US EARLY MORNING: US equity futures are around flat, maintaining gains in wake of Powell; Treasuries are bull-flattening ahead of PCE data

SNAPSHOT: US equity futures are trading with small losses, but have still managed to maintain the bulk of gains seen in wake of a dovish Fed Chair Powell. This is not too surprising given the magnitude of gains booked in wake of Powell. Whether this upside can be sustained and built upon in the near-term (and before the December 14th FOMC) will be influenced by the macro data releases due out over the coming days (ISM, PCE today; NFP tomorrow – our NFP preview is here). Today’s PCE is expected to cool, and that view was endorsed by Fed chair Powell on Wednesday, while the ISM manufacturing data may fall beneath the neutral 50.0 level; meanwhile the rate of payrolls growth is likely to cool in November, Friday’s NFP data is expected to show. Treasuries continue to rally on Thursday, with the curve bull-flattening as yields narrow between 1-9bps across the curve (most of the outperformance is in the long-end of the curve. The Dollar Index is on course to print its second week of losses, and is now trading with a 105-handle (vs a 108-handle last week); November saw the dollar put in its worst monthly performance against the yen since 1998, the worst performance against the EUR since 2010; even the GBP enjoyed its best month vs the buck since 2020, while the Aussie had its best monthly performance against the USD since 2016. Meanwhile, crude futures are higher, underpinned by global risk sentiment; OPEC+ is likely to maintain policy at its weekend meeting, multiple sourced reports have said this week, though some are still looking for an output cut.

OUTLOOK: Wednesday’s rally in wake of a dovish Fed Chair Powell lifted the S&P 500 above its 200dma (around 4,050), with the index closing above its 200-day moving average for the first time since April. While cementing a downshift in the pace of rate hikes at the December meeting is giving traders a bullish catalyst, analysts note that the eventual peak of the cycle, when it is seen, and how long policy is kept at those levels is becoming a more important consideration in judging how durable the equity rally can be. Money markets are now discounting a 50bps December rate rise with over 90% certainty, while expectations of where the terminal rate is has fallen back – markets now price the peak at 4.75-5.00% (previously, the market was positioning for 5.00-5.25%), which is expected to be seen in March 2023, and rates are expected to be held at that level until the end of 2023. Powell said that the Fed does not want to overtighten, but cutting rates was not something it would do soon. Historically, the Fed has typically stayed at terminal for between 3-15 months, with the average being around 6.5 months. However, officials are keen to impress that their approach will be determined by how much progress they are making towards their policy goals. The Fed Chair highlighted that the central bank was not trying to engineer a deep downturn, which would come at a great human cost, he said. A recent poll by Reuters revealed analysts are of the view that macro fundamentals will be the main driver for stock markets to snap back into an uptrend. The consensus view is that the S&P 500 will end next year at 4,200; JPMorgan overnight updated its forecasts, and is in line with that consensus view. The bank sees S&P 500 EPS at USD 205 next year, lowering its forecast from USD 225, and warned that the index could test 2022 (around the 3,577 mark) in the first half of next year.

DAY AHEAD: Final manufacturing PMIs out of the Eurozone are expected to be confirmed; the Eurozone jobless rate is expected to be unchanged at 6.6%. The main focus on the data slate will be US PCE data; Fed Chair Powell on Wednesday suggested the headline could fall to 6.0% Y/Y in October from 6.2%, while the core measure could ease back to 5.0% Y/Y from 5.1%. The ISM manufacturing report for November is likely to fall below the neutral 50.0 level, from 50.2 to 49.8, according to analysts surveyed. Elsewhere, weekly US initial jobless claims are on tap. On the speakers front, Fed's Bowman (voter), Logan (2023) and Barr (voter) will all give remarks in wake of today's PCE data; on the Euro front, ECB chief economist Lane and ECB's Elderson will deliver speeches. Our full day ahead calendar can be accessed here.

CHINA:

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  Covid - China is to release supplementary COVID-19 measures in the coming days, and will allow positive cases to quarantine at home with conditions, Reuters reports. Authorities said they would also step-up antigen testing for COVID, reduce the frequency of mass testing and regular PCR tests. The news follows other reports that Beijing was to allow some low-risk COVID patients to home isolate which represents a major COVID policy shift, while COVID protests and stretched infrastructure were said to have led to the change, according to Bloomberg.

TECH:

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  Salesforce Inc (CRM) - Q3 adj. EPS 1.40 (exp. 1.21), Q3 revenue USD 7.84bln (exp. 7.82bln); Q3 Subscription and support revenue USD 7.23bln (exp. 7.29bln), Q3 services revenue USD 1.86bln (exp. 1.89bln), Q3 platform & other revenue USD 1.51bln (exp. 1.48bln). Sees Q4 revenue between USD 7.93bln-8.03bln (exp. 8.02bln), and FY adj. EPS seen between 4.92-4.94 (exp. 4.73); FY revenue seen between USD 30.9bln-31.0bln (exp. 30.98bln). Co-CEO Bret Taylor steps down, CEO Marc Benioff stays on and will be Chair and CEO.


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  Cloud Names - US Chamber of Commerce and 12 other business groups have warned against a EU draft plan which would exclude non-EU cloud vendors, according to Reuters.


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  Taiwan Semiconductor Manufacturing Company (TSM), Apple Inc. (AAPL) - TSM will offer advanced 4-nanometer chips when its new USD 12bln Arizona plant opens in 2024, Bloomberg reports, an upgrade from its previous public statements; Apple is said to have pushed TSM to do so, sources said. Bloomberg said TSM was expected to announce the new plan when President Biden and Commerce Secretary Raimondo visit Phoenix next week.


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  Snowflake Inc. (SNOW) - Q3 EPS -0.63 (exp. 0.04), Q3 revenue USD 557mln (exp. 539mln). FY23 product revenue seen between 1.92-1.924bln (prev. 1.905-1.915bln); Q4 product revenue seen between USD 535-540mln. CEO told CNBC that business was strong overall, and tailwinds were "enormous" as "customers are trying to accelerate and they want us to help them do it," while advertising was "red hot," and there is tremendous demand.


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  Semtech Corporation (SMTC) - Q3 adj. EPS 0.65 (exp. 0.63), Q3 revenue USD 177.6mln (exp. 175.4mln). Exec said it was starting to see signs of demand stabilisation. Q4 adj. EPS 0.44-0.52 (exp. 0.54), Q4 revenue USD 145-155mln (exp. 165.9mln).


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  Splunk Inc. (SPLK) - Q3 adj. EPS 0.83 (exp. 0.25), Q3 revenue USD 930mln (exp. 846.9mln). Q4 revenue seen between 1.055-1.085bln (exp. 1.1bln); lifts FY23 revenue outlook to USD 3.455-3.485bln (exp. 3.4bln, prev. 3.35-3.4bln).


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  STMicroelectronics (STM) - STMicroelectronics and Soitec collaborate on technology to produce SiC substrates.


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  Synopsys Inc (SNPS) - Q4 adj. EPS 1.91 (exp. 1.84), Q4 revenue USD 1.284bln (exp. 1.28bln). Q1 adjusted EPS seen between 2.48-2.53 (exp. 2.29), and Q1 revenue is seen between USD 1.34-1.37bln (exp. 1.34bln). FY23 adj. EPS seen between 10.28-10.35 (exp. 10.08), and FY23 revenue between USD 5.775-5.825bln (exp. 5.7bln).


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  Nutanix, Inc. (NTNX) - Q1 EPS -0.43 (exp. -0.12), Q1 revenue USD 433.6mln (exp. 410.6mln). Q1 ACV +27% Y/Y at USD  231.9mln, Q1 ARR +34% Y/Y at USD 1.28bln. Q2 revenue seen between USD 460-470mln (exp. 450.7mln). Reiterates FY23 revenue outlook of between USD 1.77-1.78bln (exp. 1.8bln).


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  Nutanix, Inc. (NTNX), Hewlett Packard Enterprise Company (HPE) - HPE reportedly expressed interest in NTNX, Bloomberg reports. The talks have been on and off, and it is unclear whether they will be able to reach an agreement over price, the report added; Nutanix could also opt to stay independent or another potential buyer could emerge.


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  Box, Inc. (BOX) - Q3 adj. EPS 0.31 (exp. 0.30), Q3 revenue USD 250mln (exp. 251.1mln). Q4 adj. EPS seen between 0.34-0.35 (exp. 0.33), and Q4 revenue seen between USD 255M-$257mln (exp. 259.25mln). Lifts FY23 EPS outlook to 1.16-1.17 (exp. 1.14, prev. guidance was for 1.13-1.16), and lowers its FY23 revenue outlook to USD 990-992mln (exp. 994mln, prev. 992-996mln).


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  Okta, Inc. (OKTA) - Q3 adj. EPS 0.00 (exp. -0.24), Q3 revenue USD 481mln (exp. 465.3mln). Q4 adj. EPS seen between 0.09-0.10 (exp. -0.11), Q4 revenue seen between USD 488-490mln (exp. 487.9mln). FY23 EPS outlook lifted to -26.5c (exp. -72c, prev. -71.5c), and lifts FY23 revenue view to USD 1.836-1.838B (prev. 1.812-1.82bln, exp. 1.82bln).


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  Elastic N.V. (ESTC) - Q2 adj. EPS 0 (exp. -0.10), Q2 revenue USD 264.4mln (exp. 261.4mln). Q3 adj. EPS seen between 0.04-0.07 (exp. -0.04), and sees Q3 revenue between USD 272-274mln (exp. 277.4mln). FY23 EPS outlook lifted to between -0.03 and +0.03 (exp. -0.28, prev. guidance was for -31c to -25c), but cut FY23 revenue outlook to USD 1.067-1.073bln (exp. 1.1bln, prev. 1.08-1.086bln). Also announced a selective reduction in its workforce.


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  Pure Storage, Inc. (PSTG) - Q3 adj. EPS 0.31 (exp. 0.25), Q3 revenue USD 676.0mln (exp. 671.9mln). Q4 revenue seen around USD 810mln (exp. 672mln). FY23 revenue seen at USD 2.75bln (exp. 2.75bln).

CONSUMER:

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  Costco Wholesale Corporation (COST) - Costco November Total Company comparable sales excluding the impacts from changes in gasoline prices and foreign exchange were +5.3% Y/Y (exp. 8.6%) for the four weeks ending November 27th.


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  Tesla (TSLA) - The automaker will recall 142.3k units of its China-made Model 3, and 292.9k units of its China-made Model Y within China, according to China's market regulator.


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  PVH Corp. (PVH) - Q3 adj. EPS 2.60 (exp. 2.15), Q3 revenue USD 2.281bln (exp. 2.23bln). Exec said performance reflected the power of its Calvin Klein and TOMMY HILFIGER brands, and its pricing power; international businesses continued to execute well across both brands, even as macro conditions remain challenging in Europe and COVID impacts continued in Asia. In North America, it is encouraged by the positive performance indicators it is seeing. Q4 adj. EPS seen at 1.65 (exp. 1.70), and Q4 revenue is seen down around 4% (exp. 2.3bln). Lifts FY22 EPS outlook to USD 8.25 (exp. 7.89, prev. guidance was for USD 8.00), and FY22 revenue decline is seen at top end of its down 3-4% range (exp. 8.8bln).


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  Victoria's Secret & Co. (VSCO) - Q3 EPS 0.29 (exp. 0.23), Q3 revenue USD 1.32bln (exp. 1.32bln), Q3 comparable sales -11%. Q4 EPS seen between 2.00-2.45 (exp. 2.32), and Q4 revenue is seen lower by high single digits (exp. 2.0bln); FY22 EPS is seen between 4.50-4.95 (exp. 4.73), and FY22 revenue is seen down 6-7% at around USD 6.31-6.39bln (exp. 6.4bln).


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  Five Below, Inc. (FIVE) - Q3 EPS 0.29 (exp. 0.14), Q3 revenue USD 645.03mln (exp. 613mln), Q3 Comp sales -2.7% (exp. -5.9%). Exec said ticket and transaction metrics improved throughout the quarter. Sees Q4 EPS between 2.93-3.09 (exp. 2.93), and sees Q4 revenue between USD 1.09-1.11bln (exp. 1.08bln). Lifts its FY22 EPS outlook to 4.55-4.71 (exp. 4.41, prev. guidance was for 4.26-4.56), and lifts its FY22 revenue outlook to USD 3.04-3.06bln (exp. 3.0bln, prev. 2.97-3.02bln). Q4 comp sales seen between down 1% to up 1%, and FY22 comps seen down 2-3%.


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  La-Z-Boy Incorporated (LZB) - Q2 EPS 1.05 (exp. 0.85), Q2 revenue USD 611.3mln (exp. 598mln). Boosts quarterly dividend +10% to USD 0.1815/shr. Exec expects H2 to be impacted by continued external headwinds on consumer demand; now estimates Q3 revenue between USD 525-535mln (exp. 561mln).

HEALTH CARE:

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  Pfizer (PFE), Valneva (VLA FP) - Six-month antibody persistence data in children and adults for Lyme Disease vaccine candidate showed higher antibody levels in the three-dose vaccination schedule versus the two-dose vaccination schedule, further validating the use of this schedule in the ongoing Phase 3 study. There were no safety concerns observed in this six-month observational follow up, Valneva said.


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  Roche (RHHBY) - Roche's Alzheimer's drug was far less effective than hoped, according to findings cited by Bloomberg. Separately, Phase III results showed Roche's subcutaneous formulation of Tecentriq is comparable to intravenous Tecentriq and delivered in minutes.

01 Dec 2022 - 09:19- Fixed IncomeData- Source: Newsquawk