US EARLY MORNING: US equity futures are flat; retail sales, Fedspeak, key earnings reports ahead, while traders will continue to monitor geopolitcs

US PRE-MARKETS: US equity futures are flat; Treasury yields are wider, with the long-end underperforming as the curve bear-steepens; USD is flat; crude futures are higher. Traders are mindful of an anticipated escalation of geopolitical tensions in the Middle East, after Iran's Foreign Minister last night said pre-emptive actions by resistance fighters could be expected in the coming hours; President Biden will travel to Israel on Wednesday to reaffirm solidarity and make clear that Israel has the right to defend itself, and warn others not to take advantage of the crisis to attack Israel. Analysts note that any escalation of the conflict could pressure energy prices higher, complicating the policy implementation of global central banks who are keeping policy restrictive to limit upside price pressures. Fed's Williams' comments will be eyed today in this context; previously he has suggested that there were ample signs that inflation pressures were waning, and suggested that the Fed may be done with rate rises, although left the door open for another hike should the situation require; Williams also reiterated that the Fed would need to keep policy restrictive for some time in order to bring inflation back to target. There is also key data and earnings due today that have the potential for macro impact (German ZEW; US Retail Sales, Industrial Production, Business Inventories; Fed's Williams, Bowman, Barkin, Kashkari, as well as the Fed’s Discount Rate Minutes; ECB's de Guindos; key US corporate earnings today include BAC, GS, LMT, JNJ).

DAY AHEAD:

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  DATA: The German ZEW sentiment is seen improving a little, though conditions are seen worsening. US retail sales data for September are expected to see growth, but the control group is expected to be unchanged (see below for primer). US industrial production and manufacturing output data are also due before the open. Business inventories are due after the open. Canada annual CPI data is seen unchanged in September, but comes amid warnings from policymakers on high inflation, and ahead of next week's BOC confab. In the afternoon, the Fed's discount rate minutes will be published. On the speaker's slate, attention will be on the Fed's Williams (voter), who will be appearing at the Economic Club of New York; speaking in late September and early October, Wiliams saw ample signs that inflation pressures were waning, and suggested that the Fed may be done with rate rises, although left the door open for another hike should the situation require; Williams also reiterated that the Fed would need to keep policy restrictive for some time in order to bring inflation back to target. Fed voters Bowman and Kashkari are also due to make remarks today, while we can expect another set of remarks from 2024 voter Barkin. Our interactive calendar can be accessed here; a pdf version can be downloaded here.


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  EARNINGS: Before the open, earnings reports are due from JNJ, BK, BAC, GS, LMT, PLD, ACI; afterhours, numbers are due from JBHT, IBKR, UAL, OMC. Our Daily US Earnings Estimates note can be accessed here.


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  US RETAIL SALES (13:30BST/08:30EDT): US retail sales are expected to rise 0.3% M/M in September, cooling from the 0.6% pace in August; the core measure is seen rising 0.2% M/M, and also slowing from 0.6% previously; the Control Group is expected to be unchanged (prev. +0.1%). In its monthly consumer checkpoint analysis, Bank of America's analysts note that consumer spending has been fairly flat over the last two months. Its data shows total card spending +0.2% M/M, reversing the 0.2% decline in card spending reported in August. It said that total card spending per household was +0.7% Y/Y in September (vs +0.4% in August), according to its internal data. "The labour market is key for the consumer," it wrote, "while there has been a relative deterioration in labour conditions at the higher end of the market, most of that underperformance may now be in the past." But BofA adds that wages and salaries of higher-income households are still growing at slower rates than other income cohorts. Analysts will monitor the data to see how consumer trends are holding up in the face of a slowing economy. Ahead, Adobe’s online shopping forecast for the holiday season (period that runs from November 1st through the end of this year) predicts that US online holiday sales will rise 4.8% Y/Y and hit USD 221.8bln. It said mobile shopping is set to overtake desktop for the first time, as consumers get increasingly comfortable transacting on smaller screens, and discounts were expected to hit record highs, while 'Buy Now, Pay Later' usage is set to drive a record USD 17bln in online spending as consumers look for flexible ways to manage their budgets.

EQUITY NEWS:

INDUSTRIALS:

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  Airbus (EADSY) - Airbus upgraded to Buy from Hold at Jefferies, and PT raised to EUR 150 (prev. 130); analyst said Airbus was likely to be at the end of negative consensus revisions, and while it sees lower deliveries vs consensus, it sees potential for operating leverage via sales mix and reduced costs amid the anticipated headcount re-ramp.


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  Rolls-Royce (RYCEY) - Rolls-Royce is cutting over 2,000 jobs as part of a cost-cutting effort led by the new CEO, Sky News reports. The restructuring will impact staff globally, including hundreds in the UK, with a focus on improving efficiency.


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  European Airlines - EU antitrust commissioner Didier Reynders plans to demand stricter conditions for airline mergers, FT reports. Airlines must allocate slots to rivals on competitive routes and may have to sell non-passenger assets to gain approval.

MATERIALS:

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  Rio Tinto (RIO) - Iron ore shipments rises in Q3, underpinned by China demand; aluminium, copper output also up Y/Y. Quarterly Pilbara iron ore output 83.5mln tons (prev. 84.3mln Y/Y), shipments 83.9mln tons (prev. 82.9mln tons Y/Y), mined copper 169k tons (prev. 138k tons Y/Y), aluminium output 828k tons (prev. 759k tons Y/Y). Says China's economy is showing signs of stability, and consumer confidence in the US is now starting to wane.


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  Sigma Lithium (SGML) - Sigma is sending 20,000 tons of Triple Zero Green Lithium to Vitoria Port in Brazil. This eco-friendly lithium is made at their Greentech plant and delivered without a tailings dam. The third shipment will be ready by October 20th.

ENERGY:

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  Marathon Oil (MRO), Glencore (GLNCY) - Marathon Oil signs five-year deal with Glencore to sell LNG from the Alba Field, Equatorial Guinea, starting in 2024. Plans to shift some natural gas from methanol production to LNG due to price differences.


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  Oil & Gas - Bernstein initiated Exxon Mobil (XOM) with an Outperform rating; Chevron (CVX) initiated with a Market Perform rating. Analyst says the market is in a later stage of the oil price cycle; hydrocarbons are vital for human well-being, and future investments in oil and gas are expected to be limited and essential.

TECH:

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  Ericsson (ERIC) - Q3 revenue SEK 64.5bln (exp. 65.82bln), Q3 adj. EBIT SEK 3.9bln (exp. 3.59bln), Q3 net income SEK -30.5bln (exp. 1.89bln). Expects macro uncertainty to persist into 2024. Warned that uncertainty in its networks business will persist into 2024. Is seeing some positive signs in early 5G markets. In its cloud software/services, it achieved positive EBITA on rolling four-quarter basis, and said it was on track for at least breakeven in FY23, improving thereafter.


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  Semiconductor Capital Equipment - Raymond James initiates coverage of the semiconductor capital equipment sector, says the cyclical correction is mostly over, risk/reward balance is favourable, despite recent stock movements. Says valuations are reasonable and that there's potential for higher earnings. Expects spending on fab equipment to reach low point in H2, and sees multiple growth drivers in the sector. Its top picks in the sector are: ASML (ASML), noting its dominant position in extreme ultraviolet technology, strong growth potential, and long-term visibility. It also rates Applied Materials (AMAT), Lam Research (LRCX), and KLA Corp. (KLAC) as Outperforms.


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  NetScout Systems (NTCT) - Slides by 20% after cutting guidance, said FY24 outlook reflects recent slowing in order conversion. Sees Q2 EPS between 0.60-0.62 (exp. 0.54), sees Q2 revenue at USD 195-197mln (exp. 223.6mln). Cuts FY24 EPS outlook to USD 2.00-2.20 (exp. 2.26, prev. saw 2.20-2.32), and cuts FY24 revenue outlook to between 840-860mln (exp. 926.3mln, prev. saw 915-945mln).

CONSUMER:

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  Walmart (WMT) - Walmart says it has enough staff for the holiday season, unlike previous years where they hired more, Reuters reports. It will give workers extra hours if needed due to concerns about a slower shopping period. High food prices, low savings, and rising interest rates are resulting in caution.


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  Sovos Brands (SOVO), Campbell Soup (CPB) - Sovos Brands' stockholders approved its acquisition by Campbell Soup for USD 23/shr in cash, subject to regulatory approval; transaction expected to close in Q4 2023.


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  Baidu (BIDU) - Baidu unveiled its Ernie 4.0 advanced AI model, claiming it matches OpenAI's GPT-4 capabilities.


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  Real Estate Names - Wells Fargo initiates Toll Brothers (TOL), Masco (MAS), Lennar (LEN), PulteGroup (PHM), D.R. Horton (DHI) with an Overweight; KB Home (KBH), Owens Corning (OC) initiated with an Equal Weight; Mohawk (MHK) started at an Underweight.


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  Tesla (TSLA) - NHTSA says Tesla has recalled 54,676 vehicles; 2021-2023 Model X behicles due to controller failing to detect low brake fluid and will not display a warning light.

COMMUNICATIONS:

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  Netflix (NFLX) - Netflix is expanding its game streaming beta to the US, allowing users to play cloud-streamed games on devices like TVs and computers. The beta is limited and currently offers two games. Special controller apps are needed for mobile devices. It initially launched in Canada and the UK.


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  Snap Inc. (SNAP) - Snap's shares rose 11% on Monday following a report that it was expected to have over 475mln daily users in 2024 (FY24 DAUs expected at 445.5mln), according to a Reuters report.

FINANCIALS:

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  Robinhood (HOOD) - "Chief Creative Officer" Baiju Bhatt sold 90K shares on October 12th for a total USD 849k.

HEALTHCARE:

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  Merck (MRK) - FDA approved KEYTRUDA for treating non-small cell lung cancer. This expands KEYTRUDA's use in various stages of lung cancer based on positive trial results.

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