US EARLY MORNING: The risk mood is downbeat ahead of key events later in the week

SNAPSHOT:

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  OVERNIGHT: Asia-Pac stocks were mixed overnight (see here), and European indices are off to a downbeat start. Global equities begin the week on a note of caution ahead of this week's key risk events; for Europe, this includes the ECB and BoE policy meetings; for the US, it includes the FOMC rate decision, jobs data, ISM surveys, and earnings from tech megacaps, with Meta Platforms, Apple (AAPL), Amazon (AMZN) and Alphabet (GOOG) all due this week; from Asia, Chinese PMI data will be released.


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  US PRE-MARKETS: US equity futures are giving back some of their recent gains, with the Nasdaq-100 leading losses, though it still remains above 12,000. The broader S&P 500 E-Mini is almost a percent lower, though still above 4,000. The downside picked-up after the European start, where hot flash inflation data out of Spain raised concerns that other Eurozone inflation measures this week could also be hot. For the US index specifically, analysts have been noting that the ES may struggle to build above 4,140 (a valuation-based level premised on a forward EPS expectation of USD 230 EPS this year, on an 18x multiple), and as the index got closer to that zone (high from last week was around 4,110), sellers emerged overnight. Treasury yields ticked higher after the European start, rising in sympathy with European peers after hot Spain inflation data out of Spain for January introduces risks that the aggregate Eurozone data will not cool moderately as expected on Wednesday, ahead of the ECB rate decision on Thursday, which may prevent the central bank from signalling any downshift in the pace of rate hikes for March and beyond. The higher yields in Europe helped push the DXY lower towards the bottom of its overnight range, and is trading beneath 102. Crude futures are also lower, in keeping with the downbeat macro mood; OPEC and its partners are due to meet virtually this week, but are expected to leave policy unchanged.

DAY AHEAD:

• Our full day ahead calendar can be accessed here (or here for the live, online version).


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  US DATA: There is nothing significant on the US data slate today. Traders are more focussed on the other data releases this week, which include the Employment Cost Index for Q4 (Tue), FOMC policy decision (Wed), ISM manufacturing and services surveys (Wed and Fri, respectively), as well as the key US jobs report (Fri). We have more to say about all these events in our week ahead preview, which can be accessed here.


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  EARNINGS: Highlights include Whirlpool (WHR), NXP Semiconductor (NXPI) and GE Healthcare (GEHC). Our earnings expectations note can be accessed here. Again, the focus will be on events later in the week, when tech giants Meta Platforms (Wed) are due to report, as well as Apple (AAPL), Amazon (AMZN) and Alphabet (GOOG) all on Thursday. Our weekly earnings estimates note can be accessed here.


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  WEEK AHEAD: Highlights include FOMC, ECB, BoE policy announcements; US jobs data, ISM reports; EZ CPI, GDP. Our full week ahead briefing can be accessed here.

DEBT LIMIT/CORPORATION TAX:

• President Biden and House Speaker McCarthy will meet on Wednesday for talks over the debt ceiling, after the US last week hit its USD 31.4tln debt limit, and is now using "extraordinary measures" to avoid a default.


• Goldman Sachs has been focussing on this theme over the weekend, and told its clients that it expects the deadline to raise the debt limit will arrive between June and October, and adds that historically, market reactions to past debt have been mixed. "This year has some similarities to the 2011 episode in which the S&P 500 declined by 17% peak-to-trough," the bank writes, "however, most episodes have had a limited impact on equities." Unsurprisingly, it says that equities with high exposure to government revenues tend to be most vulnerable. The bank recently identified defense names are likely to be hit -- a group that has outperformed the S&P 500 over the last year amid heightened geopolitical tensions -- and downgraded its outlook on the sector, citing tighter fiscal policy, margin pressures, and historically elevated valuations.


• But the bank's strategists say that regardless of whether the debt limit leads to a decline in government spending, tax rates for S&P 500 companies appear to have bottomed, with the bank explaining that this has been a significant contributor to net profit margin expansion for the S&P 500 in recent decades. "However, the effective tax rate for the median S&P 500 company rose to 19.3% in Q3 2022 from an all-time low of 18.0% in 3Q 2020, driven in part by the introduction of R&D amortisation and tighter limits on interest deductibility that took effect last year," and "tax headwinds are likely to increase again in 2023 given the onset of other new policies including a 15% minimum tax on corporate book income, a 1% excise tax on buybacks, and a phase-out of capex expensing." The bank says that the higher corporation tax is a key premise of its forecast for no earnings growth this year, estimating that the new provisions will represent a 3% headwind to S&P 500 earnings.

EQUITY SPECIFIC NEWS:

CONSUMER DISCRETIONARY:

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  Amazon.com, Inc. (AMZN) - Amazon won its bid to dismiss a proposed class action claiming its strict production quotas for warehouse workers discriminate against older employees, Reuters reports. Judge said the lawsuit was too vague and failed to identify specific policies that are discriminatory.


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  Ford Motor Company (F) - Head of the German worker’s council at Ford’s Cologne plant said the automaker has indicated it was willing to hold talks with labour representatives over planned structural changes at plants in Germany, Reuters reports. Ford in January said it was planning to shift to EV production, which would require unspecified structural changes, giving rise to fears of job cuts at its German production sites, Reuters added.


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  Baidu, Inc. (BIDU) - The Chinese internet company plans to roll out an AI chatbot service similar to OpenAI’s ChatGPT in March, Bloomberg reports.


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  Toyota Motor Corp. (TM) - 2022 group global vehicle sales fell 0.1% to around 10.5mln, which makes it the world’s top-selling automaker for a third consecutive year.


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  Nissan Motor Co. (NSANY) - 2022 global vehicle production fell 9.4% Y/Y to 3.25mln vehicles.


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  Honda Motor Co (HMC) - 2022 global vehicle production fell 6.4% Y/Y to 3.87mln vehicles.


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  Tesla, Inc. (TSLA) - White House officials met with CEO Musk to discuss EVs and the Inflation Reduction Act, according to Reuters. Separately, Elon Musk faces probe for role in Tesla (TSLA) self-driving claims, according to Bloomberg.


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  Volkswagen AG (VWAGY) - CFO said the automaker was targeting significant EV profitability from 2026, expects an investment peak in new technology in the next two-to-three years, according to Sueddeutsche Zeitung.


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  Renault SA (RNLSY), Nissan Motor Co. (NSANY) - French automaker Renault agreed to cut its stake in its Japanese partner Nissan to 15% (vs just over 43%) as part of a deal to rebalance the alliance, according to a statement.


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  Bed Bath & Beyond Inc. (BBBY) - BBBY is expected to file for bankruptcy soon, and faces limited options to reorganise as a going concern, sources said. The retailer is closing an additional 87 flagship stores, and the Harmon chain of drugstores, as it struggles to find financial support to keep its operations funded, WSJ reports.


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  Kering SA (PPRUY) - Gucci unit unveiled new creative director Sabato De Sarno, who joins from Valentino, where he was the fashion director of ready-to-wear division, NYT reports. The move comes two months after the surprise departure of Alessandro Michele, who had been in that top job since 2015.


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  Lowe’s Companies, Inc. (LOW), Home Depot, Inc. (HD) - Barron’s positively mentioned Lowe’s, said after a tough 2022, Lowe’s stock looks like a buy as it catches up to Home Depot, adding that its stock price will follow.

CONSUMER STAPLES:

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  Amazon.com, Inc. (AMZN) - Amazon Prime members who order groceries online will see delivery fees for orders less than USD 150 rise from the end of February; AMZN will charge USD 9.95 for orders under USD 50, USD 6.95 for orders between USD 50-100, and USD 3.95 for orders between USD 100-150, Amazon said. Currently, Prime members outside of NYC who spend more than USD 35 on grocery orders qualify for free delivery, WSJ said. Amazon said the new fees were meant to help keep prices low and maintain consistent and fast deliveries.


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  Philip Morris International Inc. (PM) - Philip Morris announced a long-term collaboration with South Korea tobacco and nicotine manufacturer KT&G, to continue to commercialise KT&G’s smoke-free devices and consumables on an exclusive, worldwide basis.


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  Unilever plc (UL) - The consumer goods company named Hein Schumacher as its new CEO, replacing Alan Jope, effective July 2023.

TECH:

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  Apple Inc. (AAPL) - Apple has internally outlined a vision where an AR headset can eventually be worn all day and everywhere, replacing the need for a laptop or a phone, Bloomberg reports. And despite the USD 3,000 price point of Apple’s initial headset, some within the company believe that the first model will offer consumers a taste of that vision when it releases later this year. But Apple is not expecting blockbuster initial sales; Bloomberg says that it only expects to produce about 1mln units in the first year, which means it will be one of Apple’s lowest-volume categories.


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  Apple Inc. (AAPL), Jabil Inc. (JBL) - Apple supplier Jabil has begun making components for AirPods in India, Bloomberg reports, a significant step in the US tech giant’s push to expand production in the country to reduce its reliance on China. Jabil has begun shipping AirPods enclosures to China and Vietnam, where the wireless earphones are assembled, sources said.


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  Chip names - US, Netherlands, Japan reach an agreement on chipmaking export controls.


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  Intel Corporation (INTC), NVIDIA Corporation (NVDA) - China’s top nuclear-weapons research institute has bought sophisticated US computer chips at least a dozen times in the past two and a half years, circumventing decades-old American export restrictions meant to curb such sales, WSJ reports. The chips were acquired from resellers in China, and some were procured as components for computing systems; such purchases defy longstanding restrictions imposed by the US that aim to prevent the use of any US products for atomic-weapons research by foreign powers.


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  Microsoft Corporation (MSFT) - Microsoft, Microsoft’s GitHub, and OpenAI told a federal court that a proposed class-action lawsuit for improperly monetising open-source code to train their artificial-intelligence systems cannot be sustained, and say that the complaint filed by anonymous copyright owners did not outline their allegations specifically enough, and GitHub’s Copilot system, which suggests lines of code for programmers, made fair use of the source code, Reuters reports.


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  Workday, Inc. (WDAY) - Barron’s positively mentioned Workday, said it was “the software stock to own now,” noting that software stocks have been held back by concerns that customers will cut IT spending as the economy weakens and sales slow, but Workday was a “bright spot” and shares have been buoyed by strong earnings in November that showed sales still grew quickly even in an uncertain corporate spending environment, which Barron’s argues will continue into 2023.

COMMUNICATIONS:

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  Microsoft Corporation (MSFT), Activision Blizzard, Inc. (ATVI) - Xbox chief Phil Spencer admitted that the console was ‘too light on games’ in 2022, but says a big 2023 could await, IGN reports. “Our commitment to our fans is that we need to have a steady release of great games that people can play on our platform, and we didn’t do enough of that in 2022, there’s no doubt,” Spender said, adding that “fundamentally, that’s on me. I’m the head of the business.”

INDUSTRIALS:

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  Boeing Co. (BA) - Boeing expects to hire 10k in 2023 as it recovers from the pandemic and increases jetliner production, but will trim some support jobs, Reuters reported. The jet maker added 14k jobs in 2022. Separately, Boeing was awarded a USD 2,26bln contract modification for KC-46A Air Force Production Lot 9 aircraft.


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  Rheinmetall AG (RNMBY) - CEO said that the arms manufacturer was nearing an order backlog of EUR 30bln, and that backlog is expected to rise to EUR 40bln next year.


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  Ryanair Holdings (RYAAY) - The budget European airline posted a record Christmas quarter, and sees “very robust” demand conditions for the summer season. Q3 revenue EUR 2.31bln (exp. 2.36bln), Q3 net EUR 202.1mln (exp. 263mln). Q3 customers 38.4mln (exp. 38.6mln). Affirmed FY23 net and passenger traffic guidance. CFO sees its profitable run continuing, adding that there will be a lot of demand in Europe over the summer, and is going to see more tourists heading into Europe from China.

HEALTH CARE:

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  Koninklijke Philips N.V. (PHG) - The conglomerate swung to a net loss in Q4; will axe an additional 6k jobs to drive improved profitability. Maintained its dividend. Q4 revenue EUR 5.42bln (exp. 4.88bln), Q4 adj. EBITDA EUR 651mln (exp. 383.1mln), Q4 comp sales +3.4% (exp. -5.02%). Proposes a dividend of EUR 0.85/shr. Announced plans to cut a further 6,000 jobs globally by 2025. Noted that the supply chain situation remained challenging.


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  Eisai Co. (ESALY), Biogen Inc. (BIIB) - Lecanemab received Priority Review status in Japan.


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  Regeneron Pharmaceuticals, Inc. (REGN), Sanofi (SNY) - Sanofi and Regeneron’s Dupixent has been approved by the European Commission as the first and only targeted medicine indicated for eosinophilic esophagitis.


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  Novartis (NVS) - Sandoz receives positive CHMP opinion for citrate-free high concentration formulation of adalimumab biosimilar.

MATERIALS:

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  MMG Limited (MMETY) - China’s Melbourne-headquartered miner MMG said its Las Bambas mine in Peru would likely have to halt production from February 1st due to a shortage of “critical supplies” leading to a slowdown of operations, Reuters reports. The shortage of supplies was due to transport disruptions from protests in Peru, where protesters have been blocking traffic in and out of the copper mine.


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  Piedmont Lithium Inc. (PLL) - North Carolina regulators give Piedmont a second extension to submit necessary documents for its application to build one of North America’s largest lithium mines; Piedmont had been scheduled to provide the information by July 13th, 2022. Officials have been reviewing how the proposed mine, which has garnered widespread local opposition, could affect water table levels, sewage systems and wildlife, among other factors.


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  Rio Tinto (RIO) - The miner apologised for losing a highly radioactive capsule, which fell off a truck on a 1,400km stretch of desert highway in Western Australia, FT reports.

ENERGY:

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  TotalEnergies (TTE), Petrobras (PBR) - Petrobras received BRL 1.3bln from TotalEnergies, Petronas, and Qatar Energy as an earnout for the Sepia oil block.


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  Eni S.p.A. (ENI IM) - CEO said the petroleum refineries company had signed a 25yr, EUR 8bln deal for Libyan energy production.


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  BP (BP) - The oil major’s annual outlook suggests energy security concerns will spur more investment in renewables, and accordingly, it has cut its long-term forecast for oil and gas demand, FT reports.


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  Shell (SHEL) - The oil major announced executive changes; Integrated Gas/Upstream business to be combined, to form a new Integrated Gas/Upstream directorate; downstream to be combined with Renewable & Energy Solutions. Shell said it was reducing the size of executive committee to seven from nine.

FINANCIALS:

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  Visa Inc. (V) - Visa said the DoJ’s antitrust regulators had issued investigative demand earlier in January seeking information about US debit card practices, and competition with other payment networks, Reuters reports. The probe began in early 2021, and follows reports that the US was investigating whether Visa uses anticompetitive practices in the debit card market.

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