US EARLY MORNING: US equity futures are seeing upside as Treasuries catch a bid

US PRE-MARKETS: US equity futures are finding some reprieve after a sell-off which was underpinned by higher interest rates and angst over a potential government shutdown, which CRA Moody's said could harm the country's credit ratings. Additionally, investors appear to have been using the opportunity to pare down holdings of stocks that some consider are becoming overvalued, with megacaps among the names to have dragged shares lower on Tuesday. Treasury yields are narrowing, with the long-end outperforming; on the fiscal front, the Senate voted to clear a procedural hurdle of the Senate bipartisan bill to avoid a government shutdown, while it was separately reported that the Senate short-term spending bill would fund the government through to November 17th; US House voted to start the debate on the bill to fund parts of the federal government, while US House Speaker McCarthy said a stopgap funding bill will be brought to the House floor on Friday. There are not a lot of scheduled events on today's docket, which may allow the theme of higher rates, potential Government Shutdown issues and month-end factors continue to play out.

TODAY’S AGENDA:

The Day Ahead is thin in terms of scheduled events. The US Day will see the release of weekly MBA mortgage applications data, and durable goods data for August are due before the open. EMFX traders will note the CNB rate decision, where the central bank is expected to keep rates unchanged at 7.0%. Weekly energy inventory data will be released today; API data reportedly showed headline US Crude stocks building +1.6mln in the week (exp. -0.3mln), though stocks at Cushing drew down by -0.8mln; Gasoline inventories slipped -0.1mln (exp. -0.1mln), while distillates declined by -1.7mln (exp. -1.3mln). On the supply front, UK will sell 2073 Gilts, Germany will sell 2033 Bunds, the US Treasury will sell a 5yr note and a 2yr FRN. Afterhours, traders will be on the lookout for numbers from Micron (MU). Our full interactive calendar can be accessed here; a pdf version can be downloaded here.

EQUITY NEWS:

CONSUMER:

• 
  Amazon (AMZN) - The FTC and 17 states are suing Amazon, claiming it abuses its monopoly power, FT reports. The suit claims Amazon overcharges consumers, harms competitors, and exploits sellers, and alleges that it takes a big cut of seller revenue, penalises heavy discounts, and pushes its expensive logistics network. FT added that the lawsuit is one of the biggest tests yet of FTC chair Lina Khan’s more aggressive enforcement stance towards Big Tech, which she believes has skirted regulatory scrutiny for decades.


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  Auto Strikes - President Biden backed striking auto workers in Michigan during a visit to the picket lines, BBC reported, with the visit being the first for a sitting US President. Biden said that workers deserved significant pay raises and other concessions that they are seeking, the report added. Canada's Unifor union said that the collective bargaining with Ford Motors (F) was complete, with new collective agreements in place. Separately, FT ran a story asking when will auto dealerships run out of cars to sell, adding that inventories of popular models like Ford Bronco were running low amid UAW industrial action; it cited a reported by Cox Automotive, which said that General Motors (GM) has 58 days of supply across all its brands, Ford Motor (F) has 85 days, and Stellantis (STLA) has 107 days worth.


• 
  H&M (HNNMY) - Operating profits were slightly higher than expected in Q3; Sept sales expected to be down 10% Y/Y, and it initiated a buyback. Q3 operating profit SEK 4.74bln (exp. 4.53bln), Q3 revenue SEK  60.9bln (vs prelim 60.9bln). Sales during Sep 2023 are expected to decrease by 10% Y/Y, said it should be seen in light of unusually hot weather in several of its European markets. Cost of markdown in relation to sales was somewhat higher in Q3 Y/Y. Board of directors decided to buy back its own B shares for SEK 3bln.


• 
  Costco (COST) - Q4 EPS 4.86 (exp. 4.79), Q4 revenue USD 77.43bln (exp. 77.9bln), Q4 total comp sales +1.1% (exp. 1.8%), Q4 US comp sales (ex-gas, FX) +3.1% (exp. +3.3%). Q4 membership fees USD 1.51bln (exp. 1.46bln). Exec said Q4 traffic or shopping frequency +5.2% worldwide, +5.0% in the US, but average transactions -3.9% worldwide, and down -4.5% in the US due to weak big-ticket discretionary demand and gas price deflation. The hyermarket still slipped 2.5% afterhours following the publication of its earnings report, however; Barron's suggested that Wall Street had been hoping that COST would give an update on a potential increase in membership fees, which many see as a long-overdue move.


• 
  Tesla (TSLA) - Tesla is developing an upgrade to its "gigacasting" technology, Reuters reports, aiming to create most of a vehicle's underbody parts in one piece. This innovation is expected to further reduce production costs for electric vehicles, building on Tesla's previous advancements, the report added.


• 
  Rivian (RIVN) - CEO said the automaker plans to use subscription models for monetising various features in its vehicles in the future.


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  MillerKnoll (MLKN) - Rose over 15% afterhours post earnings. Q1 adj. EPS 0.37 (exp. 0.21), Q1 revenue USD 917.7mln (exp. 899.6mln); perfromance was driven by strong sales and gross margin expansion. Exec said the new FY was off to a very good start, and was encouraged by momentum, but still noted macroeconomic challenges. Sees Q2 adj. EPS between 0.52-0.58 (exp. 0.51), and sees Q2 revenue between USD 950-990mln (exp. 983.8mln). For the FY24, it raised guidance, now sees adj. EPS between 1.85-2.15 (exp. 1.83).


• 
  Flutter Entertainment (PDYPY) - Flutter acquires Serbian sports betting company Maxbet; takes an initial stake of 51%. Proposed deal for cash consideration of EUR 141mln. Transaction expected to close in Q1 2024.

TECH:

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  AI Stocks, Microsoft (MSFT) - Microsoft-backed OpenAI is seeking a new valuation of USD 80-90bln in sale of existing shares, WSJ reports; the potential sale would value startup at roughly triple where it was set earlier this year.


• 
  Adobe Inc. (ADBE) - The EU's investigation into Adobe's USD 20bln purchase of Figma is paused because the companies have not provided requested information. The EU is concerned the deal could harm competition in product design tools.


• 
  ASM International (ASMIY) - ASM International expects equipment revenue coming from China definitely to be higher this year than at the end of 2022. Said that based on known information, including restrictions that have been announced by the Dutch and Japanese Governments, does not see any further impact on what they have shared in the past.


• 
  BYD (BYDIF), Jabil (JBL) - Jabil confirmed the sale of its Mobility business to BYD for USD 2.2bln in cash. This deal involves the transfer of Jabil's Mobility business, which makes components for consumer electronics, to BYD and is primarily based in Chengdu and Wuxi, China.


• 
  Dell Technologies (DELL) - Appointed Steve Mollenkopf, who served as Qualcomm (QCOM) CEO between 2014 to 2021, as its newest independent Board member.


• 
  Progress Software (PRGS) - Shares fell by over 4% following the publication of its earnings report, with next quarter guidance disapponting expectations. Q3 EPS 1.08 (exp. 1.00), Q3 revenue USD 175mln (exp. 173.4mln). Sees Q4 EPS between 0.87-0.93 (exp. 0.98), and sees Q4 revenue between USD 171-177mln (exp. 175.9mln). It raised its FY23 EPS outlook to 4.20-4.26 (exp. 4.20, prev. 4.16-4.24), and also lifted its FY23 revenue outlook to USD 688-694mln (exp. 692.5mln, prev. 686-694mln). Exec said it was looking for its next M&A opportunity, with market conditions favouring buyers.

COMUNICATIONS:

• 
  Hollywood Strikes - Hollywood writers are ending their five-month strike, Guardian reports. Union leaders approved a new contract with studios, allowing writers to work again while members vote on it. The deal includes changes in payment, terms for streaming shows, and AI use.

INDUSTRIALS:

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  AAR (AIR) - Q1 adj. EPS 0.78 (exp. 0.73), Q1 revenue USD 550mln (exp. 505.8mln), Q1 gross margin 18.4% (exp. 19.2%). Commercial customer revenue +23% Y/Y driven by strong demand for used parts. Operating expenses rose to USD 74.7mln (prev. 50.1mln Y/Y). WSJ reported that CEO sees company reaching profitability in Q2.


• 
  Rocket Lab (RKLB) - RKLB cuts its Q3 revenue outlook to USD 66M-68mln (exp. 74.5mln, prev. saw 73-77mln) to reflect the postponement of a scheduled Electron mission, previously expected to launch before the end of Q3, while it completes an investigation into the in-flight anomaly.

UTILITIES:

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  Cheapeake Utilities (CPK), NextEra Energy (NEE) - NextEra is selling its Florida City Gas unit to Chesapeake Utilities for USD 923mln, part of its capital redeployment strategy. Chesapeake plans to expand its gas distribution in Florida and sees opportunities in renewable natural gas and alternative fuels, MarketWatch reported. The deal is expected to close by the end of Q4. NextEra Energy reiterated its FY23 adjusted EPS view of between USD 2.98-3.13 (exp. 3.12).


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  AES Corporation (AES) - AES is selling parts of its businesses in the Dominican Republic and Panama for USD 190mln; will help it meet its asset sale target for the year.

MATERIALS:

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  Glencore (GLNCY), Bunge (BG) - Canada is launching a review of the proposed acquisition of grain handler Glencore's Viterra by Bunge.


• 
  PPG Industries (PPG) - Board unanimously elected PPG president and CEO Tim Knavish as chair of the company's Board of Directors and CEO, succeeding Michael McGarry, who served as chairman and CEO from 2016 to 2022 and is retiring as executive chairman.


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  ArcelorMittal (MT) - CEO sees Chinese government mandates on steel, for output cuts as helping to reduce exports from the nation. Added "I don’t expect that the pressure will dramatically increase because of the limitations that have been put on Chinese capacity."

ENERGY:

• 
  Energy Inventories - API data reportedly showed headline US Crude stocks building +1.6mln in the week (exp. -0.3mln), though stocks at Cushing drew down by -0.8mln; Gasoline inventories slipped -0.1mln (exp. -0.1mln), while distillates declined by -1.7mln (exp. -1.3mln).

HEALTHCARE:

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  Centene (CNC) - Centene is to reduce its workforce by 3% (around 2,000 workers) to save money and improve profits, Bloomber reports. They want to improve their Medicare ratings but are losing Medicaid members due to state restrictions. CEO Sarah London is simplifying the company by selling non-core units.


• 
  BioMarin (BMRN) - BioMarin has been granted orphan designation by the FDA for its treatment aimed at patients with hypertrophic cardiomyopathy caused by a mutation in the MYBPC3 gene.

FINANCIALS:

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  UBS (UBS) - The bank seeks to wipe out EUR 1.8bln tax fine at France's top court, a penalty which helped French clients hide undeclared funds in Swiss accounts, according to Bloomberg.

27 Sep 2023 - 09:30- Research Sheet- Source: Newsquawk