in the US, Reuters reports. The news comes as South Korean President Yoon Suk Yeol is in Washington to meet President Joe Biden on what is the first state visit to the US by a South Korean leader in 12 years.


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  Tesla (TSLA) - The automaker opened its first batch of charging stations to some non-Tesla NEVs as a trial in China, Reuters reports.


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  Swiss Watch Exports - Of note for Richemont (CFRUY) and Swatch (SWGAY), Swiss watch exports rose +13.8% Y/Y in March (prev. +12.2%).


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  AB Foods PLC (ASBFY) - H1 profits fell, and it maintained FY guidance despite cautious consumer. H1 revenue GBP 9.56bln (exp. 9.24bln), adj. operating profit GBP 684mln (exp. 694mln). Backs FY adj. operating profit and adj. EPS view, to be broadly in-line Y/Y. At its Primark unit, it said it remained cautious about the resilience of consumer spending, as some macro headwinds for consumers remain. In H2, it said that continued management of significant input cost inflation remains a priority.

CONSUMER STAPLES:

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  Nestle SA (NSRGY) - Price hikes helped the Swiss multinational food and drink processing conglomerate to top quarterly sales estimates. Q1 revenue CHF 23.47bln (exp. 23.82bln), Q1 organic revenue grew by +9.3% (exp. +7.25%); reaffirms FY organic growth outlook of 6-8%. By region, organic growth in N. America was +11.6%, Europe +9.7%, Asia, Oceania & Africa +10.4%, Latin America +12.8%, Greater China +3.1%. CEO said that following a strong start to the year, it confirms FY23 outlook. Noted that demand elasticity and consumer downtrading remained limited in the context of pricing actions. Growth was broad-based across most geographies and categories. Organic growth was 8.6% in developed markets, led by pricing. Organic growth in emerging markets was 10.3%, driven by pricing and positive RIG.

COMMUNICATIONS:

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  Netflix, Inc. (NFLX) - Netflix will invest USD 2.5bln in South Korea over the next four years to produce Korean content, Yonhap reports. NFLX announced that plan after a meeting between South Korean President Yoon Suk Yeol and Netflix co-CEO Ted Sarandos, after Yoon arrived in Washington for a state visit.

TECH:

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  Cadence Design Systems Inc (CDNS) - Top and bottom-line beats, although guidance for the next quarter was soft, but it raised FY outlook. Q1 EPS 1.29 (exp. 1.26), Q1 revenue USD 1.02bln (exp. 1.01bln). Raises FY23 EPS view to 4.96-5.04 (prev. 4.90-5.00, exp. 4.98). Q2 EPS seen at 1.17 (exp. 1.26), and Q2 sales seen at USD 970mln (exp. 1.0bln).


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  Tenable Holdings, Inc. (TENB) - Q1 EPS 0.11 (exp. 0.03), Q1 revenue USD 188.8mln (exp. 187.1mln). Q1 calculated current billings +13% Y/Y at USD 176.8mln. Q2 EPS seen between USD 0.12-0.13 (exp. 0.10), and Q2 revenue seen between USD 189-191mln (exp. 193.8mln). FY23 EPS seen between USD 0.57-0.61 (exp. 0.53), and FY23 revenue seen between USD 775-785mln (exp. 805.4mln).

INDUSTRIALS:

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  Raytheon (RTX) - Raises quarterly dividend +7.3% to USD 0.59/shr (prev. 0.55/shr).


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  Honeywell (HON) - The industrial company will buy back up to USD 10bln of shares, according to a SEC filing.


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  Canadian National Railway Company (CNI) - Q1 EPS CAD 1.82 (exp. 1.72), Q1 operating ratio 61.5% (exp. 63.4%), Q1 revenue CAD 4.3bln (exp. 4.3bln). Raises FY EPS guidance, now sees EPS growth of around +5% (prev. saw growth of +1-3%). Canadian National and Union Pacific announce the creation of Mexico-US-Canada service; Canadian National, Union Pacific and GMXT announce new intermodal service.


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  Union Pacific Corp (UNP) - Announced a service interruption south of Kansas City which was impacting operations between Garnett and Neodesh. UNP said that limited reroute plan was available, and customers with rail shipments through Garnett and Neodesha area should expect a minimum delay of 48 hours.


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  Hexcel Corporation (HXL) - Q1 EPS 0.50 (exp. 0.38), Q1 revenue USD 457.7mln (exp. 430mln). Exec said margin expansion reflects strong operating leverage from higher production levels as key markets grow; well-positioned to benefit from the multi-year production ramps our aerospace customers have announced. Reiterates its FY23 EPS outlook between 1.70-1.90 (exp. 1.85), and FY23 revenue between USD 1.725-1.825bln (exp. 1.8bln).


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  Southwest Airlines (LUV) - LUV and the Transport Workers Union Local 550 reached a tentative agreement for meteorologists, becoming the ninth employee group to reach a deal with the company, Dallas Morning News reported.


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  Daimler Truck Holding AG (DTRUY) - earnings rose, topping expectations, amid sales surge, with execs noting strong demand. Prelim Q1 adj. EBIT EUR 1.16bln (exp. 980mln). The truck maker said it was supported by strong demand and an increase in unit sales Y/Y.

MATERIALS:

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  Cleveland-Cliffs (CLF) - Q1 EPS -0.11 (exp. -0.20), Q1 revenue 5.30bln (exp. 5.22bln). Exec said that direct sales to automotive clients in its mix increased to 36% in the quarter, confirming its view that its most important market was strong, and getting stronger. Exec said it expects that, throughout 2023, the company should benefit from higher sales volumes to the auto sector. Lowers FY23 CapEx view to USD 675-725mln (prev. 700-750mln, exp. 780.6mln).


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  Anglo American (NGLOY) - Q1 copper production rose 28%, rough diamond production was flat, while steel-making coal production was +59%; kept copper production guidance unchanged.


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  Akzo Nobel NV (AKZOY) - Net profits fell, though still beat the consensus view, while execs note macro uncertainties. Q1 revenue EUR 2.66bln (exp. 2.60bln), Q1 adj. operating profit EUR 218mln (exp. 178.5mln), Q1 adj. EBITDA EUR 305mln (exp. 274.5mln). Pricing +7%, "more than offsetting increase of raw material and freight costs." CEO said: "We were able to achieve a strong sequential improvement in profitability based on solid margin management, better than anticipated volumes in Europe and rebound in China, benefiting both Paints and Coatings."

ENERGY:

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  Range Resources Corporation (RRC) - Q1 adj. EPS 0.99 (exp. 0.82), Q1 revenue USD 853mln (exp. 769.8mln). FY FCF and CapEx outlook unchanged: sees FY23 production between 2.12-2.16 BCFE per day as it targets a maintenance programme in 2023, resulting in approximately flat production, with around 30% attributed to liquids production.


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  Nabors Industries Ltd. (NBR) - Q1 EPS 4.11 (exp. 1.53), Q1 revenue USD 779mln (exp. 773.6mln). EPS included a gain related to mark-to-market treatment of Nabors warrants, of around 3.48 per diluted share. Additionally, there was a 2.06/shr gain on the redemption of debt. Maintains FY FCF outlook at USD 400mln.

HEALTH CARE:

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  Novartis AG (NVS) - Raised FY outlook after higher prescriptions, and said planned Sandoz spin-off on track for H2. Q1 revenue USD 12.95bln (exp. 12.53bln), Q1 adj. EPS 1.71 (exp. 1.57). Q1 Zolgensma sales USD 309mln (exp. 340.8mln), Q1 Entresto sales USD 1.40bln (exp. 1.30bln), Q1 Sandoz sales +8% Y/Y. Raises FY23 guidance: Sees group sales growing mid-single digits (prev. low-to-mid single digits), and group core expected to grow high single digits (prev. mid-single digits). Planned Sandoz spin-off remains on track for 2H, and is expected to be tax neutral.


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  Bayer AG (BAYRY) - CEO reaffirmed its 2023 sales and profits outlook. Sees FY23 sales between EUR 51-52bln (exp. 50.7bln) based on prior year exchange rates; EBITDA view EUR 12.50-13.00bln (exp. 12.9bln), FY EPS seen between 7.20-7.40 (exp. 7.27).


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  Johnson & Johnson (JNJ) - JNJ's consumer-healthcare business, Kenvue Inc will offer 151mln shares in IPO at USD 20-23/shr. Earlier reports said that the aim was to raise USD 3.5bln+ in the offering, at a valuation close to USD 40bln. Kenvue’s stock would trade on the NYSE under the ticker KVUE.


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  Medpace Holdings, Inc. (MEDP) - Q1 EPS 2.27 (vs 1.69 Y/Y), Q1 revenue USD 434.1mln (exp. 401.8mln). Q1 backlog +17.8% to USD 2.46bln (vs 2.09bln Y/Y). Q1 net new business awards USD 555.8mln, representing a net book-to-bill ratio of 1.28x. FY23 EPS seen between 7.81-8.40 (exp. 7.76), and it lifts its FY23 revenue outlook to USD 1.745-1.805bln (exp. 1.7bln) from 1.69-1.75bln.

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