US EARLY MORNING: US equity futures are rallying in sympathy with European counterparts; ISM, JOLTS, FOMC minutes later today will provide insight on growth, inflation and labour market

SNAPSHOT: US equity futures are trading higher, supported by peers in Europe, where lower-than-expected French and German inflation data (released today and yesterday respectively) are fuelling arguments that inflation has peaked, which will allow monetary authorities in the region to be less hawkish in the months ahead. Treasuries are also rallying solidly, with yields narrowing by 7-11bps across the curve (belly outperforms). The lower yields offer no support for the Dollar Index, which is falling towards 104.00 again, while constructive risk sentiment provides a boost to cyclical FX (the AUD leads amid reports that China is discussing easing the ban on Australian coal imports). Crude futures are lower (which many frame as a positive for the prospects of global inflation cooling); analysts expect data from the API after hours today and from the DoE on Thursday will show crude stockpiles building by 2.2mln barrels in the week, while distillates are expected to draw down 1.8mln and gasoline is seen drawing 1.5mln.

DAY AHEAD: Today’s economic releases will provide crucial insight on the inflation, growth and labour market fronts, with the release of the December ISM Manufacturing survey (headline expected to slip by half-a-point to 48.5), November JOLTS data (job openings are seen easing to 10mln from 10.3mln), and the FOMC’s December meeting minutes (where officials looked through some nascent signs of progress in tackling rampant inflation in favour of a hawkish showing - our full preview is here). We preview these events below. Traders are becoming more comfortable with the ‘peak inflation’ narrative, and are increasingly fretting about fragile growth dynamics; this week, the IMF warned that much of the world will fall into recession this year. Many expect that the Fed will eventually begin to express concern on the growth front, although this will likely not be seen until inflation has more meaningfully fallen back towards target, and the base case is still for today’s minutes to echo its hawkish messaging. That said, money markets are pricing a pivot later this year, with the central bank expected to start cutting rates at the back end of 2023, so any data that is supportive of this theme could help boost those expectations. Elsewhere, after hours, the API will release weekly inventory estimates. The full schedule for the Day Ahead can be accessed here.

PREVIEW - ISM MANUFACTURING (15:00GMT/10:00EST): The headline is expected to decline to 48.5 in December from 49.0. The prices component is seen easing to 42.6 from 43.0. On Tuesday, S&P Global's final manufacturing PMI data for December showed a fall to 46.2 from 47.7 in November, with output and new orders contracting at sharper rates. The report also noted that muted demand conditions also led to downward adjustments of stock holdings, as excess inventories built earlier in the year were depleted in lieu of further spending on inputs. On the labour market front, manufacturing job creation was only slight, S&P said, and largely linked to skilled hires, as firms displayed caution. It also said that sinking demand for inputs and greater availability of materials at suppliers led to a further easing of inflationary pressures.

PREVIEW - JOLTS (15:00GMT/10:00EST): Job openings are expected to cool to 10mln in November from 10.33mln in October, although it is worth noting that the official November jobs report surprised to the upside. Analysts will be carefully watching the quits rate for signs about how tight the labour market is (this rate fell to 2.6% in October from 2.7% - an increasing quits rate speaks to the confidence consumers have in seeking alternative employment, and conversely, a falling quits rate could signal some consumer caution in switching jobs) and wages measures. Pantheon Macroeconomics says that the JOLTS data series appears to be overstating the upward pressure on wages; business surveys are more sanguine. "On the face of it, the near-record number of job openings appears to suggest the labour market is tight enough to generate rampant wage inflation, but that’s not reflected in either the official wage data or private-sector survey measures," it writes, "the reason for this disconnect is not clear, but part of the explanation might be that firms are not actively recruiting for all the purportedly open positions." Regarding the tightness of the labour market, Fed Chair Powell has often cited the job-openings-to-unemployment ratio; Pantheon thinks that this metric will continue to signal labour market tightness for some time yet.

PREVIEW - FOMC MINUTES (19:00GMT/14:00EST): The minutes will be eyed for commentary on the terminal rate with the latest dot plot projections pencilling in a peak at 5.1% (FFR of 5.00-5.25%) from the current 4.25-4.50%, implying rate hikes will continue (via either three 25bps rises or another 50bp and a final 25bp hike). The minutes will also be gauged to see if there is an appetite to slow the pace of hikes to a 25bps increment in February, which will help determine the tightening pace to the peak rate. Any language within the minutes that suggests how long rates are held at the peak will also be key, although it will likely reiterate a data-dependent approach, but Fed’s Daly had suggested 11 months is a reasonable time frame and that everyone on the Fed sees rates at terminal throughout 2023; historically, it has remained at terminal for between 3-15 months, and on average 6.5 months. There will also be attention on any commentary that expresses concerns about growth conditions, which many would take as a sign that the central bank is paving the way for a downshift and pivot later in the year.

CONSUMER CYCLICAL:

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  Amazon.com, Inc. (AMZN) - Struck an agreement with certain lenders to provide an USD 8bln unsecured loan, Reuters reports; the term loan will mature in 364 days with an option to extend for an additional 364 days. Proceeds would be used for general corporate purposes. Reuters added that Amazon had about USD 35bln in cash, and long-term debt of about USD 59bln at the end of Q3.


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  Rivian Automotive, Inc. (RIVN) - Q4 vehicle production 10,020 units, Q4 vehicle deliveries 8,054. Rivian's 2022 vehicle production 24,337 (missing its annual target of 25k, despite ramping production late in the year), while 2022 vehicle deliveries were 20,332.


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  Carnival Corp (CCL), Royal Caribbean Cruises (RCL) - The cruise lines will appeal a US court ruling which ordered them, and two other cruise lines, to pay USD 110mln each in damages for use of a port that Cuba's government confiscated in 1960, Reuters reports.


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  CarMax, Inc. (KMX) - CEO William Nash purchased 8.2K shares of common stock on December 30th for a total transaction size of USD 501k.


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  Flutter Entertainment Plc (PDYPY) - Flutter has reportedly begun approaching candidates for the Chairman position, hopes to announce a successor to later in 2023, Sky News reports.

TECH:

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  Microsoft Corporation (MSFT), Alphabet Inc. (GOOG) - Microsoft is preparing to launch a version of its Bing search engine that uses the artificial intelligence to answer some search queries rather than just showing a list of links, according to The Information which cited sources. The report added that MSFT hopes that the new feature, which could launch before the end of March, will help it outflank search rival Google.


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  Alphabet Inc. (GOOG) - An Indian tribunal declined a request by Google to block an antitrust ruling that ordered the tech giant to change its approach to its Android platform, Reuters reports. Google had claimed that regulator's investigations copied parts of a European ruling against it, which regulators did not respond to.


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  Alphabet Inc. (GOOG) Meta Platforms (META) - Google and Meta accounted for a combined 48.4% of US digital ad spending in 2022, having not been under 50% since 2014, according to WSJ citing research firm Insider Intelligence.


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  Semiconductors - The chip surplus that emerged in H2 2022 is not expected to ease until at least Autumn, industry analysts cited by Nikkei said, although a shortage impacting the automotive industry will likely remain throughout the year.


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  SMART Global Holdings, Inc. (SGH) - Q1 adj. EPS 0.79 (exp. 0.57), Q1 revenue USD 465mln (exp. 447.7mln). Exec said "looking ahead, we expect to continue to strategically invest in our business while managing our operations in a prudent manner as we navigate a challenging economic environment." Sees Q2 adj. EPS 0.60 +/- 0.15 (exp. 0.57), and sees Q2 revenue between USD 410-460mln (exp. 432mln).


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  Progress Software Corporation (PRGS) - Progress is to acquire data company MarkLogic for USD 355mln.


• COMMUNICATIONS:


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  Microsoft Corporation (MSFT), Activision Blizzard, Inc. (ATVI) - FTC said there were no substantive settlement talks taking place between the government and Microsoft to resolve a dispute over MSFT's USD 69bln bid for Activision Blizzard.

HEALTH CARE:

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  Amazon.com, Inc. (AMZN) - Amazon moved one step closer to sealing its USD 3.9bln acquisition of One Medical after Oregon’s health agency approved the deal. The acquisition is still subject to regulatory approval, and the FTC is investigating the proposed deal.


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  CVS Health Corporation (CVS) - FDA says abortion pills can now be offered at retail pharmacies, NYT reports. Mifepristone, the first of two drugs in medication abortions, previously had to be dispensed only by clinics, doctors or a few mail-order pharmacies. Now, if local drugstores or chains like CVS agree to certain rules, they can provide it, the report added.


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  Allscripts Healthcare Solutions, Inc. (MDRX) - Allscripts has changed its name to Veradigm Inc. Allscripts had been transitioning its solutions to the Veradigm brand during 2022, and Allscripts will now formally be known as Veradigm.


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  BioMarin Pharmaceutical Inc. (BMRN) - The European Medicines Agency (EMA) validated BioMarin's Type II Variation application to extend the indication for Voxzogo for injection to treat children with achondroplasia under the age of 2. Validation confirms the submission is complete and begins the EMA's review process.


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  COVID Vaccine Makers (AZN, BNTX, GSK, JNJ, MRNA, NVAX, VALN) - EU countries agreed on a coordinated approach to the changing COVID-19 situation, which includes implications for increased travel from China, according to an EU Health Security Committee Meeting.


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  Sanofi (SNY) - Sees a 4.5-5.5% positive FX impact in Q4 2022 sales, and 6-7% on business EPS. Sees another record year for flu vaccine sales; expects Zantac US arbitration award to be rendered in 2023, earliest at end-Q1.

INDUSTRIALS:

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  Southwest Airlines Co. (LUV) - The White House said Southwest should bear full responsibility for holiday travel disruptions, and it could fine the airline if it does not reimburse customers for losses. Southwest said it was making "solid progress" to return operations to normal.


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  L3Harris Technologies, Inc. (LHX) - Completes acquisition of Viasat Tactical Data Links (commonly known as Link 16) for approximately USD 1.96bln."


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  Alamo Group Inc. (ALG) - Raised quarterly dividend +0.04 to 0.22/shr.

FINANCIALS:

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  Goldman Sachs Group Inc. (GS) - The bank's top dealmakers are bullish on an M&A recovery in H2 2023, adding that it was primed for a recovery when financing markets ease up, Reuters reports. Execs said there are plenty of reasons for global deal activity to pick up: big investors are sitting on piles of cash, large companies earning solid profits - but they are waiting for economic uncertainty to fade.


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  Morningstar, Inc. (MORN) - Chairman Joseph Mansueto sold 9.6K shares of common stock on December 29th for a total transaction size of USD 2.09mln.


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  Pershing Square Holdings (PSHZF) - December net performance -4.2%, NAV USD 51.8bln (prev. 54bln M/M).

REAL ESTATE:

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  Public Storage (PSA) - CFO Tom Boyle has been appointed to also serve as its Chief Investment Officer.

MATERIALS:

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  Nexa Resources S.A. (NEXA) - Production at the Atacocha San Gerardo was suspended due to protests. Nexa said there was no material impact on Atacocha's production to date. Atacocha produces around 0.2k tonnes of zinc, which represents less than 3% of Nexa's total zinc production.

ENERGY:

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  Tokyo Gas (TKGSF), Rockcliff Energy - Tokyo Gas is in advanced talks to buy US natgas producer Rockcliff Energy from private equity firm Quantum Energy Partners in a deal worth around USD 4.6bln, Reuters reports, as Japan seeks to diversify from Russia's Sakhalin project, which accounts for 9% of Japan's total LNG imports. A deal could be announced this month.


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  Shell (SHEL) - Shell has shut one of its two LNG trains/production units at Queensland Curting LNG plant as of December 7th, due to a "minor issue" with a pipe.

04 Jan 2023 - 09:30- Data- Source: Newsquawk