US EARLY MORNING: US equity futures slightly up though Treasuries are subdued ahead of today's key jobs data

US PRE-MARKETS: US equity index futures are a little higher though Treasuries are subdued ahead of today’s key jobs data, which will form part of the Fed’s calculus on future rate hikes. The central bank's recent updated projections pencilled in one more rate hike this year, though data will ultimately be the deciding factor. Before the Fed's November confab, September CPI and PCE reports will be released, and the Fed is likely to take all of this jobs and inflation data in its totality when deliberating on its next policy move. However, markets are pricing an unchanged decision in November, assigning only a 22% probability of a hike. Looking ahead to December, just 10bps of tightening is priced in, implying a 40% probability of another 25bps rate rise by year-end, highlighting the market's perception that the Fed may already be at terminal.

BOFA SEES BOND REBOUND: According to Bank of America's Michael Hartnett, bonds that have faced recent challenges are predicted to rebound in 2024 as higher interest rates potentially trigger a recession. Hartnett anticipates that when the expected recession becomes evident in economic data, bonds will experience significant gains and outperform other asset classes in H1. He currently remains cautious on risk assets, due to concerns about an economic downturn resulting from rising interest rates, and is waiting for a catalyst (recession/credit event) to prompt a shift towards bullish policy measures, which would drive a strong rally in assets that have already priced in a recession. Despite recent bond market turbulence stemming from indications of higher interest rates by the Fed, investors have continued to invest in Treasuries; however, there is also a rising trend of investors allocating more funds to cash, reflecting a growing sense of caution, Bloomberg says. Hartnett advises selling the S&P 500 in its upper price range, believing that the bear market has more to unfold.

TODAY'S AGENDA:

• 
  DAY AHEAD: The European data slate is thin, leaving traders to focus on US events, where the nonfarm payrolls report for September will be released (the link to our full preview is below). The Canadian jobs data will be released at the same time. US consumer credit data for August will be released in afternoon trade. On the speaker's slate, Fed Governor Waller is due to deliver remarks; he is considered to be on the more hawkish end of the FOMC policy spectrum. Baker Hughes weekly rig count data is due in the afternoon. Our full interactive calendar can be accessed here; a pdf version can be downloaded here.


• 
  PREVIEW - US NONFARM PAYROLLS (13:30BST/08:30EDT): The US economy is expected to add 170k nonfarm payrolls in September following August's 187k, with forecasts ranging between 90-256k. The unemployment rate is seen easing to 3.7% from 3.8% (range of forecasts is between 3.4-3.9%). Average monthly wages are expected to rise +0.3% M/M picking up from last month's +0.2%, while the annual measure see steady at 4.3%. Labour market proxies have been mixed heading into the September data; the ADP gauge of private payrolls disappointed to the downside, though weekly claims data continues to show labour market resilience. Within business surveys, manufacturing employment improved back into expansion in September, while the pace of services sector employment pared back slightly in the month, according to ISM data. Traders will frame the data in the context of Fed policy, where the central bank's recent updated projections pencilled in one more rate hike this year, though data will ultimately be the deciding factor. Before the Fed's November confab, September CPI and PCE reports will be released, and the Fed is likely to take all of this data in its totality when deliberating on its next policy move. However, markets are leaning towards an unchanged decision in November, with money market pricing suggesting only a 22% probability of a rate hike. Looking ahead to December, just 10bps of tightening is priced in, implying a 40% probability of another 25bps rate rise by year-end, which highlights the market's perception that the Fed may already be at terminal.

EQUITY NEWS:

CONSUMER:

• 
  Levi Strauss (LEVI) - Shares slipped 3% afterhours following publication of Q3 results, where it cut FY23 guidance. Q3 EPS 0.28 (exp. 0.27), Q3 revenue USD 1.51bln (exp. 1.54bln). Exec said it delivered double-digit growth in direct-to-consumer business in Q3, driven by strong comp-store gains, which helped offset continued softness in the wholesale channel, primarily in the US. Saw sequential improvement in the business as it moved through Q3, with both July and August up Y/Y, but given the ongoing uncertainty in the macro environment, is taking a cautious approach to its Q4 outlook. Sees FY23 EPS at low-end of previously guided 1.10-1.20 range (exp. 1.12), lowers FY23 revenue outlook, now sees flat to up 1% (prev. saw up 0.5%-2.5%).


• 
  General Motors (GM) - GM has made a counteroffer to the United Auto Workers in an effort to end the ongoing strike. The UAW President plans to provide an update on the talks with Detroit automakers on Friday.


• 
  Tesla (TSLA) - Tesla has reduced the prices of its Model 3 and Model Y cars in the US by 2.7-4.2%, according to Reuters. This follows previous price cuts this year to stay competitive in the electric vehicle market. Prices for the Model 3 have dropped by about 17% since the start of the year.


• 
  Tesla (TSLA), Twitter (not listed) - The SEC is suing Elon Musk to make him testify about his USD 44bln Twitter takeover, and whether he broke securities laws in 2022. Musk initially agreed to testify but later raised objections.


• 
  MGM Resorts (MGM) - MGM Resorts faced a cybersecurity issue but quickly shut down affected systems to protect customer info; co expects USD 100mln impact on Q3 earnings, but Q4 looks strong. Said customer data was accessed, but sensitive details like bank info weren't compromised.


• 
  Bunge (BG) - Bunge shareholders agreed to buy Viterra Limited and relocate the parent company from Bermuda to Switzerland. The deal involves issuing Bunge shares and is set to close in mid-2024, pending regulatory approvals.

TECH:

• 
  TSMC (TSM) - September sales -13% Y/Y at TWD 180.43bln (prev. 188.69bln in Aug).


• 
  Micron Technology (MU) - Micron is beginning construction on a new memory manufacturing facility in Idaho, the first in 20 years. This USD 15bln project will create jobs and boost the local economy, with production set to start in 2025, and growing in the following years. When finished, it will be the largest cleanroom in the US.


• 
  Microsoft (MSFT) - Microsoft-backed OpenAI is considering making its own AI chips and has looked into potential acquisitions to address the shortage of expensive AI chips, Reuters reports. No final decision has been made, but it is exploring various options.

COMMUNICATIONS:

• 
  AMC Entertainment (AMC) - Taylor Swift's concert film "The Eras Tour" has already sold over USD 100mln in advance tickets worldwide.

MATERIALS:

• 
  Iron Ore Names - China Mineral Resources, a buying agency, is in talks with major iron ore suppliers like Rio Tinto (RIO), BHP (BHP), Vale (VALE), and Fortescue Metals (FSUGY) for favourable terms on transport, ore quality, and delivery for next year's supply.


• 
  Base Metals - Citi expects a further 5-10% downside for base metal prices into year-end. Says micro-headwinds, weak forecasts, and physical balances offer a less optimistic medium-term picture for nickel, and to a lesser extent for zinc & lead. Sees 0-3month copper downside to USD 7,500/t. Base case remains for copper to trade between USD 7,500-8,500/t over the next 6-9 months. Expects 0-3month aluminium prices to grind lower to USD 2,100 in its base case scenario, with China engaging in only limited heavy-lifting. Expects nickel prices to fall to touch USD 18,000/t by end-2023 and average here through 2024. Sees lead prices softening to USD 2,100/t by Q1 2024 before recovering to USD 2,200/t by Q4 2024 once growth sentiment turns. Base forecast is zinc falling to USD 2,300/t within the next three months and average this level in H1 2024. Says lithium price forecast to fall a further 15-20% from current levels in near term.

ENERGY:

• 
  ExxonMobil (XOM), Pioneer (PXD) - ExxonMobil is in advanced talks to buy Pioneer Natural Resources for around USD 60bln, potentially its largest acquisition since 1998. This would expand Exxon's presence in the Permian shale basin, a key area for US oil production, where Pioneer is a significant player.


• 
  Oil Prices - Barclays maintains its USD 92/bbl fair value estimate for Brent in Q4 2023; says recent correction in oil prices has been too rapid and was largely unwarranted.

INDUSTRIALS:

• 
  Flowserve (FLS) - Flowserve's attempt to buy Velan was rejected by the French government due to foreign investment concerns. Flowserve is disappointed and believes it doesn't align with France's goals, will continue its strategy despite the setback.

HEALTHCARE:

• 
  Illumina (ILMN) - GRAIL's multi-cancer blood test, as described in The Lancet, accurately detected various cancer types in over 6,000 people without cancer symptoms. It led to timely diagnoses and doubled cancer detection compared to standard screening, especially catching cancers without recommended tests. Nearly half of detected cancers were at an early stage.

06 Oct 2023 - 09:30- MetalsData- Source: Newsquawk