US EARLY MORNING: US equity futures are rising ahead of US labour market data due today that will set the stage for Friday's NFP report

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  EQUITIES: APAC and European equities traded higher, underpinned by increasing confidence that global central banks are near the end of tightening cycles. US equity futures are on the front foot, led by the duration sensitive Nasdaq-100.


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  TREASURIES: Treasury yields are not too far off neutral, having rallied in wake of the dovish JOLTs data; that data follows some paring back of hawkish stances from Fed officials (Waller last week is the notable example), and as other global central banks hint that the end of the tightening cycle is close, helping global fixed income to rise. Traders will be looking to today's ADP and Q3 productivity and labour costs data to set the stage for Friday's jobs report.


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  FOREX: The Dollar Index is flat. A Reuters poll sees the buck loosening its grip on other G10 FX next year, with strategists suggesting that the recent weakening will continue into next year, particularly in the latter part of 2024, with resilience in H1 likely due to yield differentials and haven demand mostly. China's yuan was said to be supported overnight after state banks increased USD selling in wake of Moody's lowering of its outlook on China, and Reuters said they were continuing to sell USD into Wednesday. Activity currencies are mixed, with the Antipodes outperforming, while Sterling is unchanged.


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  COMMODITIES: Crude is trading around flat, despite API data reportedly showing a surprise build in headline crude stocks, while stocks at Cushing saw a build, gasoline posted a larger than expected build, while distillates posted a smaller than expected build. The DoE inventory data is out this afternoon.

TODAY’S AGENDA:

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


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  EUROPE DAY AHEAD: The European morning sees the release of October retail sales data, which are expected to tick up. Construction PMI data will also be out across the morning. The BoE’s Financial Stability Report is due for release today. On the central banks front, the NBP is expected to keep rates unchanged at 5.75%, while CEE3 traders will also note the release of the NBH’s recent meeting minutes.


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  NORTH AMERICA DAY AHEAD: The ADP jobs report will provide the usual pre-NFP preview (NFP data out Friday). Q3 unit labour costs and productivity data will also be eyed after October’s JOLTs data surprised to the downside, which contributed to a dovish market reaction. The US and Canadian international trade stats for October will also be out in the premarket. The Bank of Canada is expected to leave rates unchanged at 5.00%, while traders will be looking for any official confirmation that rates have peaked (our preview is below). Elsewhere, weekly US MBA mortgage applications data, and the Canadian Ivey PMI will be out today.


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  EARNINGS: Notable corporate earnings today include: CPB, BF.B, GME, CHWY; our Daily US Earnings Estimates sheet can be accessed here.


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  ENERGY: the DoE will release its weekly inventory report; for reference, the API data released afterhours on Tuesday reportedly showed Crude +0.6mln (exp. -1.4mln), Cushing +4.3mln, Gasoline +2.8mln (exp. +1.0mln), Distillate +0.9mln (exp. +1.5mln).


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  PREVIEW - BOC RATE DECISION (15:00GMT/10:00EST): The rate decision is a statement-only affair and the BoC is widely expected to keep rates on hold at 5.00%. Attention will be paid to the statement to see if there are any tweaks after the recent softening in the growth and inflation data. The October statement noted that the "Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed". Analysts at RBC note the BoC will remain mindful of inflationary risks and retain the option to move the interest rate higher, but they do not see that as likely to be necessary with easing inflation and slowing growth. Focus of the market is shifting to when will the easing cycle begin, but it is unlikely this will be acknowledged in the statement itself, with Governor Macklem recently stressing it is not the time to think about cutting rates. Given there is no press conference at this meeting, ING write that "one possibility is that the BoC de-emphasises the threat of another hike and emphasises a “higher-for-longer” narrative to hinder dovish speculation". Attention post-meeting will turn to a speech from Deputy Governor Gravelle on December7th at 17:50GMT/12:50EST, ahead of Macklem on December 15th and the Summary of Deliberations on December20th. (Newsquawk)

SELL-SIDE COMMENTARY:

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  CAPITAL ECONOMICS US SECTORAL PERFORMANCE: Capital Economics notes that Tech, Communications and Consumer Cyclicals have accounted for most of the S&P 500's gains this year, but notes that these "growth-heavy" stocks recent performance has been lacklustre, even as the index itself has rallied strongly, while there has been better performance from "value-heavy" sectors, where it has also outperformed growth within the small cap S&P 600 arena too - the switch from value to growth here has contributed to the S&P 600 outperforming the S&P 500. This may seem surprising since falling Treasury yields often provide impetus to growth rather than value, CapEco says, but this may partly be due to profit-taking year-end approaches. CapEco notes that the performance of the value sectors Real Estate and Financials stands out; the former is not surprising in the face of lower bond yields, while the latter's outperformance in against the backdrop of falling Treasury yields is harder to explain. CapEco says financials' outperformance is perhaps due to improved sentiment towards the economy, reflected in a continued decline in credit spreads. Ahead, it expects the S&P 500 to perform strongly in 2024 as the US economy sees a soft landing and long-term Treasury yields fall further; it sees the S&P 500 closing 2024 at 5,500. "Much of that healthy gain reflects, however, our expectation that enthusiasm for AI will resume," it writes, "that leads us to conclude that growth sectors will lead the charge once again." However, it says that most sectors of the stock market will perform well in this 'Goldilocks' scenario, and the laggards are likely to be traditionally defensive sectors.


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  CITI SAYS TOO EARLY TO REDUCE EQUITY OW: Citi notes that markets have been pricing a soft landing in the US. And while the bank predicts a US recession in mid-2024, it says that it is too early to reduce its equity overweight, as the market is not that forward looking. "We continue to like US equities into early 2024, as well as Latam equities (against an underweight in the UK)," the bank writes, "we are very long duration, having added US real rates to our existing duration trades in the UK, the Eurozone, and Emerging Markets." Citi says more upside is likely in early 2024 as the first rate cuts come into view. The bank said it is underweight credit as a recession hedge, "even though the obvious weak spots are not yet triggering much concern," and in commodities, it remains long precious metals, underweight oil, which it says should also benefit from weaker growth in 2024.


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  GS ON HEALTH OF CONSUMERS: Goldman Sachs notes reports highlighting the rise in delinquencies in consumer credit cards and auto loans, while the NY Fed's data recently showed a record high credit card transition rate into 90+ days delinquent. "While some weakness is developing, it is largely a reflection of the current higher interest rate environment and a return to normalcy," Goldman writes, "in mortgages, the trend in credit performance has been positive with the very lowest credit score borrowers performing stronger than before the pandemic largely due to tighter underwriting standards; in auto loans, default rates are running higher but not too far off historical ranges; in unsecured consumer loans, there has been significant bifurcation of performance across the borrowers’ quality spectrum that has pushed default rates to higher-than-average levels." Ahead, the bank says that the combined tailwind from a strong labour market, the lower risk of a new monetary shock and positive seasonals likely taking hold into the Q1 2024 will likely improve credit performance.

EQUITY NEWS:

TECH:

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  Apple (AAPL) - Apple aims to produce iPhone 16 batteries in India, diversifying its supply chain away from China, FT reports. The company urges suppliers, like Desay and Simplo, to establish or expand factories in India for future iPhone battery manufacturing.


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  Five9 (FIVN), Zoom Video (ZM) - Five9 confirmed reports that it has been approached over acquisition, but is not pursuing a deal. An earlier report said Five9 was mulling a sale, and that it had already held talks with Zoom Video Communications about possibly resurrecting a deal, more than two years after a buyout by the virtual meeting company failed.


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  Chip Names - Pragmatic Semiconductor has secured GBP 182mln of funding, setting the chipmaker on track to be the UK’s biggest semiconductor manufacturer on a volume basis, FT reports.


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  Check Point (CHKP) - Check Point responded to an SEC inquiry regarding its handling of the 2020 SolarWinds Orion cyber vulnerability. Said it cooperated, discussing limited access to a testing environment, is engaged in settlement talks, and expects no material impact on operations or financials.


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  ASM International (ASMIY) - Plans to invest EUR 300mln in a new US headquarters in Arizona, furthering its expansion in the State. It is set to hire 500 employees for the new facility, according to Bloomberg.


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  Box (BOX) - Q3 EPS 0.36 (exp. 0.38), Q3 revenue USD 261.5mln (exp. 263.7mln), Q3 RPO +7% Y/Y at USD 1.13bln. Now sees Q4 EPS between 0.38-0.39 (exp. 0.42), and Q4 revenue between USD 262-264mln (exp. 267mln); lowers its FY24 EPS outlook to between 1.42-1.43 (exp. 1.49) from 1.46-1.50, and lowers its FY24 revenue outlook to between 1.037-1.039bln (exp. 1.04bln) from 1.04-1.044bln.


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  Asana (ASAN) - Q3 adjusted EPS -0.04 (exp. -0.11), Q3 revenue USD 166.5mln (exp. 164.1mln). Sees Q4 adjusted EPS at -0.10 (exp. -0.16), and sees Q4 revenue between USD 167-168mln (exp. 166.8mln). Lifts FY24 adj. EPS outlook to between -0.27 and -0.26 (exp. -0.38) from -39c to -42c, and lifts FY24 revenue outlook to between USD 648.5-649.5mln (exp. 646.1mln) from 642-648mln (exp. 646.1mln).


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  MongoDB (MDB) - Q3 adj. EPS 0.96 (exp. 0.50), Q3 revenue USD 432.9mln (exp. 403.7mln). Sees Q4 adj. EPS between 0.44-0.46 (exp. 0.37), and sees Q4 revenue between USD 429-433mln (exp. 413.9mln). Sees FY24 adj. EPS between 2.89-2.91 (exp. 2.35), and sees FY24 revenue between USD 1.65-1.66bln (exp. 1.61bln).


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  SentinelOne (S) - Q3 EPS -0.03 (exp. -0.08), Q3 revenue USD 164.2mln (exp. 156.1mln), Q3 ARR +43% to USD 663.9mln, Q3 total customer count +11,500, Q3 customers with ARR of USD 100k+ +33% to USD 1,060, Q3 NRR exceeded 115%. Sees Q4 revenue at USD 169mln (exp. 166.5mln); lifts FY24 revenue outlook to USD 616mln (Exp. 606mln) from USD 605mln.


• FINANCIALS:


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  MasterCard (MA) - Rose +0.3% afterhours after the Board announced it authorised a USD 11bln share repurchase programme; the new share repurchases will become effective at the completion of the company's previously announced USD 9bln programme, of which approximately USD 3.5bln remains. Additionally, Board boosts quarterly dividend by +16% to 0.66/shr.


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  Barclays (BCS) - Citi (C) and Bank of America (BAC) are left holding some Barclays stock after the Qatari stake sale, according to Reuters.

HEALTHCARE:

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  Bayer (BAYRY) - Bayer has been ordered to pay around USD 3.5mln by the Philadelphia jury in the Roundup trial.


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  Merck AG (MKKGY) - Phase III trial results for evobrutinib in relapsing multiple sclerosis did not meet the primary endpoint of reducing annualized relapse rates (ARR) compared to oral teriflunomide.


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  Novartis (NVS) - FDA approved Fabhalta as the first oral monotherapy for the treatment of adults with paroxysmal nocturnal hemoglobinuria, or PNH.


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  HealthEquity, Inc. (HQY) - Q3 EPS 0.60 (exp. 0.50), Q3 revenue USD 249.2mln (exp. 243.6mln). Raises FY24 EPS outlook to between USD 2.08-2.16 (exp. 2.02) from 1.97-2.06; raises FY24 revenue outlook to between USD 985-995mln(exp. 989mln) from 980M-990mln. For FY25, sees revenue between USD 1.14-1.16bln (exp. 1.13bln).


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  Novavax (NVAX) - NVAX' updated COVID-19 vaccine is now authorised in Canada.

CONSUMER:

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  Toll Brothers (TOL) - Q4 EPS 4.11 (exp. 3.72), Q4 revenue USD 2.95bln (exp. 2.77bln), Q4 backlog USD 6.95bln (vs USD 7.9bln Q/Q). Exec said demand remains solid, consistent with normal seasonality, is encouraged by the recent 75bps drop in mortgage rates. Adds that with resale inventories at historic lows, buyers continue to be drawn to new homes, expects lower rates with lower inflation to add to this already solid demand. Sees Q1 deliveries 1,800-1,900 units, and Q1 average delivered price per home between USD 0.985-1.01mln. FY24 deliveries seen between 9,850-10,350 units (exp. 9,700), and FY24 average delivered price per home seen between 0.94-0.96mln (exp. 1mln).


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  Volkswagen (VWAGY) - Results of an audit of the Urumqi plant in China's Xinjiang region showed no signs of forced labour.


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  BMW (BMWYY) - The automaker will begin a second tranche of share repurchases for up to EUR 410mln, beginning January 2nd.


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  Nio (NIO) - Is reportedly planning to spin off its battery manufacturing arm, according to Reuters; could happen as early as the end of the year. The company currently buys its batteries from CATL and CALB Group.


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  Entain (GMVHY) - Will pay GBP 615mln as recompense for failing to prevent bribery at its Turkish subsidiary, FT reports. This brings to close a court term of four years, though additional charges may still be laid against individuals.


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  British American Tobacco (BTI) - Reiterates FY23 delivery and EPS guidance. Sees 2023 low end 3-5% organic constant currency revenue growth. Committed to building “smokeless world”, with 50% revenue from non-combustibles by 2025. Expect low signle digit revenue and adjusted profit from operations growth in 2024. Expect performance in H2’24 to be half-weighted.


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  Diageo (DEO) - The beverage maker is looking to divest its beer portfolio, except for its flagship brand Guinness, according to Axios.

COMMUNICATIONS:

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  Dave & Buster's Entertainment (PLAY) - Q3 EPS -0.12 (exp. -0.12), Q3 revenue USD 466.9mln (exp. 472.3mln), SSS -7.8% Y/Y (+8.1% vs Q3 2019). Exec said it has seen success in tests implemented in marketing, food and beverage, pricing, special events and remodel initiatives, will roll out over the coming weeks and months, expects to lead to substantial improvement in revenue and profitability.


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  Spotify (SPOT) - Spotify cancels the podcast Heavyweight, part of Gimlet's lineup, amid a 17% staff layoff, The Verge reports. The move reflects Spotify's shift from narrative-driven shows to personality-focused content after struggles with Gimlet's performance and the departure of Reply All.

MATERIALS:

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  Antofagasta (ANFGF) - Workers at its Centinela mine on Tuesday began the mediation process after contract talks failed, a last resort before the union could go on strike, according to Reuters.


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  Rio Tinto (RIO) - Said China's iron ore demand was 'very decent' amid the auto sector boom. Estimates initial share of capex to develop Simfer mine and co-developed rail and port infrastructure project is about USD 6.2bln. Reported mineral resources exclusive of ore reserves of 1.4bln tonnes at 66.1% FE and low impurities for Simandou. The first production from Simfer mine is expected in 2025, ramping up over 30 months to an annualised capacity of 60mln tonnes per year. Rio Tinto’s share of capital investment is expected to be around USD 10bln per year from 2024 to 2026. Production ramping up from Oyu Tolgoi in Mongolia which is set to deliver 500 kt of copper per year on average for the period 2028-2036. The largest investment over the next 3 years is expected to be Co's equity share of the Simandou project once approved by the board. Forecasts 2024 Pilbara iron ore shipments 323-338mln tons. Space in the market for another iron ore mine.

INDUSTRIALS:

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  Old Dominion (ODFL) - November revenue per day -0.9% Y/Y, primarily due to a 2.3% decrease in LTL tons per day that was partially offset by an increase in LTL revenue per hundredweight. Exec said it was pleased, however, to see both the continued improvement in yield metrics and a slight increase in our LTL shipments per day.


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  Safran (SAFRY) - CEO said that the aerospace supply chain is still struggling to recover and industrial targets must be realistic; reiterates target of 2k Leap Engine deliveries in 2024 adding that this is “already very ambitious”.


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  AeroVironment (AVAV) - Q2 EPS 0.97 (exp. 0.62), Q2 revenue USD 180.8mln (exp. 170.9mln), Q2 funded backlog USD 487mln. Lifts FY24 EPS outlook to USD 2.46-2.70 (exp. 2.72) from 2.30-2.60, and lifts FY24 revenue view outlook to between USD 685-705mln (exp. 677mln) from 645-675mln; the revised outlook includes the impacts of the recent acquisition of Tomahawk Robotics.


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  Avis Budget Group (CAR) - Declared a special cash dividend of USD 10.00/shr. Said that it has purchased approximately 1.3mln shares in Q4 for USD 240mln; says there is around USD 820mln remaining under the current authorisation.

06 Dec 2023 - 09:30- Research Sheet- Source: Newsquawk