US EARLY MORNING: US equity futures are higher, with the NDX outperforming following a constructive update from Tesla (TSLA)

SNAPSHOT:

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  OVERNIGHT: Stocks eventually recovered on Wall Street to go flat at yesterday’s close (see here). The APAC session was mixed amid key holiday closures and following a flat lead from US, while Hong Kong markets outperform on return from holiday (see here). European equities have opened with a positive bias this morning, amid a heavy corporate earnings slate (see here).


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  US PREMARKETS: US stock futures are trading up, with the Nasdaq-100 outperforming after a constructive update from Tesla (3% NDX weighting), where its CEO was bullish on the demand outlook. That optimism is helping to shrug-off mediocre updates in the tech from the likes of International Business Machines (IBM), SAP SE (SAP), Lam Research (LRCX), and ServiceNow (NOW). Earnings will continue to remain in focus today, with updates due from the likes of Intel (INTC), Comcast (CMCSA), as well as credit card companies Visa (V) and Mastercard (MA); we will also get numbers from global luxury powerhouse LVMH (LVMH) after the European close. There is also a significant data docket today, by way of growth data for Q4 (which has the PCE price metrics for the quarter), weekly initial jobless claims, durable goods orders, more regional activity surveys, and trade data, all of which we preview below. Meanwhile, Treasury yields are currently lower by 1-2bps, the Dollar Index is a shade above neutral, while crude benchmarks are a little worse than flat.

DAY AHEAD:

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  US DATA: It’s a busy day for US data releases. Advance GDP data for Q4 is expected to cool sequentially, though is still seen as running hot relative to the Fed’s longer-term view for GDP growth, while many expect the pace of growth to fall off as the year progresses. We preview the GDP data in a bit more detail below. It is worth noting that the PCE component within this report is for Q4 as a whole; on Friday, the Specific data for December will be released, and will no doubt be an influential input into the Fed’s February 1st meeting. On the labour market front, weekly initial jobless claims are expected to pick up from last week’s levels – the initial claims print for last week fell to the lowest levels since September, and coincided with the survey period for the BLS’ establishment survey; this week’s continuing claims number will be the one that coincides with that survey window, and will help shape expectations for the January jobs data. On the housing front, New Home Sales data for December is expected to cool to a rate of 617k from 640k. The advanced goods trade balance for December and durable goods orders for December are released at the same time. Elsewhere, the Kansas City Fed’s manufacturing gauge for the month will be eyed following mixed regional manufacturing reports, where the Empire Fed Manufacturing survey disappointed to the downside (strongly), as did the Richmond Fed’s gauge, though the Philly Fed was a little better on the month. These regional surveys help traders form expectations of how the influential Manufacturing ISM Data will look, when it is released on February 1st (note: for both services and manufacturing, the ISM headline is now in contraction, as are their respective new orders sub-indices). Finally, the National Activity Index for November will be released.


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  US GDP PREVIEW (13:30GMT/08:30EST): Advanced GDP data for Q4 is expected to show growth of 2.6% (prev. 3.2%); that consensus view is more pessimistic than the Atlanta Fed's GDPnow forecast, which is tracking Q4 growth a 3.5%, although it is far hotter rate of growth than the 0.5% that the Fed has pencilled in for this year, and is even above the 1.8% growth rate that the Fed projects in the longer run. The policy implication is that a hot report, or even a report which shows growth above the pace that the Fed is forecasting, will likely keep officials at the central bank cautious into their February 1st meeting, where a 25bps rate hike is priced with near certainty by financial markets, and will give them more confidence in pursuing a hawkish line on normalisation. Ahead, the growth dynamic in the US is expected to worsen significantly, with many analysts projecting the economy will enter a recession. While policymakers have generally given constructive updates on the prospects for growth this year, arguing that a recession can be averted and the economy can achieve a soft landing. It is worth noting that these data will be released during the Fed's blackout window ahead of the January 31-February 1st FOMC meeting; the current base case implied by both market pricing and analyst forecasts is that the central bank will lift rates by 25bps. However, many have caveated that view around incoming data, suggesting that if there is an upside surprise within the PCE data, then pricing for 50bps could pick up once again.


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  CENTRAL BANK EVENTS: Minutes for the CBRT’s recent meeting (unchanged) as well as its inflation report are scheduled for release. South Africa’s Reserve bank is expected to hike its Prime Rate by 50bps to 7.50%. ECB officials enter the blackout window ahead of the February 2nd meeting (50bps hike expected); Fed officials are in blackout ahead of their February 1st meeting (25bps hike expected).


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  AUCTIONS: The US will round-off its note supply with a sale of 7s; the auction follows a solid sale of 2s and 5s on Tuesday and Wednesday, respectively. Elsewhere, Italy will be auction 2025 notes, as well as a 2033 linker.


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  ENERGY INVENTORIES: Weekly EIA NatGas Storage change data is expected to print a draw of 82bcf, matching last week’s drawdown.


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  EARNINGS: Today’s major US corporate earnings include Comcast (CMCSA), Visa (V) and Mastercard (MA), Intel (INTC). Full earnings estimates can be accessed here, while we preview the main talking points in the section below.


• Our full day ahead calendar can be accessed here. Our full daily earnings estimate sheet can be accessed here.

TALKING POINTS FOR TODAY’S MAJOR US EARNINGS: CMCSA, INTC, MA, V

• Our full daily earnings estimate sheet can be accessed here.


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  CMCSA: After management tours late last year, Credit Suisse updated its forecast for 2023 EBITDA, and now sees a "modest" USD 400mln below the Street consensus, which it says is likely reflective of its more bearish macro inputs. "It does seem likely capital intensity will increase in 2023 well beyond Street estimates, given higher NBCU capex for the Epic Universe park build and potentially higher cable capital intensity as Comcast focuses on expanding its footprint faster and likely has some scope to accelerate its upgrade path to DOCSIS4.0 as it improves pace of upgrade execution." CS also expects headwinds to working capital to have eased in the quarter, given that NBCU content production already ramped post-pandemic. CS will be watching out for the media giant's guidance for FY23 FCF (consensus expectsUSD 13.86bln). "Despite trimming our growth outlook, we remain above the Street for 2024+ EBITDA and FCF. Overall, shares remain quite inexpensive at 6.5x 2023e EV/EBITDA, 9.6x P/E and 11x FCF, especially given investment cycles in cable network upgrades, Peacock buildout, Parks buildout, CTV efforts and content ramp."


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  MA, V: Looking ahead to the earnings from Visa and Mastercard, Barclays says that for both, Q4 earnings "feels well calibrated", with investors more likely to be focussed on potential macro economic headwinds and their impact on the FY guide. Barclays will also be looking out for any commentary suggesting progress with China side of the business, noting that a more rapid China reopening could result in a pull-forward of cross-border revenues. Barclays recently adjusted its estimates for both Visa and MAstercard based on China factors and stiffer macro headwinds.


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  INTC: Analysts at Credit Suisse expect next quarter guidance from Intel to miss street expectations on the back of weakness in the data centre segment. However, on the client side, CS says it is more constructive as customers are actively burning through inventory.

EQUITY SPECIFIC NEWS:

CONSUMER:

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  Tesla Inc (TSLA) - Tesla profits and revenues topped expectations, although auto gross margins fell to a five quarter low. Q4 adj. EPS 1.19 (exp. 1.13), Q4 revenue USD 24.32bln (exp. 24.03bln), Q4 FCF -49% at USD 1.42bln (exp. 3.13bln), Q4 adj. EBITDA USD 5.4bln (exp. 5.39bln), Q4 operating Margin 16%, Q4 automotive gross margin 25.9% (exp. 28.5%). Entered into a credit agreement in January which provides revolving credit facility of up to USD 5bln, and may increase total commitments under credit facility by an additional USD 2bln. For 2023 it expects to remain ahead of long-term 50% CAGR with 1.8mln cars (exp. 1.95mln). Cybertruck on track to begin production later this year. Next generation vehicle platform is under development, with additional details to be shared at investor day. Said it has sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses. In near term, accelerating its cost reduction roadmap and driving towards higher production rates. Said it is continuing to reduce the cost of manufacturing and operations. Over time, expects hardware-related profits to be accompanied with an acceleration of software-related profits. Since Shanghai factory is running near full capacity for several months, does not expect meaningful sequential volume increases in the near term. Continues to believe that operating margin will remain the highest among volume OEMs. Production and delivery challenges in 2022 were largely concentrated in China. Working to reduce %age of vehicles delivered in 3rd month and smooth deliveries throughout the quarter.


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  Tesla Inc (TSLA) - CEO Musk said that thus far in January, it was seeing the strongest orders to date in our history with orders almost twice the rate of production. Cost of production in Berlin and Austin factories are falling as output increases. Expect our demand to grow this year even as the US auto industry will likely contract. Rising interest rates increased our vehicle prices by nearly 10% in the US. Cost of goods sold per unit increased due to raw material costs, inflation and lithium prices. 'Unwinding' costs that built up during COVID including n logistics and parts inventory. Expects to see above 20% automotive margin and average selling price of above USD 47,000 this year. Cybertruck will not be a significant contributor to the bottom line this year. Cybertruck production will start sometime this summer but volume production will be next year. Tesla's internal production potential is closer to 2mln vehicle this year, while it can produce and sell 2mln vehicles in 2023, absent external disruptions.


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  Diageo plc (DEO) - The world’s largest spirits maker reported H1 sales which beat expectations, with operating profits rising 15%. It said that it was confident that Chinese consumers will return as COVID eases. H1 organic net sales +9.4% (exp. 8.2%), H1 revenue GBP 9.42bln (prev. 7.96bln Y/Y), H1 adj. operating profit GBP 3.16bln (prev. 2.74bln). Affirms FY23-25 guidance on organic revenue and operating profit, increased interim dividend +5%.


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  AB Volvo (VLVLY) - Core profits were in line with expectations, and proposed additional dividend. Q4 revenue SEK 134.3bln (exp. 118.9bln), Q4 operating income SEK 11.5bln, Q4 adj. operating income SEK 12.1bln (exp. 12.5bln), EPS 3.26 (exp. 4.42). Proposes a dividend of SEK 7/shr and an extra dividend of SEK 7/shr. Said truck market forecast was unchanged. Ex-China, construction industry activity has remained good in many regions.


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  Levi Strauss & Co. (LEVI) - Q4 adj. EPS 0.34 (exp. 0.29), Q4 revenue USD 1.6bln (exp. 1.57bln). Sees FY23 adj. EPS between 1.30-1.40 (exp. 1.34), and sees FY23 revenue between USD 6.3-6.4bln (exp. 6.3bln), assuming no significant worsening of the COVID-19 pandemic, inflation, supply chain disruptions, or further FX impacts. CEO told CNBC that its strategies were working, with its direct-to-consumer business driving growth, now accounting for around 39% of revenues vs 55% target. CEO also noted good momentum, and optimism over 2023.


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  Tod's S.p.A. (TDPAY) - 2022 sales rose 14% to over EUR 1bln, and it said it had a strong start to 2023. FY22 revenue EUR 1.01bln (exp. 0.99bln), +11% Y/Y in constant currency.


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  Las Vegas Sands Corp (LVS) - Q4 EPS -0.22 (exp. -0.09), Q4 revenue USD 1.12bln (exp. 1.18bln). Exec said relaxation of travel restrictions in China enabled increased visitation and tourism spending in late December 2022 and January 2023.


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  Boot Barn Holdings, Inc. (BOOT) - Q3 adj. EPS 2.23 (exp. 1.75), Q3 revenue USD 514.6mln (exp. 514.1mln), Q3 SSS -3.6% Y/Y. Exec said it feels good about its level of store inventory, with weeks of supply back to pre-pandemic levels. Q4 EPS seen between 1.42-1.51 (exp. 1.62), and Q4 revenue is seen between USD 438-448mln (exp. 433.1mln). Lowers FY23 EPS outlook to 5.51-5.60 (exp. 5.72) from 5.70-5.90, but lifts its FY23 revenue outlook to USD 1.67-1.68bln (exp. 1.66bln) from USD 1.65-1.67bln; FY23 SSS see rising between 0.5-1.0%.

TECH:

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  International Business Machines Corp (IBM) - Q4 operating EPS 3.60 (exp. 3.60), Q4 revenue USD 16.7bln (exp. 16.4bln). Q4 software revenue +8% at USD 7.288bln. FY22 cash flow USD 9.3bln (missing USD 10bln target), owing to higher-than-expected working capital needs. Announced workforce reduction of 3.9k jobs (around 1.5% of its staff); layoffs will result in a USD 300mln charge in the January-March quarter. Sees FY23 FCF around USD 10.5bln (exp. 9.48bln), and sees FY23 FXN revenue growth consistent with its mid-single digit model (exp. 8.3%).


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  SAP SE (SAP) - Sales slightly missed expectations in Q4, although cloud revenues slightly beat; also announced it would cut 3k jobs and sell its stake in Qualtrics. Q4 non-IFRS Revenue EUR 8.44bln (exp. 8.49bln), non-IFRS Cloud Revenue EUR 3.39bln (exp. 3.37bln). Sees 2023 Non-IFRS operating profit between EUR 8.8-9.1bln (exp 8.65bln). Said Current cloud backlog exceeds EUR 12bln billion, +27% Y/Y. Will conduct a restructuring where it will cut 3k jobs, or around 2.5% of total staff. Targeted restructuring in 2023 reflects focus on strategic growth areas and accelerated cloud transformation. Has decided to explore a sale of stake in Qualtrics. 2023 outlook anticipates accelerating topline and double-digit non-IFRS operating profit growth.


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  Nokia Oyj (NOK) - Q4 profits topped expectations on robust demand, and sees stronger cashflows in 2024. Q4 revenue EUR 7.45bln (exp. 7.13bln), Q4 adj. EPS EUR 0.16 (exp. 0.13). Sees 2023 adj. operating margin between 11.5-14% (exp. 12.4%). Guides 2023 adj. net sales between EUR 24.9-26.5bln (exp. 25.41bln). Said demand remained robust. Re-recognised deferred tax asset of EUR 2.5bn in Q4 which boosted reported net profit and EPS. Board proposes a dividend authorisation of EUR 0.12/shr. Long-term targets remain unchanged.


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  STMicroelectronics N.V. (STM) - Saw a rise in Q4 sales, and profit jumped on auto and microcontroller strength. Q4 revenue USD 4.42bln (exp. 4.40bln), Q4 gross margin 47.5% (exp. 47.3%). Guides Q1 Net Revenue at USD 4.20bln (exp. 3.81bln). Sees Q1 gross margin around 48% (exp. 45.2%).


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  Lam Research Corp (LRCX) - Q2 adj. EPS 10.71 (exp. 9.96), Q2 revenue USD 5.28bln (exp. 5.08bln). Expects restructuring plan to entail a reduction of 1,300 employees (about 7% of its workforce) and restructuring plan is expected to result in total charges of about USD 80mln, while it anticipates implementing further cost reduction activities not part of the restructuring plan. Sees March quarter adj. EPS around USD 6.50 +/- 0.75c (exp. 7.88), and March quarter revenue around USD 3.8bln +/- 300mln (exp. 4.4bln).


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  Teradyne, Inc. (TER) - Q4 EPS 0.92 (exp. 0.75), Q4 revenue USD 732mln (exp. 711.6mln). Authorised a USD 2bln share repurchase programme, expects to repurchase up to USD 500mln of common stock this year. President said the semi company expects a step down in demand in Semiconductor and Storage Test markets, which will persist at least through H1 2023 as device manufacturers adjust their production to rebalance supply, demand, and inventory levels. Said that this near-term slow-down was consistent with past industry cycles, believes long-term drivers of test demand remain firmly in place. Sees Q1 EPS between USD 0.28-0.52 (exp. 0.58), and sees Q1 revenue between USD 550-630mln (exp. 644.6mln).


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  ServiceNow, Inc. (NOW) - Q4 adj. EPS 2.28 (exp. 2.02), Q4 revenue USD 1.94bln (exp. 1.94bln). FY23 subscription adj. gross margin outlook 84% (exp. 86.1%). Q4 subscriber revenue growth +27.5% (exp. 27%), current remaining performance obligations (cRPO) growth of 25.5% (exp. 26%). Sees Q1 subscription revenue between USD 1.99-2.0bln, Q1 operating margins seen at 24% (exp. 26%), and cRPO growth +24%. FY23 subscription revenue seen between USD 8.44-8.50bln (exp. 8.45bln).


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  Flex Ltd. (FLEX) - Q3 adj. EPS 0.62 (exp. 0.55), Q3 revenue USD 7.8bln (exp. 6.89bln). Q4 adj. EPS is seen between USD 0.48-0.54 (exp. 0.47), and Q4 revenue between USD 7.0-7.4bln (exp. 6.4bln). FY23 adj. EPS outlook raised to 2.27-2.33 (exp. 2.12) from 2.20-2.35, and FY23 revenue outlook raised to between USD 29.9-30.3bln (exp. 27.2bln) from USD 29.1-30.1bln.


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  Seagate Technology plc (STX) - Q2 adj. EPS 0.16 (exp. 0.10), Q2 revenue USD 1.887bln (exp. 1.83bln). Q3 adj. EPS seen at 0.25 +/- 0.20 (exp. 0.29), Q3 revenue USD 2bln +/- USD 150mln (exp. 1.86bln).


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  Dell Technologies Inc. (DELL) - Dell has acquired cloud orchestration startup Cloudify for around USD 100mln, TechCrunch reports.

MATERIALS:

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  Axalta Coating Systems Ltd. (AXTA) - Q4 adj. EPS 0.38 (exp. 0.35), and Q4 revenue USD 1.24bln (exp. 1.22bln). Exec said strong pricing gains were realised across all end-markets, and supported better Y/Y profitability. Said margin recovery was a key priority, H2 results showed notable progress here. Exec added that volumes improved across the portfolio, as demand continues to outpace most end-market trends. Exec said the company believes were are at the start of a reversal in several cyclical factors, such as inflation, constrained auto production, and unreliable supply-chains. Sees Q1 adj. EPS between USD 0.26-0.33 (exp. 0.33), and sees Q1 revenue up +5-9% (exp. 1.2bln).

ENERGY:

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  Chevron Corporation (CVX) - Boosts quarterly dividend +6% to USD 1.51/shr, and announced a USD 75bln share repurchase programme. The share buyback programme replaces its previous authorisation of USD 25bln, which will terminate on March 31st after the completion of repurchases in Q1.


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  TotalEnergies SE (TTE) - Qatar is reportedly in talks to join Total'S USD 27bln Iraqi energy project.


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  ENI S.p.A.(ENI) - Libya's NOC to sign offshore gas exploration and production deals with Eni.

INDUSTRIALS

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  CSX Corp (CSX) - Q4 EPS 0.49 (exp. 0.46), Q4 revenue USD 3.73bln (exp. 3.72bln). Q4 operating income USD 1.46bln, -7% Y/Y, Q4 operating ratio of 60.9%. For the FY22, operating income USD 6.0bln, -8% Y/Y, including the effect of lower gains from the Virginia property sale; FY22 operating ratio was 59.5%. Sees 2023 capex at about USD 2.3bln which is up modestly due to inflation and increased spending for strategic projects.


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  Hexcel Corporation (HXL) - Q4 EPS 0.40 (exp. 0.32), Q4 revenue USD 429mln (exp. 403.4mln). Exec noted the strongest sales quarter of the year, as it drove higher production levels to support the continuing robust recovery in the commercial aerospace market. Saw double-digit adjusted operating margins for Q4 and for FY22. Has restarted construction to complete a new carbon fibre line at its Alabama facility, which was paused in 2020. FY23 EPS outlook is seen between 1.70-1.90 (exp. 1.82), and FY23 revenue is seen between USD 1.725-1.825bln (exp. 1.76bln), while FY23 FCF is expected at above USD 140mln and capex around USD 90mln.


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  United Rentals, Inc. (URI) - Q4 EPS USD 9.15 (exp. 10.37), Q4 revenue USD 3.30bln (exp. 3.29bln). Initiates quarterly dividend of USD 1.48/shr, will resume share repurchases, and will buy back USD 1bln worth in 2023. FY23 revenue seen between USD 13.7-14.2bln (exp. 13.5bln), and FY23 adj. EBITDA seen between USD 6.6-6.85bln (vs 5.62B Y/Y).

HEALTH CARE:

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  Evotec (EVO), Johnson & Johnson (JNJ) - Evotec entered into a strategic collaboration and licence agreement with JNJ's Janssen Biotech; the collaboration focuses on the development of first-in-class targeted immune-based therapies for oncology, which will ultimately be commercialised by Janssen.

REAL ESTATE:

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  Crown Castle International Corp. (CCI) - Q4 AFFO 1.85 (exp. 1.83), Q4 revenue USD 1.76bln (exp. 1.75bln). Reiterates view for FY23 AFFO at between USD 7.58-7.68 (exp. 7.63), and for FY23 adj. EBITDA between USD 4.45-4.49bln.

COMMUNICATIONS:

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  Meta Platforms, Inc. (META) - Meta will reinstate former US President Trump's Facebook and Instagram accounts in the coming weeks following a two-year suspension, Axios reported citing Meta's president of global affairs Nick Clegg.

26 Jan 2023 - 09:20- Research Sheet- Source: Newsquawk