US EARLY MORNING: US equity futures are lower, amid a downbeat risk mood; more key corporate earnings reports ahead

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  OVERNIGHT: Asia-Pac stocks were lacklustre in the absence of any major positive macro drivers and following the flat handover from Wall Street; some said the caution was being driven by uncertain US monetary policy was outweighing optimism around China’s rebound. China mainland was cautious ahead of US Treasury Secretary Yellen’s major speech on US-China economic ties on Thursday, where she will outline US economic priorities on China (see here). European equities opened slightly lower. Earnings continue to come in thick and fast, with Dutch chipmaker ASML (ASML NA) topping expectations and giving encouraging commentary on demand, though slipped on the open, with analysts attributing lower Q1 order intake. UK assets were in focus after hotter than expected CPI cements the case for a 25bps BoE rate hike in May, with some suggesting there could be further hikes ahead - see Day Ahead section for our data review. (Our European equity opening note can be accessed here).


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  US PRE-MARKETS: US equity futures are in the red, and Treasury yields are higher, while the Dollar Index is rising. Money market pricing of the Fed rate trajectory has moved hawkishly this week; a 25bps rate rise at the May 3rd FOMC is now priced with around 90% certainty, while rate cut bets for the rest of 2023 have been pared back, with around 20bps of cuts priced through the end of this year now – there were around 40-50bps of cuts priced in last week. The Big Banks and the regional banks that have reported so far have put in a mixed performance, but one of the takeaways is that the issues in the financial sector seen in March have not spread just yet. Still, issues remain for banks: regional banks will barely grow their customer deposits amid turmoil that engulfed the sector, Bloomberg reports, while for the larger banks, analysts are focussed on potential issues with their own commercial real estate holdings, which may present issues further down the line. Goldman Sachs on Tuesday reported an increase in operating expenses, due in part to impairments related to its consolidated real estate investments. Analysts at Capital Economics this week said they retained a downbeat view on the outlook for the banking sector, and are wary of banks' exposure to the CRE, which was already struggling in a post-pandemic world of higher interest rates, increased online shopping and remote working. And this is a situation that tighter credit conditions could exacerbate, given that US banks underwrite around 58% of commercial mortgages, and 32% of multi-family residential mortgages. "Though the damage to banks from souring CRE exposures won’t materialise overnight in the way that crystallised losses on hold-to-maturity securities did for Silicon Valley Bank, they could begin to suffer from falling asset values over the coming months if CRE borrowers run into difficulty when trying to roll over their debts," CapEco warns. Meanwhile, as the Fed and others continue their course of monetary tightening, Citi has warned that equities and other risk assets will likely take a hit as central banks withdraw as much as USD 600-800bln of stimulus in the coming weeks. "With peak liquidity past, we would not be at all surprised if markets were now to experience a sudden pressure loss," Citi said.

DAY AHEAD:

• Our full interactive calendar can be accessed here; a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: Final Eurozone inflation metrics for March is likely to see the monthly measure revised up to 0.9% M/M from an initially reported 0.8% M/M, while the annual measure is expected to be confirmed at 6.9% Y/Y. Eurozone-focussed traders will also be looking to remarks from ECB chief economist Lane and ECB’s market’s chief Schnabel for any clues on whether the central bank will lift rates by 25bps or 50bps at the May 4th confab. Elsewhere, current account and construction output data for February are due. From the UK, BoE hawk Mann will be speaking at the Brandeis International Business School on Climate and Monetary Policy – her comments are due after the European market close. ECB's Knot and de Cos will also give speeches today, and from Swizterland, the SNB's Maechler and Schlegel are on the slate too. On the supply front, Germany will auction EUR 4bln of 2033 Bunds, and the UK will sell GBP 3.75bln 2027 Gilts.


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  NORTH AMERICAN DATA/SPEAKERS: The US data slate is, once again, quite thin. Weekly MBA mortgage applications data and the Fed’s Beige book will be released. Fed’s Goolsbee (voter) will give remarks; recently, he has been making the case that a mild recession remains a possibility. NY Fed President Williams (voter) will speak after the market close to money marketers. From Canada, RMPI and PPI metrics for March will be released; the CPI data released Tuesday showed a cooling of inflation pressures. The US will auction USD 12bln of 20yr bonds.


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  US CORPORATE EARNINGS: Earnings reports are due from ELV, ABT, MS, TSLA, IBM; our full earnings estimates are available here. Other notable companies reporting this week include BX, TSM, T, PM, AXP, UNP on Thursday; PG on Friday; our full Weekly US Earnings Estimates can be accessed here.


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  ENERGY: The API's weekly inventory data reportedly showed headline Crude stocks drawing by -2.7mln bbls in the week (exp. -1.1mln), while stocks at the Cushing delivery hub drew down by 0.6mln; gasoline inventories were -1mln (exp. -1.3mln), and distillate stocks were -1.9mln (exp. -0.9mln). The more widely followed DoE data will be released on Wednesday.

EQUITY NEWS:

FINANCIALS:

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  US Regional Banks - Regional banks reporting Q1 earnings over the coming weeks will barely grow their customer deposits amid turmoil that engulfed the sector, according to data compiled by Bloomberg. The piece notes that the 60 regional banks still due to report are expected to add about USD 73bln in net deposits Y/Y; over the previous twelve quarters, these lenders have managed average inflows of around USD 426bln. Fewer than half of the 60 firms are expected to show inflows for the period.


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  First Horizon Corporation (FHN) - The regional bank rose in afterhours trading after it reported Q1 adj. EPS of 0.45 (exp. 0.47), Q1 revenue USD 859mln (exp. 880mln), Q1 NIM 3.87% (exp. 3.88%), Q1 efficiency ratio 55.7% (exp. 51.1%), Q1 CET1 ratio 10.4% (exp. 10.4%). NII -3% Q/Q to USD 688mln with higher loan rates and loan balances offset by higher funding costs. Reported that average deposits of USD 62.2bln decreased by USD 2.7bln in the quarter, while total deposit costs were 111bps (+42bps).


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  Western Alliance Bancorp (WAL) - The regional bank reported that deposits stabilised in Q1, and profits topped expectations, and shares surged in afterhours trading. Q1 EPS 2.30 (exp. 1.92), Q1 revenue USD 551.9mln (exp. 685.55mln); Q1 net interest margin 3.79% (exp. 3.7%), Q1 net interest income USD 609.9mln (exp. 592.8mln), Q1 provision for credit losses 19.4mln (exp. 29.6mln), Q1 non-interest expenses USD 347.9mln (exp. 335.7mln), Q1 net charge-offs USD 6.0mln, (exp. 8.27mln); said that says QTD, deposits were USD 2bln through April.


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  Interactive Brokers (IBKR) - Slipped in afterhours trade following Q1 earnings, where profits and sales missed expectations. Q1 adj. EPS 1.35 (exp. 1.41), Q1 revenue USD 1.056bln (exp. 1.08bln).


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  Allianz SE (ALIZY) - The insurer is reportedly looking to sell its 5% stake in N26 at a marked discount, FT reports. Would value it at USD 3bln vs the USD 9bln valuation at an October 2021 funding round.


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  Deutsche Bank (DB) - Deutsche Bank's Deputy CEO Karl von Rohr will not renew his contract as a board member, but will remain on the DWS board. Deutsche Bank will be providing an update concerning Rohr's succession in the near future, according to a statement.


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  Credit Agricole (CRARY), Worldline SA (WRDLY) - Credit Agricole and Worldline enter into exclusive discussions to create a major player in merchant services in France.

TECH:

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  ASML Holding NV (ASML) - Dutch Chipmaker ASML sales and margins topped expectations, and said demand remained strong, though shares slipped after the European open with analysts citing Q1 order intake declining. Q1 EPS 4.96 (exp. 4.13), Q1 revenue EUR 6.75bln (exp. 6.3bln), Q1 net income EUR 1.95bln (exp. 1.64bln), Q1 gross profit EUR 3.4bln, Q1 gross margin 50.6%. Total 2022 dividend of 5.80/shr (exp. 6.60/shr). Exec said total demand still exceeded capacity for the year; it currently has a backlog of over EUR 38.9bln. Sees Q2 net sales between EUR 6.5b-7.0bln (exp. 6.42bln), and sees Q2 gross margin between 50-51%.


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  Alphabet Inc. (GOOG) - Google will launch its first foldable phone named the 'Pixel Fold' in June, priced upwards of USD 1,700, according to CNBC. The new device will compete with Samsung’s phones, and will have "the most durable hinge on a foldable" phone, and will offer a phone trade-in option, CNBC added.


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  CDW Corporation (CDW) - Sees prelim Q1 revenue at around USD 5.1bln (exp. USD 5.56bln), cites intensifying economic uncertainty that led customers to spend more cautiously and prioritise mission critical initiatives. Sees 2023 adj. EPS on diluted basis to be modestly below FY22 levels.


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  Samsung Electronics (SSNLF) - Samsung is among the companies that have submitted Statements of Intent to the US Commerce Department in applying for chip subsidies, according to Dong-A Ilbo.

COMMUNICATIONS:

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  Netflix Inc (NFLX) - Top- and bottom-lines were broadly in line with expectations, although net subscriber additions were short in the quarter, and guidance for the next quarter was soft relative to analyst expectations; some analysts suggested that the soft subscriber guidance was a result of pushing back the launch of its paid-sharing service into Q2. Q1 EPS 2.88 (exp. 2.86), Q1 revenue USD 8.16bln (exp. 8.18bln), Q1 net subscriber additions 1.75mln (exp. 2.062mln). Will stage a rollout of its paid-sharing plan in Q2, pushing back the start date from its originally planned Q1 launch. Netflix is launching a programmatic private marketplace to enable more buying options for Netflix ad inventory using Microsoft's sales platform. Sees Q2 EPS USD 2.84 (exp. 3.05), and Q2 revenue of USD 8.24bln (exp. 8.48bln). Said Q2 paid net adds will be similar to Q1 2023. Now sees FY FCF of at least USD 3.5bln (exp. 3.41bln) having previously estimated at least USD 3bln. Said it was on track to meet FY 2023 financial objectives. Still expects FY24 cash content spend to be in the range of roughly USD 17bln, which is consistent with prior expectations for the 2022-2024 period.


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  Meta Platforms, Inc. (META) - Meta will conduct another mass round of layoffs on Wednesday, Vox reported. The layoffs will impact a wide range of technical teams including those working on Facebook, Instagram, Reality Labs, WhatsApp. The cuts could be in the range of 4,000 jobs, one source said.


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  Fox Corporation (FOXA) - Fox News has settles defamation lawsuit from the voting machine company Dominion over its reporting of the 2020 presidential election, BBC reports. In a last-minute settlement before trial, the network agreed to pay USD 787.5mln, or around half of the USD 1.6bln initially sought by Dominion. Dominion had argued its business was harmed by Fox spreading false claims the vote had been rigged against Donald Trump.


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  Omnicom Group Inc. (OMC) - Q1 EPS USD 1.56 (exp. 1.39), Q1 revenue USD 3.44bln (exp. 3.38bln). Said it took operational steps this quarter, has further plans in place to mitigate the impact of potential macro headwinds on profitability.


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  Telecom Italia (TIIAY), KKR & Co. (KKR) - KKR has reportedly bid EUR 21bln for Telecom Italia's grid, Reuters reports. CDP-Macquarie reportedly offered EUR 19.3bln. Telecom Italia confirmed it received two offers, though provided no further details.

HEALTHCARE:

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  Intuitive Surgical Inc (ISRG) - Q1 adj. EPS 1.23 (exp. 1.20), Q1 revenue USD 1.70bln (exp. 1.59bln); Q1 Instruments and accessories sales USD 985.6mln (exp. 913.2mln), Q1 Systems sales USD 427.4mln (exp. 405.9mln), Q1 Services sales USD 283.2mln (exp. 273.4mln). Reported worldwide procedure growth of +26% (exp. +15%). Lifts FY23 procedure growth outlook to +18-21% from +12-16%, sees FY23 gross profit margin between 68-69%, and sees FY23 operating expense growth of +11-15%.

CONSUMER:

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  Lululemon Athletica Inc. (LULU) - Lululemon is looking to sell its at-home fitness business 'Mirror' and has approached competitor Hydrow as a potential buyer, CNBC reports. LULU acquired the connected fitness company for USD 500mln at the height of the at-home fitness craze in 2020, but the segment has been weighing on its balance sheet. CNBC said it was not clear whether Hydrow is interested in moving forward with a deal.


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  Tesla (TSLA) - Cuts prices of Model 3 RWD by 7% to USD 39,990, cuts price of Model Y Long-Range AWD by 9.1% to USD 49,990, cuts price of Model Y Performance by 8.5% to USD 53,990.


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  European Autos - European Car Sales rose +26% in March to 1.42mln units, according to ACEA. Sales rise to the most in almost two years as supply recovers, Bloomberg said.


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  Heineken NV (HEINY) - Q1 beer sales were weaker than expected, falling 3.0% (exp. -1.0%). Q1 revenue EUR 7.632bln (prev. 6.989bln). Exec said it continues to experience the effects of a volatile global economy, remains cautious about the impact on consumer demand.

INDUSTRIALS:

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  United Airlines (UAL) - Reports Q1 adj. EPS -0.63 (exp. -0.73), Q1 revenue USD 11.43bln (exp. 11.42bln). Q1 capacity +23.4% Y/Y, Q1 TRASM +22.5% Y/Y, Q1 CASM +4.0% Y/Y. Exec said it was seeing strong international demand in Q2, international expansion twice the rate of domestic. Cost trajectory was on track for FY flat CASM-ex target. Sees Q2 adj. EPS between USD 3.50-4.00 (exp. 3.65). Reiterates FY23 adj. EPS outlook of between USD 10.00-12.00 (exp. 8.73).

MATERIALS: 

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  Glencore (GLNCY), Teck Resources (TECK) - Teck Resources Tuesday said Glencore's proposal was "not realisic"; Glencore said it was willing to consider improvements to the proposal, and is willing to make an offer directly to Teck shareholders. Separately, Glencore is reportedly facing increasing pressure from institutional investors to clarify how it will manage its climate change commitments, Reuters reports.


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  Antofagasta PLC (ANFGF) - Antofagasta said production and cost performance in Q1 was as expected: copper production at 145.9k tonnes (+5.1% Y/Y, -25.4% vs Q4), net cash costs at USD 1.54/lb; production was affected by reduced water availability at Los Pelambres and lower grades at Centinela, adding that with the completion of the desalination plant and the concentrator plant expansion at Los Pelambres, production will increase during the year to meet production and cash cost guidance of 670-710k tonnes of copper at USD 1.65/lb. Gold production 42.2k ounces (+9.9% Y/Y, -24.8% vs Q4), mainly due the scheduled maintenance and expected lower grades at Centinela. Exec added that controlling costs in this inflationary environment and mitigating the impact of a stronger Chilean peso continue to be a key focus. More broadly, the copper market has been strong throughout the quarter, exec said, and it expects this to continue as structural supply and demand dynamics support a tight physical market.

19 Apr 2023 - 09:30- Fixed IncomeData- Source: Newsquawk