US EARLY MORNING: US equity futures are higher following three-day rout; Treasury yields continue to trade in a choppy fashion ahead of CPI data

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  OVERNIGHT: On Wall Street, stocks were mixed in choppy trade on Monday, as jitters over the recent bank failures of SVB and Signature Bank left many questions unanswered (see here).  APAC stock markets declined across the board amid a continuation of the selling in financials and with risk appetite severely constricted in the fallout from the recent US bank collapses (see here). European equities started Tuesday trading mixed as traders continue to fret over the health of banks (see here); Credit Suisse (CSGN SW) announced it had found material weakness in its financial reporting which would require remediation. Meanwhile, UK labour market data saw wage growth cool, with pricing for BoE’s March 23rd meeting dovishly tilting towards 50/50 for unchanged vs +25bps. Ahead of Thursday’s ECB meeting, officials heavily guided towards a +50bps rate hike, and there does not seem to be any walking bank on this front in wake of the recent bank stresses in the US; in fact, ECB's Stournaras, speaking this morning (and during the central bank’s so-called ‘quiet period) said he did not see any impact from the collapse of Silicon Valley Bank (SIVB) on Eurozone banks; our ECB preview can be accessed here.


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  US PRE-MARKETS:  US equity futures are trading higher by around 0.5% following a brutal three-day rout. Treasury trading overnight was choppy, and while a sense of calm engulfed the complex around the European open, yields have subsequently resumed the volatile trading conditions; yields are higher by 3-14bps, with the short-end underperforming, and that has helped support the Dollar Index, which briefly regained the 104.00 handle. The key catalyst for today (in addition to the headline risk around the financial health of US banks) is the consumer prices data for February, which is due for release at 12:30GMT/08:30EST; the consensus looks for a cooling in the annual headline and core rates of inflation. Any significant cooling may offer the FOMC greater scope to pause rate hikes at the March 22nd meeting amid concerns around US financial stability, the prevailing wisdom suggests, while any upside surprise could limit them as they continue their battle to bring still significantly above target inflation back under control. We preview the data in the Day Ahead section below.


• NOTE: The US is now on Daylight Saving Time; the time differential between New York and London has therefore been narrowed to four hours until Sunday March 26th, when the usual five-hour time differential will be restored.

DAY AHEAD:

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  EUROPEAN DATA/SPEAKERS: Once again, the scheduled data slate in Europe is benign, with only Italian Industrial Output data for January of note. The Scandanavian monpol watchers will note the Riksbank's parliamentary hearing takes place today. There are no major speakers ahead of the ECB's Thursday meeting (our preview is here); on Monday, market-implied pricing suggested there was more chance of a 25bps rate hike, rather than the 50bps that officials have impressed ahead of the blackout window – it is worth noting that this may have been a function of some of the moves seen over the Atlantic, rather than a repricing of the market's view on the ECB trajectory. On the supply front, the Germans will sell EUR 5bln of 2028 Bobls, the UK will sell GBP 3bln of 2033 Gilts, and Italy will sell between EUR 6.5-7.75bln of 2026, 2029, and 2072 debt, as well as EUR 1.5-2.0bln of Green BTPs; our bond auction note can be accessed here.


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  NORTH AMERICAN DATA/SPEAKERS: The highlight is the CPI report for February, where the rate of headline inflation is expected to cool to 6.0% Y/Y from 6.4%, while the core rate of inflation is expected to ease more moderately, with the consensus looking for 5.5% Y/Y from 5.6% - we preview the data below. Elsewhere, the weekly RedBook data will be released. Fed Governor Bowman will be making comments at a banking event, scheduled after the US close.


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  ENERGY: OPEC's MOMR will be released, although isn't expected to contain too much of consequence, so analysts will be keeping an eye on the supply/demand imbalances. After hours, the API will release its gauge of weekly inventories; this week, analysts expect to see headline crude stocks building by 0.6mln, distillates are seen drawing 1.2mln, while gasoline inventories are seen drawing by 2.2mln.


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  US CPI (12:30GMT/08:30EDT): Headline consumer prices are expected to rise +0.4% M/M in February, cooling slightly vs the +0.5% M /M in January; the annual rate of headline inflation is seen easing to 6.0% Y/Y from 6.4%. Within the report, analysts think goods inflation will be around flat, vehicle prices should continue to cool, and apparel prices could even be negative. Core CPI is also expected to rise +0.4% M/M in February, matching the January pace, though the annual measure is likely to fall 0.1ppts to 5.5% Y/Y. Shelter price rises will likely be a key source of core inflation. Analysts will be watching how components of inflation in the services sector perform; Fed Chair Powell has previously acknowledged the progress in taming goods inflation, but this week said there was little sign of disinflation in core services ex-housing, which accounts for more than half of core consumer expenditures. Accordingly, analysts at Moody’s say that “while inflation is set to continue moderating, it may not be enough improvement to keep the Fed from returning to a 50-basis point rate hike.” It is worth adding that some analysts are arguing that the inflation data's importance to the Fed's Rate hike calculus may have diminished on account of some of the financial stability concerns in the banking sector. Last week, before the woes of SVB, markets were debating whether the Fed would lift rates by 25bps or 50bps - now the debate is whether the central bank will make any hike at all. Goldman Sachs, for instance, says "in light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March"; the bank previously expected the Fed to lift rates by 25bps. It adds that it still expects the central bank will deliver a 25bps rate rise in May, June, and July, and now expects the terminal rate to be between 5.25-5.5%, though it sees considerable uncertainty about the path.

STOCK NEWS:

FINANCIALS:

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  SVB Financial Group (SIVB) - The Federal Reserve’s Vice Chair for Supervision Michael Barr is to lead a review of the supervision and regulation of Silicon Valley Bank, which will be released by May 1st. Elsewhere, FDIC plans another attempt at auctioning failed Silicon Valley Bank after they were unable to find a buyer for the firm over the weekend, WSJ reports. FDIC said it had additional flexibility to sell the firm now that regulators had declared its failure a threat to the financial system, the Journal said, explaining that by declaring the firm systemic, regulators have more flexibility to cover all depositors at the failed bank, and the move also gives regulators the ability to offer would-be buyers deal sweeteners such as loss-sharing agreements. Bloomberg said Apollo Global (APO) is reportedly looking at Silicon Valley Bank’s loan book, Bloomberg reports, although the extent of its interest in SVB’s USD 73.6bln total loans (as of end-2022) could not be determined. Elsewhere, MSCI deletes SVB Financial Group (SIVB) from its Global Standard Indexes, effective March 14th.


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  Signature Bank (SBNY) - S&P Dow Jones Indices said Bunge (BG) would replace Signature Bank (SBNY) in the S&P 500 prior to the open on March 15th. MSCI deletes Signature Bank (SBNY) from its Global Standard Indexes, effective March 14th. Moody’s downgraded Signature Bank (SBNY) to junk.


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  US Regional Banks - Moody’s downgraded Signature Bank (SBNY) to junk, and placed six US banks under review for downgrade, including: Zions Bancorporation (ZION), Comerica (CMA), UMB (UMBF), Western Alliance (WAL), First Republic (FRC), Signature Bank (SBNY) and Intrust.


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  US Large Banks - Large US banks are reportedly being inundated with new depositors, as smaller lenders face turmoil; the FT reports that JPMorgan (JPM), Citigroup (C) and other large financial institutions are trying to accommodate customers wanting to move deposits quickly. However, mutual funds managed by Morgan Stanley (MS), Fidelity, and BlackRock (BLK) appear to be among the most exposed to the collapse of Silicon Valley Bank and Signature Bank, according to Morningstar data cited by Reuters; the report added that “few funds held positions that alone appeared large enough to badly damage them, though further selloffs in regional bank shares could increase the pressure.”


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  Credit Suisse (CSGN SW) - The Swiss bank said it had identified ‘material weaknesses’ in its reporting for FY 2021 and 2022, is adopting a remediation plan; Swiss regulators are closely monitoring the bank.

INDUSTRIALS:

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  Boeing Company (BA) - Saudi airlines Riyadh Air and Saudia are nearing a USD 35bln deal to buy 80 Boeing 787 Dreamliners, with options for 40 more; deal could be announced on Tuesday, WSJ reports. WSJ could not determine whether the deal includes steep discounts aircraft makers give their customers or not.


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  United Airlines (UAL) - Lowered its Q1 EPS outlook to between USD -0.60 and -1.00 (exp. +0.69); UAL said it would take accrue related to potential new collective bargaining agreement with employees represented by Air Line Pilots association in Q1 from Q2. Raised Q1 revenue outlook to +51% Y/Y growth (prev. +50%) as it continues to see a strong demand environment. Q1 TRASM is seen increasing +22-23% Y/Y (prev. +25%). FY CASM view remains unchanged; FY EPS guidance of USD 10.00-12.00 was left unchanged.


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  Northrop Grumman Corporation (NOC) - Files for an automatic mixed securities shelf.

TECH:

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  Apple Inc. (AAPL), Alphabet (GOOG), Cisco Systems Inc (CSCO) - Apple, Google, Cisco, and others can sue the US Patent and Trademark Office to challenge a rule that reduced the number of patent-validity proceedings at a USPTO tribunal, a US appeals court said, reversing a California federal court’s decision to dismiss the companies’ lawsuit, and said the agency may have failed to go through a required public notice-and-comment rulemaking process, Reuters reports.


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  GitLab Inc. (GTLB) - Q4 EPS -0.03 (exp. -0.14), Q4 revenue USD 122.9mln (exp. 119.6mln). Sees Q1 EPS between USD -15c to -14c (exp. -16c), and sees Q1 revenue between USD 117-118mln (exp. 126.4mln). FY24 EPS seen between USD -0.29 and -0.24 (exp. -0.52), and FY24 revenue seen between USD 529-533mln (exp. 586.1mln).


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  Robinhood Markets, Inc. (HOOD) - Monthly data for February showed Net Cumulative Funded Accounts at 23.1mln (+50k M/M), Monthly Active Users 12.0mln, in line with January. Assets Under Custody (AUC) USD 74.7bln, in line with the January. Net Deposits USD 1.5bln in February, and over the last twelve months, Net Deposits were USD 16.9bln.


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  Momentive Global Inc. (MNTV) - Announced it will be acquired by a consortium led by Symphony Technology Group in an all-cash transaction that values Momentive at approximately USD 1.5bln. Momentive shareholders will receive USD 9.46/shr (vs close of 7.72 at Monday’s close).

COMMUNICATIONS:

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  Paramount Global (PARA) - Sean “Diddy” Combs is entering the race to buy BET, joining fellow media moguls Tyler Perry and Byron Allen, amid reports that owner Paramount Global is exploring a sale of the asset, Variety reports.


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  Walt Disney Company (DIS) - Disney’s ABC said around 18.7mln watched the Oscars on Sunday, +12% Y/Y, and the highest viewership since 2020.


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  Meta Platforms, Inc. (META) - Following recent reports that the social media giant could announce 'thousands' of additional job cuts, FT suggests an announcement could be forthcoming on Wednesday. Separately, Meta chief of Commerce and Financial Technologies said it was winding down digital collectibles (NFTs), and is going to focus on areas where it can make impact at scale, such as messaging and monetisation opportunities for Reels. Exec added that Meta will continue investing in fintech tools, it is streamlining payments with Meta Pay, and investing in messaging payments.

CONSUMER STAPLES:

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  Bunge (BG) - S&P Dow Jones Indices said Bunge (BG) would replace Signature Bank (SBNY) in the S&P 500 prior to the open on March 15th.

CONSUMER CYCLICAL:

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  Tesla, Inc. (TSLA), BYD Company (BYDDY) - Tesla CEO Musk said relations between Tesla and BYD were positive, while BYD said a report that claimed Tesla was giving up cooperation with BYD on battery supplies was false.


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  Volkswagen (VWAGY) - Plans to invest EUR 180bln between 2023-2027, with two-thirds earmarked for electrification and digitalisation; VW said BEV deliveries +26% in 2022, further significant models to be released in 2023; maintains a strong position, expects supply chain bottlenecks to ease in 2023.


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  Five Below, Inc. (FIVE) - CFO and Treasurer Kenneth Bull promoted to the role of COO; company to conduct search for a new CFO, Bull will continue in the role until a new CFO is appointed.

HEALTH CARE:

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  GSK plc (GSK) - China National Medical Products Admin accepts GSK regulatory review for Nucala in severe eosinophilic asthma; GSK also announced positive pivotal Phase III data for its 5-in-1 MenABCWY vaccine candidate.


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  Biogen Inc. (BIIB) - Welcomed the US Veterans Health Administration’s decision to provide coverage of LEQEMBITM for veterans living with early stages of Alzheimer’s disease.


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  Drug Prices - US President Biden will discuss a plan to lower prescription drug costs on March 15th.

14 Mar 2023 - 08:48- Research Sheet- Source: Newsquawk