US EARLY MORNING: Stocks are lower, Treasuries are higher in wake of Fed; major central bank activity ahead

SNAPSHOT: After traversing sideways overnight following the hawkish Fed policy announcement (review below), US equity futures have tilted into negative territory; Europeans are eying a mega day for central bank activity, and the focus is shifting onto these events, which will likely provide some steer over how macro trades into the end of the year, and start of 2023. Treasury yields are lower while major curve spreads are flattening. One observation in wake of the Fed is that money market pricing is now more dovish than the Fed’s dots – the market is still pricing the terminal rate between 4.75-5.00%, whereas the Fed now sees this at 5.1%, with the potential to go even higher over the coming meetings. Meanwhile, today’s main events are policy announcements from the ECB (+50bps expected, attention on QT details, if any; preview here), the BoE (+50bps expected, attention on voting configuration; preview here), the SNB (+50bps expected, with attention on any FX remarks; preview here), and the Norges Bank (+25bps expected, attention on the rate path; preview here), while Mexico’s Banxico also concludes a policy meeting (preview in our week ahead note here). On the data front, US retail sales data for November (brief preview below) and weekly US initial jobless claims are due; the Empire Fed and Philly Fed manufacturing surveys for December will help guide expectations of what the ISM surveys will look like when they are released in early Jan. US will also release industrial and manufacturing output data. As a service note, on Friday 16th December, the desk will be closing at the earlier time of 18:05GMT/13:05EST after coverage of the Baker Hughes Rig Count (see here for our Xmas opening hours).

REVIEW - FOMC POLICY ANNOUNCEMENT: The Fed voted unanimously to lift the Federal Funds Rate target by 50bps to 4.25-4.50%, as expected, downshifting the pace of rate hikes. The Committee, however, raised its expectation of where rates will peak, now seeing the terminal rate at 5.1% (in the 5.00-5.25% bracket) vs the 4.6% (the 4.50-4.75% bracket) it was projecting in September. That implies 75bps of more tightening in this cycle, which will be seen in 2023; after that point, the Fed expects to cut rates, and projects the Federal Funds Rate target at 4.1% by the end of 2024. The updated rate forecasts suggest the central bank wants to keep rates elevated for longer as it battles above target inflation (historically, it has remained at terminal for between 3-15 months, on average 6.5 months). Its statement was little changed, although it still guides for “ongoing increases” in interest rates; some had flagged an outside risk of this language being tweaked to something on the lines of “some further” rate increases. Elsewhere, the growth profile was upgraded a little for 2022, but was lowered for 2023 and 2024; the inflation forecasts were raised across the horizon, though it still sees long-term PCE at 2.0%. On the jobs front, the central bank has revised its unemployment projection a little lower for this year (3.7% vs 3.8%), although has nudged its view higher for 2023 and 2024, where unemployment is seen peaking at 4.6%, before falling to 4.5% in 2025. At the post-meeting press conference, Chair Powell said that it had increased estimates of the terminal rate at each subsequent SEP this year, and did not rule out further increases in future meetings depending on data. Further, Powell said that the focus is on moving policy to a sufficiently restrictive stance, but added that he thinks that policy is getting to a 'pretty good place' and was getting close to sufficiently restrictive, but expects that ongoing rate hikes are still appropriate. While the inflation data for October and November showed a welcome reduction in the monthly pace of price pressures, the Fed still has more work to do, and he reiterated that the Committee was strongly committed to bringing inflation back to the 2% goal. He added that risks to inflation are weighted to the upside, and that it will take substantially more evidence to have confidence that inflation is on a sustained downward path.

PREVIEW - US RETAIL SALES (13:30GMT/08:30EST): November’s retail sales are expected to fall 0.1% M/M (prev. +1.3%), while the ex-autos measure is seen rising 0.2% M/M (prev. +1.3%). Credit Suisse is more pessimistic than consensus, and looks for the headline to contract by 0.5% in the month, reversing some of the upside surprise in the October report. “Auto and gas spending were likely a drag this month, but we also expect broader weakness in control group sales,” the bank says, “goods prices are falling, so the decline should be more modest for real retail sales, which remain above trend.” The control group measure of retail sales is also likely to decline, CS thinks, given that high-frequency card spending data fell sharply in the month. “In recent years, holiday shopping has been pulled earlier into Q4, leading to strength early in the quarter offset by punitive seasonal adjustments in November and December,” it observes. CS also thinks that real retail sales will be under pressure into the new year: “Higher borrowing costs and weak sentiment are likely to push real retail sales back to trend,” it writes, “weakness in the housing market is also likely to limit demand for large durable goods such as appliances and furniture.”

PREVIEW - ECB POLICY ANNOUNCEMENT (13:15GMT/08:15EST, press conference 13:45GMT/08:45EST): Despite a softer-than-anticipated headline November Eurozone Y/Y HICP print of 10% (exp. 10.4%), the release was overshadowed by an unexpected increase in the core metric (ex-food to 6.6% (exp. 6.3%, prev. 6.4%). As such, the ECB is expected to pull the trigger on another rate hike despite the uncertain economic outlook. A step down from a 75bps to a 50bps increment is expected by 45/62 economists surveyed by Reuters, whilst market pricing assigns a circa 87% chance to such a move. Chief Economist Lane has laid the groundwork for a potential slowdown in the cadence of rate increases by noting that he would be reasonably confident in saying that "it is likely we are close to peak inflation". That said, the GC does not appear to be unanimous in stepping down to a 50bps pace of tightening with Austria's Holzmann backing another 75bps increase, whilst the influential Schnabel of Germany stated that incoming data thus far suggests that slowing down the pace of rate adjustments remains limited. For several weeks, analysts at ING have been of the view that an "earlier and more significant" form of QT could be the compromise required by hawks in order to back a slower pace of rate hikes. Accordingly, ING expects the ECB to "announce a gradual reduction of the reinvestments of its bond holdings under the Asset Purchase Programme (APP) at the December meeting, with the aim to stop the reinvestments by end-2023." Looking beyond the December meeting, a further 75bps of tightening is fully priced in for 2023 which would take the deposit rate to 2.75% and into restrictive territory with policymakers broadly of the view that rates are "close to neutral". Full preview here.

PREVIEW - BOE POLICY ANNOUNCEMENT (12:00GMT/07:00EST): The MPC is expected to return to a 50bps adjustment, according to 52 of the 54 analysts surveyed by Reuters, whilst market pricing assigns around a 74% chance of such an outcome. The decision to move on rates is expected to be unanimous, however, given dissent at the November meeting – where Swati Dhingra voted for a 50bps hike, and Silvana Tenreyro for 25bps – it is likely that the decision on the magnitude of the hike will not be unanimous. Capital Economics notes that there is a risk that Tenreyro could opt for an unchanged rate given remarks she made in a recent speech, where she said that “in the most likely scenario, we had already done enough”; she also published a central scenario where rates peak at 3% (current level). Thus, it is likely that the bulk of the focus will centre around the vote split and any adjustment to forward guidance. Full preview here.

CONSUMER:

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  Hennes & Mauritz AB (HNNMY) - The world's second-largest fashion retailer H&M reported +10% rise in September-November net sales Y/Y, topping expectations of +9.5%. Q4 revenue SEK 62.5bln (exp. 62.2bln); FY22 net sales SEK 223bln (prev. 198bln).


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  Lennar Corporation (LEN) - Q4 adj. EPS 5.02 (exp. 4.89), Q4 revenue USD 10.2bln (exp. 10.1bln). Q4 deliveries +13% to 20,064, new orders -15% to 13,200 homes; the dollar value of new orders -24% to USD 5.5bln, while its backlog -21% to 18,869 homes (backlog dollar value -23% to USD 8.7bln); Q4 gross margin on home sales -270bps Y/Y to 24.8%. Exec said interest rates are fluctuating and the housing market will continue to rebalance. Expects 12,000-13,500 home deliveries and 12,000-13,500 new orders in Q1 (exp. 11.9k), with average sales prices between USD 440-450k (exp. USD 466k), and a gross margin on home sales of about 21.0% (exp. 24%). Sees FY 2023 deliveries between 60-65k homes (exp. 56k).


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  Lamb Weston Holdings, Inc. (LW) - Boosts quarterly dividend +14% to 0.28/shr.

AUTOS:

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  Automakers - EU27 new car registrations +16.3% Y/Y in November (prev. 12.2%): Volkswagen (VOW3 GY) +44%, BMW (BMW GY) +14.9%, Renault (RNO FP) +4.3%, Mercedes-Benz Group (MBG GY) +2.0%, Stellantis (STLA IM/FP) -3.7%.


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  Volkswagen (VWAGY) - The automaker intends to meet European emissions standards without relying on EV sales by other companies, such as Geely, NIO and SAIC, FT reports.


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  Goodyear Tire & Rubber Company (GT) - Appoints Christina Zamarro as EVP and CFO; will succeed Darren Wells, who will become EVP and Chief Administrative Officer.

FINANCIALS:

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  Trading and investing platforms - SEC proposes rule to enhance competition for individual investor order execution. Would require certain orders of individual investors to be exposed to competition in fair and open auctions before such orders could be executed internally by any trading centre that restricts order-by-order competition.


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  HSBC (HSBC) - Says it is on track to hit all of its financial targets, including a return on tangible equity of at least 12%, from 2023 onwards. Adds that it intends to revert to paying quarterly dividends next year, though this will initially be at a lower level than historical levels; targets dividend pay-out ratio of around 50% for 2023 and 2024.


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  PayPal Holdings, Inc. (PYPL) - ConsenSys teams with PayPal; PayPal will integrate within the MetaMask wallet, providing a way to buy Ethereum with PayPal. This new functionality is available to select US users, will roll out more widely in coming weeks.


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  Intercontinental Exchange, Inc. (ICE) - Announced the expansion of the ICE Global Network into the Asia Pacific region, with new access centres in Hong Kong, Shanghai and Tokyo.


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  Barclays (BCS) - The bank is mulling a return to Saudi Arabia to capture a section of the nations capital market, Reuters reports.


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  M&T Bank Corporation (MTB) - Daryl Bible named next CFO, effective Q2 2023; joins M&T from Truist Financial, where he was the longest-serving CFO of a US regional bank.


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  Rocket Companies, Inc. (RKT) - CEO Jay Farner purchased 71k shares at USD 8.46/shr between December 12-14th, for USD 600,724.

INDUSTRIALS:

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  Boeing (BA) - Awarded a USD 255mln Defense Logistics Agency contract modification, and a USD 109mln Missile Defense Agency contract modification.


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  Honeywell International Inc. (HON) - Announced court approval of its buyout agreement with the North American Refractories Asbestos Personal Injury Settlement Trust; under the previously announced agreement, Honeywell will make a one-time, lump sum payment of USD 1.325bln, subject to certain deductions.


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  Planet Labs PBC (PL) - Q3 EPS -0.15 (exp. -0.17), Q3 revenue USD 49.7mln (exp. 47.2mln). Q4 revenue seen between USD 50-54mln (exp. 51.2mln); lifts FY 2023 revenue outlook to USD 188-192mln (exp. 187mln) from 182-190mln.


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  Nordson Corporation (NDSN) - Q4 EPS 2.44 (exp. 2.33), Q4 revenue USD 684mln (exp. 649.5mln). Q1 adj. EPS is seen between 1.85-2.00 (exp. 2.15), and Q1 revenue is seen between USD 605-630mln (exp. 619mln). for the FY23, sees EPS between 8.75-10.10 (exp. 9.83), and sees revenue growth of between +1-7% (exp. +2.5%).

ENERGY:

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  Energy Names - Spanish regulators raided BP (BP/ LN), Repsol (REP SM) and Cepsa, in relation to anti-competitive practices, FT reports. The probe reportedly stems from complaints from small petrol station operators. (Note, these companies acknowledged the raids on Wednesday, but the reason for the raids was not entirely clear at the time).


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  Exxon Mobil Corporation (XOM) - Announced the successful start-up of one of the largest advanced recycling facilities in North America in Baytown, Texas; the facility breaks down hard-to-recycle plastics and transforms them into raw materials for new products, and can process more than 80mln pounds of plastic waste per year.


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  Plains All American Pipeline (PAA) - To sell its 21% non-operated/undivided ownership interest in the Keyera Fort Saskatchewan facility to Keyera Corporation for approximately USD 270mln.

MATERIALS:

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  Rio Tinto (RIO) - CEO says they have not given up on the Jadar lithium project in Serbia; follows recent remarks from Serbian PM ruling out a way ahead.)


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  Norsk Hydro (NHYDY) - Expects +20% annual demand growth for low-carbon aluminium in the coming years; lifts its low-carbon product sales target to NOK 3.0bln by 2027 (prev. guided for NOK 2.5bln). Additionally, stretching and increasing improvement programme to NOK 11bln (prev. view NOK 7.5bln) by 2027. Aims to distribute 50-70% of adj. Net Income for 2022.


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  FMC Corporation (FMC) - Announces planned retirement of executive vice president and chief technology officer Dr. Kathleen Shelton.

HEALTH CARE:

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  Novavax, Inc. (NVAX) - Announced a USD 125mln convertible senior notes offering, due 2027; also announced a proposed underwritten public offering to sell up to USD 125mln of its common stock. Reaffirms FY 2022 revenue guidance of approximately USD 2bln (exp. 2.1bln).


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  Regeneron Pharmaceuticals, Inc. (REGN), Sanofi (SNY) - Dupixent has been approved by the European Commission as the first and only targeted medicine for Prurigo Nodularis.


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  AstraZeneca (AZN) - Anifrolumab receives FDA orphan designation for the treatment of Idiopathic Inflammatory Myopathies.


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  Centene Corporation (CNC) - Announced a number of leadership changes, including: EVP of Health Care Enterprises Ken Fasola will become President; EVP and Chief Transformation Officer Jim Murray will become EVP and COO. Brent Layton will become Senior Advisor to the CEO, as he begins his transition towards retirement.


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  Thermo Fisher Scientific (TMO) - FDA granted Emergency Use Authorization for its Applied Biosystems TaqPath Monkeypox/Orthopox Virus DNA Kit.

TECH/COMMUNICATIONS:

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  Foxconn Technology Group (FXCNY) - iPhone assembler Foxconn is easing most anti-Covid restrictions at its factory in Zhengzhou, Bloomberg reports.


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  Warner Bros. Discovery, Inc. (WBD) - Raised expectations of costs related to content write-offs by USD 1bln, could now reach USD 3.5bln (prev. saw between USD 2.0-2.5bln); its total restructuring costs could now be between USD 4.1-5.3bln (prev. saw between 3.2-4.3bln).


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  HP Inc. (HPQ) - Director Shumeet Banerji sold 17,300 shares at USD 29.53/shr on December 13th for a total USD 510,869.


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  Rackspace Technology, Inc. (RXT) - Updates on recent hack, says there has been no signs of attacker activity in the environment since December 2nd, and no evidence that the attackers were able to move laterally. Says it was a financially motivated threat actor. Working with CrowdStrike and others to finalise its investigation.

15 Dec 2022 - 09:20- Fixed IncomeData- Source: Newsquawk