US EARLY MORNING: US equity futures are lower; thin slate today ahead of key events this week, including Biden-Xi meeting, potential US govt shutdown, US CPI, China activity data

• 
  US PRE-MARKETS: US equity futures are trading with losses in Monday’s pre-market; but with a thin docket for the day, attention is falling onto other key risk events this week, including a meeting between Presidents Biden and Xi, US CPI data for October, retail sales data, and a potential government shutdown at the end of this week. Moody's on Friday changed its outlook on US ratings to negative, though affirmed the US’ Aaa ratings. The CRA said that downside risks to the US' fiscal strength were increasing and may no longer be fully offset by America’s unique credit strengths. Moody's added that in the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, it expects that the US' fiscal deficits will remain very large, significantly weakening debt affordability. Continued political polarisation within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability. For today, the slate is thin, but includes the NY Fed’s survey of consumer expectations, which follows the University of Michigan’s prelim sentiment data for November, where consumer one-year inflation expectations ticked up for a second straight month, to a seven-month high (at 4.4%), while the 5-10yr gauge rose to the highest since March 2011 at 3.2% (from 3.0% in October). Last week, Fed Chair Powell warned that monetary policy must address any risks of a potential de-anchoring of inflation expectations, as well-anchored expectations help facilitate bringing inflation back to our target. Elsewhere on Monday, Treasuries have given up an overnight bid, and yields are higher by 1-2bps across the curve, with the long-end underperforming. The Dollar Index trades around flat. Crude futures are in the red, with reports attributing the losses to renewed concerns over waning demand in the US and China.


• 
  GS 2024 US OUTLOOK: Goldman Sachs notes that the US economy thrived in 2023, showing stronger GDP growth, while labor market rebalanced and inflation fell despite recession concerns. The bank says that with monetary and fiscal tightening receding, recession odds stand at a historically average 15% over the next year. GS says inflation challenges have largely been resolved, paving the way for a return to target, with the heaviest blows from monetary and fiscal tightening well behind us. "Core inflation has fallen sharply from its pandemic peak and should begin its final descent in 2024," GS writes, "we see further disinflation in the pipeline," while, "wage growth has fallen most of the way to its 3.5% sustainable pace, and surveys suggest it will get there next year," which sets the conditions for core PCE inflation to fall to around 2.4% by December 2024, GS predicts. It sees 2024 GDP to grow 1.8% in 2024 on a Q4 vs Q4 basis (or 2.1% on an FY basis), topping low consensus expectations. GS says it expects the Fed to deliver its first rate cut in Q4 2024 once core PCE inflation falls below 2.5%. It then looks for one 25bps cut per quarter until Q2 2026, when the fed funds rate would reach 3.5-3.75%, which it notes would be a higher equilibrium rate than last cycle. "While we do not have any major macroeconomic shocks in our 2024 forecast, we think the bar to cut in response to a growth scare will be low in coming years and would not be surprised by insurance cuts at some point. GS identifies two key risks ahead: 1) geopolitical conflict and the risk of a spike in oil prices, "while possible, we think this would more likely be a setback in the inflation fight than a gamechanger"; 2) The risk that something could 'break' in the abrupt transition to a higher interest rate regime. "Our analysis suggests that the risks are real but manageable, in part because the Fed would be at liberty to cut in response next year and will have plenty of room."


• 
  FED OUTLOOKS: Bloomberg notes a divergence in the Fed outlooks from US banks Morgan Stanley and Goldman Sachs. Morgan Stanley predicts deeper interest-rate cuts by the Fed over two years due to a weaker economy and slower growth; the bank foresees a more significant easing to sustainably lower rates. "High rates for longer cause a persistent drag, more than offsetting the fiscal impulse and bringing growth sustainably below potential from 3Q24," MS said, "we maintain our view that the Fed will achieve a soft landing, but weakening growth will keep recession fears alive." MS sees the Fed cutting rates in June 2024 by 25bps, then again in September (by 25bps), and then at every meeting from Q4 onward (in 25bps increments), BBG said. Meanwhile, Goldman Sachs anticipates fewer reductions, considering a higher equilibrium rate post-financial crisis and persistent budget deficits that might boost demand, leading to their less aggressive rate-cut forecast. GS sees the first 25bps rate cut in Q4 2024, followed by one cut per quarter through mid-2026 (total of 175bps of cuts), with rates settling between 3.5-3.75%. "Our forecast could be thought of as a compromise between Fed officials who see little reason to keep the funds rate high once the inflation problem is solved and those who see little reason to stimulate an already-strong economy," GS said.

TODAY’S AGENDA:

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


• 
  DAY AHEAD: A busy week begins on a quiet note. The NY Fed Survey of Consumer Expectations will garner some focus after the University of Michigan's gauge on Friday showed inflation expectations ticking higher in November; the data comes ahead of Tuesday's CPI report. Elsewhere, the US Federal Budget deficit is expected to pare back in October. On the speaker's docket, ECB VP de Guindos, Riksbank's Deputy Governor Bunge, BoE hawk Mann are due to give remarks. Today's earnings docket includes HSIC, TSEM, TSN, FSR; Daily US Earnings Expectations can be accessed here.


• 
  WEEK AHEAD: Highlights include Biden-Xi meeting; US CPI, retail sales, potential government shutdown; China activity data; our week ahead briefing can be accessed here. Key earnings due this week include HD on Tuesday; TGT, FI, TJX, PANW, CSCO on Wednesday; NTES, BABA, WMT, AMAT on Thursday; our weekly US earnings expectations can be accessed here.


• 
  PREVIEW - APEC SUMMIT: Asia-Pacific Economic Cooperation (APEC) 2023 is taking place between the 11th-17th November in San Francisco. The theme of the summit will be “Creating a Resilient and Sustainable Future for All.” From a market perspective, the highlight will be the Biden-Xi sidelines meeting pencilled in for November 15th, although no major breakthrough is expected. Full Newsquawk primer is here.

EQUITY NEWS:

FINANCIALS:

• 
  US Ratings - Moody's changes outlook on US ratings to negative, affirms Aaa ratings. The CRA said that the key driver of the outlook change was downside risks to the US' fiscal strength increasing, and may no longer be fully offset by the sovereign's unique credit strengths. Moody's added that in the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, it expects that the US' fiscal deficits will remain very large, significantly weakening debt affordability. Continued political polarisation within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.


• 
  Citigroup (C) - Positive mention in Barron's, the newspaper says Citi’s stock is in the doghouse, but it could break out, noting that the stock is very cheap, and management is executing a turnaround plan.

HEALTHCARE:

• 
  Novo Nordisk (NVO) - Novo Nordisk released data over the weekend noting its drug Wegovy reduced overall death risk by 18%, showing promise in cutting heart attack risks, FT reports. Full data was presented, aiming to convince insurers. Results also suggest benefits for kidney disease. The drug faces competition from Eli Lilly's (LLY) Zepbound and AstraZeneca's (AZN) pill.


• 
  Bayer (BAYRY) - New asundexian Phase III study to include patients with atrial fibrillation ineligible for oral anticoagulant treatment.

INDUSTRIALS:

• 
  Boeing (BA), Southwest Airlines (LUV) - Southwest Airlines plans to fly Boeing's 737 MAX 7 by late 2024, Reuters reports, expecting FAA certification by April. As the largest customer, Southwest ordered 108 more MAX 7 planes for deliveries till 2031.


• 
  Boeing (BA) - Boeing might secure a deal for its 737 Max in China during Biden and Xi's meeting, signaling a thaw in US-China relations, Bloomberg said. the potential agreement could end a sales freeze in China since 2018 due to tensions and the grounding of the 737 Max after crashes. New Saudi airline Riyadh Air is close to ordering 100 Boeing 737 Max jets, potentially 50 firm orders with options for more, expanding its fleet for short-haul routes, Bloomberg reports. Meanwhile, Emirates is close to a significant order for Boeing's 777X planes, potentially buying a large number. There might also be an arrangement for FlyDubai to take some smaller 787 Dreamliner orders. Elsewhere, Boeing said that over the next 20 years, Boeing expects Middle East airlines to rely heavily on widebody planes for increased air travel and cargo demand due to the region's growth as an international air hub.


• 
  Airbus (EADSY), Rolls-Royce (RYCEY) - Turkish Airlines is in talks with Airbus, and is reportedly discussing an order for its biggest order yet with 345 planes including A350s and A321 NEOs, Bloomberg reports. Talks also include Rolls-Royce for jet engine maintenance.


• 
  Airlines - Airlines are flooding the market with a record 260mln seats this quarter, resulting in heavy discounts to fill planes during off-peak hours, CNBC reports. Leisure travellers returning to usual booking patterns leave airlines seeking ways to occupy flights outside popular travel times, with last-minute fares dropping and a surplus of available seats challenging revenue balance.


• 
  Mercury Systems (MRCY) - Positive mention in Barron's; the newspaper said although Mercury's stock has taken a turn for the worse, better days are ahead.

ENERGY:

• 
  LNG - BP (BP), Edison (EIX), and Shell (SHEL) asked a US-EU energy group to intervene in a dispute with Venture Global LNG over unmet fuel supply contracts. The companies accuse Venture Global of prioritising a new plant over fixing issues with the first, shaking confidence in American LNG suppliers, Reuters said.


• 
  Exxon Mobil (XOM), TETRA Technologies (TTI) - Exxon will Monday reveal its lithium strategy, Reuters reports, aiming to produce electric vehicle battery metal in Arkansas by 2026 with partner Tetra Technologies. They plan to make 10,000 tons of lithium yearly, enough for 100,000 EV batteries.


• 
  TotalEnergies (TTE) - TotalEnergies is close to buying TexGen Power's 2.3-gigawatt gas-fired plants in Texas, aiming to expand in the US market, Bloomberg reports. The deal, worth hundreds of millions, could serve around half a million homes.

MATERIALS:

• 
  Livent Corporation (LTHM), Allkem (OROCF) - US lithium major Livent will begin meeting Allkem investors from Monday ahead of a vote next month to approve a USD 10.6bln merger that would form the world's third-largest producer amid weakening demand and prices for lithium, Reuters reports. Livent CEO would take the top job at the newly created Arcadium Lithium if Allkem shareholders vote for the deal on December 19th.


• 
  Salzgitter (SZGPY) - 9-month pretax EUR 254.3mln (prev. 1.15bln Y/Y), Revenue EUR 8.4bln (prev. 9.4bln Y/Y).

UTILITIES:

• 
  American Electric Power (AEP) - American Electric announced a 5yr, USD 43bln capital investment plan. Reiterates FY23 EPS outlook between 5.24-5.34 (exp. 5.26), and sees FY24 EPS between 5.53-5.73 (exp. 5.58).


• 
  Clean-Energy Stocks, AES (AES), NextEra (NEE) - Barron's writes that the prices stocks related to wind, solar and other forms of renewable energy have fallen by a third this year, and only a handful may be ready to rebound - AES (AES) and NextEra (NEE) may be among them.

CONSUMER:

• 
  Alibaba (BABA), JD.com (JD) - During China's Singles' Day, Alibaba and JD.com saw sales rise but may have been overshadowed by newer social platforms like Douyin, Bloomberg reports. Overall e-commerce likely dipped by about 1%, while streaming platforms surged 19%. Analysts anticipate more insight on China's recovery from Alibaba and JD.com's upcoming earnings reports this week.


• 
  Tesla (TSLA) - India mulls tariff cuts for imported electric vehicles, in response to Tesla's request as it eyes setting up a plant in the country, FT reports. The concessions could offset steep customs duties, potentially benefiting all EV makers. the move aligns with India's interest in fostering an EV-friendly environment, although the market is currently early-stage and competitive pricing remains crucial for success.


• 
  Ford Motors (F) - UAW workers at Ford's Louisville and Kentucky sites voted against a proposed four-and-a-half year contract, while the skilled trades workers voted in favour of the deal, Reuters reports.


• 
  Volkswagen (VWAGY) - VW is to reduce administrative personnel costs by a fifth and targets VW brand Op. margin at least 6.5% by 2026.


• 
  BMW (BMWYY) - The automaker is seeking clarification at its Moroccan cobalt mine in response to a report which alleges serious violations of environmental and labour protection regulations at mines within Morocco.


• 
  Continental AG (CTTAY) - Continental might cut 5,500 jobs soon (around 3% of its global staff), Bloomberg reports. Around 1,000 jobs in Germany, mainly in offices, might go. The report said that production and development jobs were safe for now.


• 
  Starbucks (SBUX) - The NLRB rejected a Starbucks worker's request to dissolve a union at a Buffalo store, Reuters reports. The board ruled an election isn't suitable due to ongoing unfair labour practice cases involving the store, despite the worker's claim against the NLRB's constitutionality.


• 
  Pandora (PANDY) - CEO is increasingly optimistic in the run-up to the Christmas, noting strong momentum despite the broader trend of sales slowdowns among luxury firms, FT reports.

TECH:

• 
  Nvidia (NVDA) - Nvidia is working on a new lineup of AI chips customised for China as the semiconductor giant tries to maintain access to a huge market while adjusting to shifting US regulations, WSJ reported on Friday, adding that After US restrictions cut off chips that Nvidia had previously developed for the market, it told distributors in China last week that three new chips could become available as soon as the end of this year.


• 
  Alphabet (GOOG) - Google is considering a major investment in AI chatbot startup Character.AI, Reuters reports. The investment could run into hundreds of millions. Character.AI is led by former Google staff.


• 
  Mobileye (MBLY) - Positive mention in Barron's; the newspaper said Mobileye is a rare IPO winner, and its new systems will boost its revenue from each auto unit.

13 Nov 2023 - 09:30- Data- Source: Newsquawk