US EARLY MORNING: US equity futures and Treasury yields are lower ahead of PCE and ECI data

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  OVERNIGHT: Asia-Pac stocks were positive as the region took impetus from the rally on Wall St where the S&P 500 and DJIA posted their best daily performance since January, as sentiment was fuelled by strong earnings results, while the region also digested a slew of earnings, month-end data releases and the BoJ policy decision. The central bank kept policy unchanged, and sees inflation falling below 2% in FY25; it also said it would conduct a review into its policy measures, which would be out in 12-18 months, which analysts suggested implies status quo policy in the near term. China shares were firmer amid tech strength and an abundance of earnings releases, with sentiment also supported by the PBoC’s liquidity efforts ahead of the 5-day closure in the mainland for Labour Day Golden Week. Our Full APAC wrap can be accessed here. The European day starts with some gains, with attention on regional inflation data ahead of next week's aggregated Eurozone release; so far, the incoming data has been mixed, with France seeing above expected inflation, Spain below expected, while the aggregated German data is due later today (German regions have generally been reporting decelerating trends this morning). (See our daily European opening note here).


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  US PRE-MARKETS: US equity futures are lower, but have generally been drifting sideways overnight, following the gains on Thursday. Treasury yields are lower, perhaps taking cues from some softer inflation metrics from European regions, ahead of next week’s Eurozone inflation data. In the US, afterhours tech earnings were mixed; Amazon (AMZN) beat across the board, although the tone on call was more cautious, with execs noting a slowdown in AWS into Q2. Intel (INTC) beat on top- and bottom-line expectations, rising almost 5.0% in afterhours trading. Cloudflare (NET) sunk over 25% in afterhours after soft Q2 sales guidance. In communications, Snap (SNAP) tumbled 18% after profits and sales missed expectations, and it did not provide next quarter guidance, while analysts were disappointed by soft Q2 guidance from Pinterest (PINS), and T-Mobile (TMUS) fell after sales missed expectations, and it added fewer subscribers than the street expected. On the banking front, Reuters reports that US officials have reportedly coordinated urgent rescue talks for First Republic Bank (FRC). The focus will likely shift to macro affairs today, with the release of PCE data for March and ECI data for Q1. We preview both below.


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  PREVIEW - US PCE (13:30BST/08:30EDT): The consensus expects core PCE to rise 0.3% M/M in March, matching the prior rate; the annual measure of core PCE is seen easing by 0.1ppts to 4.5% Y/Y. Analysts say the data will likely confirm that the process of gradual disinflation continued in March, although with core inflation still punching above the Fed’s target, the central bank will continue with its tightening policies. Advanced GDP data released this week showed US Core PCE prices rising from 4.4% Y/Y in Q4 to 4.9% Y/Y in Q1 as a whole, above the expected 4.7% (the monthly core PCE data showed 4.7% Y/Y in January, falling to 4.6% Y/Y in February, and the consensus is for 4.5% Y/Y in March). With regards to the data itself, as a comparison, Credit Suisse noted that the CPI data for March indicated that core goods prices edged higher in March, although modest disinflation in shelter – which is a smaller weight in the PCE than CPI – should offset most of this so that the monthly inflation rate stays flat.


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  PREVIEW - US EMPLOYMENT COSTS (13:30BST/08:30EDT): The data is said to be one of the key measures that Fed officials look to when assessing longer-term remuneration trends; officials have indicated that they want to see a slowdown in wage inflation, amongst other things, to help bring down the rate of services inflation. "We expect that the ECI will show a continued modest slowdown in the pace of wage gains as the quit rate has eased in recent months," Moody's said. There has been sequential easing in this measure over the course of the last few reports (1.4% in Q1 2022, 1.3% in Q2, 1.2% in Q3, and 1.0% in Q4), although that trend may be tested, if the consensus view is anything to go by: analysts are currently looking for a rise of 1.1% Q/Q in Q1 (prev. +1.0%).

DAY AHEAD:

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


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  EUROPEAN DATA/SPEAKERS: German April inflation metrics are due; European inflation data released over the course of the morning have generally been mixed (higher than expectde in France, lower than expected in Spain); the data will also help to shape expectations of what the Eurozone measures will look like when they are released next Tuesday. On the credit ratings front, after the US close, Fitch may review France (AA), DBRS on Italy (BBB), S&P on Sweden, and Moody’s on the ESM.


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  NORTH AMERICAN DATA/SPEAKERS: The main focus is going to be on PCE data, which is the Fed’s preferred gauge of inflation. The consensus looks for 4.5% Y/Y (from 4.6% in Feb and 4.7% in Jan), but the data contained within the GDP report for Q1 showed an upside surprise (4.9% from 4.4% in Q4, topping expectations for 4.7%), suggesting potential for an upside surprise. There will also be attention on the Employment Costs data for Q1, where costs are seen rising to a rate of 1.1% from 1.0% in Q4. The ECI series is another data point said to be influential among Fed officials; officials have indicated that they want to see a slowdown in wage inflation, amongst other things, in order to help bring down the rate of services inflation. Meanwhile, final Michigan sentiment data for April will be released, where again, traders will be watching the inflation expectations measures closely. Elsewhere, the Chicago PMI data will be eyed in the context of mixed regional manufacturing reports. Canada watchers will note the GDP data for February (0.2% M/M expected). Finally, the Baker Hughes weekly rig count will be released after the European close.


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  US CORPORATE EARNINGS: On Friday, earnings are due from CVX, XOM. Our full weekly earnings expectations note can be accessed here.

EQUITY NEWS:

CONSUMER DISCRETIONARY:

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  Amazon.com Inc (AMZN) - Q1 metrics beat across the board, although the tone on call was more cautious, with execs noting a slowdown in AWS into Q2. Q1 EPS 0.31 (exp. 0.21), Q1 revenue USD 127.4bln (exp. 124.55bln); Q1 AWS +16% to USD 21.4bln (exp. 21.03bln); Q1 subscription Services 9.66bln (exp. 9.3bln). Q1 OM 3.7% (exp. 2.4%); Q1 Fulfilment Expenses 20.91bln (exp. 20.72bln); Q1 Seller Unit Mix 59% (exp. 56.8%). Sees Q2 revenue between USD 127-133bln (exp. 129.83bln). The tone on call was a little more cautious, with execs stating that its AWS April revenue growth slowed from Q1 levels by about 500bps. "Given the ongoing economic uncertainty, customers of all sizes in all industries continue to look for cost savings across their businesses," and "customers continue to evaluate ways to optimise their cloud spending in response to these tough economic conditions in the Q1 and we are seeing these optimisations continue into the Q2." AMZN ended afterhours trading -2.1%.

TECH:

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  Intel Corp (INTC) - The chipmaker beat top- and bottom-line expectations, rising almost 5.0% in afterhours trading, but still reported the largest quarterly loss in its history, and sales were down 36%. Q1 adj. EPS -0.04 (exp. -0.15), Q1 revenue USD 11.70bln (exp. 11.04bln). Q1 client business sales USD 5.8bln (exp. 4.9bln), Q1 Data Centre/AI sales USD 3.7bln (exp. 3.5bln), Q1 Network & Edge sales USD 1.5bln (exp. 1.76bln). Exec said increasing stability in the PC market with inventory corrections largely proceeding as expected. The PC market depleted a significant amount of inventory in Q1, tracking to be at a healthy level by the end-Q2. Server and networking markets have yet to reach bottoms, as cloud and enterprise remain weak. Is seeing green shoots, expects sequential revenue growth throughout the year. Expects gross margin comfortably in the 40s percent range for H2, and inventory level is about 155 days on aggregate. Sees Q2 adj. EPS between -0.04 (exp. -0.02), and sees Q2 revenue between USD 11.5bln-12.5bln (exp. 11.7bln).


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  Fair Isaac Corp (FICO) - Q1 adj. EPS 4.78 (exp. 5.04), Revenue 0.38bln (exp. 0.37bln). FY EPS view 19.45 (exp. 19.60, prev. 19.42), FY Revenue view 1.48bln (exp. 1.47bln, prev. 1.463bln).


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  Sony Group Corp (SONY) - Q4 operating income JPY 128.46bln (exp. 123.72bln), Q4 PS5 sales 6.30mln units (exp. 5.90mln), and has now 19.1mln PS5 units in FY22/23 (prev. 11.5mln). Sees FY operating income at JPY 1.17tln (exp. 1.27tln). Aims to sell 25mln PS5s in FY23/24 (19.1mln in FY22/23).


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  Cloudflare, Inc. (NET) - Sunk over 25% in afterhours after soft Q2 sales guidance. Q1 EPS 0.08 (exp. 0.03), Q1 revenue USD 290.2mln (exp. 290.8mln). Exec said that increasing macroeconomic uncertainty in Q1 resulted in a material lengthening of sales cycles, and a significant backend-weighting of linearity. Its guidance assumes these external headwinds will persist through the end of the fiscal year. Q2 EPS seen between USD 0.07-0.08 (exp. 0.03), Q2 revenue seen between USD 305-306mln (exp. 319.8mln). For the FY23, sees EPS between UDS 0.34-0.35 (exp. 0.16), and sees FY23 revenue between USD 1.28-1.284bln (exp. 1.33bln).


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  Software AG (STWRY) - Elliot has reportedly built a stake in Software AG in bet on Silver Lake bump, or a rival bid, Bloomberg said.


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  First Solar Inc (FSLR) - Fell in afterhours trading following weaker metrics for Q1, where EPS was 0.40 (exp. 1.02), and revenue was USD 0.55bln (exp. 0.72bln). Reiterated its FY23 EPS outlook between 7.00-8.00 (exp. 6.60), and its revenue outlook for between USD 3.4-3.6bln (exp. 3.21bln). FY23 capex view and volume sold view also maintained.


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  Verisign Inc (VRSN) - Q1 EPS 1.70 (exp. 1.68), Revenue 0.384bln (exp. 0.36bln).

COMMUNICATIONS:

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  T-Mobile US Inc (TMUS) - Slipped 2.6% afterhours after sales missed expectations, and added fewer subscribers than the street expected. Q1 EPS 1.58 (exp. 1.48), Q1 revenue USD 19.63bln (exp. 19.81bln). Q1 postpaid phone net customer additions 538k (exp. 552k). Sees 2023 postpaid net customer additions between 5.3-5.7mln (from 5.0-5.5mln), and sees FY FCF between USD 13.2-13.6bln (from 13.1-13.6bln), and raises FY23 core adj. EBITDA view to USD 28.8-29.3bln (from USD 28.7-29.2bln).


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  Snap Inc (SNAP) - Tumbled 18% after profits and sales missed expectations, and it did not provide next quarter guidance. Q1 adj. EPS +0.01 (exp. -0.01), Q1 revenue 0.989bln (exp. 1.01bln), Q1 DAU 383.0mln, +15% y/y (exp. 383.2mln). Said it was not providing formal guidance for revenue or adj. EBITDA for Q2.


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  Pinterest (PINS) - Analysts were disappointed by soft guidance for Q2. Q1 EPS 0.08 (exp. 0.01), Q1 revenue USD 603mln (exp. 593mln). Q1 global MAUs +7% Y/Y to 463mln (exp. 455mln). Is expanding its ads business by opening up third-party ad demand on Pinterest, starting with Amazon (AMZN) as its first partner. Sees Q2 growth in line with Q4 and Q1 levels (around +5% vs consensus expectations of +6.6%).


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  Pearson (PSO) - Said strong performance in Q1 puts it on track to meet forecasts. Q1 sales growth +6%, total +2%, total ex-OPM/Review +6%. Remains on track to achieve our 2023 guidance. Intends to commence a buyback to repurchase GBP 300mln shares in H2.


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  ProSiebenSat.1 (PBSFY) - Will cut its dividend, and replace its CFO. Final FY22 revenue EUR 4.16bln (exp. 4.16bln). Adj. EBITDA EUR 678mln (exp. 655mln). Will acquire shares in Jochen Schweizer Mydays, and will hold an 89.9% stake.

FINANCIALS:

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  First Republic Bank (FRC) - US officials have reportedly coordinated urgent rescue talks for First Republic. The FDIC, Fed and Treasury are among the bodies which in recent days have been putting together meetings with financial companies regarding a lifeline, Reuters reports. The government involvement is reportedly in bringing more parties to the discussions. Reuters adds that it was unclear if the government was considering partaking in any private-sector rescue of FRC.


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  Capital One Financial Corp (COF) - Profits missed expectations, despite deposits rising. Q1 EPS 2.31 (exp. 3.92), Revenue 8.9bln (exp. 9.05bln). CET1 ratio 12.5%. Q1 loan loss provisions of USD 2.8bln (exp. 2.0bln). Exec said it built additional balance sheet strength as it grew retail deposits, and maintained or increased strong levels of capital and liquidity.


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  Deutsche Bank (DB) - The German bank will buy Numis (NUM LN) for GBP 3.50/shr (vs GBP 2.04 close on Thursday).


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  NatWest Group (NWG) - Topped profit forecasts in Q1 despite UK inflation, but saw deposits fall by GBP 19.8bln in the quarter. Q1 pretax operating GBP 1.82bln (exp. 1.55bln), Q1 net income GBP 1.28bln (exp. 1.02bln). NII GBP 2.90bln (exp. 2.86bln).


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  Principal Financial Group Inc (PFG) - Q1 adj. EPS 1.48 (exp. 1.51), Revenue (exp. 3.18bln).


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  Prudential (PUK) - Quarterly new business profits +30% in the quarter at GBP 743mln; APE sales 1.56bln, +35%. Said business momentum continued into Q2, particularly in Hong Kong.


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  Hartford Financial Services Group Inc (HIG) - Q1 EPS 1.68 (exp. 1.72), Revenue 5.91bln (exp. 5.88bln). Exec said the performance downside was driven by unusually high catastrophe activity in the quarter.


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  Arthur J. Gallagher & Co. (AJG) - Q1 EPS 3.03 (exp. 2.99), Revenue 2.71bln (exp. 2.67bln).


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  Cincinnati Financial Corp (CINF) - Q1 adj. EPS 0.89 (exp. 0.73), Net premiums written 2.02bln (exp. 1.98bln), premiums earned 1.92bln (exp. 1.89bln).

REAL ESTATE:

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  Camden Property Trust (CPT) - Q1 EPS 0.39 (exp. 0.32), Core AFFO 1.50 (prev. 1.35 Y/Y).


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  Digital Realty Trust Inc (DLR) - Q1 FFO/shr 1.66 (exp. 1.65), revenue USD 1.3bln (exp. 1.38bln).


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  Essex Property Trust Inc (ESS) - Q1 EPS 2.38 (exp. 1.29), Core FFO 3.65 (prev. 3.37), exceeding mid point of guidance by USD 0.08, raised FY EPS and Core FFO guidance.


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  Healthpeak Properties Inc (PEAK) - Q1 Adj. FFO/shr 0.42 (exp. 0.36).


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  Weyerhaeuser Co (WY) - Q1 EPS 0.21 (exp. 0.11), Revenue 1.88bln (exp. 1.85bln).

MATERIALS:

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  Glencore (GLNCY) - Canada opposition party called for the government to block Glencore's proposed takeover of Teck Resources (TECK), according to Bloomberg.


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  Chemours Company (CC) - Q1 adj. EPS 0.98 (exp. 0.47), Q1 revenue USD 1.5bln (exp. 1.46bln). Exec said that although destocking in Europe and China is largely behind us, global macroeconomic uncertainty will likely result in a more gradual recovery this year. Reiterates FY23 adj. EBITDA outlook at between USD 1.2-1.3bln.


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  Covestro (COVTY) - Guides FY23 core earnings above expectations on better margins and improved costs. Q1 net EUR -26mln (exp. -89mln). Is resuming its buyback programme. Sees FY23 EBITDA between EUR 1.1-1.6bln (exp. 1.2bln), FCF 0-500mln (exp. 126mln).


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  Eastman Chemical Co (EMN) - Q1 adj. EPS 1.63 (exp. 1.25), Revenue 2.41bln (exp. 2.43bln). Q1 performance was driven by disciplined pricing, lower costs, and efficient operations. Exec said global economic environment remains challenging due to above normal customer inventory destocking, lacklustre demand in consumer durables and building and construction end-markets, and an unfavourable impact from FX. Reaffirms FY EPS view.


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  United States Steel (X) - Q1 adj. EPS 0.77 (exp. 0.65), Q1 revenue 4.47bln (exp. 4.24bln), steel shipments 3.95mln T (exp. 3.73mln).


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  Norsk Hydro (NHYDY) - Core profits declined by less than expected. Q1 revenue NOK 48.5bln (exp. 46bln), adj. EPS 1.70 (exp. 1.72), adj. net income NOK 3.3bln (exp. 3.4bln), adj. EBITDA NOK 7.5bln (exp. 7.3bln). Lower aluminium and alumina sales prices, and higher raw material costs negatively affected results, partly offset by positive currency effects.


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  Wacker Chemie (WKCMY) - Saw a smaller than expected fall in Q1 core profits. Q1 revenue EUR 1.74bln (prev. 2.08bln Y/Y). EBITDA EUR 281mln (prev. 644mln). Warned that EBITDA margin will likely decline substantially Y/Y.

ENERGY:

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  ENI S.p.A. (E) - Net profits fall, but still top expectations. Q1 adj. net income EUR 2.91bln (exp. 2.3bln), adj. operating profit EUR 4.64bln (exp. 3.6bln). Cuts FY operating profit view to EUR 12bln from 13bln (exp. 14.64bln).


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  OMV (OMVKY) - Its clean CCS operating results were above expectations. Q1 revenue EUR 10.96bln (prev. 15.8bln Y/Y). Adj. net EUR 1.03bln (prev. 1.07bln Y/Y). Operating profit EUR 2.08bln (prev. 2.62bln). Average production 376k BOEPD (prev. 457k BOEPD).

INDUSTRIALS:

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  L3 Harris Technologies Omc (LHX) - Q1 adj. EPS 2.86 (exp. 2.85), Q1 revenue USD 4.47bln (exp. 4.25bln), Q1 operating margin 14.3%. Maintains FY guidance.

HEALTH CARE:

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  Amgen Inc (AMGN) - Q1 EPS 3.98 (exp. 3.85), Q1 revenue USD 6.11bln (exp. 6.17bln). Q1 Enbrel revenue -33%. FY EPS view 17.60-18.70 (exp. 17.72), FY Revenue view 26.2-27.3bln (exp. 26.7bln).


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  Dexcom Inc (DXCM) - Q1 EPS 0.12 (exp. 0.15), Revenue 0.742bln (exp. 0.72bln). Raises FY guidance: FY Revenue view 3.40-3.52bln (exp. 3.47bln).


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  Gilead Sciences Inc (GILD) - Q1 adj. EPS 1.37 (exp. 1.54), revenue 6.35bln (exp. 6.33bln). Reaffirms FY guidance.


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  Resmed Inc (RMD) - Q1 adj. EPS 1.68 (exp. 1.59), Revenue 1.12bln (exp. 1.05bln).


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  Seagen Inc (SGEN) - Q1 adj. EPS -0.93 (exp. -0.82), Revenue 0.52bln (exp. 0.52bln).

UTILITIES:

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  FirstEnergy Corp (FE) - Q1 EPS 0.60 (exp. 0.61), Revenue 3.20bln (exp. 3.05bln).

CONSUMER:

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  Mercedes-Benz Group (MBG) - Q1 revenue EUR 37.5bln (exp. 36.9bln), EPS 3.69 (exp. 3.18), adj. EBIT EUR 5.4bln (exp. 4.7bln). Results driven by a rise in sales of top-end vehicles and premium vans. Improved pricing outweighed headwinds from material costs. Group outlook remains unchanged, strategic execution on track. Mercedes-Benz Vans adjusted RoS lifted to 11-13% and at Mercedes-Benz Cars the adjusted RoS is seen at the upper end of 12–14%. Group expects revenue at the prior-year level and EBIT slightly below the prior-year level. Free cash flow of the industrial business is expected at the prior-year level.


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  Mohawk Industries Inc (MHK) - Q1 adj. EPS 1.75 (exp. 1.30), Revenue 2.81bln (exp. 2.74bln). Q2 EPS view 2.56-2.66 (exp. 2.65). Exec said it exceeded earnings expectations and maintained higher pricing and a stronger mix; Flooring Rest of the World outperformed. Commercial channel stronger than residential, with home remodelling projects being postponed and new housing construction being impacted by higher mortgage rates. Exec said the industry downturn was unique, with employment remaining high, businesses continuing to invest and homes maintaining their valuations.


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  Mondelez International Inc (MDLZ) - Q1 adj. EPS 0.89 (exp. 0.80), Revenue 9.17bln (exp. 8.49bln). Exec said customer disruption in Europe was more benign than we anticipated. Inflation is still expected to increase double digit in 2023, driven by elevated costs in packaging, energy, ingredients and labour. Lifts FY organic sales outlook to growth of 10%+ (previously guided towards +5-7%), and now sees FY EPS rising 10%+ (previously guided towards growth of +7-9%).


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  Remy Cointreau (REMYY) - Warned that weak US demand will hit sales ahead. FY sales EUR 1.55bln (exp. 1.55bln, prev. 1.31bln). For FY23/24, sees strong sales decline in H1, strong sales recovery in H2.


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  Skechers U.S.A., Inc. (SKX) - Although Q1 metrics were better-than-expected, Q2 guidance was soft, and shares slipped afterhours. Q1 EPS 1.02 (exp. 0.61), Q1 revenue USD 2.0bln (exp. 1.86bln). Q2 EPS seen between USD 0.40-0.50 (exp. 0.74), while Q2 revenue is seen between USD 1.85-1.90bln (exp. 1.98bln). FY23 EPS seen between 3.00-3.20 (exp. 2.99), and FY23 revenue between USD 7.9-8.1bln (exp. 8.0bln).

28 Apr 2023 - 09:30- Data- Source: Newsquawk