US EARLY MORNING: US equity futures are clinging on to modest gains ahead of US CPI data

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  US PRE-MARKETS: US equity futures are trading with modest gains, but are off highs; Treasuries are bid, but yields have gravitated towards the top end of the range. The Dollar Index is flat. Crude futures are trading with gains, but the bulk of gains seen in wake of Hamas’ surprise attack on Israel have now been pared. Today’s focus will be on US CPI data for September, where the headline rates of inflation are expected to moderate. Recent Fed rhetoric has been hinting that the tightness along the long-end of the yield curve may be doing some heavy lifting for the central bank, and may mean it might not need to follow through with another rate hike this year (see below for our FOMC minutes recap) – the inflation data will test this narrative. The general playbook for the CPI release is expected to follow what we have seen recently: a hotter than expected core inflation reading will likely drive a hawkish market reaction, and vice versa; see our primer (link below) for trading scenarios. Elsewhere, weekly initial jobless claims will be released at the same time as the CPI data, while traders will also be looking to US corporate earnings (DAL, FAST, WBA, DPZ due today ahead of bank earnings which start on Friday).


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  RECAP - FOMC MINUTES: Minutes for the Fed's September meeting revealed little by way of new information, and were largely in line with recent Fedspeak. Since the September meeting, there has also been a notable move higher in yields which has seen Fed officials begin suggesting that the sell-off was helping with its efforts to tighten financial conditions, and could mean that another rate rise might not be necessary. The minutes said "many" participants noted data volatility and potential data revisions support the case for proceeding carefully in determining the extent of additional tightening. Meanwhile, "several" noted that with the policy rate at or near peak, decisions and communications should shift to how long rates stay restrictive, vs how high they will rise. Elsewhere, the minutes said risks have become more two-sided, but there are still upside risks to inflation, while "many" saw downside risks to economic activity and upside risks to the unemployment rate. The vast majority continue to judge the future path of the economy as highly uncertain. Goldman Sachs said that "since the FOMC’s September meeting, several FOMC participants, including Vice Chair Jefferson, Governor Waller, and Presidents Logan, Daly, and Kashkari noted that the recent increase in bond yields could substitute for increases in the federal funds rate," and the bank sees these comments "as a strong signal that the Committee is likely to keep the federal funds rate unchanged at its November meeting."

TODAY’S AGENDA:

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  DAY AHEAD: The European slate is quiet for scheduled data releases, but will include the ECB meeting minutes (primer below), as well as remarks from the ECB’s Elderson and Panetta. The US day sees the release of the key September CPI data, which has the potential for macro impact (primer below). Weekly jobless claims data are also due, and are expected to show some small downside for both initial and continuing claims (neither of these prints coincides with the October jobs data, and are being released at the same time as the CPI report). Fed’s Logan (voter) is set to give another set of remarks today, while non-voters Bostic and Collins will also speak. Energy inventory data will be released in the US morning; weekly API energy inventory data reportedly showed headline Crude stocks seeing a larger than expected build at +12.9mln (exp. +0.5mln), Cushing stocks drawing -0.5mln, gasoline posting a surprise build of +3.6mln (exp. -0.8mln), and distillates drawing by a more than expected -3.5mln (exp. -0.8mln). On the supply front, Italy is to sell EUR 5.25-6.5bln of 2026, 2030, 2043 debt, as well as between EUR 1-1.5bln of 2035 Green BTPs. The US Treasury will sell USD 20bln of 30yr bonds, while it will announce the size for next week's 20yr bond and 5yr TIPS auction. Our interactive calendar is here; a pdf version can be downloaded here. From the US, earnings are due today from DAL, FAST, WBA and DPZ (see here for our estimates sheet).


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  PRIMER - US CPI (13:30BST/08:30EDT): Headline CPI is expected to rise at 0.3% M/M in September (prev. +0.6%), while the annual rate is seen easing a little to 3.6% Y/Y from 3.7%. The upside in gasoline prices is likely to support the headline, but underlying price growth is expected to be more benign, analysts say. The core rate of inflation is expected to rise 0.3% M/M in September, matching the rate of gains seen in August, while the annual core measure is expected to pare back to 4.1% Y/Y from 4.3%. Goldman Sachs is expecting to see three trends in the September CPI data: 1) it expects a 2.3% decline in used car prices, and a 0.1% decline in new car prices, reflecting lower used-car auction prices throughout the summer, increases in promotional dealer incentives, and higher new car inventories; 2) it expects car insurance prices to increase 1.7% as insurance rates continue to catch up to higher repair and replacement costs; 3) it expects shelter inflation will remain roughly at its current pace (the bank forecasts rent will increase by 0.5% and OER to increase by 0.5% on a rounded basis), as the gap between rents for new and continuing leases continues to close. Ur full primer, with scenarios provided by JPM, can be accessed here.


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  PRIMER - ECB MINUTES (12:30BST/07:30EDT): Defying the consensus (which was deemed as somewhat stale given hawkish source reporting by Reuters earlier in the week), the ECB opted to pull the trigger on a 25bps hike to all three of its key rates, taking the deposit rate to 4.0%. The accompanying statement noted that the GC now judges that rates "have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target". Furthermore, "rates will be set at sufficiently restrictive levels for as long as necessary". Elsewhere, no tweaks were made to the parameters of its APP or PEPP, with reinvestments in the latter set to continue "until at least the end of 2024". For the accompanying macro projections, 2023 inflation was upgraded to 5.6% from 5.4%, 2024 (in-fitting with source reporting by Reuters) raised to 3.2% from 3.0% and 2025 lowered to 2.1% from 2.2%, but still ultimately seen just above target. Growth projections for 2023-25 were lowered across the board. At the follow-up press conference, Lagarde cautioned that the economy is likely to remain subdued in the coming months and price pressures remain strong. During the Q&A, the President stated that, whilst some members favoured a pause in rates, today's decision was backed by a "solid majority"; details of the breakdown in views will be of note for market participants. In a follow-up question, Lagarde noted that the GC has not discussed PEPP reinvestments. When questioned on the path of rates beyond September, Lagarde, in an attempt to embed some optionality for the Bank, stated that she is not saying that the ECB is at peak rates. (Newsquawk)

EQUITY NEWS:

CONSUMER:

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  Ford Motors (F) - UAW expanded its strike to Ford's profitable Kentucky Truck Plant, known for SUVs and trucks, CNBC reports. The move marks a significant escalation and change in strategy. UAW requested a new offer and had a brief meeting before announcing the strike when Ford didn't make further concessions. The strike's surprise nature reflects a new phase in UAW's strategy, the report adds. Ford said that the decision by UAW was grossly irresponsible, and the decision carries serious consequences for the automaker's workforce, suppliers, dealers and commercial customers.


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  Victoria's Secret (VSCO) - Lifts Q3 adj. EPS outlook to between -0.90 and -0.70 (exp. -0.79, prev. saw between -1.00 and -0.70), and sees Q3 revenue down by between 3-5% (prev. saw net sales decline in the low- to mid-single digits Y/Y). Sees adj. operating loss for third quarter 2023 in the range of USD 45-65mln (prev. saw a loss of between 45-75mln). Will unveil strategic growth plan on Thursday. Sales growth internationally has been ahead of plan, sales trends in North America continue to improve. August was better than Q2, September was better than August, and early October results likely to be the best in Q3. Reiterates FY23 revenue view down low-single digits.


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  Chipotle Mexican Grill (CMG) - Chipotle plans to increase menu prices due to inflation, ending a year-long pause after multiple hikes, CNBC reports. While inflation has slowed, costs for many things are still going up, albeit more slowly, the report said.


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  Costco (COST) - Executive VP Caton Frates sold 1,200 shares on October 6th at USD 562.6418/shr.

TECH:

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  Microsoft (MSFT) - Microsoft received a notice from the IRS, claiming it owes USD 28.9bln in back taxes, interest, and fines for the period between 2004-2013. The dispute centres around how Microsoft allocated its profits across different locations. Microsoft disagrees with the IRS's adjustments, and plans to contest them, but doesn't expect a resolution soon. The tech giant believes its tax reserves are enough, and the issue will not significantly impact its taxes in the next year.


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  AI Names, Microsoft (MSFT) - Microsoft-backed OpenAI is planning major updates to its developer tools, including memory storage and vision capabilities, Reuters reports. These changes aim to reduce costs for application developers and expand OpenAI's presence as a developer platform, with a launch event on November 6th.


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  Crowdstrike (CRWD) - Director Godfrey Sullivan sold 25,000 shares on October 9th for a total USD 4.46mln.


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  MongoDB (MDB) - Director Dwight Merriman sold 2,000 shares on October 10th at USD 365/shr.


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  Fastly (FSLY) - Chairman Artur Bergman sold 17,500 shares on October 9th at USD 16.29/shr.


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  Zscaler (ZS) - Director Amit Sinha sold 7,400 shares on October 9th for a total USD 1.2mln.

COMMUNICATIONS:

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  Netflix (NFLX) - Netflix's animation unit is going through a restructure, leading to job cuts and the cancellation of two pre-production filmsVariety reports. It plans to bring in external producers to maintain their animated content output. Specific details on job losses are yet to be revealed.

HEALTHCARE:

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  Bristol Myers Squibb (BMY) - Sotyktu treatment for psoriasis shows good results over three years, with 73.2% seeing improvement. It remains safe, with no new side effects. These findings were presented at a dermatology congress in Germany.

FINANCIALS:

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  Market Structure - US financial regulators are set to implement rules requiring quick disclosure of securities lending deals, increasing market transparency for short sellers and other participants, FT reports. The SEC will vote on this proposal, which mandates reporting loans within 15 minutes and makes loan information public, without disclosing party names.


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  China Financials - China securities regulator has banned brokerages and their offshore units from taking on new mainland clients for offshore trading, and has set an end-October deadline for the removal of apps and websites soliciting mainland clients, Reuters reports.

ENERGY:

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  Energy Inventories - Weekly API energy inventory data reportedly showed headline Crude stocks seeing a larger than expected build at +12.9mln (exp. +0.5mln), Cushing stocks drawing -0.5mln, gasoline posting a surprise build of +3.6mln (exp. -0.8mln), and distillates drawing by a more than expected -3.5mln (exp. -0.8mln).

MATERIALS:

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  Newmont (NEM), Newcrest (NCMGY) - More than 96% of votes cast on the proposal for the issuance of Newmont common stock in connection with the proposed acquisition of Newcrest were voted in favour of approval at its special shareholder meeting. All government regulatory approvals necessary for the transaction to proceed have been secured. Newmont and Newcrest anticipate the transaction closing in early November.

12 Oct 2023 - 09:30- Research Sheet- Source: Newsquawk