US EARLY MORNING: US equity futures are green; jobs data and Fedspeak ahead, before next week's CPI report

OVERNIGHT: Stocks on Wall Street were lower amid more tensions in the regional banking sectors, along with data which showed higher Labour Costs in Q1, and the ECB's policy outcome was on the hawkish side. Our US wrap is here. APAC stocks were mixed after a weak lead from the US. Aussie shares were choppy after ANZ Bank’s earnings showed H1 cash profits rising to a record, though it warned of increased difficulties in H2, while the RBA’s quarterly Statement on Monetary Policy stuck to the hawkish script. Hang Seng and Shanghai Comp. diverged with the Hong Kong benchmark led higher by strength in tech and property stocks, while the mainland is pressured after Chinese Caixin Services and Composite PMI data which showed the pace of China’s services activity slowed by more than expected but remained at a firm expansion. Our APAC wrap is here. European equities started on the front foot, but are still on course for a second week of losses; earnings continued to come in, with decent updates in the Travel and Leisure sector, as well as for Apparel names. Our European equity open note is here.

US PREMARKETS: US equity futures are up, and although the price action in May is ultimately continuing the horizontal patterns seen in April, stocks are on course to print losses this week. Overnight, tech mega-weight Apple’s (AAPL) earnings were well received, with iPhone sales above expectations, shrugging-off the smartphone demand slump and economic slowdown concerns; it notched up by 2.5% afterhours. It also seems as though we are now passed the peak of earnings season, and the report card is currently pointing to a better-than-feared performance in Q1; WSJ reports that large corporates Q1 net profit margins rose to 11.5% in the quarter vs 11.3% in Q4, the first increase after six sequential declines, and while it is still early, it could potentially indicate a more positive outlook for the stock market ahead, according to FactSet. Today’s trading dynamics will be shaped by the jobs report, where expectations have been emboldened after solid ADP data earlier in the week; we will also see the return of Fedspeak, with Governor Cook (voter) and the hawkish St Louis Fed President Bullard (non-voter) set to speak in the afternoon – we preview both the jobs data as well as the Fedspeak below. After the jobs data and Fedspeak, traders will refocus their attention on the inflation narrative, with the April CPI report due next Wednesday (at pixel time – and these forecasts will likely change as analysts update their projections ahead of the data – the consensus expects the headline rate to rise 0.2ppts to 5.2% Y/Y, while the core measure is seen unchanged at 5.6% Y/Y). 

DAY AHEAD:

• Our interactive Day Ahead calendar is here; a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: Eurozone retail sales are expected to slip again in March. The ECB’s Bulletin and Survey of Professional Forecasters will likely get attention, but will unlikely contain any new information given yesterday’s ECB rate decision (recap here). On the speaker's docket, ECB's Elderson will give remarks at an EUI event. On the ratings docket, Fitch will potentially review Switzerland (currently AAA), Moody's may review Norway (Aaa).


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  US DATA/SPEAKERS: The main event is the April jobs data, which is expected to show a cooling in the rate of jobs growth; we include some of our thoughts, and a link to our preview, below. The Canadians will release their jobs data at the same time, and it is expected to also show a cooling in the rate of employment, while its jobless rate is expected to tick up. After the Fed rate decision this week, Fed's Bullard (non-Voter, Hawk) and Fed’s Cook (Voter, Neutral) will deliver some remarks; our recap of the Fed meeting can be accessed here. On the data front, the March consumer credit stats will be released in the afternoon. On the energy front, Baker Hughes will release its weekly rig count data.


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  PREVIEW – US JOBS REPORT (13:30BST/08:30EDT): Headline NFP is expected to rise by 180k in April, cooling from the prior 236k while the unemployment rate is seen ticking up slightly to 3.6% from 3.5%. The wages will be eyed to gauge inflationary pressures, and M/M wages are expected to maintain a pace of 0.3% while the Y/Y is seen rising 4.2%, the same pace in March. Labour market proxies have been mixed: initial jobless claims rose in the week that coincides with the BLS survey period, while continued claims moved lower; the ADP added jobs well above expectations, but wages were cool; ISM Manufacturing employment gauge returned to expansionary territory, and the Services employment remained in expansionary territory, but it did slow from March. The jobs report will be used to gauge the Fed's next move, whether that be a pause, or lead to some "additional policy firming", but it is worth stressing there is plenty of data between now and the June 14th FOMC, while the expected and actual tightening of credit conditions will also be key, particularly after First Republic (FRC) saga and more recently, PacWest (PACW) exploring options. Our full preview can be accessed here.


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  PREVIEW – FEDSPEAK (COOK, BULLARD AT 13:00EDT/18:00BST): The FOMC this week raised rates by 25bps to 5.00-5.25%, and hinted at a rate pause in the hiking cycle by dropping language within its statement about anticipating more policy firming. Essentially, the central bank is now on a conditional pause, subject to incoming data. Fed policymakers are now out of the blackout window, and will begin to offer their framing of the policy outcome. Today, we will hear from Fed’s Cook (voter), and the influential Bullard (non-voter this year). Ahead of the pre-meeting quiet period, Cook said she had supported the Fed’s aggressive rate hikes so far, and rates were now in restrictive territory; she has also previously suggested that she will weigh financial conditions when deliberating on policy. Meanwhile, Bullard (who next votes in 2025), has been one of the influential hawks in the post-pandemic period, and in the weeks ahead of the May FOMC meeting, said he had revised up his assessment of where terminal should be, and it could be as high as 5.75%; it will be interesting to see if he still holds this view, or whether that has moderated. Elsewhere, we expect officials to push back on pricing for rate cuts; currently, the market is pricing just under 90bps of rate cuts, which would take the Federal Funds Rate target to between 4.00-4.25%.

EQUITY NEWS:

TECH:

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  Apple Inc (AAPL) - Apple’s sales and profits topped expectations, supported by solid iPhone sales despite economic concerns. Q2 EPS 1.52 (exp. 1.43), Q2 revenue USD 94.84bln (exp. 92.96bln); authorises additional USD 90bln for share repurchases, and raises quarterly dividend +4% to 0.24/shr. Q2 gross margins 44.26% (exp. 44.1%), Q1 operating margin 29.85% (exp. 29.2%). Q2 Products revenue USD 73.93bln (exp. 71.91bln), Q2 iPhone revenue USD 51.33bln (exp. 48.97bln), Q2 iPad revenue USD 6.67bln (exp. 6.69bln), Q2 Mac revenue USD 7.17bln (exp. 7.74bln), Q2 Wearables, home and accessories USD 8.76bln (exp. 8.51bln), Q2 Service revenue USD 20.91bln (exp. 21.11bln). Apple platform had 975mln subscribers in Q2 which is up 150mln subscribers Y/Y. CEO noted record Q2 sales in all geographies, strong sales in Q2 for new iPhone customers in Brazil, India and Mexico. CEO said supply chain had no material shortages at all during Q2. Sees Q3 sales similar to Q2 levels (exp. 84.71bln), sees Q3 services revenue growth similar to Q2, sees FX as a 400bps headwind in Q3 (vs about 500bps in Q2), sees Q3 gross margin between 44-44.5% (exp. 43.8%), and sees Q3 OpEx between USD 13.6-13.8bln. Exec said component pricing environment was favourable. Exec said mass layoffs was not something it was currently looking at. CEO views AI as a huge opportunity, will continue weaving it in products. CEO pleased with the reacceleration in China. CFO said it was seeing the impact of the macroeconomic environment particularly in advertising and mobile gaming.


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  AI Names - Biden administration officials and AI company CEOs agreed more work is needed to develop appropriate safeguards on AI technology, according to the White House.


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  Block Inc (SQ) - Q1 EPS 0.40 (exp. 0.34), Q1 revenue USD 4.99bln (exp. 4.59bln), Q1 transaction-based revenue USD 1.42bln (exp. 1.43bln), Q1 subscription and services-based revenue USD 1.37bln (exp. 1.28bln). April profit growth tracking +24% (vs +27% in Q1).


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  Microchip (MCHP) - Q4 EPS 1.64 (exp. 1.62), Q4 revenue USD 2.23bln (exp. 2.23bln). Boosts quarterly dividend to 0.383/shr. Exec said it took further actions to position ourselves for a soft landing in the quarter, as lead times continued to improve for many of our products. At the request of customers, was able to reschedule significant amounts of backlog to later quarters to help customers with inventory positions, which resulted in building inventory on its balance sheet. Sees Q1 EPS between 1.63-1.65 (exp. 1.64), and sees Q1 revenue between USD 2.26-2.32bln (exp. 2.25bln).


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  Motorola Solutions Inc (MSI) - Q1 adj. EPS 2.22 (exp. 2.05), Q1 revenue USD 2.17bln (exp. 2.13bln). Saw double-digit revenue growth across both segments and all three technologies, and saw record Q1 sales, orders; exec added that ending backlog positions it well for continued growth. Accordingly, raises FY guidance.


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  Lyft (LYFT) - Q1 EPS -0.50, Q1 revenue USD 1.00bln (exp. 977mln), Q1 revenue per active rider USD 51.17 (exp. 49.77), active riders 19.6mln (exp. 19.8mln). Exec said deterioration in margin driven entirely by lower revenue per ride due to pricing competitively. Sees Q2 revenue between USD 1.0-1.02bln (exp. 1.08bln), Q2 adj. EBITDA seen between USD 20-30mln (exp. 49mln).


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  Atlassian (TEAM) - Q3 EPS 0.54 (exp. 0.34), Q3 revenue USD 915.5mln (exp. 902mln). Sees Q4 revenue between USD 900-920mln (exp. 920mln), and Q4 cloud revenue growth expected to be in the range of +26-28% Y/Y, and GM expected to be approx 81.0% GAAP, 83.5% non-GAAP basis, operating margin expected -11.0% GAAP, 17.0% non-GAAP.


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  Dropbox (DBX) - Q1 EPS 0.42 (exp. 0.35), Q1 revenue USD 611mln (exp. 601mln), Q1 ARR +7.8% Y/Y at USD 2.468bln (+11.6% FXN); Q1 paying users 17.9mln (vs 17.09mln Y/Y), ARPU USD 138.97 (vs 134.69 Y/Y). Backs long-term targets for between 80-82% gross margins, and sees USD 1bln FCF by 2024 with an operating margin between 30-32%.


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  GoDaddy (GDDY) - Q1 EPS 0.30 (exp. 0.50), Q1 revenue USD 1.04bln (exp. 1.04bln). Q2 revenue view USD 1.05-1.07bln (exp. 1.06bln), FY revenue view USD 4.25-4.33bln (exp. 4.3bln).


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  Fortinet Inc (FTNT) - Q1 adj. EPS 0.34 (exp. 0.29), Q1 revenue USD 1.26bln (exp. 1.2bln). Sees Q2 adjusted EPS USD 0.33-0.35 (exp. 0.32), and sees Q2 revenue USD 1.28bln-1.32bln (exp. 1.28bln). For the FY, sees EPS USD 1.44-1.48 (exp. 1.42), and FY revenue now seen between USD 5.43bln-5.49bln (exp. 5.41bln) from 5.37bln-5.43bln

COMMUNICATIONS:

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  Bumble (BMBL) - Q1 adj. EBITDA USD 59.3mln (exp. 54.8mln), Q1 revenue USD 243mln (exp. 241mln). Q1 paying users 3.46mln (exp. 3.44mln), Q1 ARPU USD 22.83 (exp. 22.80). Board approved a USD 150mln share repurchase programme. Backs FY guidance.

FINANCIALS:

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  US Banks - American Bankers Association urges SEC to investigate short-selling activity that does not reflect firms' financial status, calls for measures to reduce avenues of abusive trading practices, restore investor confidence. Other reports have said that officials were assessing possible market manipulation regarding banking shares, Reuters reported, and that many US regional banks had sound fundamentals, stable deposits and remain well capitalised.


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  Union Bankshares (UNB) - Said total assets USD 1.23bln as of March 31st 2023 vs USD 1.23bln Y/Y.


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  JPMorgan (JPM) - CEO Jamie Dimon will visit mainland-China for the first time in four years, Reuters reports. The visit will be made in late May as the bank has three Shanghai conferences planned for this period. Thereafter, Dimon is to visit Hong Kong.


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  Coinbase (COIN) - Q1 EPS -0.34 (exp. -1.35), Q1 revenue USD 773mln (exp. 654mln), Q1 trading volume USD 145bln (exp. 147.35bln). Q1 subscription and services revenue USD 362mln, and sees Q2 subscription & services revenue at USD 300mln (exp. 321mln). Maintains FY23 EBITDA targets; sees lower subscription and services revenue in Q2; sees expenses modestly rising in Q2 on the back of higher legal expenses, higher rents, higher sales and marketing expenses.


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  Credit Suisse (CS), UBS Group (UBS) - Announced results of buyback offer of Ecuadorean debt; will pay 53.25 cent per USD 1 of 2030 notes, 38.5 cents for 2035 notes, 35.5 cents for 2040 notes. It was earlier reported that was reviewing options for Credit Suisse's Swiss bank including an IPO, while it may potentially keep the unit's investment banking operations while selling the rest, Reuters said.


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  AIG (AIG) - Q1 EPS 1.63 (exp. 1.42). AIG impresses with another earnings beat as CR improves despite active cat quarter, The Insurer said.

CONSUMER CYCLICAL:

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  Tesla (TSLA) - Tesla has just started production of a new base version of the Model Y (RWD) at the plant in Europe (on top of the Long Range AWD and Performance versions), according to Teslamag. Separately, Tesla raises prices for new Model S and new Model Y in China by CNY 19k, Reuters reports.


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  DoorDash (DASH) - Q1 EPS -0.41 (exp. -0.48), Q1 revenue 2.04bln (exp. 1.92bln), Q1 adj. gross margin 49.1% (exp. 46.7%), Q1 GMV USD 15.9bln (exp. 15.0bln). Sees FY gross order value USD 63-63.5bln (exp. 61.37bln). Sees Q2 adj. EBITDA between USD 180-230mln (exp. 171mln), and for the FY, sees adj. EBITDA between USD 600-900mln (exp. 680mln).


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  Live Nation Entertainment Inc (LYV) - Q1 EPS -0.25 (exp. -0.41), Q1 revenue USD 3.10bln (exp. 2.28bln), Q1 fan count +79% to over 19mln. Exec said 2023 was off to a tremendous start. "For the first time in three years, all of our markets are fully open, adding that global demand for live events continued to reach new heights, and had been growing for a long time now, showing no signs of letting up.


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  Expedia Group Inc (EXPE) - Q1 adj. EPS -0.20 (exp. -0.04), Q1 revenue USD 2.67bln (exp. 2.66bln), Q1 bookings USD 29.4bln (exp. 28.7bln). Exec said Q1 saw strong travel demand, driven by increasing international travel, major city travel, and the reopening in Asia.


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  DraftKings Inc (DKNG) - Q1 EPS (exp. -0.88), Q1 revenue USD 0.77bln (exp. 0.71bln). Monthly unique users 2.8mln (exp. 2.6mln), with USD 92.00 revenue per user (exp. 90.00). Raised FY guidance. Sees FY revenue between USD 3.135-3.235bln (exp. 3.02bln) from 2.85-3.05bln.


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  Booking Holdings Inc (BKNG) - Q1 adj. EPS 11.60 (exp. 10.61), Q1 revenue USD 3.80bln (exp. 3.77bln); Q1 gross bookings USD 39.43bln (exp. 35.89bln). Exec said it saw a strong start to the year, with Q1 room nights and gross bookings reaching the highest ever quarterly levels.

CONSUMER STAPLES:

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  Monster Beverage Corp (MNST) - Q1 EPS 0.38 (exp. 0.34), Q1 revenue USD 1.70bln (exp. 1.69bln). Exec said that the increase in gross profit as a percentage of net sales was primarily the result of pricing actions, decreased freight-in costs and decreased aluminium can costs.


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  Post Holdings (POST) - Q2 adj. EPS 1.10 (exp. 0.81), Q2 revenue USD 1.62bln (exp. 1.6bln). Results reflected pricing actions which offset input cost inflation. Supply chain disruptions eased, but continued to drive higher manufacturing costs and customer order fulfilment rates below optimal levels.  FY EBITDA view revised up to USD 1.09-1.13bln from 1.025-1.065bln.

REAL ESTATE:

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  Cushman & Wakefield (CWK) - Q1 adj. EPS -0.04 (exp. 0.20), Q1 revenue USD 2.2bln (exp. 1.75bln). Exec said macroeconomic environment was challenging. Profits decline was driven by a 32% reduction in brokerage revenue, as the macro environment adversely affects commercial real estate transaction volumes and occupier decision making. Valuation and other declined 15% as a result of lower activity in its valuation business, stemming from a slowdown in transactions. Board accepted John Forrester's intent to retire from his position as CEO, appoints current President and Chief Operating Officer Michelle MacKay as new CEO from July.

05 May 2023 - 09:30- Research Sheet- Source: Newsquawk