US EARLY MORNING: US equity futures are tentative ahead of Tuesday's debt ceiling talks, and before Wednesday's CPI data

OVERNIGHT: Stocks in the Asia-Pacific region were mixed; Aussie shares were pressured after Australia's largest bank CBA reported a slight increase in Q3 cash profits, but said many customers were struggling with higher interest rates and living costs. Japan's Nikkei 225 outperformed, reclaiming 29,000 status. In China, trade figures were mixed, with stronger-than-expected export growth vs a surprise contraction in imports (see our recap below). Our Asia wrap is here. European equities open around flat following lacklustre leads from Wall Street and APAC trade. In the UK, data from Halifax showed house prices falling -0.3% M/M in April (prev. 0.8%). Our European equity morning opening note is here. 

US PRE-MARKETS: US equity futures are slightly red; Treasury yields are lower by around 3bps, though reports note that yields on Bills are ticking higher on fiscal concerns; the Dollar Index is a little better than flat. Markets seem to be lacking firm direction ahead of today’s debt ceiling talks between President Biden and Republican leaders (see below for primer); equity markets and other risk assets do not seem to be expressing any obvious concerns about the fiscal stand-off just yet, but Bloomberg's venerable markets commentator John Authers suggests that this could create an opportunity for short sellers in the next few weeks (along with a buying opportunity when and if the ceiling is lifted). Wednesday’s CPI release is also featuring in traders’ minds (our primer for that can be accessed in our week ahead note here).

DEBT CEILING: President Biden will today meet Republican leaders at 16:00EDT/21:00BST to discuss raising the current USD 31.4tn limit. Congress typically ties approval of a higher debt ceiling to budget and spending measures. House Republicans have passed a bill already, but it is dead on arrival in the Senate given its spending cuts are tied to the debt limit agreement, which the Democrats oppose. The government already hit its borrowing limit in January, but the Treasury announced a "debt issuance suspension period", allowing it to take "extraordinary measures" to borrow additional funds without breaching the ceiling, and has been able to continue funding government operations and avoid a default. The debt limit "X-Date", where special measures are expected to be exhausted, is likely to be as early as June 1st according to Treasury Secretary Yellen. However, analysts expect this is a cautious estimate to help persuade Congress to act with urgency. JPMorgan and Moody's suggest that the real X-Date might be as late as August/September. Our full primer can be accessed here.

RECESSION RISKS STILL LOOM, JPM SAYS: JPMorgan strategist Marko Kolanovic said that although the Fed's recent rate hike may be its last of the current tightening cycle, expectations among US stock investors that the worst of pressures may have passed will be proven wrong as recession risk still looms. Kolanovic believes that equities are set to weaken for the remainder of the year as the full impact of interest-rate hikes catches up to the economy, and some factors supporting growth wane (banking crisis to amplify Fed tightening; debt ceiling; positive earnings surprises has not changed its view given the lowered the bar going into reporting). He warns that if rate cuts happen this year, it will either be because of the onset of a recession or a significant crisis in financial markets.

DAY AHEAD:

• Our interactive Day Ahead calendar is here; a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: It is a quiet day for European data releases. ECB’s chief economist Lane will deliver remarks again, but no text is due; markets chief Schnabel and ECB's Villeroy are also on today's calendar.


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  US DATA/SPEAKERS: The US Day sees the release of the NFIB small business optimism survey, the weekly RedBook data and the IBD/TIPP sentiment index. On the speaker's docket, Fed's Jefferson (Voter, Neutral) participates in virtual conversation, and Fed's Williams (Voter, Neutral) will speak at the NY Economic Club. President Biden will meet with Republican leaders at 16:00 eastern time (21:00BST) to discuss the debt ceiling; our full primer can be accessed here.


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  ENERGY: The API will report weekly inventory stats after the US close; this week, analysts expect headline crude stocks to draw 1.6mln, distillates are seen drawing 0.8mln, whilst gasoline stocks are expected to draw by 1.3mln.


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  US CORPORATE EARNINGS: The highlights on today earnings slate includes APD, DUK, ABNB, OXY; our Daily US Earnings Estimates note can be accessed here. Meanwhile, for the week ahead, DIS on Wednesday; JD on Thursday; our Weekly US Earnings Estimates sheet can be accessed here.


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  WEEK AHEAD: Highlights include US CPI and PPI, UK GDP, China Inflation and Trade data, BoJ SOO. Our weekly preview is here.


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  RECAP - CHINA TRADE: The Trade Balance widened to USD 90.21bln in April (exp. 71.6bln, prev. 88.19bln). Capital Economics notes that export growth slowed in April, reversing almost all of the increase in March, indicating weak global demand. Import volumes unexpectedly dropped to their lowest levels in 12 months, but CapEco said a rebound was expected due to the reopening of the economy driving domestic demand. Still, it thinks that China's trade surplus is likely to decline, and a recession is expected in most developed economies later this year. ING notes that crude oil imports in April fell to an average of 10.36mln BPD (vs prev. 12.37mln, and 10.52mln Y/Y), which it attributes to lower operating rates due to maintenance.

EQUITY NEWS:

TECH:

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  Alphabet (GOOG) - Google will showcase its significant investment in artificial intelligence at its upcoming developer conference, CNBC reported. Among the announcements, the company will introduce its new general-use language model PaLM 2. Additionally, Google will reveal enhancements to Bard and Search using "generative experiences."


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  Microsoft (MSFT) - LinkedIn unit is cutting 716 jobs from its global workforce of 20,000, BBC reports. The company will also stop its local jobs app in China.


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  Skyworks Solutions (SWKS) - Q2 EPS 2.02 (exp. 2.03), Q2 revenue USD 1.15bln (exp. 1.15bln). Sees Q3 EPS at 1.67 (exp. 2.07), and Q3 revenue between USD 1.05-1.09bln (exp. 1.15bln).


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  Western Digital (WDC) - Q3 adj. EPS -1.82 (exp. -1.57), Q3 revenue USD 2.8bln (exp. 2.7bln), Q1 gross margin 10.6% (exp. 10%). Exec said it was beginning to see improved demand from some customers in China. In flash, it is seeing signs of stabilisation and content increase per unit. Exec added that PC OEMs have emerged from inventory digestion, now shipping closer to-end demand. Sees Q4 revenue between USD 2.4-2.6bln (exp. 2.86bln), and sees Q4 EPS of -2.05 (exp. -1.21).


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  Fabrinet (FN) - Q3 adj. EPS 1.94 (exp. 1.87), Q3 revenue USD 665.3mln (exp. 651.5mln). Exec said that while near-term inventory adjustments were affecting some parts of the business, the impacts are being somewhat offset by growth from other customer programmes and continued gradual improvements in component availability. Q4 adj. EPS seen between 1.76-1.83 (exp. 1.92), and Q4 revenue seen between USD 630-650mln (exp. 670.7mln).


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  Palantir Technologies (PLTR) - Q1 adj. EPS 0.05 (exp. 0.04), Q1 revenue USD 525mln (exp. 506.1mln). Sees Q2 revenue between USD 528-532mln (exp. 538mln); raises FY guidance, now sees FY23 revenue between USD 2.19-2.24bln (exp. 2.2bln) from 2.185-2.23bln.


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  3D Systems (DDD) - Q1 EPS -0.09 (exp. -0.07), Q1 revenue USD 121.2mln (exp. 128mln). Exec said Q1 sales were driven in part by continued softness in its dental orthodontic market, which it attributes to reported sluggishness in consumer discretionary spending, in combination with pre-planned customer inventory reduction efforts. Will reduce workforce headcount by 6%, which will generate USD 10mln in annualised savings from 2024. Reiterates FY23 revenue outlook between USD 545-575mln (exp. 557.1mln).

COMMUNICATIONS:

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  Meta Platforms (META) - Meta warned that it may stop news content on Facebook and Instagram in Canada if legislation forcing social networks to pay media publishers to feature their work is passed, Bloomberg reports. Meta said the proposed laws were "fundamentally flawed", and Canada could become the "first democracy to put a price on free links to web pages, which flies in the face of global norms."


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  Alphabet (GOOG), The New York Times (NYT) - The New York Times will receive approximately USD 100mln from Google over three years as part of a broader deal that allows Google to feature Times content on some of its platforms, WSJ reports. The deal also includes content distribution, subscriptions, and marketing and ad-product experimentation using Google tools.


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  Nintendo (NTDOY) - FY22/23 net profit -9.4% at JPY 432.7bln; Operating Profit -14.9% at JPY 504bln; recurring profit +10.4% at JPY 601bln. It sold 17.9mln Switch units (prev. 23.06mln). Sees FY23/24 Switch sales of 15mln (exp. 15.7mln); Net seen down 21% at JPY 340bln, operating profits seen -10% at JPY 450bln, , and recurring profits seen -20% at JPY 480bln.

FINANCIALS:

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  PayPal Holdings (PYPL) - Q1 adj. EPS 1.17 (exp. 1.10), Q1 revenue USD 7.04bln (exp. 6.98bln), Q1 operating margin 23% (exp. 22%). Q1 total payment volume USD 354.5bln (exp. 350bln). PayPal sees Q2 adj. EPS between 1.155-1.17 (exp. 1.17), and sees Q2 sales growth of about 6.5-7.0% on spot basis. Q2 EPS seen at 1.16 (exp. 1.17), and revenue is seen growing 6.5-7.0% in Q2 (exp. 7.0%). Raises FY profit guidance to reflect Q1 performance and cost cuts: FY23 EPS growth now expected to be +20% (prev. +18%). FY23 share repurchases to reach about USD 4bln (in Q1 it repurchased 19mln shares for a total USD 1.4bln)


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  Regional Banks, Silicon Valley Bank (SIVB) - Report finds California financial regulators did not act swiftly enough to address issues at Silicon Valley Bank before its collapse in March, Reuters said. The report follows a Federal Reserve report from last month, which blamed its own poor oversight and lax regulations for contributing to SVB's failure.


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  Primerica (PRI) - Q1 adj. EPS 3.49 (exp. 3.47), Q1 adj. operating revenue USD 695.0mln (exp. 697.6mln). Exec noted positive net flows in ISP business.


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  Brighthouse Financial (BHF) - Q1 adj. EPS 2.86 (exp. 3.25), Q1 revenue USD 1.955bln (exp. 2.06bln).


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  HSBC (HSBC) - Has reportedly entered into a deal to acquire its partners stake in its Chinese fund management JV, Reuters reports. HSBC's holding will be 100%, subject to approval.


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  UBS (UBS) - Todd Tuckner is to succeed Sarah Youngwood as CFO. Credit Suisse (CS) CEO Ulrich Korner to join UBS Group Executive Board at close of takeover. UBS anticipates that the close will take place in the next few weeks. Credit Suisse will be merged into UBS Group and the combined entity will operate as a consolidated banking group. UBS and Credit Suisse will continue to operate independently for the foreseeable future, UBS will carry out the integration in a phased approach. UBS will initially manage the two separate parent companies.

ENERGY:

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  Saudi Aramco - Saudi Aramco saw a 19% fall in Q1 profits, though was still a little above expectations: net income USD 31.9bln (exp. 30.5bln). Said Q1 saw lower crude oil prices. Major investments advanced its strategic downstream expansion in key global markets. Global downstream strategy is gaining momentum. Has 99.7% supply reliability. Crude utilised by Armaco's downstream operations accounted for 45% of its oil production. Believes oil and gas will remains critical components of the energy mix for the foreseeable future. Moving forward with the capacity expansion. Long-term outlook remains unchanged.


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  Devon Energy (DVN) - Q1 adj. EPS 1.46 (exp. 1.38), Q1 revenue USD 3.82bln (exp. 3.94bln); said oil production averaged 320k BPD in Q1 (exp. 318k); expands stock-repurchase programme by 50% to USD 3bln. For 2023, has not made any modifications to previously announced plan to sustain production in range of 643-663k BOEPD.

INDUSTRIALS:

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  Boeing (BA), Ryanair (RYAAY) - Ryanair is reportedly close to placing a significant "multi-billion-Dollar" new order for Boeing's 737 MAX aircraft. The deal could be announced as soon as Tuesday, according to Reuters sources.


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  Daimler Truck (DTRUY) - Q1 revenue EUR 13.2bln (exp. 13.1bln), adj. EBIT EUR 1.16bln (exp. 1.17bln), Net Profit EUR 795mlln (exp. 729mln), Unit Sales +15% Y/Y at 125.1k. Outlook remains unchanged.


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  Volvo (VLVLY) - The Canadian and Quebec governments are to purchase 1,229 electric buses from Volvo's Nova Bus in a deal worth CAD 2.1bln.


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  Aecom (ACM) - Q2 adj. EPS 0.92 (exp. 0.89), Q2 revenue USD 3.49bln (exp. 3.40bln). Backs FY23 adj. EPS outlook at between 3.55-3.75 (exp. 3.71), and backs FY23 adj. EBITDA view to USD 935-975mln. Backs FY24 adj. EPS view of 4.75+ (exp. 4.41), and reiterates its long-term target for segment adj. operating margin at 17%.


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  Trex Company (TREX) - Q1 EPS 0.38 (exp. 0.34), Q1 revenue USD 239mln (exp. 237.4mln). Q2 revenue seen between USD 310-320mln (exp. 308mln). Board adopts new buyback for up to 10.8mln shares of common stock.

MATERIALS:

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  Glencore (GLNCY) - The miner plans to build Europe's largest battery recycling plant to expand its natural resources business, FT reports. Has launched a study with Li-Cycle on this targeting a 2027 construction date.


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  International Flavors & Fragrances (IFF) - Q1 adj. EPS 0.87 (exp. 0.87), Q1 revenue USD 3.03bln (exp. 2.99bln). For Q2, sees revenues between USD 3-3.1bln (exp. 3.22bln), and sees Q2 EBITDA between USD 540-590mln (exp. 615mln). Lowers FY revenue view to USD 12.3bln from the previous outlook for USD 12.5bln, but keeps FY23 EBITDA view unch at USD 2.34bln.


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  LyondellBasell (LYB) - Lyondell has asked Silverpeak to submit a new bid for the Houston refinery after the chemical maker announced plans to close the plant permanently in April 2022, Reuters reports. The refinery's closure would reduce Lyondell's carbon footprint and is no longer necessary for its petrochemical production system.


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  Evonik (EVKIY) - Q1 revenue EUR 4.01bln (exp. 4.10bln), Q1 net EUR 47mln (exp. 50mln) Adj. EBIT EUR 472mln (130mln). Sees FY23 adj. EBITDA at the lower end of prior guidance. Reaffirms revenue guidance.


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  Century Aluminum (CENX) - Q1 EPS -0.11 (exp. -0.07), Q1 revenue USD 552.4mln (exp. 510.5mln). Exec said market conditions strengthened in Q1, US energy prices continued to moderate; further smelter curtailments in Europe and Yunnan, paired with better than expected aluminium demand, resulted in rising LME prices and regional premiums in the US and Europe. Q2 adj. EBITDA seen between USD 25-30mln based on improved power and other input costs along with break-even or better Jamalco performance.


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  Premier (PINC) - The healthcare company's shares surged in afterhours trading after it said it was considering strategic options, including a sale of all or part of the company, after seeing its revenue shrink due to the COVID-19 pandemic, Bloomberg reports. Board has established a committee to evaluate alternatives.


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  Methane - EU Parliament will Tuesday vote on a new law to reduce methane emissions; however, Romanian MEP Busoi has put forward a number of amendments which, if approved, would water down the law.

CONSUMER:

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  Tesla (TSLA) - The automaker's CEO Musk and Governor Abbott participated in a ceremony to mark the beginning of construction for a lithium refinery in Corpus Christi in Texas. Tesla aims to complete construction next year, and then hopefully begin production about a year later. Musk plans to produce lithium for 1mln vehicles. Tesla intends to spend USD 375mln to construct the facility.


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  China Auto Sales, Tesla (TSLA) - China retail passenger vehicle sales +55.5% Y/Y in April, according to PCA; Tesla (TSLA) exported 35.89k China-made vehicles (prev. 12.2k).


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  Adidas (ADDYY) - Top shareholder Union Investment will reportedly ask Adidas to announce the results of an internal probe into management of misconduct allegations regarding Kanye West, FT reports. The request will be presented at Thursday’s AGM.


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  Lucid Group (LCID) - Q1 adj. EBITDA USD -643.9mln (exp. -592.4mln), Q1 revenue USD 0.15bln (exp. 0.21bln). Had USD 4.1bln of liquidity at the end of the quarter (vs 4.9bln at the end of Q4), and now has enough liquidity through Q2 2024 (prev. saw through Q1 2024). Reiterates plans to make 1k+ vehicles this year.  Q2 deliveries will increase sequentially, while it sees supply chain issues ease somewhat during rest of the year.

HEALTHCARE:

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  AstraZeneca (AZN) - Farxiga extended in the US for heart failure. Koselugo approved in China for paediatric patients with neurofibromatosis type 1 and plexiform neurofibromas.


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  Roche (RHHBY) - FDA accepts application for Vabysmo which treats Retinal Vein Occlusion based on sustained vision improvement and strong data.


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  McKesson (MCK) - Q4 adj. EPS 7.19 (exp. 7.17), Q4 revenue USD 68.9bln (exp. 68.08bln). Sees FY24 adj. EPS between USD 26.10-26.90 (exp. 26.33), and lifts long-term operating profit growth targets.


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  DaVita (DVA) - Q1 adj. EPS 1.58 (exp. 1.14), Q1 revenue USD 2.87bln (exp. 2.84bln). Exec said that while some external uncertainty remains, 2023 is off to a strong start and the continuation of current trends puts it on a path to deliver strong results for the FY. Lifts FY23 adj. EPS outlook to 6.20-7.30 (exp. 6.21) from 5.45-6.95, and lifts FY23 FCF outlook to USD 0.75-1.0bln from USD 650-900mln.


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  Fresenius (FMS) - Q1 revenue EUR 10.2bln (exp. 10.14bln), Q1 EBIT EUR 908mln (exp. 771mln). Confirms outlook.

UTILITIES:

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  Utilities - Vanguard Group received regulatory approval to retain its large ownership stakes in US power utilities, despite Republican concerns over its ESG policies, Reuters reports. Vanguard was previously allowed to exceed antitrust limits based on the understanding that it would not interfere with the utilities' operations.

09 May 2023 - 09:30- Research Sheet- Source: Newsquawk