US EARLY MORNING: US equity futures are seeing upside ahead of PCE data; traders are monitoring fiscal headlines; next week's ISM and jobs data also comes into focus

US PRE-MARKETS: US equity futures are trading constructively, as yields see some downside over the last couple of sessions, and as oil prices also back off highs. Treasury yields are lower across the curve by 3-5bps, with the belly outperforming. The Dollar Index is lower, with EUR back above 1.06, while the USDJPY has seen downside, taking it back beneath 149.00 amid fresh warnings on FX from Japanese officials. Today's agenda has an inflation focus, with Eurozone flash inflation metrics due in the morning (the consensus looks for a cooling of price pressures in September), before US PCE inflation data is due in the afternoon (the US data is expected to be mixed, with the annual headline rising, but the annual core rate paring back) - see below for our primer. Traders will also be monitoring US fiscal headlines; a Senate bill to avert a government shutdown garnered enough votes to advance, and the US House passed its State Department, Defense and Homeland appropriations bills; early reports today suggest House Republicans have also released a stopgap bill to fund the US government, Bloomberg reported. Next week's events include the US jobs report, as well as ISM surveys; brief previews for these events are also below.

PREVIEW - US PCE (13:30BST/08:30EDT): Headline PCE prices are seen rising +0.5% M/M in August, accelerating from the 0.2% notched in July, while the annual rate of headline PCE is seen ticking up to 3.5% Y/Y from 3.3%. Analysts expect core PCE prices will rise by 0.2% M/M in August, matching the rate seen in July. The annual rate of core PCE inflation is seen paring back to 3.9% Y/Y from 4.2%. Traders will be framing the data within the context of Fed policy to judge whether the central bank will follow through on its projections of another rate hike this year. While the Federal Reserve stood pat on policy at its September confab, it has retained the option of raising rates further. The Fed slightly raised its PCE projection for this year (from 3.2% Y/Y to 3.3% Y/Y), but lowered its core PCE outlook (to 3.7% Y/Y from 3.9%). It is not until 2026 that the central bank sees both headline and core inflation back at 2.0%. Chair Powell said that while inflation has moderated somewhat, and expectations remain well anchored, the process of getting inflation down to 2.0% has a long way to go, and he said that the central bank would keep rates in restrictive territory until it is confident that inflation is moving back down to target. The central bank chief also warned that getting inflation back down would likely require a period of below trend growth, and some softening of labour markets. Powell was encouraged by the last three inflation reports, which he said were very good, but he wants to see more than just three good readings.

PREVIEW - US ISM MANUFACTURING PMI (2/OCT), SERVICES PMI (6/OCT): The headline ISM manufacturing index is seen little changed (47.8 vs a previous 47.6). The services ISM headline is seen paring a touch (to 54.0 from 54.5). By way of comparison, S&P Global's Flash US PMI Composite Output was little changed at 50.1 in August, though that was a 7-month low, with Services Business Activity easing to 50.2 (from 50.5), an 8-month low. The S&P global Manufacturing Output gauge picked up a little to 49.7 (from 48.5), a 2-month high but still below 50, while the headline Manufacturing PMI rose a touch to 48.9 (from 47.9). S&P said that its PMI data added to concerns regarding the trajectory of demand conditions in the US following interest rate hikes and elevated inflation. "Although the overall Output Index remained above the 50.0 mark, it was only fractionally so, with a broad stagnation in total activity signalled for the second month running," it said, noting that the service sector lost further momentum, and with the contraction in new orders gaining speed. "Subdued demand did not translate into overall job losses in September as a greater ability to find and retain employees led to a quicker rise in employment growth," it said, but added that "the boost to hiring from rising candidate availability may not be sustained amid evidence of burgeoning spare capacity and dwindling backlogs which have previously supported workloads." On the inflation front, the PMI data suggested that pressures remained marked, with costs rising at a faster pace again. "Higher fuel costs following recent increases in oil prices, alongside greater wage bills, pushed operating expenses up," S&P said, "weak demand nonetheless placed a barrier to firms' ability to pass on greater costs to clients, with prices charged inflation unchanged on the month."

PREVIEW - US JOBS REPORT (6/OCT): The rate of payroll additions are expected to cool in September, with the consensus looking for 150k nonfarm payrolls to be added to the economy (prev. 187k). Analysts still expect the unemployment rate to tick lower to 3.7% from 3.8% (for reference, the FOMC's most recent economic projections see the jobless rate ending this year at 3.8%). Analysts will be paying close attention to the wages numbers, with the rate of average earnings seen rising at a pace of +0.3% M/M, quicker than the 0.2% M/M seen in August. Gauges of labour market strength continue to point to a strong jobs market; indeed, the Fed recently tweaked its assessment of US economic conditions, noting that economic activity has been expanding at a solid pace, and although job gains have slowed in recent months, they remain strong, while the unemployment rate has remained low.

TODAY’S AGENDA:

• Our interactive calendar of events is here; a pdf version can be downloaded here. 


• There is an inflation-focus to today’s data releases; Eurozone flash inflation metrics for September are expected to show a cooling in the annual rates of headline and core inflation. From the US, data is expected to show annual headline PCE prices rising a little, but the core rate of annual PCE inflation is seen moderating to below 4.0%; Personal Income and Spending data will be released at the same time. CAD watchers will note that release of July GDP stats, which are expected to show slight growth in the month. Elsewhere, final US University of Michigan sentiment data will be eyed, particularly any revisions to consumer inflation expectations. On the speaker’s front, ECB President Lagarde will deliver remarks at a joint IEA-ECB-EIB conference; from the Fed, there will be a text release from the NY Fed President Williams. Today’s CRA docket includes potential updates from S&P on Turkey (currently B), and Fitch on Portugal (BBB+).


• 
  PREVIEW - US PCE (13:30BST/08:30EDT): Headline PCE prices are seen rising +0.5% M/M in August, accelerating from the 0.2% notched in July, while the annual rate of headline PCE is seen ticking up to 3.5% Y/Y from 3.3%. Analysts expect core PCE prices will rise by 0.2% M/M in August, matching the rate seen in July. The annual rate of core PCE inflation is seen paring back to 3.9% Y/Y from 4.2%. Traders will be framing the data within the context of Fed policy to judge whether the central bank will follow through on its projections of another rate hike this year. While the Federal Reserve stood pat on policy at its September confab, it has retained the option of raising rates further. The Fed slightly raised its PCE projection for this year (from 3.2% Y/Y to 3.3% Y/Y), but lowered its core PCE outlook (to 3.7% Y/Y from 3.9%). It is not until 2026 that the central bank sees both headline and core inflation back at 2.0%. Chair Powell said that while inflation has moderated somewhat, and expectations remain well anchored, the process of getting inflation down to 2.0% has a long way to go, and he said that the central bank would keep rates in restrictive territory until it is confident that inflation is moving back down to target. The central bank chief also warned that getting inflation back down would likely require a period of below trend growth, and some softening of labour markets. Powell was encouraged by the last three inflation reports, which he said were very good, but he wants to see more than just three good readings.

EQUITY NEWS:

INDEX:

• 
  S&P 500 (SPX) - Veralto Corp. (VLTO) will be added to the S&P 500 effective prior to the open of trading on October 2nd, replacing DXC Technology (DXC) which will be moved to the S&P SmallCap 600 effective prior to the open of trading on October 3th.

CONSUMER:

• 
  Nike (NKE) - Nike rose 8% afterhours following better than quarterly expected profits and margins, while it reiterated its FY24 view. Q1 EPS 0.94 (exp. 0.75), Q1 revenue USD 12.94bln (exp. 12.98bln), Q1 gross margin 44.2% (exp. 43.7%); Q1-end inventories -10% Y/Y at USD 8.7bln. Q1 North America sales were -1.6% Y/Y at USD 5.42bln (exp. 5.43bln); EMEA +8.3% Y/Y at USD 3.61bln (exp. 3.48bln); Greater China +4.8% Y/Y at USD 1.74bln (exp. 1.83bln); Asia Pacific & Latin America +2.4% Y/Y at USD 1.57bln (exp. 1.59bln). Sees Q2 sales up slightly (exp. 13.6bln), and sees Q2 gross margin expansion of 100bps. Exec said it had navigated through unprecedented environment, and growth has outpaced overall industry. Is cautiously planning for modest markdown improvements for the balance of the year given the promotional environment. Notes that it has taken share in Women's segments in greater China. Exec sees transitory headwinds are abating, and Nike is experiencing sustained momentum on its mobile app, with average selling prices up across footwear and apparel. Reiterates FY24 guidance for revenue to rise mid-single digits (exp. 53.4bln), and sees FY24 gross margin expansion of between 130-140bps.


• 
  Tesla (TSLA) - The US EEOC is suing Tesla, accusing the company of allowing severe harassment of Black employees at its California plant. The allegations include racist slurs, graffiti, and retaliation against workers who reported harassment, adding to existing discrimination claims.


• 
  General Motors (GM) - Canadian labour union Unifor tells General Motors that it has set a October 9th deadline to reach a labour deal.


• 
  Goodyear Tire (GT) - A fire damaged Goodyear's tire manufacturing facility in Poland, reducing production until late 2024. This will impact sales and operating income in 2023.


• 
  Toyota Motors (TM) - The automaker plans October-December quarter global output increase of 20% Y/Y to 2.75mln units.


• 
  Vail Resorts (MTN) - Q4 EPS -3.35 (exp. -3.24), Q4 revenue USD 363.5mln (exp. 283.2mln). Sees FY24 net income losses of between -197mln and -178mln.

TECH:

• 
  Nvidia (NVDA) - France's competition authority conducted a surprise raid at Nvidia's local offices due to suspicions of anticompetitive behaviour, Reuters reported. The investigation focuses on the "graphics cards sector," but specific practices and targets have not been disclosed.


• 
  Apple (AAPL) - Apple wants the Supreme Court to review a decision in its legal battle with Epic Games, TechCrunch reports. The decision could make Apple let app developers use other payment options in the App Store, not just Epic Games. Apple says this could affect all app makers.


• 
  BlackBerry (BB) - Q2 adj. EPS -0.04 (exp. -0.06), Q2 revenue USD 132mln (Exp. 132mln). Q2 adj. gross margin 65%, GAAP gross margin was 64%. It also said Timothy Dattels, who chaired a special committee of the Board through a review of strategic alternatives in 2013, has decided to resign from the Board. Exec noted that the IoT business continues to win new designs and add royalty backlog at a strong rate, expects a strong finish for IoT revenue this fiscal year, with the fourth quarter forecasted to be the strongest ever. Exec is also excited by the response from beta customers to our next generation Software Development Platform and its potential to enable embedded Generative AI applications. Expects a strong H2 for revenue in the Cyber business, with a pipeline of deals that include large, mainly perpetual government opportunities that can deliver meaningful in-year revenue. Reiterates FY Cyber revenue outlook.


• 
  JFrog (FROG) - Announced Ed Grabscheid has been promoted to CFO, effective January 1st; will succeed CFO Jacob Shulman, who is leaving JFrog to pursue another opportunity and may remain in an advisory role.

COMMUNICATIONS:

• 
  Telecoms Companies - The FCC is considering new rules related to net neutrality that could grant it more power to remove Chinese equipment, like Huawei and ZTE, from US networks, including data centres, Reuters reports. Public input is being sought on this proposal.

UTILITIES:

• 
  Exelon (EXC) - SEC charges Exelon and former CEO with fraud in connection woth political corruption scheme. Exelon and parent Commonwealth Edison agreed to settle the charges with Exelon to pay a civil penalty of USD 46.2mln.

INDUSTRIALS:

• 
  Boeing (BA) - Boeing will pay USD 8.1mln to settle claims it broke US law by not meeting contract requirements while making V-22 Osprey aircraft components in Pennsylvania from 2007 to 2018, DoJ said.


• 
  L3Harris Technologies (LHX) - Awarded a USD 112.7mln Army contract for artificial intelligence and machine learning platform research and development.


• 
  Northrop Grumman (NOC) - Awarded a USD 513mln Navy contract modification to contract for Ground/Air Task Oriented Radar systems.


• 
  RTX (RTX) - Awarded a USD 305.6mln Navy procurement contract.

HEALTHCARE:

• 
  UnitedHealth Group (UNH) - UK CMA has found that the anticipated acquisition of EMIS Group by UnitedHealth Group may not be expected to result in a substantial lessening of competition in relation to the supply of medicines optimisation software or population health management services in the UK.


• 
  Qiagen (QGEN) - Qiagen said it was improving its medical software, QCI Interpret, by adding AI to cover more rare disease genes.

FINANCIALS:

• 
  UBS Group's (UBS) - UBS Group's Credit Suisse unit reports 6-month net income of CHF 2.214bln (prev. -1.974bln Y/Y), net revenue of CHF 17.10bln (prev. 8.13bln Y/Y), goodwill impairment of CHF 2.346bln, and net litigation provisions of CHF 1.48bln.

29 Sep 2023 - 09:30- Data- Source: Newsquawk