US EARLY MORNING: US equity futures are flat ahead of weekly jobs data, Fedspeak; Friday NFP coming into focus ahead of next week's CPI

SNAPSHOT: US equity futures are trading around flat, yields along the Treasury curve are little changed, though tilting higher as the shape of the curve modestly steepens. Crude contracts are higher by 40-50c, shrugging off warnings from the US that SPR releases could follow as a response to OPEC’s tightening supply conditions on Wednesday. The Dollar Index is around flat. Attention is shifting towards Friday’s key jobs data, which will form an important part of building expectations regarding the November 2nd FOMC (80% chance of a 75bps rate rise, taking the FFR target to between 3.75-4.00%, according to money market pricing), while next week’s CPI data will help refine those expectations further. Energy and geopolitics still represent headline risks, while Fed officials haven’t been adding too much to the narrative this week.

WHAT TO MAKE OF THE EARLY WEEK RALLY: This week’s equity price action has left some scratching their heads as to where we stand in the current equity cycle, and what exactly does this week’s early rally, followed by Wednesday’s losses tell us about market direction. Capital Economics says the price action shows that we are not out of the woods yet, and points to the bond market as setting the tone (Monday and Tuesday's bond trading was largely characterised as hopes that the Fed will pivot on policy soon given the softness in the ISM manufacturing and JOLTs data series), and while it thinks that bond yields are close to peaking (though thinks they will not fall back much soon), it still thinks that equities will remain under pressure as the economy falters, even after the rout in bonds ends. CapEco also argues that fixed income markets' view of the economic outlook is optimistic, which it says is not being factored into HY spreads and equity risk premiums, adding that this also jars with analysts’ still-rosy forecasts for earnings. The upshot, it says, is that there may be more downside to come for the stock market. Citi's equity strats have also warned clients against chasing equity rallies arguing that although valuations appear more realistic now vs recent weeks, profit forecasts are still too optimistic. Citi expects profit downgrades to pick up next year, projecting EPS declines of 5%, but the bank remains constructive in the medium-term, arguing that global equities could rally by 18% from now to the end of 2023, though the ride will be volatile.

DAY AHEAD: DAY AHEAD: The ECB meeting minutes (primer here) is the highlight of the European data slate. Elsewhere, the meeting of the European Political Community is taking place today ahead of tomorrow's informal meeting of heads, meaning commentary on geopolitical themes (read: Russia) and energy will likely be coming thick and fast. The US day has Challenger layoffs and weekly initial jobless claims ahead of Friday's NFP data (our NFP preview is here); Fed speakers include Fed's Cook (voter), Fed's Waller (voter), and another showing from Fed's Mester (2022). On the supply front, the US Treasury will announce the sizes for next week's 3s, 10s and 30s. Our full day ahead can be accessed here.

ECONOMY:

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  Fed’s Bostic (2024) - Said the inflation fight was still in its early days. Said August inflation data showed price pressures were still broad, and low unemployment means Fed has room to continue tightening. Wants rates at a moderately restrictive level from 4.0%-4.5%, then hold to assess the impact. Fed should not be too quick to cut rates if the economy weakens, must stay purposeful and resolute in inflation fight.


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  US Labour Market - White House Economic Advisor Deese said the labour market was showing signs of resilience and signs of cooling.


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  UK - Fitch affirmed UK at AA-; outlook revised to Negative from Stable; said fiscal package announced could lead to a significant increase in deficits over the medium-term.

GEOPOLITICS:

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  North Korea - N.Korea launched two short-range ballistic missiles, fired from Pyongyang and landing outside of Japan’s exclusive economic zone, Yonhap reported. N.Korea said that its missile launches were counteraction vs US and South Korean military drills. US State Department condemned the launch, said N.Korean launches posed a threat to regional neighbours, adding that the US remains committed to a diplomacy. US envoy accused China and Russia of enabling N.Korea by protecting Pyongyang from UN actions.

ENERGY:

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  OPEC+ - Saudi Energy Minister said the effective size of the OPEC+ 2mln BPD cut in oil output would be around 1.0mln-1.1mln BPD. Iraqi Oil Minister hopes OPEC+’ decision to cut production will contribute to world market stability and support crude prices; Iraq to maintain its benchmark production level agreed upon with OPEC member countries in July 2021, said exports will not be affected by OPEC+ decision. Acting Kuwaiti Oil Minister said the OPEC+ decision to cut output will have positive ramifications for oil markets, understands consumer concerns about prices, said the main motive in OPEC+ was balancing supply and demand.


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  Russia Output - An analysis by Energy Intelligence estimates that the price caps and sanctions may slash Russia’s oil and condensate output by around 1.2mln BPD.


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  US Response: White House said President Biden had urged his administration and Congress to explore ways to boost US energy production and lower OPEC’s control over energy prices. “The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” a statement read.


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  Chevron (CVX) - WSJ reported that the US plans to relax sanctions on Venezuela, enabling Chevron to pump more oil; however, a US National Security official later said US sanctions policy on Venezuela remains unchanged, and there were no plans to change it.


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  Oil Prices - Goldman Sachs raises Q4 oil price forecast by USD 10 to USD 110/bbl, said the OPEC+ supply cut is very bullish for oil.


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  Shell (SHEL) - Q3 update said that it expects Integrated Gas production between 890-940k BOEPD, pre-tax depreciation of USD 1.1-1.3bln. It expects to produce 1.75mln-1.85mln BOEPD Upstream, and sees pre-tax depreciation of USD 3.0-3.4bln.

MATERIALS

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  Antofagasta (ANFGY) - CEO expects copper prices to be at the low-end of the cycle in the short-term, due to market volatility.

INDUSTRIALS:

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  Ford Motor Company (F) - The automaker is raising the price of its F150 Lightning Pro electric trick for the 2023 model year by 11%, Reuters reports, as it seeks to mitigate the impacts from ongoing supply chain issues and high inflation.


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  Air Lease Corporation (AL), Boeing Company (BA) -  Air Lease Corporation Announces Lease Placement of Six Boeing 737-8 Aircraft with LOT Polish Airlines.


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  AAR Corp. (AIR) - Expands relationship with Unison Industries as the exclusive worldwide aftermarket distributor for Unison’s products.

COMMUNICATIONS:

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  Twitter, Inc. (TWTR), Apollo Global Management, Inc. (APO) - Apollo and Sixth Street, which earlier in the year were looking to finance Elon Musk’s proposed USD 44bln buyout of Twitter, are no longer in talks with the billionaire entrepreneur, according to Reuters. Elsewhere, Twitter and Musk continuing talks on closing deal, hope to have agreement soon, possibly today, WSJ said; the two have agreed to postpone Musk’s Thursday deposition with no new time set, sources said.


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  SoftBank Group Corp. (SFTBY) - SoftBank mulls sale of its stake in Spanish-language TV broadcaster TelevisaUnivision as it unloads assets amid a prolonged tech slump, Bloomberg said. No final decision has been made.

HEALTH CARE:

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  AbbVie Inc. (ABBV) - Q3 earnings expected to include acquired IPR&D and milestones expense of USD 40mln pre-tax, representing an unfavourable impact of USD 0.02/shr; FY22 adj. diluted EPS guidance range is USD 13.76-13.96; Q3 adj. diluted EPS guidance range is USD 3.53-3.57 (vs 3.55-3.59 guidance issued on July 29th).


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  AstraZeneca (AZN), GlaxoSmithKline plc (GSK) - Pharma companies including AstraZeneca could face a USD 1bln settlement over US lawsuits involving an old blockbuster stomach acid drug, The Times reports. AZN is a defendant in litigation concerning proton-pump inhibitors such as Nexium, which claimants say is responsible for kidney injury. Investors are already unnerved by litigation over the product safety of Zantac, an old GSK blockbuster heartburn drug, The Times said, citing analysts at Credit Suisse, who said the Zantac litigation has become a “major investor focus” and the Nexium claims have.


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  Merck KGaA (MKKGY) - Is on track to reach mid-term growth target of EUR 25bln in sales by 2025, larger scale acquisitions are an option from 2023 onwards. Reaffirms growth objectives.

FINANCIALS:

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  American Express Company (AXP) - Lifts its COVID-19 vaccine requirements at its offices, according to Reuters, as its prepares to remove pandemic-era protocols.


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  Societe Generale SA (SCGLY) - Has reportedly cut exposure to counterparties on trades in China by about USD 80mln in the past few weeks, as global banks seek to guard against any potential fallout from rising geopolitical risks in the world’s second-largest economy, Bloomberg said, with executives becoming increasingly concerned about a swathe of problems hitting China in recent months, although the country remains a key part of its strategy.

TECH:

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  Alphabet Inc. (GOOG) - Google is preparing its largest-ever launch order for its latest mobile phone range, Nikkei reports, and has requested more than 8mln units for its Pixel 7 range, telling several suppliers it roughly aims to double its smartphone sales for 2023 Y/Y.


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  Splunk Inc. (SPLK) - Announced it filed an intellectual property infringement and unfair competition lawsuit against Cribl for misappropriating and misusing Splunk source code and confidential technical and business documents, as well as willfully infringing other Splunk intellectual property.


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  Compass, Inc. (COMP) - Vista Equity Partners exploring deal to take Compass private, Business Insider reports. Compass’ stock has fallen over 85% since it went public last year; spokesperson said “no private equity firm has contacted Compass expressing any interest in taking the company private.”

CONSUMER STAPLES:

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  Costco Wholesale Corporation (COST) - September net sales +10.1% Y/Y at USD 21.46bln (vs +11.4% Y/Y at USD 17.55bln in August). US monthly comp sales +8% (prev. +7.6% in Aug), ecommerce compas +2.3% (prev. 4.8%), international comps +11% (prev. +12.5%).


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  Diageo (DEO) - Notes a good start to FY23, with organic net sales growth across all regions. Remains well-positioned to deliver on medium-term guidance. Expects operating environment to remain challenging.


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  Imperial Brands (IMBBY) - FY22 performance in-line with expectations, expects FY net Revenue and adj. Operating Profit to grow around 1% constant currency. Total capital returns in FY23 are expected to exceed GBP 2.3bln. Announces the start of an ongoing multi-year share buyback programme, initially intend to repurchase up to GBP 1bln shares.

CONSUMER CYCLICALS:

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  Tesla, Inc. (TSLA) - CFO Zachary Kirkhorn sold USD 939k worth of stock, or 3,750 shares, according to a filing.


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  International Game Technology PLC (IGT) - IGT wins a 10-Year scratch ticket manufacturing contract with the Texas Lottery Commission.


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  Under Armour, Inc. (UA) - David Baxter, Mehri Shadman to join executive leadership team. Baxter to assume role as President of the Americas, succeeding Stephanie Pugliese, who will step down; Shadman appointed Chief Legal Officer and Corporate Secretary as current chief legal officer John Stanton has decided to retire.


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  WestRock Company (WRK) - WestRock will permanently close its corrugated medium manufacturing operations at its St. Paul, Minnesota, recycled paper mill. Will result in the reduction of 200k tons of annual corrugated medium production. Production of coated recycled board at the location will continue.

06 Oct 2022 - 09:18- Research Sheet- Source: Newsquawk