US EARLY MORNING: US equity futures are around flat; ahead, key employment costs data and big cap corporate earnings are due

OVERNIGHT: Overnight, APAC markets were subdued after a weak handover from Wall Street, and didn’t manage to garner any meaningful risk-on following official China PMI data, where all three major headlines returned to expansion territory (perhaps as traders have discounted the notion that policymakers will be providing support to the economy in the months ahead). The European start was supported following French inflation data – which was tamer than some were fearing after Spain’s hotter-than-expected release on Monday – and lends to the argument that the ECB may still have the scope to downshift the pace of rate hikes after the March meeting (markets still expect 50bps on Thursday, followed by 50bps in March).

US PRE-MARKETS: US equity futures are just under the neutral mark, though are off lows seen overnight after French inflation data. Treasuries are bid, with yields narrowing by 2-4bps across the curve, with shorter-dated yields outperforming. The Dollar Index is back above 102.50, largely as a function of the EUR falling in wake of the French data and soft German retail sales, while Aussie retail sales were also soft overnight. Citi’s month end model was pointing to USD selling vs all currencies except for the EUR. As the US Day comes into focus, traders will begin refocussing on the stateside events, where the earnings slate is packed with heavyweights, including Caterpillar, Exxon, McDonalds, Pfizer, UBS. There is also the key Employment Costs data for Q4, which Fed officials watch closely – we preview these events below.

DAY AHEAD:

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

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  APAC DATA: Overnight, there were better than expected PMI data out of China, with all three headlines now back above the 50-mark, which divides expansion and contraction. The official NBS manufacturing PMI rose to 50.1 from 47.0, more than the expected rise to 49.8; the non-manufacturing gauge rose to 54.4 from 41.6, topping estimates for 41.6; that launched the composite PMI to 52.9 from 42.6. Pantheon Macroeconomics said China was likely to begin a meaningful recovery post-Chinese New Year. "The PMIs show month-on-month improvement in new orders in manufacturing, construction and especially services; business optimism about the future has improved remarkably; households are ready to spend," adding that "broad activity jumped year-on-year and is close to pre-pandemic levels, or in some cases above them." Pantheon expects China to provide measured policy support for consumption and cut the benchmark rates to encourage private sector credit demand, it said.


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  EUROPEAN DATA: French prelim HICP for January was in line with expectations, rising to 7.0% Y/Y from 6.7%. The prelim national CPI metric for the month printed 6.0% Y/Y, a little short of the 6.1% that the street was modelling, though rose from 5.9%. The data has been met with some relief after the hotter-than-expected numbers from Spain on Monday; it appears that Spanish data may have been subject to idiosyncratic factors. German retail sales fell in December (-5.3% M/M vs. an expected 0.2%), taking the annual rate to -6.4% Y/Y (exp. -1.8% from -5.9%). German import prices picked up to 12.6% Y/Y in December, above the expected 12.0%, though did pare back from the prior 14.5%. As a reminder, we were due to get German inflation data today, but DeStatis announced on Monday that the release for January would be delayed over a “technical issue”; Eurostat said it would use an estimate for the German numbers within the aggregated Eurozone data, which is due for release on Wednesday. Meanwhile, DeStatis will tell us on Friday when it intends to release the data.


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  US DATA: While the BLS release of the employment situation report on Friday is the main jobs release, there has been greater focus on the Employment Cost Index series of data for Q4, particularly after it was cited by the influential Fed Vice Chair Brainard as a key data point she is monitoring to gauge how persistent the upside in wages has been in the US – we preview the release in more detail below. The Conference Board’s gauge of consumer confidence is expected to improve a touch in January. Traders will also be keeping an eye on the RedBook series of chain store sales, which has been easing in the new year. There will be more survey data, by way of the Chicago PMI release for January, stale house price data by way of the FHFA and Case Shiller prints for November.


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  PREVIEW - US EMPLOYMENT COSTS (13:30GMT/08:30EST): In remarks on January 19th, Federal Reserve Vice Chair Brainard said that there were tentative signs that US wage growth was moderating, noting that the growth in average hourly earnings has softened recently, stepping down to a pace of 4.1% annualised on a 3-month basis in December, which is down from roughly 4.5% on a 6- and 12-month basis. The influential Fed policymaker said that she would be closely watching to see whether the employment cost index data for Q4 continues to show the deceleration from Q3. Brainard said that price trends and the deceleration in wages provides some reassurance that we are not currently experiencing a 1970s style wage–price spiral, and therefore, it remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labour market and a reduction in inflation without a significant loss of employment. This could give the Fed enough confidence to potentially hike rates further as it assesses what impact the 425bps of tightening implemented so far has had on bringing down price pressures. According to Refinitiv, analysts expect the data to print 1.2% in Q4, matching the rate seen in Q3. Money markets are currently pricing that the Fed will be cutting rates towards the end of this year, and while officials have leaned back on this narrative, cooling in the employment cost in combined with a continued softening in other inflation and wage measures, will at least give the central bank scope to slow down monetary tightening as the economy slows, if it needs to.


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  ENERGY INVENTORIES: After hours, the API will release its gauge of energy inventories for the week, ahead of the more-widely followed DoE data on Wednesday; the street expects headline crude stocks to draw by 1mln, distillates are seen drawing by 1.8mln, while gasoline inventories are expected to build by 1mln.


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  EARNINGS: The earnings slate for the week begins picking-up, and while many will be focussed on big tech earnings (META on Wednesday; AAPL, AMZN, GOOG on Thursday), today we get numbers from Exxon Mobil (XOM), Marathon Petroleum (MPC), General Motors (GM), Phillips 66 (PSX), UPS (UPS), Pfizer (PFE), SYSCO (SYS), Caterpillar (CAT), Chubb (CB), Amgen (AMGN), Western Digital (WDC), McDonald's (MCD), AMD (AMD), Pulte (PHG, Snap (SNAP). Our full earnings estimate sheet can be accessed here.

TALKING POINTS FOR TODAY’S MAJOR EARNINGS RELEASES:

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  AMD: Wedbush continues to believe AMD will gain share in both PCs and servers (and especially the latter) through 2023. "However, on the PC front, we believe AMD share gains may be more noticeable in 2H'23 as AMD's early transition to higher priced DDR-5 (as well as higher priced boards) could yield some near-term hiccups as signaled by AMD's discounting throughout Q4." For the server market, Wedbush "sees Genoa as well positioned vis a vis Sapphire Rapids. Rather, any concerns we have are tied to whether our significant growth assumptions might prove overly optimistic in a more difficult market environment that we believe will see both hyperscale and enterprise server spend moderate." Wedbush continues to rate AMD as an Outperform, and continues to see AMD shares as a gainer. It has a UDS 100 price target on the semiconductor manufacturer.


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  CAT: After meeting management and heads of major dealerships, Citi's analysts said there were a few common themes to note: "Demand trends remain solid, and in many cases are out-running supply of new engines and machines," the bank said, "long lead times and higher prices of new units are some factors contributing to rising demand for overhaul/rebuilds." Citi says that overall, the feedback was positive and, combined with cost trends, makes the bank incrementally more bullish on CAT’s near-term margin trajectory.


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  GM: Wedbush said after hosting a tour at GM’s headquarters in Detroit last year, Wedbush said "it was clear to us that GM is at an inflection point in innovation, spearheading the overall shift to EV with vehicle quality, a goal-oriented employee base, and profitability/cash flow all in mind."


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  MCD: Credit Suisse believes strength continued in Q4; sell-side estimates are for US Same store sales of 8.4%, CS says, but notes that the buy-side likely higher) while IOM SSS are seen at 7.8% (warm weather in Europe likely a tailwind, the bank says). "We see potential upside to MCD estimates in 2023 from FX, cost savings from the recently announced organizational restructuring & ongoing US momentum."


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  PFE: Wells Fargo said ABBV (reports next Thursday) and PFE carried the most risk into 4Q earnings, "as investors look to understand where 2023 EPS could be on Humira erosion and PFE COVID biz," adding that "BIIB is better positioned for 2023 guide and could be a beat-and-raise story this year."


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  SPOT: Ahead of the platforms earnings, Benchmark's analysts reiterated its Buy rating, stating that consensus 2023 expectations understate both Premium and Ad-supported gross profit leverage after 2022's “trough” podcast profitability. "With that said, we seek more transparency on management’s suggested ~2x ARPU lift target from incremental podcast revenue per user," Adding that "the subsequent degradation of 2022 gross margin is optics, in our view, as music gross margin trajectory has exemplified steady Y/Y leverage." Benchmark continues to believe that the staple nature of music subscriptions, and particularly Spotify’s brand and expanding content, has material pricing 'catch-up' relative to other premium SVOD services," and notably, it has almost no  terminal value attributed to podcast margin contribution.


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  UPS: Citi's analysts said they made some last-minute tweaks to its model ahead of UPS Q4 earnings report, lowering its Q4 and FY23 view due to softer International margins, given November Asia-outbound volatility and macro headwinds in Europe for 2023. "That said, we believe the key theme of Domestic pricing power can persist into 2023 even as we pass the seventh quarter of volume softness," Citi says, "and on that point, similar to early cycle Transports levered to the consumer, we believe UPS could also see a H2 volume stabilisation as retail inventories normalise and the pandemic surge is corrected." Citi argues that the biggest hurdle to sentiment remains the Teamster negotiation; "as we approach late-Spring, this overhang may weigh on stock performance," Citi warns, "short-term, we believe sentiment is negative and results/guidance is likely to be good enough to support shares, however, big follow through will be challenging as the looming union negotiation may offset attractive valuation."


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  XOM: Earlier this month, Mizuho assumed coverage of XOM with a Buy rating, and on a NAV basis, has a PT Of USD 140: "Although we have incorporated a more conservative outlook for earnings and cash flows than both management and consensus, it is hard to construct a realistic scenario where the company will not be a leader in cash generation for the next 3-5 years," the bank writes, adding that "this is not reflected in the modest discount to peers based on our FCF/EV estimates." Mizuho added that it believes XOM is a Top Pick in the sector for 2023.

STOCK SPECIFIC NEWS:

TECH:

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  Samsung Electronics Co. (SSNGY) - Profits slipped to an 8yr amid a slump in smartphone and PC demand, but the tech giant made the decision to maintain capital spending levels Y/Y, unlike other rivals. Final Q4 net KRW 23.8tln (exp. 3.4tln), Q4 operating profit KRW 4.3tln (prelim. 4.3tln), Q4 revenue KRW 70.5tln (prelim. 70.0tln), Q4 smartphone shipments 58mln units. Will pay year-end dividend of KRW 361/shr. Samsung noted consumer sentiment worsened in Q4, and memory chip prices fell further. Expects macroeconomic uncertainties to persist this year, but anticipates demand will recover in H2. Q1 smartphone demand is seen declining Y/Y due to economic slowdown in major regions, while it expects 2023 smartphone demand to contract due to persistent macroeconomic conditions.


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  NXP Semiconductors NV (NXPI) - Q4 EPS USD 2.76 (exp. 2.74), Q4 revenue USD 3.31bln (exp. 3.3bln), Q4 adjusted gross margin 58% (exp. 57.8%),  Q4 adjusted operating margin 36.5% (exp. 36%). Approves a 20% increase in quarterly cash dividend to USD 1.01/shr. Sees Q1 EPS between USD 2.12-2.51 (exp. 2.25), and Q1 adj. EPS between 2.82-3.22 (exp. 3.23), sees Q1 revenue USD 2.90bln-3.10bln (exp. 3.16bln).


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  Intel Corporation (INTC), QUALCOMM Incorporated (QCOM) - Biden administration mulls cutting off Huawei from all of its American suppliers, as it intensifies a crackdown on the Chinese technology sector, Bloomberg reports.


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  Apple Inc. (AAPL) - US National Labor Relations Board said Apple broke labour laws on multiple occasions, and there was sufficient evidence to support charges against it. NLRB is recommending Apple settle with the former employees, and will only take action to prosecute if the parties do not settle.


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  Confluent, Inc. (CFLT) - Q4 adj. EPS -0.09 (exp. -0.14), Q4 revenue USD 169mln (exp. 165mln). Sees Q1 adjusted loss per share of between 0.13-0.15 (exp. -0.15), and sees Q1 revenue between USD 166-168mln (exp. 168.1mln). Reiterates FY23 EPS view outlook for a loss per share between 0.22-0.28 (exp. -0.43), on revenues of between USD 760-765mln (exp. 762.8mln).


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  Sanmina (SANM) - Q1 adj. EPS 1.64 (exp. 1.38), Q1 revenue USD 2.36bln (exp. 2.15bln). Sees Q2 adj. EPS between USD 1.50-1.60 (exp. 1.47), and sees Q2 revenue of between USD 2.2-2.3bln (exp. 2.16bln).


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  Logitech International SA (LOGI) - Charles Boynton will join as CFO in February; Prakash Arunkundrum named COO.

COMMUNICATIONS:

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  Microsoft Corporation (MSFT) - The tech giant will reportedly raise prices for its Xbox Series X and Series S consoles in Japan. The announcement does not offer detail, but appears to confirm that Microsoft regularly assesses the local pricing to ensure a reasonable consistency across geographies, Techraptor said.


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  Microsoft Corporation (MSFT), Sony Group Corporation (SONY), Nintendo Co. (NTDOY) - Xbox, Sony, and Nintendo won't be part of E3 2023 or have a presence on the Los Angeles Convention Center showfloor, IGN reports. Some in the gaming industry have expressed surprise at the news.


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  Sony Group Corporation (SONY) - The tech conglomerate has reportedly cut production of its PlayStaiton VR2 due to weak pre-orders.

FINANCIALS:

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  UBS Group AG (UBS) - The bank posted better than expected numbers for Q4, underpinned by higher rates, which offset a slowdown in trading. Q4 EPS USD 2.25 (exp. 2.15), Q4 total revenue USD 8.03bln (exp. 7.93bln), Q4 net income USD 1.65bln (exp. 1.29bln); The bank will repurchase over USD 5bln of shares this year, and intends to propose an ordinary dividend of USD 0.55/shr (prev. USD 0.50/shr in 2021). Said that as clients repositioned their investments in response to interest rate increases, it captured demand for higher yield through our savings products, certificates of deposit and money market funds. Private clients generally remained on the sidelines throughout the year due to high uncertainty and unfavorable market trends, institutional clients were very active, driven by sustained equity market volatility in H1 22, and by strong FX and rates markets in 2H22. Sees Q1 revenues positively influenced by seasonal factors, and sees FY23 revenue above 18.5bln (exp. 19.5bln).


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  American International Group, Inc. (AIG) - AIG terminated Mark Lyons from his role as Interim CFO and EVP of Global Chief Actuary, and Head of Portfolio Management, after becoming aware that he violated his confidentiality/non-disclosure obligations to the company. AIG said the violations were unrelated to the company's financial statements, financial reporting generally and related disclosure controls and procedures, or reserves.


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  Principal Financial Group, Inc. (PFG) - Q4 EPS USD 2.03 (exp. 1.53), AUM of USD 635bln, which is included in assets under administration of USD 1.5tln.


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  Deutsche Bank (DB) - The bank is reportedly interested in financing the media business of Italy's Series A football league, according to Reuters.


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  Unicredit SpA (UNCRY) - Posted record profits in Q4, boosts its payout goal 40%. Q4 revenue EUR 5.72bln (exp. 5.15bln), Q4 net income EUR 2.46bln (exp. 1.03bln), Q4 net interest income EUR 3.43bln (exp. 3.12bln). Boosts 2022 Investor Returns to EUR 5.25bln (prev. 3.8bln in 2021).


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  AGNC Investment Corp. (AGNC) - Q4 adj. EPS ex-items 0.64 (exp. 0.65), Q4 tangible net book value per share +8.4% Q/Q to USD 9.84. Exec said Q4 provided reason for optimism that a very constructive and durable investment environment is emerging for Agency MBS, adding that fixed income markets stabilised over the quarter, and investor sentiment improved as volatility and monetary policy uncertainty began to subside. Agency MBS spreads to benchmark rates tightened from historically wide levels, driving the meaningful improvement in tangible net book value per common share during the quarter, both of which continued into January.


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  S&P Midcap 400 - S&P Dow Jones Indices says Agree Realty Corp (ADC) will replace Store Capital Corp (STOR) in the S&P Midcap 400 prior to the open on February 6th.

MATERIALS:

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  Glencore (GLNCY) - The miner delivered 40k/T of Russian aluminium to LME-approved warehouses in South Korea. Glencore has more that can be delivered, Reuters reports.


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  Rio Tinto (RIO) - Australian Nuclear Safety Regulator has joined the search for the missing radioactive capsule in Australia.


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  Albemarle (ALB) - Albemarle launches wholly owned subsidiary 'Ketjen' that crafts tailored, advanced catalyst solutions for the petrochemical, refining and specialty chemicals industries. Albemarle's existing advanced catalyst solutions team will lead Ketjen operations.

CONSUMER:

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  Volkswagen (VWAGY) - Skoda Auto cuts production amid chip shortages, according to trade unions.


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  Whirlpool Corp (WHR) - Q4 ongoing EPS 3.89 (exp. 3.25), Revenue 4.92bln (exp. 5.09bln). Expects a benefit of USD 800-900mln in FY23 from strong cost takeout actions and easing raw material inflation. Sees FY23 revenue at USD 19.4bln (exp. 19.14bln), ongoing EPS view of between 16.00-18.00 (exp. 16.33), cash from operating activities at USD 1.4bln (exp. 1.12bln), and FCF of USD 800mln (exp. 653.1mln).


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  Dollar General Corporation (DG) - John Garratt to retire from role as President and CFO, effective June 2nd. Dollar General will evaluate options for its next CFO and is not currently conducting an external search.


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  British American Tobacco (BTI) - Announced board changes and a new regional structure: will consist of three regions the USA (Reynolds American Inc.), Americas/Europe (AME) and APAC, Middle East & Africa (APMEA). Vandermeulen to be appointed Chief Transformation Officer, Comin appointed director of Combustibles.

INDUSTRIALS:

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  Northrop Grumman (NOC) - Northrop Grumman and Global Military Products Inc. will compete for each order of the USD 522.28mln firm-fixed-price contract for the procurement and delivery of 155mm rounds.


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  Hapag-Lloyd (HPGLY) - Reported Q4 sales above estimates, though EBITDA was short; average freight rate +43%, but said by the end of the year, freight rates had significantly come back down as congestion eased and demand declined.


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  Rheinmetall (RNMBY) - Launches an offer of EUR 1bln convertible bonds to finance acquisition of Expal Systems.


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  Graco Inc. (GGG) - Q4 adj. EPS 0.73 (exp. 0.69), Q4 revenue USD 555mln (exp. 556.3mln). Sees FY23 revenue growth of low single digits (exp. 2.2bln).


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  Woodward, Inc. (WWD) - Q1 EPS 0.49 (exp. 0.63), Q1 revenue USD 618.6mln (exp. 599.4mln). Exec said that while demand remained healthy, ongoing industry-wide operating challenges, including labour and supply chain disruptions and inflation, impacted profitability in the quarter. Quarterly dividend lifted +16% to 0.22/shr. Reiterates FY23 EPS outlook of between USD 3.15-3.60 (exp. 3.39), and FY23 revenue between USD 2.6-2.75bln (exp. 2.64bln). 2023 outlook assumes improving operational and financial performance while continuing to navigate a challenging industry-wide environment. Said supply chain and labour disruptions are anticipated to begin subsiding in H2, adding that the strong demand environment, as well as increased price realisation, are expected to continue.

ENERGY:

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  Helmerich & Payne, Inc. (HP) - Q1 EPS 0.91 (exp. 0.80), Q1 revenue USD 720mln (exp. 699.9mln).

31 Jan 2023 - 09:30- Research Sheet- Source: Newsquawk