US EARLY MORNING: US equity futures are flat and Treasuries are little changed ahead of the FOMC policy announcement later today

US PREMARKETS: US equity futures are flat, Treasury yields are deviating little from neutral, though the short-end appears to be a relative outperformer, while the Dollar Index is also lingering around unchanged. Crude futures are giving back some of their recent gains ahead of key risk events. European equities are seeing upside after lower than expected UK inflation numbers for August, which has helped offset some concerns in G10 following Canada's hotter-than-expected CPI report on Tuesday; with Gilts and Bunds rallying in wake of the release, and market pricing now split on whether the BoE lifts rates or stands pat on Thursday. Attention is now shifting towards Wednesday's FOMC rate decision, where the Fed is likely to keep rates unchanged; however, traders will be focussed on the central bank's updated economic projections to see if it still envisages another rate hike this cycle (our full preview can be accessed via the link below). Afterhours, FedEx (FDX) is set to report.

TODAY’S AGENDA:

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  DAY AHEAD: The highlight is the FOMC’s policy announcement, where it is expected to stand pat on rates, but traders will be focussed on its economic projections to see if the central bank still sees another rate hike ahead (see below for our preview). Weekly MBA mortgage applications data are also due. CAD watchers will note the release of the BoC’s meeting minutes (see below for primer).


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  PREVIEW - FOMC (19:00BST/14:00EDT): The FOMC is expected to hold rates between 5.25-5.50% on Wednesday, according to both the market consensus and money market pricing. Traders will be looking to the updated economic projections to see whether the central bank is still working on the assumption that it will hike interest rates once more in 2023, in line with its previous SEP, or whether it now sees rates as having reached terminal. Markets are currently suggesting that the Federal Funds Rate has already reached terminal, though it has assigned around 50/50 chances that we could see another hike this year. Looking ahead, markets are pricing rate cuts next year, with the first fully discounted cut seen in July 2024. Fed officials have been dismissing any talk of rate cuts, and have suggested that rates could be held at terminal levels for an extended amount of time as the Fed continues to try and bring price growth back in line with its target. (Full Newsquawk preview here).


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  PREVIEW - BOC MINUTES (18:30BST/13:30EDT): At its recent policy meeting, the BoC kept its interest rate at 5.0%, aligning with market expectations. This decision was due to easing excess demand and the delayed impact of monetary policy. The BoC remains ready to raise rates if necessary, citing concerns about persistent inflationary pressures and the absence of recent downward momentum in underlying inflation. Governor Macklem emphasised the importance of addressing inflation promptly, with the goal of reaching the 2% target. He noted that policy lags may delay the impact of rate hikes on inflation, expecting headline inflation to rise before easing. Macklem ruled out interest rate cuts for now and cautioned against expectations of a return to pre-COVID rate levels.


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  CORPORATE EARNINGS: FedEx (FDX) and General Mills (GIS) are on today’s docket; earnings expectations can be accessed here.


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  ENERGY: API data reportedly showed headline crude stocks -5.3mln (exp. -2.2mln), stocks at Cushing -2.6mln, gasoline inventories +0.7mln (exp. +0.3mln), while distillate inventories saw a draw of -0.3mln (exp. +0.2mln). The more widely followed DoE inventory data will be released today at 10:30EDT/15:30BST.


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  REVIEW - PBOC LPR: China’s central bank maintained its benchmark Loan Prime Rates, with the 1yr kept at 3.45% and 5yr at 4.20%, both as expected. The wide expectations for the PBoC to keep its benchmark rates unchanged followed last month’s reductions in short-term funding rates, including the 1yr MLF by 15bps, but then delivered a more modest 10bps cut to its 1yr while surprisingly keeping its 5yr LPR unchanged (the latter being the reference rate for mortgages), resulting in some confusion given the numerous pledges by the central bank and government agencies to support the property sector. Nonetheless, the proximity of the cuts including a more recent RRR reduction, combined with a slight improvement in China’s data releases suggests less urgency for the central bank to act immediately, while it will also want to avoid stoking a fresh bout of currency pressure, analysts said.


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  REVIEW - UK CPI: Consumer prices were rising at a rate of +6.7% Y/Y in August, cooler than both the expected rise to 7.0% and the previous 6.8%. The All-Services metric of CPI decelerated to 6.8% Y/Y from 7.4% in July. The UK stats office said that rising prices for motor fuel led to the largest upward contribution to the change in the annual rates, while the largest downward contributions in both CPIH and CPI annual rates came from food and the volatile accommodation services component. Market-based pricing is now split between whether the MPC will lift rates on Thursday, or stand pat. But Capital Economics thinks the lower inflation numbers probably will still not be enough to prevent the BoE from raising interest rates by 25bps from 5.25% to 5.50% tomorrow, but adds to the argument that Thursday's hike may be the last of the cycle. "With wage growth, the other key barometer of inflation persistence, having been stronger than the Bank’s forecasts, we still think the Bank will raise interest rates by 25bps tomorrow, although the risk that the Bank leaves rates unchanged and rates have already peaked has just increased," it writes, "there is also the risk that this easing in core inflation proves to be another false dawn and a further rise in oil prices could prove problematic." That said, when taken together with the recent loosening in the labour market and weakening in real activity, CapEco says that the easing in core inflation may mean that the BoE can call time on interest rate hikes, probably after tomorrow.

EQUITY NEWS:

INDEX:

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  S&P 500 (SPX) - Bank of America Global Research (BAC) raises its 2023 year-end S&P 500 target to 4,600 (prev. 4,300).

CONSUMER:

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  Automakers - United Auto Workers union members in Michigan and Ohio are urging union leaders to stand firm on their demands for better pay and compensation as their strike against major automakers enters its fifth day, Reuters reports. The UAW threatened to strike at more US plants on Friday if progress isn't made in negotiations with automakers. Talks on Monday made little progress, raising concerns that a deal may not be reached before the Friday deadline, the report added.


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  Ford Motor (F) - Ford has reached a tentative deal with the Canadian union Unifor, avoiding labour strikes, CNBC reports. The agreement covers 5,600 autoworkers, and was announced just before the deadline, and awaits member ratification. Details of the deal have not been disclosed, CNBC said. Ford said it was developing contingency plans for further work stoppages in the US, including shipping parts that keep Ford vehicles on the road.


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  Tesla (TSLA) - Republican Congressman Jason Smith has asked Tesla CEO Elon Musk about its relationship with Chinese battery maker CATL amid concerns that US EV subsidies might be going to foreign companies improperly, Reuters reports. The inquiry comes as Congress considers rules for EV tax credits, aiming to prevent subsidies if certain battery components come from "foreign entities of concern," with a focus on reducing reliance on Chinese supply chains.


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  Philip Morris (PM) - Philip Morris is considering selling a stake in its pharmaceutical unit Vectura, which it acquired as part of a USD 2bln plan in 2021 to try and move away from cigarettes, WSJ reports. The company is seeking a partner to help grow its healthcare division, particularly its drug manufacturing outsourcing business.

TECH:

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  Microsoft (MSFT) - Microsoft Gaming CEO Phil Spencer acknowledged leaked documents about the company's video game business; he expressed disappointment, but said it would reveal its actual plans when the time is right.


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  Uber Technologies (UBER) - A top Uber executive warned that if Brussels classifies gig workers as employees, it could lead to a 50-70% reduction in work opportunities, causing Uber to shut down in many of the 3,000 EU cities it serves, and possibly raising prices by 40%, FT reports.


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  STMicroelectronics (STM) - STM supervisory board requested current CEO Jean-Marc Chery be available for reappointment in his role. Chery has accepted the proposal. Board plans to seek shareholder approval for his reappointment at the 2024 AGM for a three-year term.


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  Toast (TOST) - CEO Christopher Comparato sold 58K shares on September 15th for a total USD 1.17mln; COO Aman Narang sold 248.5K shares on September 18th for a total USD 5.07mln.

FINANCIALS:

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  JPMorgan (JPM) - The US bank lifts quarterly dividend +0.05 to USD 1.05/shr.


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  Goldman Sachs (GS) - GS is in advanced talks to sell its specialty lender GreenSky to a group of investment firms, marking a significant move away from the bank's unsuccessful venture into consumer lending, WSJ reports. The deal, if completed, would be worth around USD 500mln vs the USD 1.7bln Goldman initially paid for GreenSky.

INDUSTRIALS:

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  Boeing (BA) - Boeing has raised its 20yr forecast for new plane deliveries to China due to economic growth and higher demand for domestic travel, Reuters reports. It now predicts that Chinese airlines will require 8,560 new commercial planes by 2042 (prev. saw 8,485). Boeing is optimistic about China's role in the global air travel market, expecting it to make up 20% of the market.


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  General Dynamics (GD) - General Dynamics Electric Boat has received a USD 517.2mln order to provide spare parts for Virginia-class attack submarines. The parts will support maintenance work and will be carried out in Connecticut.


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  Steelcase (SCS) - The Business Equipment & Supplies company rose 2.5% afterhours following earnings beat and forward guidance. Q2 adj. EPS 0.31 (exp. 0.20), Q2 revenue USD 854.6mln (exp. 828.8mln). Sees Q3 EPS between USD 0.23-0.27 (exp. 0.19), and sees Q3 revenue between USD 780-805mln (exp. 820.7mln). Sees FY24 adj. EPS between 0.80-0.90 (exp. 0.67), and sees a modest organic revenue decline Y/Y.

ENERGY:

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  Energy Inventories - API data reportedly showed headline crude stocks -5.3mln (exp. -2.2mln), stocks at Cushing -2.6mln, gasoline inventories +0.7mln (exp. +0.3mln), while distillate inventories saw a draw of -0.3mln (exp. +0.2mln). The more widely followed DoE inventory data will be released today at 10:30EDT/15:30BST.

MATERIALS:

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  International Flavors & Fragrances (IFF) - IFF reiterates its FY23 revenue outlook for sales to be between USD 11.3-11.6bln (exp. 11.4bln), and backs its FY23 adj. EBITDA outlook at between UDS 1.85-2.00bln. Exec said that it continues to pursue the sale of its Cosmetic Ingredients business Lucas Meyer, and said it was executing additional divestiture actions to strengthen its capital structure.

UTILITIES:

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  Enel (ENLAY), Boston Properties (BXP) - Enel North America has made a deal with BXP for 21 MW of a solar project in Texas. The project includes solar panels and a battery system and is expected to generate a lot of clean electricity and contribute to local tax revenue.

HEALTHCARE:

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  Eli Lilly (LLY) - Eli Lilly is suing businesses in the US for selling unapproved versions of its diabetes drug Mounjaro, used for weight loss, according to BBG. Some are accused of violating state laws, while others face trademark and false advertising claims. Lilly aims to protect patients and ensure the safety of its product.

20 Sep 2023 - 09:30- Research Sheet- Source: Newsquawk