US EARLY MORNING: US equity futures are lower ahead of key labour market data

SNAPSHOT: US equity futures are lower, the dollar index is flat, and yields along the Treasury curve are slightly higher in wake of FOMC meeting minutes released late Wednesday, which largely echoed the hawkish messaging of the December policy meeting and subsequent commentary from officials. There wasn’t anything particularly incremental learned from the minutes, with the Fed firmly in reactive mode contingent on incoming inflation data. The minutes leaned back on the dovish tilt of money market pricing, and emphasised that no officials were expecting rate cuts this year. There was nothing in the minutes to suggest that officials will be adjusting their policy focus onto slowing growth dynamics. Today’s focus will have a labour market feel, with the release of ADP’s monthly employment data and weekly claims data, ahead of Friday’s NFP release.

CORPORATE UPDATES: Corporate updates are taking a mixed tone ahead of the Q4 corporate reporting season. A Samsung executive warned on sluggish consumer demand, Amazon is ramping up layoffs, but Exxon expects better net income than the market was expecting despite lower crude and natgas prices in the quarter. BofA said global earnings expectations remain surprisingly resilient, and its Global Earnings Revision Ratio jumped in December from 0.59 to 0.82 on fewer downgrades. It said that the Ratio improved in all sixteen sectors and most regions. “Nevertheless, the Ratio remains low for the cyclical Risk style and tighter monetary policy could negatively impact corporate earnings in early-2023,” it added, “by itself, the higher Global Earnings Revision Ratio is positive for equities but earnings risks remain.”

CITI'S QUANT MODEL: Citi's update quant regime model notes that we are still in a challenging macro-environment, with high inflation, tighter financial conditions, and weak growth. "The model remains defensive, preferring bonds (US and Japan) to equities and IG credit vs its high yield and emerging market brethren, though JGBs may be meaningfully different this time around," the bank says. In the equities complex, the US bank says its model suggests overweigh positions for UK and Japanese equities. "With a recession the base case, continued high inflation is the key risk case to watch for the next year. Pre-1990s experience suggests higher risk-premia and less negative stock/bond correlation in a high inflation regime." The bank notes that trend-following strategies performed well over the last year, and the macro-environment means this performance is likely to continue.

FOMC MINUTES: Meeting minutes for the Fed’s December policy meeting largely echoed the hawkish messaging of the December policy meeting, warning markets that high inflation was still an issue, and the Committee was resolved to continue tightening until it had restored price stability. In line with recent commentary, participants welcomed the recent cooling of inflationary pressures, but wants to see substantially more evidence on this front. There was another warning to markets, with the Fed stating that any unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate its effort to restore price stability. The Committee will continue to make decisions on a meeting-by-meeting basis, which analysts say gives it policy flexibility regarding the size of hikes at upcoming meetings based on incoming data. Market expectations are currently tilted towards a 25bps rate rise in February. Crucially, no participants on the Committee anticipate rate cuts this year, contrary to market pricing, which looks for a rate cut towards the back-end of this year. Generally, there was nothing particularly new within the minutes; traders will continue to look to policymaker’s commentary to help shape expectations (Fed Chair Powell is due to speak at an event next Tuesday), though the tone of Fedspeak will be a function of incoming data on inflation, for now.

DAY AHEAD: European traders will be focussed on prelim Italian inflation metrics for December, to see if the trend of disinflation (as seen in France, Germany, Spain) continues ahead of Friday’s Eurozone-wide release. The US Day will have a labour market focus, with the release of ADP monthly jobs numbers, weekly initial jobless claims and continuing claims data; the former will help guide expectations for Friday’s nonfarm payrolls release, where 200k payroll additions are expected. The US will also release international trade data, where the trade deficit is likely to have narrowed again, but analysts still think net trade will detract from Q4 GDP growth. The EIA will also release weekly energy inventories; API data on Wednesday reportedly showed Crude +3.3mln (exp. +1.2mln), Cushing +0.7mln, Gasoline +1.2mln (exp. -0.5mln), Distillates -2.4mln (exp. -0.4mln), according to Citi. On the speakers front, Fed’s Bullard and Bostic will make remarks. Full Day Ahead schedule here.

TECH:

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  Samsung Electronics (SMSN, 005930 KS) - Consumer gadgets chief sees demand for tech gadgets remaining sluggish in 2023 on high inflation, rising interest rates and a strong US dollar, which will weigh on sales, WSJ reports. the exec is hopeful that the situation will improve in H2, and plans to overcome challenges by fortifying its integration of connected devices and related software, an area in which it has previously lagged behind rivals such as Apple, the Journal said. Separately, at the CES conference, Samsung announced a smart-home control device that doubles as a wireless charger, pushing deeper into a market led by Amazon, Bloomberg said.


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  Apple Inc. (AAPL), Hon Hai Precision Industry Co. (HNHPF) - Apple is expected to enlist a Chinese manufacturer to produce its premium iPhone models, breaking Foxconn’s hold on production after worker protests over COVID curbs erupted at its megafactory in Zhengzhou last year, FT reports. Apple will sign its first large order with Luxshare Precision, a competitor to Taiwanese rivals Foxconn and Pegatron, sources said. It had already been producing small amounts of the iPhone 14 Pro Max at its plant in Kunshan to compensate for lost production at Foxconn since November last year.


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  Foxconn (2317 TT) - December Sales -12.3% Y/Y at TWD 629bln. FY22 sales +10.5% Y/Y. Expects Q1 results will be roughly in line with market consensus. Said production and operation at its Zhengzhou campus in China had returned to normal in December. On consumer trends, said smart consumer electronics segment saw significant annualised growth despite the Q4 pandemic impact.


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  Advanced Micro Devices, Inc. (AMD) - The semiconductor manufacturer unveiled a suite of new Radeon GPUs to power high-performance, power-efficient gaming laptops.


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  Dell Technologies Inc. (DELL) - Dell aims to stop using chips made in China by 2024, has told suppliers to significantly reduce the amount of other "made in China" components in its products as part of efforts to diversify its supply chain amid concerns over Washington-Beijing tensions, Nikkei reports.

COMMUNICATIONS:

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  T-Mobile US, Inc. (TMUS) - Said Q4 postpaid net customer additions will come in around 1.8mln (exp. 1.77mln), and Q4 postpaid phone net customer additions around 927k (exp. 920k), on Q4 postpaid churn of 0.92%. Exec noted 2022 saw its highest ever postpaid account net adds, both postpaid customer net adds and its lowest-ever churn numbers. The telecoms services company will report Q4 numbers on January 31st.


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  Walt Disney Company (DIS) - 'Avatar' sequel has now grossed USD 1.48bln worldwide, expected to surpass Top Gun. Variety has previously suggested the movie cost USD 1.4bln to produce.

CONSUMER:

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  Amazon. com Inc. (AMZN) - Layoffs will impact more than 18k employees, WSJ reports, with cuts focused on its corporate staff exceeding earlier projections (of around 10k), and represent around 5% of its corporate workforce.


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  Macy's, Inc. (M) - The department store chain will shutter more stores in 2023 as part of its Polaris transformation strategy, which was first announced in 2020, Axios reports. Four Macy's locations at shopping malls are slated to close; a clearance sale will begin in January and run for approximately 8-12 weeks.


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  Inter Parfums, Inc. (IPAR) - Lifts FY22 EPS outlook to USD 3.60 (prev. 3.40, exp. 3.40), and lifts its FY22 revenue outlook to USD 1.08bln (prev. 1.025bln, exp. 1.03bln). For FY23, IPAR boosted its EPS outlook by 5c to USD 3.75 (exp. 3.70), and boosted its revenue outlook to USD 1.15bln (prev. 1.11bln, exp. 1.11bln).


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  Honda Motor Co. (HMC), Sony Group Corporation (SONY), QUALCOMM Incorporated (QCOM) - Sony and Honda unveiled a prototype of the new "Afeela" EVs the two will build together, Reuters reports, stating that it would harness its vast entertainment content as it looks to become a player in next-generation cars. Sony said that in order to realise intelligent mobility, continuous software updates and high-performance computing are required, and to that end, it will work closely with Qualcomm.


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  Next PLC (NXGPY) - In its trading update for the 9-weeks through end-Dec, it said Christmas sales were better than expected, with both online and retail exceeding expectations. Increased FY PBT guidance to GBP 860mln (prev. guided 840mln, exp. 835mln). Remains cautious in the outlook for the year ahead. Says it may have underestimated the negative effect that COVID was having on retail sales last year, and underestimated the impact of improved stock levels on both businesses. End-of-season sale progressing well, clearance rates ahead of expectations. It expects lower profits in 2023-2024 due to consumer uncertainty and cost inflation.

FINANCIALS:

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  Banking/Finance Names (BLK, C, HSBC, JPM) - Kentucky State Treasurer said the state does not want to do business with a number of financial firms that are pivoting away from fossil fuels, saying that ditching fossil fuels is harmful to its economy. Firms on its list included HSBC, Schroders and BlackRock, Citi and JPM, The Times reports.


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  Standard Chartered (SCBFY) - China unit said it had become the first foreign bank to trade treasury bond futures in the country which is deregulating capital markets, Reuters reports.

ENERGY:

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  Exxon Mobil Corporation (XOM) - Exxon said lower oil and natgas prices will weigh on Q4 earnings by around USD 3.7bln vs Q3. The losses were offset slightly by upstream mark-to-market derivative gains of around 1.5bln. Analysts said the update suggests net income will be around USD 15-1-15.7bln (the consensus was expecting around USD 13.7bln). Exxon is due to publish Q4 results on January 31st.


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  Occidental Petroleum Corporation (OXY) - Said Q4 output was impacted by a combined 10mln BOEPD due to North American winter storm Elliott. Normal operations have now resumed. In its update, OXY added that it had repaid more than USD 10.5bln of debt in 2022, and more than USD 1.1bln in Q4 alone; that has lowered the value of its outstanding debt to less than USD 18bln.

HEALTH CARE:

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  Johnson & Johnson (JNJ) - JNJ's consumer health unit Kenvue filed to be listed as an independent company, Reuters reports, bringing the healthcare conglomerate a step closer to completing the biggest shakeup in its 135-year history. Kenvue will list on NYSE under the ticker "KVUE".


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  Sanofi (SNY) - US FDA accepts nirsevimab application as first protective option against RSV disease for all infants.

MATERIALS:

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  Glencore (GLNCY) - Glencore faces fresh investor pressure over the climate impact of its coal mines, Bloomberg reports, with key shareholders to vote at May's AGM on a resolution urging the company to explain how its thermal coal business aligns with global climate targets.

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