US EARLY MORNING: US equity futures are lower; key global earnings in focus ahead of remarks due from Fed Chair Powell and Vice Chair Jefferson

US PREMARKETS: US equity futures are a little lower, Treasury yields are rising by 2-6bps, with the belly underperforming, while the Dollar Index is flat. Crude futures are lower. There hasn’t been any incremental update regarding the Israel-Hamas conflict, though it remains on traders’ minds amid continued further fiery rhetoric. Traders are also keeping an eye on global earnings; after the US close, earnings from global bellwethers Tesla (TSLA) and Netflix (NFLX) were mixed, with Tesla sliding over 4% after disappointing results, while Netflix surged on a better than expected Q3. Overnight, we have heard from the world's largest contract chipmaker TSMC (TSM), which trades a little negative after its Q3 update where profits fell around 25%, though were still better than the consensus had expected. In Europe, Swiss heavyweights Nestle (NESN SW) and Roche (ROG SW), which combined represent over a third of the Swiss index’ market cap, reported; consumer giant Nestle reported 9-month sales below expectations but expects volumes to turn higher by the end of the year, while pharma giant Roche’s sales were lower due to FX headwinds and lower COVID drug sales. In the tech sector, DAX heavyweight SAP (SAP GY) reported decent metrics after the US close, and is trading higher in early trade. But Scandi tech giant Nokia (NOK) is under pressure after profits drop, and it will cut 14k jobs. Today’s US earnings docket will also be noteworthy, with BX, T, PM, MMC, UNP, FCX, CSX and ISRG all scheduled to report. Traders will also be looking forward to Fed Chair Powell’s remarks, due from the Economic Club of New York, to see whether he too endorses the view put forward by some of his colleagues, like Vice Chair Jefferson, who have said that rising Treasury yields could steer the Fed away from further rate hikes.

TODAY’S AGENDA:

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


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  DAY AHEAD: The European morning is quiet for data releases, with only the current account data for August due. The North American day ahead is busy, with the release of weekly jobless claims data (seen little changed), the Philly Fed manufacturing report, which follows a better than expected Empire report, and existing home sales data for September. Canada will release PPI metrics for September, which are in focus after the lower than expected CPI data reported this week, ahead of next week’s BoC, where an unchanged outing is now the base case.


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  SPEAKERS: Today's Fedspeak docket is key, with remarks due from Chair Powell (speaking at the Economic Club of New York); traders will be looking to Powell to see if he endorses the view put forward by other officials, like Vice Chair Jefferson, who last week said that rising Treasury yields could steer the Fed away from further rate hikes (Jefferson is due to speak again today, before Powell). Fed's Vice Chair for Supervision Barr is also due to make remarks today. Elsewhere, 2023 voters Goolsbee, Harker, and Logan will give remarks, as will 2024 voter Bostic. Scandy watchers will note remarks are due today from the Riksbank’s Bunge and Bremen.


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  EARNINGS: Today's corporate earnings slate includes BX, T, PM, UNP; our Daily US Earnings Estimates note can be accessed here.

EQUITY NEWS:

COMMUNICATIONS:

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  Netflix (NFLX) - Surged over 12% afterhours following its Q3 earnings report where it exceeded profit expectations and added more subscribers than forecast. Q3 EPS 3.73 (exp. 3.49), Q3 revenue USD 8.54bln (exp. 8.54bln), Q3 streaming paid net additions 8.76mln (exp. +6.20mln). Repurchased USD 2.5bln of shares in Q3, and raised its buyback authorisation by 10bln. Said it is boosting some prices in the US, UK and France. Exec said it was "very optimistic" about long run ads opportunity, laying the foundation for what it believes should be a multi-billion dollar revenue stream over time. Sees Q4 EPS at USD 2.15 (exp. 2.17), Q4 revenue at USD 8.69bln (exp. 8.76bln), and sees Q4 net paid additions similar to Q3 levels (exp. 7.85mln). Now expects FY23 FCF of around USD 6.5bln, up from our prior forecast of at least USD 5bln.


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  Meta Platforms (META) - CEO said it is bringing broadcast channels to Facebook and Messenger, currently testing ability for pages to create broadcast channels; expects to roll it out in the coming weeks.


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  Social Media Stocks - Twitter owner Elon Musk is considering removing his social media platform from Europe due to new internet regulations, Reuters reports; the Digital Services Act aims to control harmful content and data sharing. It's unclear whether Twitter would be blocked in the EU or removed entirely.


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  Universal Music Group (UNVGY) - Filed a copyright infringement lawsuit against Anthropic, an AI firm; alleges it scraped UMG's songs without permission to produce near identical lyric copies.

TECH:

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  Taiwan Semiconductor Manufacturing Company (TSM) - The world's largest contract chipmaker reported Q3 net profit -24.9% at TWD 211bln (exp. 195.5bln), Q3 gross margin 54.3% (exp. 52.9%). Profits were lower due to demand hit for chips as well as coming off a high base last year, Reuters said. In Dollar terms, Q3 revenue -14.6% Y/Y at USD 17.3bln (company had previously forecast between USD 16.7-17.5bln), Q3 capex USD 7.1bln (vs 8.17bln in Q2). Sees some early signs of market stabilisation in PC and smart[hone markets, too early to call it a sharp rebound, but are very close to the bottom. Sees Q4 revenue between USD 18.8-19.6bln (vs 19.9bln Y/Y; exp. 18.3bln), sees Q4 gross margin between 51.5-53.5% (vs 54.3% in Q3; exp. 52.3%), and sees Q4 operating margin between 39.5-41.5% (vs 41.7% in Q3; exp. 39.6%). Sees FY23 CapEx at USD 32bln (prev. saw lower-end of a USD 32-36bln range).


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  Broadcom (AVGO), VMware (VMW) - Beijing weighs delaying approval of USD 69bln Broadcom-VMware deal, FT reports. Move would come in wake of tougher US controls on Chinese access to high-performance chips. The report says China regulators have not signed-off on the deal, and is likely to delay approving the transaction. Two sources said China’s merger and acquisition approvals for US companies now required additional consultations with the Ministry of Foreign Affairs and the State Council, FT reported.


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  AI Stocks, Microsoft (MSFT) - Microsoft-backed OpenAI, the company behind ChatGPT, is discussing the sale of employee shares with potential investors at an USD 86bln valuation, although the details are not finalised and may change, Bloomberg reports.


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  SAP (SAP) - Rose over 2% in extended US trading after Q3 results. as cloud revenue rose +16% helped by growth of its combined SaaS and PaaS portfolio, and its premium enterprise resource software platform S/4 HANA. Q3 adj. EBIT EUR 2.28bln (exp. 2.16bln), Q3 adj. EPS 1.45 (exp. 1.33), Q3 revenue EUR 7.74bln (exp. 7.78bln); Q3 non-IFRS cloud revenue EUR 3.47bln (exp. 3.57bln). Reaffirms 2023 outlook; Still sees FY non-IFRS operating profit between EUR 8.65-8.95bln, and still sees FY non-IFRS cloud revenue between EUR 14-14.2bln.


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  Lam Research (LRCX) - Slipped by almost 5% following the publication of its Q3 earnings report. Q3 EPS 6.85 (exp. 6.12), Q3 revenue USD 3.48bln (exp. 3.41bln). Sees Q4 adj. EPS between USD 6.25-7.75 (exp. 6.79), and sees Q4 revenue between USD 3.4-4.0bln (exp. 3.65bln). Sees 2023 WFE spending at around USD 80bln (previously saw around USD 75bln).


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  Nokia (NOK) - Q3 revenues EUR 4.98bln (exp. 5.67bln), EBIT EUR 241mln (exp. 546mln), EPS 0.05 (exp. 0.07). Long term targets remain unchanged, outlook maintained despite weak operator spending in Q3. To cut up to 14k jobs as part of the cost reduction; taking total employees to circa. 72-77k from the current 86k. 10-15% reduction in personnel expenses. Cost savings expected primarily in mobile networks, cloud, network services and corporate functions. Expects a more normal seasonal improvement in the network business in Q4. Targets a reduction of the cost base on a gross basis by between EUR 0.8-1.2bln by end-2026; at least 400mln of in-year savings in 2024 and 300mln in 2025.


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  Alphabet (GOOG) - Google is downsizing its news division, with around 40-45 job cuts, but still has hundreds working on news, CNBC reports.

CONSUMER:

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  Tesla (TSLA) - Slipped by 4% in afterhours trade after Q3 earnings report missed forecasts, and profits were down over 40% as it cut prices in the quarter. Q3 adj. EPS 0.66 (exp. 0.73), Q3 revenue USD 23.35bln (exp. 24.1bln). Said Cybertruck deliveries were scheduled to begin on November 30th; CEO said there will challenges in reaching volume production for Cybertruck and making it cash flow positive, adding that he wants to temper expectations for Cybertruck; said it would take 12-18 months for Cybertruck to be a cash flow contributor; has 1mln reservations already. Q3 gross margin 17.9% (exp. 18%), Q3 FCF USD 848mln (exp. 2.59bln). Said it implemented upgrades in Q3 to enable unit cost reduction. Continues to make progress on next generation platform. Still sees FY production 1.8mln vehicles (exp. 1.82mln). CEO said that energy was becoming the highest margin business. Elsewhere, he said that he was worried about high-interest rate environment.


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  Nestle (NSRGY) - 9-month sales CHF 68.8bln (exp. 69.6bln); N. America sales CHF 19.03bln (prev. 19.09bln), Europe sales CHF 14.14bln (prev. 13.96bln), China sales CHF 9.14bln (prev. 8.65bln). FY23 outlook confirmed. Said it has not seen any impact from weight loss drugs on sales. CEO said growth was driven by pricing as it continued to navigate historic inflation levels. Recovery of volume and mix is underway. Is seeing the benefits of optimisation initiatives. Is confident that growth and volumes will turn positive in H2 and again become the main driver of growth.


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  Las Vegas Sands (LVS) - Stock surged by over 4% afterhours, following the company authorising its first share buyback programme since 2020; comes after the company reinstated its dividend last quarter. BBG said it signalled management’s confidence in after years of pandemic-related hardship. Q3 adj. EPS 0.55 (exp. 0.55), Q3 revenue USD 2.80bln (exp. 2.73bln); authorised a USD 2bln stock repurchase.


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  Costco (COST) - CEO Craig Jelinek is stepping down. Chief Operating Officer Ron Vachris will replace him starting January 1st, following a planned transition.


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  Pernod Ricard (PRNDY) - Q1 revenue EUR 3.04bln (exp. 3.07bln). Notes strong price/mix effect of +7% Y/Y, notably benefiting from last year's price increases across brands and markets. Total organic revenue -2% (exp -2.5%). Organic revenue breakdown: Europe +1% Y/Y, Americas -9% Y/Y. Remains confident in FY23-25 targets.


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  Renault (RNLSY) - Q3 revenue EUR 10.5bln (exp. 10.8bln). Auto revenue +5% Y/Y at 9.4bln, group registrations +6.1% globally, +15.3% in Europe. Said Ampere IPO likely in H1 2024. Affirms FY operating margin between 7-8% and operating FCF at EUR 2.5bln.


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  Watch Makers - Swiss Watch Exports +3.8% (prev. +4.0%).


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  Ford Motors (F) - Ford is laying off another 150 workers in Michigan due to UAW strike, now bringing the total to 2,730.


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  Honda (HMC), General Motors (GM) - Honda entered into MOU with GM and Cruise to set up a JV company; plans to begin driverless ride service in early 2026.

MATERIALS:

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  Alcoa (AA) - The largest US aluminium producer reported Q3 EPS -1.14 (exp. -1.02), Q3 revenue USD 2.6bln (exp. 2.58bln). Q3 aluminium production 532,000 MT (exp. 532,750 MT), aluminium shipments 630,000 metric tons (exp. 641,250); Alumina production 2.81mln MT (exp. 3.10mln), Bauxite production 10.7mln DMT (exp. 10.9mln). Is to cut jobs at an Australian alumina refinery due to a surplus of raw material, and will incur a USD 6mln charge.


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  PPG (PPG) - Tops expectations and raises guidance. Q3 adj. EPS 2.07 (exp. 1.94), Q3 revenue USD 4.644bln (exp. 4.64bln). Said that while demand in Europe and China are at or nearing trough levels and will likely present growth opportunities in 2024, anticipates soft global macroeconomic conditions will persist in Q4. Sees Q4 adj. EPS between 1.44-1.50 (exp. 1.48), Q4 sales seen up/down low single-digits. Lifts FY23 adj. EPS view, now seen between 7.58-7.64 (exp. 7.49).


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  Steel Dynamics (STLD) - Reported a decline in Q3 profits due to higher manufacturing costs and lower steel prices. Q3 EPS 3.47 (exp. 3.42), Q3 revenue USD 4.59bln (exp. 4.49bln). CEO believes that increased demand for low-carbon US-made steel and reduced imports will support steel pricing in the future.

ENERGY:

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  Devon Energy (DVN), Marathon Oil (MRO) - Devon Energy mulls buying other companies to grow its presence in US shale, Boomberg reports. It has talked about joining forces with Marathon Oil (MRO), and they're also looking at CrownRock. No final decision has been made, BBG added.


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  Kinder Morgan (KMI) - Q3 EPS 0.24 (exp. 0.26), Q3 revenue USD 3.91bln (exp. 4.71bln).


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  Repsol (REPYY) - Said it will defend its legal rights in the contract dispute with US exporter Venture Global LNG.


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  Xcel Energy (XEL) - Received a USD 100mln award from the US DoE to enhance grid resilience against wildfires and extreme weather.

INDUSTRIALS:

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  Equifax (EFX) - Dropped 6% afterhours following lowering of its outlook. Q3 adj. EPS 1.76 (exp. 1.78), Q3 revenue USD 1.32bln (exp. 1.33bln). Sees Q4 adj. EPS between USD 1.72-1.82 (exp. 2.01), and sees Q4 revenue between USD 1.307-1.327bln (exp. 1.35bln). FY23 adj. EPS outlook lowered to 6.62-6.72 (prev. saw 6.98, exp. 6.91), and sees FY23 revenue between USD 5.246-5.266bln (exp. 5.3bln).


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  Rolls-Royce (RYCEY) - Announced a further expansion of its global services infrastructure for its business aviation customers in North America; opening a new global AOG support storage location on the US East Coast.

HEALTHCARE:

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  Roche (RHHBY) - Q3 revenue CHF 14.3bln (exp. 14.4bln). Excluding COVID-19 products, group sales +9%; Pharmaceuticals Division sales +9%, driven by continued high demand for newer medicines; Diagnostics Division’s base business +7%; overall divisional sales -18% due to a surge in demand for COVID-19 tests in 2022. Reaffirms FY23 revenue outlook, sees declines in the "low single digit range" due to a sharp decline in COVID products. Said appreciation of the CHF currency had a significant adverse impact on results in the quarter.


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  Pfizer (PFE) - Pfizer will charge about USD 1,400 for its COVID-19 drug Paxlovid when it's sold commercially, which is more than double what the US government paid (USD 529), WSJ reports. Health plans are likely to pay less, and many patients will have minimal or no out-of-pocket costs due to discounts and support from Pfizer, the report added.


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  Merck (MKKGY) - Affirms FY23 Revenue and EBITDA guidance, expects to return to growth in 2024. Separately, CEO said the Co's experimental multiple sclerosis drug can be a "blockbuster" (industry term for annual sales that exceed USD 1bln), despite concerns emerged that it may cause liver damage.

FINANCIALS:

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  Visa (V) - Board Chair Kelly is to retire; Lead Independent Director Lundgren to be named Chair, effective January 23rd.


• 
  Discover Financial (DFS) - Fell 2% afterhours following Q3 profit numbers which missed estimates due to higher bad loan provisions. Q3 EPS 2.59 (exp. 3.19), Q3 revenue USD 4.04bln (exp. 3.95bln), Q3 NII USD 3.32bln (exp. 3.27bln), Q3 net income USD 683mln (exp. 796.4mln). Total deposits USD 104.02bln (exp. 101.14bln), loans USD 122.7bln (exp. 121.6bln), net interest margin 11% (exp. 11.3%), provision for credit losses USD 1.70bln (exp. 1.33bln), net charge-offs USD 1.07bln (exp. 1.08bln).


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  London Stock Exchange Group (LNSTY) - Q3 revenue GBP 1.97bln (exp. 1.96bln), Total Income +8%, on track to deliver full year growth towards the upper end of the +6-8% guidance range. All 2023 guidance reiterated incl. EBITDA margin and capex.


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  Deutsche Boerse (DBOEY) - Q3 adj. EPS 2.16, Q3 revenue EUR 1.19bln (exp. 1.19bln). Raises FY revenue and EBITDA guidance.

REAL ESTATE:

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  Crown Castle (CCI) - Q3 AFFO/shr 1.77 (exp. 1.79), Q3 revenue USD 1.67bln (exp. 1.7bln). Expects the low-point of AFFO to occur in H1 2024, with growth expected in H2 and beyond. Reiterates FY23 AFFO outlook at 7.54 (exp. 7.53); sees FY24 AFFO at 6.91 (exp. 7.21).


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  SL Green Realty (SLG) - Q3 FFO/shr 1.27 (exp. 1.28), Q3 revenue USD 173.2mln (exp. 143.8mln), Q3 same-store cash net operating income +10.4% in Q3.

19 Oct 2023 - 09:30- Research Sheet- Source: Newsquawk