US EARLY MORNING: US equity futures are lower ahead of a House vote on the debt ceiling deal; incoming European inflation metrics have been softer-than-expected

OVERNIGHT: Asia-Pac stocks mostly lower due to mixed sentiment on Wall Street amid debt ceiling jitters, weak China PMI data (we recap below), lower oil prices (see here), and North Korea tensions, as the pariah nation attempted to launch its first military spy satellite, triggering emergency alerts South Korea and in Japan. Aussie CPI data for April was above expectations, prompting some to revise up their RBA rate hike calls (see below). Our APAC wrap is here. European equities started on the back foot, though European fixed income is rallying after initial German regional inflation data was lower than expected, which follows cooling inflation in Spain; the French inflation metrics also fell short of expectations (we recap below). Our European morning cash open note is here. 

US PRE-MARKETS: US equity futures are beneath neutral ahead of a House vote on the debt ceiling deal; some hardliners have indicated that they would be voting against the measures, though this was always expected, and it is likely to take a bipartisan effort to get it done. Treasuries are rallying, with some support coming from EGB counterparts, which are higher after inflation data from Spain and France, as well as some German inflation metrics, have come in lower than expected in May (we review below). The Dollar Index downside after the long-weekend has proven to be short-lived, with the Greenback up around the 104.50 handle again; the Buck's upside overnight may have been a function of further weakness in China's yuan, with the currency sliding to a fresh six-month low in wake of disappointing NBS PMI data (we review below). Crude benchmarks are tilting downwards again today, with contracts settling around USD 3.00 lower on Tuesday amid some signs of global demand weakness, and ahead of OPEC's June 4th policy meeting, which comes at a time of heightened tensions between the Saudis and Russians. Citi's latest positioning model suggests that investors are continuing to add more risk flows to US equities, with both S&P and Nasdaq bullish flows increasing - the latter's positioning is now at a three-year high, amid elevated profit levels and increasing profit taking risk. We are also now entering a key data window that could determine whether the Fed adds more monetary tightening: Friday will see the BLS release the May jobs data, on the same day we will get the manufacturing ISM report for the month; next Monday, the services equivalent will be released, and then a day before the Fed announcement (June 13th), the CPI report will be out (during the Fed blackout). Markets are currently discounting a 25bps rate hike with around 65% certainty, while no cuts are fully priced for this year. Today will see further Fedspeak, by way of Fed’s Bowman (voter, recently said that more policy tightening was likely appropriate), Fed's (non-voter, seems open to a June pause), Fed’s Harker (voter, in April argued that the Fed was close to where it needed to be on rates), and Fed Vice Chair nominee Jefferson (voter, who recently said inflation remained too high, and that the impact from hikes is yet to be fully felt). The Fed will enter blackout at the end of this week ahead of the June 13-14th policy meeting.

TODAY’S AGENDA:

• An interactive calendar can be found here; a pdf version can be accessed here.


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  EU DATA/SPEAKERS: German flash inflation data is expected cool on a monthly basis, and the annual rates of inflation are expected to narrow too; hopes have been raised of a lower reading after Spain’s inflation data for the month surprised to the downside. The regional German metrics will be released in the morning, ahead of the aggregated national data in the afternoon. ECB President Lagarde (dovish) will speak at an awards ceremony for student, and there will not be a text release; ECB’s Visco will speak at the Bank of Italy’s annual meeting. The ECB will also publish its Financial Stability Review.


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  US DATA/SPEAKERS: From North America, JOLTs data for April is expected to cool ahead of the release of Friday’s May BLS jobs report; given the market holidays this week, the ADP labour market data will be released on Thursday rather than the usual Wednesday before the BLS release. Elsewhere, the Chicago PMI will be looked to ahead of the ISM report later in the week. Fed’s Bowman (Voter, Hawkish) and Collins (non-Voter, Dovish) will be at a ‘Fed Listens’ event; Fed’s Harker (2023 Voter, Neutral) will speak on monetary policy; Fed vice chair nominee Jefferson (Voter, Neutral) will speak on financial stability; all have spoken recently. The Fed enters blackout at the end of this week ahead of its June 13-14th policy meeting, and markets expectations are currently split between an unchanged outing and a +25bps hike.


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  ENERGY: The API will release its weekly gauge of energy inventories after the close; this week, the street expects headline crude stockpiles to draw by 1.2mln bbls, distillates are seen building 1.1mln, while gasoline inventories are forecast to draw 0.2mln


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  US CORPORATE EARNINGS: CRM and CRWD are the earnings highlights for Wednesday; our daily US earnings estimates note is here. On Thursday, DG, LULU and AVGO will report; weekly US earnings estimates can be found here.


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  RECAP - EUROPE INFLATION: Ahead of the national CPI and HICP data out in the European afternoon, initial data from German regions suggests a slowdown is on the cards. North Rhine-Westphalia CPI was -0.2% M/M in May (Prev. 0.5%), with the annual measure falling to 5.7% Y/Y from 6.8%, while the ex-food/energy reading eased to 5.0% Y/Y from 5.5%. Bunds have rallied in wake of the data, taking encouragement from both the lower German and Spanish prints on Tuesday, which augur well for the Eurozone-wide release on Thursday. The street expects German HICP to rise 0.2% M/M in May (prev. 0.6%), though the annual gauge is seen falling to 6.8% Y/Y in May from 7.6% previously. There was another boost to the fixed income complex after French flash inflation data, which was also softer than expected (HICP 6.0% Y/Y falling from 6.9%, and under the expected 6.4%). Other data showed German import prices -1.7% M/M, a deeper fall than the -0.5% expected decline; the annual measure fell to -7.0% Y/Y (exp. -5.9%) from a prior -3.8%.


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  RECAP - CHINA PMI: The official NBS Manufacturing PMI fell to 48.8 in May (exp. 49.4, prev. 49.2), the lowest since December 2022. The non-manufacturing PMI eased to 54.5 (exp. 55.3, prev. 56.4). That leaves the Composite PMI at 52.9 in May, down from the 54.4 in April. Capital Economics said that although there was a slight slowdown in May, the overall business activity level was still higher than the average of the past five years, indicating steady growth. It added that as the job market improves and wages increase, there is potential for consumer activity to improve in the coming months.


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  RECAP - AUSSIE CPI: Australia’s weighted CPI data for April showed 6.8% Y/Y, above the expected 6.4%, and rising from the prior 6.3%. In wake of the release, some analysts were revising up their RBA bets, with inflation set to exceed the central bank’s forecasts, some now expect the central bank to lift rates in June, and potentially in July too. Elsewhere, data also showed Housing Credit +0.3% in April (prev. 0.3%), while Private Sector Credit was +0.6% (prev. 0.3%). Westpac notes that credit growth has slowed considerably over the course of last year, associated with the RBA’s rapid-fire interest rate tightening. “This trend deceleration has carried into the first quarter of 2023 with monthly credit growth holding within a subdued range,” Westpac said, though added that “given the high likelihood of April’s monthly outcome for business being a one-off and the approaching weakness in activity, the broader outlook for credit growth remains subdued.”

EQUITY NEWS:

TECH:

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  HP Inc (HPQ) - Sales fell short of expectations as inflation-hit customers spent less on PCs, and slipped over 4% in extended trading. Q2 adj. EPS 0.80 (exp. 0.76), Q2 revenue USD 12.90bln (exp. 13.07bln). Sees Q3 adj. EPS between 0.81-0.91 (exp. 0.85). Sees FY adj. EPS between USD 3.30-3.50 (exp. 3.32), and FY FCF between USD 3.0bln-3.5bln (exp. 3.32bln). CEO said H2 would be significantly stronger than H1; said channel inventory reduction was nearly complete, consumer demand will be stronger in H2; AI will help drive PC business. CEO added that it was working on building AI-powered PC with key partners, CNBC reported.


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  Hewlett Packard Enterprise (HPE) - Sales were short of expectations as customers scaled down spending on tech, including cloud services, and shares fell almost 8% in afterhours trade. Q2 EPS 0.52 (exp. 0.48), Q2 revenue USD 6.97bln (exp. 7.31bln). Sees Q3 adj. EPS between USD 0.44-0.48 (exp. 0.46), and sees Q3 net revenue between USD 6.7bln-7.2bln (exp. 7.22bln). Raises FY adj. EPS outlook to USD 2.06-2.14 (exp. 2.07) from 2.02-2.10, and revises its FY revenue adj. for currency view to growth of between 4-6% growth (exp. 4.85%) from its prior view of 5-7%.


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  Amazon (AMZN) - Amazon Web Services launches Amazon Security Lake, a service that centralizes and analyses security data from various sources, helping customers streamline security management across hybrid and multicloud environments. It supports over 80 sources and enhances threat detection and response capabilities.


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  Ambarella (AMBA) - Q1 EPS -0.15 (exp. -0.21), Q1 revenue USD 62.14mln (exp. 62.01mln). Exec noted the successful partnership with Continental for their CV3 platform in an L4 commercial vehicle application, while also discussing its R&D investments in AI technology. Sees Q2 revenue between USD 60-64mln (exp. 67.2mln), sees Q2 gross margin between 62.5-64.5%.


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  Marvell (MRVL) - CEO told CNBC that cloud CapEx spending was shifting towards AI, adding that sales Marvell was getting from AI was big. CEO expects 100% revenue CAGR between FY23 and FY25. Said there were large opportunities on the custom computing side. Added that its backlog and revenue outlook had increased significantly over the last three months.


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  ServiceNow (NOW) - President and COO Chirantan Jitendra Desai sold 13,000 on May 25th for USD 538.155/shr for a total USD 6,996,015.


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  BOX (BOX) - Q1 adj. EPS 0.32 (exp. 0.27), Q1 revenue USD 251.9mln (exp. 249.25mln). Sees Q2 adj. EPS between 0.34-0.35 (exp. 0.33), and sees Q2 revenue between USD 260-262mln (exp. 260.3mln). Raises FY24 adj. EPS outlook to USD 1.44-1.50 (exp. 1.44) from 1.42-1.48, and lowers FY24 revenue outlook to between USD 1.045-1.055bln (exp. 1.1bln) from UDS 1.05-1.06bln.


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  Lantronix (LTRX), Semtech (SMTC) - Paul Pickle, CEO of Lantronix, steps down from his position to assume the role of CEO at Semtech.

COMMUNICATIONS:

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  Activision Blizzard (ATVI), Microsoft (MSFT) - Microsoft’s appeal against the UK CMA’s decision to block its USD 68.7bln acquisition of Activision Blizzard will be heard in the week of July 24th, The Verge reports. The appeal is part of Microsoft’s battle against regulators, including the US FTC, over concerns of dominating the cloud gaming market.


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  Twilio (TWLO) - Activist investor Legion Partners has met with Twilio's board, pushing for changes including board shakeup and divestitures, The Information reports. Expiring supervoting shares within 30 days could also raise further shareholder pressure on TWLO, the report said.


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  Pinterest (PINS) - Pinterest appoints Julia Brau Donnelly as CFO.


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  Bumble (BMBL) - President Tariq Shaukat is stepping down, and the dating app will conduct a search for his replacement, Bloomberg reports. Shaukat has been president at the Austin-based company since July 2020.

FINANCIALS:

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  Visa (V) - May US credit volume payments +5% Y/Y, and debit +6% Y/Y. Said growth for key international markets was relatively consistent in annual terms. Global processed transactions +9% Y/Y. Cross-border volume excluding intra-Europe transactions was 151% of 2019 levels.


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  Goldman Sachs (GS) - Goldman Sachs is considering job cuts as a prolonged decrease in dealmaking has hit profits at the investment bank, and is said to be focusing on senior positions, the FT reports. This follows previous cuts of 3,200 jobs in January, totalling 6.5% of their workforce.


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  Coinbase (COIN) - SEC settles with former Coinbase manager and brother over insider trading. They are permanently enjoined and must pay disgorgement of ill-gotten gains.


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  Wells Fargo (WFC) - SEC said a former Wells Fargo executive will settle fraud charges for misleading investors about sales practices to inflate performance metrics. The former head of Wells’ retail bank agreed to pay a USD 3mln penalty to settle charges.


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  United Community Banks (UCBI) - United Community Banks received regulatory approval to acquire First Miami Bancorp and its subsidiary. The merger, approved by both companies’ boards and FMIA shareholders, is expected to be completed on July 1st without further regulatory approvals.


• 
  Riot Platforms (RIOT) - CEO Jason Les sold 50K shares on May 25th for a total USD 514,500. CFO Colin Yee sold 50.3K shares on May 25th for a total USD 549,600.

INDUSTRIALS:

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  Boeing (BA) - Boeing increased the production rate of its 787 Dreamliner to 3-4 planes per month and plans to ramp up to five/month by year-end, Reuters reports. A second production line is to be added in South Carolina as it completes work this year on inventory 787s that are being modified at the site to meet FAA standards.


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  FedEx (FDX) - FedEx reaches tentative agreement with pilots after strike threat over higher pay, Reuters reports. No further details on the agreement were provided.


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  U-Haul (UHAL) - Q4 EPS 0.16 (vs 0.44 Y/Y), Q4 revenue USD 1.19bln (vs 1.20bln Y/Y). Said overall moving activity has returned to more historic trends. Self-storage not as hot as 24-months ago, but it is still building and filling new units.

MATERIALS:

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  Glencore (GLNCY), Teck Resources (TECK) - Glencore is close to increasing its offer for Teck Resources, hoping to end the battle over the Canadian miner’s future, Bloomberg reports. Glencore aims to pressure Teck into negotiations by raising its bid, which could be announced in the coming weeks. While there are obstacles, an increased offer would intensify pressure on Teck’s board and shareholders. Discussions between the two companies have been limited, with each pitching their visions to investors.


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  Eldorado Gold (EGO) - Entered into agreements for a CAD 81.5mln strategic investment by the European Bank for Reconstruction and Development; the investment will be used for the Skouries project in Greece. Additionally, it entered into an agreement with underwriters for a bought deal offering of CAD 135mln, with a potential increase to CAD 155mln if the over-allotment option is exercised; the proceeds will fund global growth initiatives and general corporate purposes.

ENERGY:

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  Occidental (OXY), Berkshire Hathaway (BRK.B) - Berkshire Hathaway acquires 4.66mln shares of Occidental Petroleum for USD 273mln. Transactions were made from 25/May to 30/May priced in a range of USD 58.30-58.85/shr. Berkshire now owns around 24.9% of Occidental; Barron’s said Buffett likes paying less than USD 60/shr for Occidental, and the newspaper estimates that Berkshire’s average cost is probably in the low to mid 50s. At its May AGM, Buffett said he is not seeking control of Occidental, but might continue to buy more stock; Barron’s adds that it is unclear just how high an ownership stake that Buffett is willing to take.


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  Icahn Enterprises (IEP) - Activist investor Carl Icahn said is said to be plotting his next move against Hindenburg Research at the right time because “revenge is best served cold,” according to FBN citing sources.

CONSUMER:

• 
  Tesla (TSLA) - CEO Elon Musk visits China’s commerce and industry ministries, meeting officials and discussing matters related to the automotive industry. Tesla and the ministries did not immediately reply to a request for comment on discussions with Musk, Reuters said.


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  Freshpet (FRPT) - Freshpet responds to Jana Partners’ claims, stating that the board acted in the best interest of shareholders and complied with company policies. Charles Norris’ retirement was part of an age-based policy, and David Biegger’s appointment followed Charter requirements. The company plans to vigorously defend itself against accusations.


• 
  Lowe’s Companies (LOW) - Vice President William Boltz sold 36,341 shares on May 25th at USD 203/shr for a total around USD 7.38mln.

HEALTH CARE:

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  Omnicell (OMCL) - Omnicell undergoes leadership changes, with new executives appointed and others stepping down, aiming for streamlined operations and improved customer experience.


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  Cano Health (CANO) - Former Cano board directors, holding a 35% equity stake, call for leadership change and urge stockholders to vote against re-election of two board members at the upcoming Annual Meeting.


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  Enzo Biochem (ENZ) - Unauthorized access to Enzo Biochem’s systems affected 2.47mln individuals. Names, test info, and Social Security numbers may have been accessed, with potential involvement of employee information. The company is in the process of evaluating the full scope of the costs and related impacts of this incident.

REAL ESTATE:

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  Equity Residential (EQR) - Equity Residential raises FY23 normalized FFO outlook to between USD 3.73-3.83 (exp. 3.70-3.80) from 3.70-3.80. The increase reflects continued strong demand across markets, particularly New York, and lower than previously anticipated delinquency in Southern California. It added that it was also benefiting from limited new apartment supply in most markets, and high prices and low availability of single family housing in these markets. Raises FY23 same store revenue growth outlook to between +5.5-6.25% (prev. saw +4.5-6%), and lifts FY23 NOI change to 6-7% (prev. saw 4.75-6.25%), while it sees FY23 physical occupancy at 96% (prev. saw 96.2%).


• 
  Howard Hughes (HHC) - Chairman Bill Ackman purchased 92,320 shares at USD 74.28/shr between May 25th and May 30th for a total around USD 6.86mln.


• 
  Ready Capital (RC) - Ready Capital’s stockholders approved the issuance of common stock in the merger with Broadmark Realty Capital. The merger is expected to close on May 31st.

31 May 2023 - 09:01- Research Sheet- Source: Newsquawk