US EARLY MORNING: US equity futures are flat and Treasuries are bid ahead of debt ceiling talks, retail sales, Fedspeak

OVERNIGHT: APAC stocks were mixed as participants digested weaker-than-expected Chinese activity data (see below). Japanese stocks were underpinned by earnings results, and the TOPIX climbed to a fresh 33-year high. China was mixed: Hong Kong was supported by strength in tech stocks after Alibaba announced to merge its DAMO Academy autonomous driving lab with its Cainiao logistics network, while ‘Big Short’ investor Michael Burry reportedly boosted bullish bets on JD.com and Alibaba. But the mainland was subdued after disappointing activity data from China in which Industrial Production, Retail Sales and Fixed Assets Urban Investment all missed analysts’ forecasts. In Australia, RBA minutes said its surprise decision to raise rates was a difficult, given there remain factors that could lead to higher inflation; members also stated that the forecast for interest rate hikes were based on a technical assumption. Our APAC wrap is here. Europe saw a lacklustre start following disappointing China activity data overnight, and mixed jobs data out of the UK (we recap below). Our European cash open note is here. 

US PRE-MARKETS: US equity futures are trading around neutral, while Treasury yields are lower by 2-4bps, with outperformance in the belly. The Dollar Index is slightly beneath the watermark. Crude futures have a small bid following news that the US would be adding to the SPR, though the disappointing activity data out of China overnight is adding caution to the risk mood ahead of key US retail sales data later today (preview in the Day Ahead section, below), earnings from retailer Home Depot (preview below) which will help shape expectations of numbers due from WMT and TGT later this week. There are also the Debt Ceiling talks between President Biden and Congressional leaders, scheduled for 15:00EDT/20:00BST – expectations around a potential for a deal have been downplayed by House Speaker McCarthy ahead of the talks (see our preview below). There is also a solid amount of Fedspeak on today’s agenda, including from the influential NY Fed President Williams.

BOFA MAY FMS: BofA May Global Fund Manager Survey says investors are bearish, Fed done, risk assets are resilient so long as the landing is soft. BofA reports FMS cash levels at 5.6%, allocation to bonds is at a 14-year high, allocation to commodities is at a 3-year low. In terms of growth, BofA says global growth expectations are the worst in 2023, but majority of those surveyed are in soft-landing camp rather than a hard landing, or no landing (4%); BofA says this is corroborated by investors forecasting a tiny 1% drop in global EPS in next 12 months. On the US debt ceiling, the vast majority of investors expect US debt ceiling resolution before “X-date.” Regarding the Fed, the survey shows most think the Fed's hiking cycle over, and the first Fed rate cut is likely to be seen in January 2024. These expectations mean that forecasts for a steeper yield curve are now at a 2-year high. In terms of the risks faced, survey participants see the biggest tail risks as: credit crunch/recession, high inflation/hawkish central banks, while CRE seen as most likely source of credit event. On asset allocation, allocation to stocks is creeping higher, and is now at a 5-month high; BofA notes a big rotation out of commodities, and into tech stocks (which is now at the highest since December 2021) as well as the Eurozone. Investors are the most long of growth stocks vs its value counterpart since July 2020. The most crowded trades are seen as long big tech, short banks, short USD. Meanwhile contrarian trades are Long REITs, banks and value stocks; short bonds, tech and growth.

DAY AHEAD:

• Our full interactive day ahead calendar can be accessed here, a pdf version can be accessed here.


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  US DATA/SPEAKERS: The highlight is the US retail sales data for April, where the headline is expected to rise 0.8% M/M after falling 0.6% in March; the core metric and the Control Group are also both seen rising. On the retail front, weekly RedBook data will be released before the open. Retailer Home Depot (HD) will also report Q1 metrics today (expectations are here). Meanwhile, April manufacturing output is seen rising a touch following the fall in March. From Canada, the rate of annual inflation is seen easing, data is expected to show. Business inventories are seen unchanged in March; the NAHB housing market data is also expected to be unchanged. The Fed speakers will be out in force again, with Mester (2024), Bostic (2024), Logan (voter) and Williams (voter) all scheduled to make comments.


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  PREVIEW - HOME DEPOT (HD) EARNINGS REPORT (c.11:00BST/6:00EDT): Analysts expect home improvement retailer to report Q1 EPS of 3.80 per share (-7.2% Y/Y) on revenues of 38.28bln (-1.6% Y/Y). Same store sales are forecast to come in at -1.7% in Q1 (the US segment is seen -1.9%, while the ecommerce segment is seen printing growth of 0.7% in the quarter). Analysts at Credit Suisse expect HD results to show near-term headwinds that could keep demand for home improvement under pressure, adding that inflation was the main driver of growth in home improvement last year, and it expects moderation in inflation through 2023, and key commodity categories, such as lumber, are significantly deflationary. In terms of the guide, the street looks for Q2 EPS to be -6.2% Y/Y at 4.74, while sales are seen -0.6% Y/Y at USD 43.52bln; HD SSS are seen falling by 1.2% in the next quarter. For the FY, analysts expect HD to guide towards EPS of 15.74 (which would be -5.7% Y/Y) on revenues of USD 156.7bln (-0.5% Y/Y); FY SSS are expected to be lower by 0.9%. The earnings report will frame expectations for reports due from WMT and TGT later this week.


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  PREVIEW - US RETAIL SALES (13:30BST/08:30BST): US retail sales are expected to rise 0.8% M/M in April (prev. -0.6%). The ex-autos measure is seen rising 0.4% M/M (prev. -0.4%). The Retail Control is expected to rise 0.3% (prev. -0.3%). Bank of America's April 'Consumer Checkpoint' report presented further signs that consumer spending was softening; total card spending per household dropped to -1.2% Y/Y, the first negative Y/Y reading since February 2021. Seasonally-adjusted spending was up 0.3% in April M/M, however. BofA said that in aggregate, the labour market landscape remains solid, but its data suggested some deterioration at the higher end of the income distribution. "Unemployment is rising fastest amongst higher-income households, while their pay growth is weakest," BofA said, "higher-income spending growth on discretionary items has also fallen below lower- and middle- income households." With that said, BofA highlights that consumer savings buffers remain elevated, and its own internal data on household savings and checking balances shows the median balance continues to be over 40% higher than the average in 2019 across all income cohorts.


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  PREVIEW - DEBT CEILING TALKS (20:00BST/15:00EDT): President Biden has scheduled a debt limit meeting with Congressional leaders on Tuesday, and will meet with House Speaker McCarthy at 15:00EDT/20:00BST. Republican leaders have reportedly rejected a list of proposals sent by the White House to reduce the deficit by closing tax loopholes. McCarthy said he was not confident of getting a deal this week based on what the administration is currently offering, adding that talks were nowhere near to getting a debt ceiling deal by the weekend. McCarthy reportedly wants bilateral talks between President Biden and himself. Meanwhile, Treasury Secretary Yellen reiterated that the US could default as early as June 1st without a debt ceiling hike, adding the actual date for default could be a number of days or weeks later than estimated. Yellen said the Treasury has already seen the borrowing costs increase substantially for securities maturing in early June.


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  ENERGY: The IEA will release its monthly oil market report. After hours, the API will publish its weekly gauge of energy inventories; this week, analysts look for crude stocks to draw 1.3mln, distillates to build 0.2mln, and gasoline to draw 1.0mln.


• 
  REVIEW - CHINA ACTIVITY DATA: China's April activity and spending data disappointed expectations. Retail Sales rose +18.4% Y/Y in April, improving from 10.6% Y/Y in March, but missing the consensus estimate for +21.0% Y/Y. Industrial Output rose by 5.6% Y/Y in April, rising from a rate of 3.9% Y/Y in March, but short of the 10.9% estimate. The rate of urban investment pared to 4.7% Y/Y in the month, missing expectations of 5.5%, although the Urban Unemployment Rate fell to 5.2% from 5.3%. "Growth on most indicators accelerated in y/y terms in April. But this was due to a weak base for comparison from a year ago when Shanghai and several other cities went into lockdown," Capital Economics explained, adding that in seasonally-adjusted M/M terms, the outturn was mixed. "The recovery in consumer spending regained some momentum and investment growth held steady but industrial activity contracted," it said, adding that "while the boost from reopening should still underpin a further recovery in the near-term, the bulk of China’s rebound is now behind us." CapEco says that the recovery still has some legs, although will likely fizzle out in H2, as fiscal support is being unwound, the rebound in credit growth is stalling, while the housing market appears seems to be struggling for momentum. Additionally, global economic challenges may prevent a pick-up in Chinese exports.


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  REVIEW - UK JOBS DATA: The UK added 182k jobs in March, topping consensus expectations for 160k.The ILO Unemployment Rate rose to 3.9% in March (it was expected to be unchanged at 3.8%). the UK stats office said there were 556k working days lost in March due to labour disputes, up from 332k in February. Average earnings excluding bonuses rose by one-tenth to 6.7% in March, a little short of the expected 6.8%. For the April components, the Claimant Count rose by 46.7k, while the HMRC Payrolls Change for April showed a contraction of 135k. Some analysts suggested that the cooler jobs data may give ease pressure on the MPC to lift interest rates again at its June meeting.

EQUITY NEWS:

13-F FILINGS HIGHLIGHTS:

• 
  Appaloosa 13-F - New buys include FedEx (FDX), Nvidia (NVDA), Tesla (TSLA), Ark Innovation ETF (ARKK). Exited Aptiv (APTV). Raised stake in Uber (UBER), Amazon.com (AMZN), Meta Platforms (META), Alphabet Class C (GOOGL), Microsoft (MSFT), Antero Resources (AR), Macy's (M). Reduced stake in Constellation Energy (CEG), HCA Healthcare (HCA), Salesforce (CRM).


• 
  Berkshire Hathaway (BRK.B) 13-F - New buys include Capital One (COF), Diageo (DEO). Exited BNY Mellon (BNY), RH (RH), TSMC (TSM), US Bancorp (USB). Raised stake in Apple (AAPL), Occidental Petroleum (OXY), HP Inc (HPQ), Paramount Global Class B (PARA), Citigroup (C), Markel (MKL). Reduced stake in Chevron (CVX), McKesson (MCK), General Motors (GM), Celanese (CE), Ally Financial (ALLY), Aon (AON), Amazon.com (AMZN), Activision Blizzard (ATVI).


• 
  Elliott Investment Management 13-F - New buys included Reservoir Media (RVSR). Exited SPDR Bloomberg High Yield Bond ETF (JNK), Aerojet Rocketdyne (AJRD), News Corp. Class B (NWS), News Corp. Class A (NWSA). Raised stake in Triple Flag Precious Metals (TFPM). Lowered stake in Howmet Aerospace (HWM), Valaris (VAL), Peabody Energy (BTU), Polestar Automotive (PSNY).


• 
  Greenlight Capital 13-F - New buys include Black Knight (BKI), First Citizens BancShares (FCNCA), New York Community Bancorp (NYCB). Exited Victoria's Secret (VSCO), Funko (FNKO), CNX Resources (CNX), 23andMe (ME). Increased stake in Tenet (THC), Consol Energy (CEIX), Global Payments (GPN), Gulfport Energy (GPOR), Concentrix (CNXC). Lowered stake in Brighthouse Financial (BHF), Resideo (REZI), Southwestern Energy (SWN), ODP Corp (ODP), Galapagos (GLPG).


• 
  Icahn Enterprises (IEP) 13-F - New buys include: Illumina (ILMN). Raised stake in Southwest Gas (SWX). Reduced stake in Herc Holdings (HRI), Newell Brands (NWL).


• 
  Paulson & Co. 13-F - Exited KraneShares CSI China Internet ETF (KWEB), SSR Mining (SSRM), Overseas Shipholding (OSG), Baidu (BIDU). Lowered stake in Horizon Therapeutics (HZNP).


• 
  Pershing Square Capital Management 13-F - New buys included Alphabet (GOOG), Alphabet (GOOGL). Raised stake in Howard Hughes (HHC), Canadian Pacific Kansas City (CP). Reduced stake in Lowe's (LOW).


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  Third Point LLC 13-F - New buys include Alphabet Class A (GOOGL), HCA Healthcare (HCA), Salesforce (CRM), Alibaba (BABA), National Instruments (NATI). Exited TJX (TJX), Ovintiv (OVV), Fidelity National Information Services (FIS), Disney (DIS), LabCorp (LH). Raised stake in DuPont (DD), Hertz (HTZ), PG&E (PCG), International Flavors and Fragrances (IFF), Danaher (DHR). Reduced stake in UnitedHealth (UNH), AIG (AIG), Colgate-Palmolive (CL), Microsoft (MSFT).


• 
  Trian Fund Management 13-F - New buys include GE Healthcare (GEHC). Exited Sysco (SYY). Raised its stake in General Electric (GE), Mondelez (MDLZ). Reduced stake in Invesco (IVZ), Disney (DIS).

ENERGY:

• 
  US Strategic Petroleum Reserve - US Department of Energy announced a plan to buy 3mln barrels of crude oil to add to the Strategic Petroleum Reserve. The delivery of the oil is scheduled for August, and interested parties are requested to submit their offers by May 31st. The new purchase would be for sour crude oil delivered to the Big Hill SPR site in Texas sometime during the month of August, Reuters said. Previously, the administration has said it would start to buy oil back into the reserve when prices are consistently at or below USD 67-72 per barrel, well-below the level at which the oil had been sold, so that taxpayers can get some benefit; US crude prices were around USD 71/bbl on Monday.


• 
  Northern Oil and Gas (NOG) - To acquire a 30% stake in the Forge Assets in the Delaware Basin, in partnership with Vital Energy, for a purchase price net to NOG of USD 162mln in cash. Recent production on the acquired assets was approximately 3,400 BOEPD (2-stream, 79% oil); NOG expects average production of greater than 3,750 BOEPD (2-stream, 79% oil) in H2, and approximately USD 17mln of capital expenditures. Northern Oil and Gas announced an underwritten public offering of 6.65mln shares of its common stock; proceeds to be used to fund the cash purchase price of the Forge Assets in the Delaware Basin.


• 
  Packaging Corporation of America (PKG), Marathon Petroleum (MPC) - Norway’s USD 1.4tln sovereign wealth fund will step up its use of shareholder proposals to send messages on ESG topics to US companies after quietly testing them out at a small number of annual meetings, FT reports. Packaging Corporation of America (PKG) and Marathon Petroleum (MPC) have reportedly already given commitments on climate to the fund, so the fund withdrew its proposals. Two others — NewMarket and Westlake — annual meeting voted on the oil fund's motion.

HEALTHCARE:

• 
  Amgen (AMGN), Horizon Therapeutics (HZNP) - FTC is expected to file a lawsuit to prevent Amgen's USD 27.8bln purchase of Horizon Therapeutics, Bloomberg reports. Regulators are concerned that the merger would limit innovation and slow the development of new drugs. Bloomberg adds that it would be the first time in over ten years that the FTC has taken such action against a pharmaceutical deal, and the FTC's scrutiny suggests a potential change in how they view consolidation in the drug industry.


• 
  Acer Therapeutics (ACER) - Q1 EPS -0.77 (vs -0.64 Y/Y). Exec said it was now ahead of its anticipated launch schedule with drug-in-channel expected in mid-June 2023. Also made progress in its OLPRUVA commercialisation strategy. Has started a broad outreach programme to physicians who treat vascular Ehlers-Danlos Syndrome patients and have received overwhelming support for our ongoing Decentralized Study of Celiprolol on vEDS-related Event Reduction (DiSCOVER) Phase 3 EDSIVO clinical trial. Anticipates enrollment in this trial to be completed by the end of this year. Added that all of these activities are subject to additional capital.


• 
  Bruker (BRKR) - Board approved a new share buyback authorisation for the purchase of up to USD 500mln of the company's common stock over a two-year period.


• 
  Globus Medical (GMED) - Globus Medical's Reflect Scoliosis Correction System granted approval from the FDA.


• 
  Omnicell (OMCL) - Nchacha E. Etta appointed Executive Vice President and Chief Financial Officer, effective June 2023. Etta succeeds Peter Kuipers, who will be stepping down from his role as previously announced.

CONSUMER:

• 
  Ford Motor (F) - Ford is planning to reduce its future investments in China, FT reports. CEO has expressed concerns about the competition from local EV companies in China, and believes that Western carmakers may not be able to guarantee success against these local rivals. Instead, Ford will concentrate on commercial vehicles like delivery vans and use the Chinese market as a way to learn more about battery technology, FT said.


• 
  Tesla (TSLA) - Tesla is closer to starting test production of an updated version of its Model 3 vehicle in Shanghai, Bloomberg reports. The new model is aimed at competing better with Chinese EV manufacturers, is slightly longer than the previous version, and has a sportier look. There may be a temporary shutdown of the Phase 1 production line at the end of this month for adjustments.


• 
  Tesla (TSLA), JPMorgan (JPM) - Tesla CEO Elon Musk has been subpoenaed by the US Virgin Islands in a lawsuit accusing JPMorgan of enabling Jeffrey Epstein to sex traffic women, BBC reports. It calls on the Tesla boss to hand over any documents showing communication between him, JP Morgan Chase bank and Epstein, who died in 2019. BBC adds that Musk is not accused of any wrongdoing in the case.


• 
  JPMorgan (JPM) - Declared a quarterly dividend of USD 1/shr (exp. 1.00).


• 
  Sovos Brands (SOVO) - Announced the offering of 10mln shares of common stock in an underwritten secondary public offering. The selling stockholders will receive all of the proceeds from the offering. The company is not selling any shares of common stock in the offering and will not receive any proceeds from the offering.

TECH:

• 
  OpenAI, Microsoft (MSFT) - Microsoft-backed OpenAI is preparing to release new open-source language model to the public, The Information reports.


• 
  SunPower (SPWR) - Elizabeth Eby appointed CFO, effective May 30th.

FINANCIALS:

• 
  Short-Selling Ban - SEC Chair Gensler dismissed the idea that regulators would impose a short-selling ban due to the recent declines in some regional banks, arguing that such measures have not been effective in the past. "We at the SEC are merit neutral — folks can go long, folks can go short, as long as those markets work," Gensler said at an Atlanta Fed event, adding that regulators were "not looking at such a ban."


• 
  Wells Fargo (WFC) - Wells Fargo agrees to pay USD 1bln to its shareholders to settle a lawsuit accusing the bank of exaggerating its progress in resolving issues related to a scandal in 2016, where it created fake accounts, according to the WSJ. The settlement still needs to be approved by a court but, if finalised, it would be one of the largest settlements in a shareholder class-action lawsuit, WSJ adds.


• 
  Nu Holdings (NU) - Q1 revenue USD 1.6bln (exp. 1.54bln), Q1 net income USD 142mln. Has surpassed 80mln customers in Latin America; in Brazil, 46% of the adult population is a Nubank customer, a figure that has doubled in only two years. Exec said it has an exceptional capital position and excess liquidity.

INDUSTRIALS:

• 
  Airbus (EADSY), Delta Air Lines (DAL) - Delta Air Lines is in talks for a large order of A350 and A330neo wide-body aircraft from Airbus. The potential order could include dozens of planes as Delta replaces over a hundred older models, Bloomberg reports.

MATERIALS:

• 
  Alcoa (AA) - Alcoa and Emirates Global Aluminum announced a new 8-year agreement for Alcoa to supply EGA with smelter grade alumina, starting 2024. Volume options will allow EGA to procure as much as 15.6mln metric tons of alumina from Western Australia, and represents a significant portion of Alcoa's annual third-party alumina sales.


• 
  Teck Resources (TECK) - BHP (BHP) will not be competing with Glencore (GLNCY) for control of Teck Resources, due to the portfolio not containing a sufficient number of BHP's sought after components, AFR reports citing sources.

16 May 2023 - 09:00- Research Sheet- Source: Newsquawk