US EARLY MORNING: US equity index futures are lower after the hawkish FOMC

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  EQUITIES: US equity index futures are lower, but have risen off lows, in wake of the hawkish FOMC meeting, where the central bank signalled a March hike was likely to be forthcoming. We recap the main points of the FOMC below, however, most of the outcomes were in line with expectations, with the Fed revealing little in the way of significant strategies on the pace of rate hikes and balance sheet reduction, as the Fed looks to retain optionality in the face of uncertainties ahead. Some key strategists – like those at Goldman Sachs, JPMorgan and Citi – have recently put out notes suggesting that the dip in equities presented buying opportunities, however the vagueness about how the central bank will respond in the months ahead (aside from the tightening impulse) has left some strategists in a state of caution; BlackRock’s investment institute, for instance, is not planning to buy the dip while there is confusion over central bank policy, telling Bloomberg that to increase the risk profile of its portfolios, they need confidence that policy confusion has decreased, while it also wants to see some stabilisation in global geopolitics; “risks of the Fed overreacting and overdoing it have increased from last night’s meeting and markets are reacting accordingly,” BlackRock said.


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  TREASURIES: Yields are sharply higher along the front-end of the yield curve, with 2s and 3s +10-11bps (to new cyclical highs), the belly sees yields higher by around 5bps, while the long-end is little change. Curve spreads have therefore adopted a flattening bias, to the tune of 3-7bps; the assault on the short-end leaves 2s10s at the flattest levels since March 2020. Of course, it is the hawkish Fed meeting that has spurred the price action, and money markets are pricing 100bps worth of rate tightening this year – that is the equivalent of four 25bps rate hikes, but the Fed chief did not rule out the possibility of a 50bps move in the meetings ahead; additionally, there is some probability that we could see even more tightening. A 7yr Treasury auction is on the slate for today, as well as Q4 advance GDP and the weekly claims data. Analysts will be watching the tone of incoming data to assess how aggressive the Fed may play out this year. Some desks warn that the bias might not necessarily be towards more hikes; indeed, if the data begins to show a degree of softness, the Fed has retained two-way optionality, which could see pricing for aggressive hikes pared in the face of weak data. Friday’s PCE report as well as next week’s ISM surveys will be key in assessing this theme.


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  DOLLAR: Unsurprisingly, the hawkish Fed and subsequent jump in Treasury yields boosts the Dollar Index to fresh highs, now eying the 97.00 handle, but before then the 2021 high of 96.914. This is the dominant theme, and accordingly, activity FX and EMFX is generally under pressure. The ZAR is standing out for its strong performance ahead of the SARB meeting later today, where officials will likely lift rates by 25bps. Some strategists think bearish moves in global risks assets might have been overdone, and have started talking of potential tactical scenarios to play rebounds. Citi sees equity volatility continuing for the coming weeks, in which case it would expect to see long JPY, USD funded by SEK perform well, but in the event of a tactical rebound, it has told its clients that it would favour longs in AUD,NZD, NOK, and GBP in G10.


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  CRUDE: A fragile risk mood combined with upside in the USD has put a lid on the strength seen in crude benchmarks of late. ING says that capacity constraints at OPEC and ongoing geopolitical tensions still provide bullish support, noting the bullish action seen in calendar spreads where prompt Brent backwardation rose to USD 1.20/bbl on Wednesday vs levels around USD 0.80/bbl last week. Next week's OPEC+ meetings are coming into focus; many expect the group to continue with loosening supply curbs by 400k BPD per month for now.

DAY AHEAD 27TH JAN:

• 08:00GMT/03:00EST: Spain Unemployment Rate (Q4)


• 09:00GMT/04:00EST: Italy Industrial Sales (NOV)


• 09:30GMT/04:30EST: South Africa PPI (DEC)


• 10:10GMT/05:10EST: Italy 6-Month BOT Auction


• 11:00BST/06:00EDT: Danaher Corp (DHR) earnings (preview)


• 11:00GMT/06:00EST: Canada CFIB Business Barometer (JAN)


• 11:00GMT/06:00EST: Turkey CBRT Minutes, Inflation Report


• 11:00GMT/06:00EST: UK CBI Distributive Trades (JAN)


• 11:30GMT/06:30EST: Turkey Foreign Exchange Reserves (21/JAN)


• 12:00BST/07:00EDT: Comcast Corp (CMCSA) earnings (preview)


• 12:00BST/07:00EDT: McDonald's Corp (MCD) earnings (preview)


• 12:00GMT/07:00EST: Mexico Balance of Trade (DEC)


• 13:00BST/08:00EDT: Mastercard Inc (MA) (preview)


• 13:00GMT/08:00EST: SARB Rate Decision


• 13:30GMT/08:30EST: Canada Average Weekly Earnings (NOV)


• 13:30GMT/08:30EST: US GDP Growth Rate Adv (Q4)


• 13:30GMT/08:30EST: US Durable Goods Orders (DEC)


• 13:30GMT/08:30EST: US Initial Jobless Claims (22/JAN), Continuing Jobless Claims (15/JAN)


• 15:00GMT/10:00EST: US Pending Home Sales (DEC)


• 15:30GMT/10:30EST: US EIA NatGas Stocks (21/JAN)


• 16:00GMT/11:00EST: US Kansas Fed (JAN)


• 16:30GMT/11:30EST: US 4-Week, 8-Week Bill Auctions


• 18:00GMT/13:00EST: US 7-Year Note Auction


• 21:10BST/16:10EDT: Visa Inc (V) earnings (preview)


• 21:30BST/16:30EDT: Apple Inc (AAPL) earnings (preview)

ECONOMY:

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  FED: The FOMC signalled that it is of a mind to raise rates at its March meeting, as markets had expected. Chair Powell was less committal on the pace of hikes, which gives the central bank optionality to raise rates by more than the 100bps of tightening currently being fully priced by the market (with some probability of further hikes too), or indeed fewer hikes in the event of downside risks. Powell did not rule out the possibility of a 50bps rate hike if needed, nor did he rule out the notion that the Fed could hike at every meeting; however, some note that Powell's answer in response to a question on whether the Fed needed to raise rates above its 2.5% estimate of the neutral rate could be indicative of a more lengthy tightening cycle after Powell said that there is 'quite a bit of room' to raise interest rates without threatening the labour market. On the size of its USD 8.9trln balance sheet, the Fed will still conclude its asset purchases in March, opting against ending the programme early, perhaps in light of the recent market turmoil and its desire to avoid springing any surprises in this environment. The Fed's guidance suggest that the balance sheet will begin to be reduced after the hiking cycle has begun; the Powell again avoided committing to anything specific at this point, and said that the strategy of how the Fed would reduce the balance sheet would be discussed in coming meetings. Many analysts expect the run-off to begin in June or July, and as Powell alluded to, the pace of the reduction is likely to be quicker than USD 30bln/month cap the Fed used in its 2017 run-off. Finally, the Fed chair suggested that eventually, the composition of the balance sheet would be primarily comprised of Treasuries. With the balance sheet currently around 36% of GDP, some Fed officials have previously argued that the size could be reduced to 20% in the long-term, which some think implies the balance sheet could be reduced to around USD 2.8trln over a 5yr window.


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  GERMANY: GfK Consumer Sentiment -6.7 in February (exp. -7.8, prev. -6.8, Rev. -6.9). Pantheon Macroeconomics said the data indicates stabilisation in Germany amid the improvement in the tone of survey data since the start of the year, which adds to evidence that the Omicron wave is over. “This challenges our view that the economy is set to stall in Q1, though we are happy to lift our forecasts if the surveys next month build on this month’s gain.” Tomorrow’s Q4 GDP data will also be a factor in assessing recent economic momentum. (Newsquawk)


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  CHINA: China is said to weigh breaking up Evergrande (3333 HK) to contain the situation. (Bloomberg)

GEOPOLITICS:

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  US/CHINA: Secretary of State Blinken spoke with China's State Councillor and Foreign Minister Wang Yi; Blinken underscored global security and economic risks posed by further Russian aggression against Ukraine, and conveyed that de-escalation and diplomacy are a responsible way forward. (France24)


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  US/RUSSIA: US ambassador to Russia delivered Washington's response to Russia's security demands. Secretary of State Blinken said the document includes concerns the US and allies have raised and the responses reflect the US is open to dialogue and prefers diplomacy but will not release the document publicly and it remains up to Russia to decide how to respond, while they are ready either way. Russian Foreign Minister Lavrov said there was no positive response from the US on the main issues, adding that the US response provided hope of starting serious dialogue, but only on secondary questions. The Kremlin said Russia's main security demands had not been taken into account. (Newsquawk)


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  IRAN: Russian envoy sees Iran nuclear deal being reached by the end of February, said the Iran oil embargo will be lifted under the deal, while a new Iran deal could start by April. (Foreign Policy)


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  N.KOREA: North Korea fired an unidentified projectile towards the East Sea; South Korean military said the launch was presumed to be ballistic missiles; US condemns North Korea's missile tests as violation of UN sanctions. (Yonhap)

EQUITIES:                            

KEY TECHNICAL LEVELS (via Credit Suisse):

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  SPX: 4245, 4248, 4276, 4344, 4361, 4417, 4431, 4450, 4477, 4495.


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  NDX: 13609/14, 13721/25, 13822, 13995, 14257, 14784, 14826/68, 15006, 15166, 15266.


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  RUT: 1927/31, 1952, 1964/62, 1981, 2009, 2044, 2053, 2062/68, 2085, 2105/10.

INDEX:

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  Constellation Energy (CEG), The Gap (GPS) - To replace Gap in the S&P 500 prior to the opening of trading on February 3rd. (S&P Dow Jones)

TECH:

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  Apple (AAPL), Square (SQ) - Apple plans new service that will enable small businesses to accept payments directly on iPhones without additional hardware; currently external devices – like Square’s – are required. (Bloomberg)


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  Intel (INTC) - Declined by 2.75% in afterhours trading after results. Despite metrics which topped analyst expectations for the quarter, and hiking its dividend by 5%, the chipmaker provided weak guidance for the next quarter. Adj. EPS 1.09 (exp. 0.91), Revenue 20.5bln (exp. 18.32bln), Client Computing Group revenues 10.1bln (exp. 9.57bln), Data Center Group revenues 7.3bln (exp. 6.68bln). Sees Q1 adj. EPS at 0.80 (exp. 0.86/0.77 GAAP), and sees Q1 revenues at 18.3bln (exp. 17.62bln). (Newsquawk)


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  Lam Research (LRCX) - EPS beat, revenue missed, and guidance was soft. Q1 EPS was 8.53 (exp. 8.51), Revenue USD 4.23bln (exp. 4.41bln); next quarter revenues are seen at 4.25bln (exp. 4.51bln), with EPS at 7.45 (exp. 8.74). Said supply chain conditions worsened in December causing near-term impacts on its results. Sees wafer fabrication equipment investments increasing again in 2022. (Newsquawk)


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  Xilinx (XLNX) - Rose slightly in afterhours trade. Q3 Adj. EPS 1.29 (USD 0.95), revenue USD 1.01bln (exp. 956.8mln). Said it was unable to fully satisfy customer needs, and noted the 'extremely tight' supply conditions. (XLNX)


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  Teradyne (TER) - Fell by over 20% in aftermarket trade after providing weak guidance for the next quarter. Profits for the last quarter were 1.37/shr (exp. 1.30), on revenue of USD 885mln (exp. 868mln), but sees next quarter revenue between USD 0.76-0.98 (exp. 1.27) and guides revenue between USD 700-770mln (exp. 872mln). (TER)


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  ServiceNow (NOW) - Surged in afterhours trading after its results. Q4 Adj. EPS 1.46 (exp. 1.43), revenue 1.61bln (exp. 1.60bln), subscription revenues 1.52bln (exp. 1.52bln). The large customers base was +25% to 1,359. Analysts were reportedly encouraged by the outlook amid scepticism on the software sector. (Newsquawk)


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  Seagate Technology (STX) - Rose almost +7% in extended trading; metrics were mostly in line, but it raised its FY 22 view. EPS 2.41 (exp. 2.35), revenue USD 3.12bln (exp. 3.11bln). FY 22 revenue seen rising between 12-14% (prev. it saw 'low double-digit' range). (STX)


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  SAP (SAP) - Q4 revenue EUR 7.98bln (prev. 7.91bln), EPS 1.86 (exp. 1.64). Sees FY22 adj. operating profit 7.8-8.25bln (exp. 8.4bln). Cloud and Software Revenue 6.99bln (prev. 6.579bln). Said it hit the high end of its revised 2021 cloud revenue outlook range and exceeded its cloud and software revenue and operating profit outlook ranges. Confident that its positive momentum will continue throughout 2022, expects accelerating cloud revenue growth. To acquire a minority stake in Taulia, terms undisclosed. SAP said it is in discussions with partners on the metaverse, and said it was open to larger acquisitions, while cash flow was strong. (MarketWatch)


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  Software AG (STWRY) - Q4 2021 (EUR): Revenue 234.6mln (exp. 234mln). Net 34.8mln (exp. 26mln) Adj. EBITDA 45.2mln (exp. 38.5mln). Co. guides FY22 adj. EBITDA margin between 20-22%. (Newsquawk)


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  STMicroelectronics (STM) - Q1 2022 (EUR): Net Revenue 3.5bln (exp. 3.25bln). Sees Q1 gross margin 45% (exp. 41.9%). Sees 2022 Capex 3.4-3.6bln and Net Revenue 14.8-15.3bln. Sees chip shortage lasting this year. (MarketWatch)


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  Flex (FLEX) - Rose 6% in afterhours trade after results. EPS 0.50/shr (exp. 0.42), revenue USD 6.6bln (exp. 6.3bln). Sees Q1 EPS 0.41-0.46 (exp. 0.44). (Zacks)


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  MKS Instruments (MKSI) - Revenue of USD 764mln, +16% Y/Y, Non-GAAP net earnings USD 168mln, +29% Y/Y. (MKSI)

COMMUNICATIONS:

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  Netflix (NFLX) - Pershing Square has taken a new 3.1mln share stake since stock began tanking last Thursday, becomes a top-20 shareholder. (Reuters)


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  Streaming Names - UK CMA launches probe into the music streaming market, will consider whether innovation is being stifled and if firms have excessive power. (UK GOVT)


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  Telecom Italia (TIIAY) - Board gives the CEO a mandate to explore strategic options. (Reuters)

INDUSTRIALS:

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  Tesla (TSLA) - Fell by 6% in afterhours trading after publishing its results; despite top- and bottom-line beats, the automaker alluded to supply chain issues will persist this year which limited the ability to run factories at full capacity. Q4 adj. EPS 2.54 (exp. 2.36), revenue 17.719bln (exp. 16.41bln). FCF 2.78bln (exp. 1.67bln), gross margin 30.6% (exp. 29.9%). (Newsquawk)


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  Daimler (DMLRY) - Mercedes-Benz and Prologium have entered into a technology cooperation agreement. (Daimler)


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  Stellantis (STLA) - Plans to take majority share in JV with GAC in China. (STLA)


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  Leonardo (FINMY) - Could be mulling a divestment of its communications unit which could be valued between USD 300-400mln; Leonardo responded that it has made no formal decision yet. (Reuters)

MATERIALS:

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  Antofagasta (ANFGY) - Two mineral leases cancelled by the US for its twin metals copper mine project in Minnesota; US said leases were "improperly renewed" under the Trump administration. (Reuters)


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  Anglo American (NGLOY) - Q4 2021 Production: Copper 161kt (prev. 168kt Y/Y). Iron ore output 15.1Mt (prev. 16.2Mt Y/Y). (MarketWatch)

ENERGY:

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  Chevron (CVX) - Raised quarterly dividend to USD 1.42/shr (prev. 1.34/shr). (Newsquawk)


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  Siemens Energy (SMNEY) - Reportedly increased efforts to explore a full integration of wind turbine business Siemens Gamesa (GCTAY). (Reuters)

REAL ESTATE:

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  Crown Castle International (CCI) - Q4 FFO/shr 767mln (exp. 750.6mln), Revenue 1.65bln (exp. 1.46bln), Adj. EBITDA loss 984mln (exp. profit 971.5mln). (Newsquawk)

HEALTH CARE:

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  GlaxoSmithKline (GSK) - JV with US Life Sciences announced first patient with Rheumatoid Arthritis was treated. (FT)


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  Philips (PHG) - US FDA calls Co’s expanded recall of certain ventilators late last year as the most serious type, could lead to injuries or death. (Reuters)


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  Edwards Lifesciences (EW) - Dropped in afterhours trading after reporting light profits and revenues. Q4 Adj. EPS 0.51 (exp. 0.55), Revenue 1.33bln (exp. 1.35bln). Said Omicron had a pronounced impact on hospital resources in December. FY22 outlook was unchanged, while some desks felt the Q1 guide was also on the soft side. (Newsquawk)


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  Vertex Pharmaceuticals (VRTX) - Q4 EPS 3.37 (exp. 3.30), Revenue 2.07bln (exp. 2.00bln). Product revenues in 2022 seen between USD 8.4-8.6bln (exp. 8.2bln). (Newsquawk)

FINANCIALS:

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  Deutsche Bank (DB) - Q4 net EUR 5.90bln (exp. 5.68bln). FICC Sales & Trading 1.20bln (exp. 1.28bln). Pretax 82mln (prev. 175mln Y/Y). Says is well positioned to achieve ROTE of 8%. Announced EUR 300mln buyback to be completed in H1, proposes dividend of EUR 0.20/shr for FY21. Provisions for credit losses 515mln (prev. 251mln). Deutsche’s DWS (DWS GY) unit reported FY21 revenue EUR 2.72bln (prev. 2.24bln). Adj. Pretax 1.14bln (prev. 795mln). AUM 928bln (prev. 793bln). (CNBC)


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  UBS (UBS) - To acquire Wealthfront for USD 1.4bln in cash. (FT)


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  Generali (ARZGY) - To become a majority shareholder in its Indian Insurance JVs, will purchase Future Enterprise Limited’s 25% stake for circa. EUR 145mln, taking its stake to the 73% maximum. (Business Standard)


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  Banco Sabadell (BNDSY) - Q4 2021 (EUR): 161mln (exp. 139mln). NII 863mln (prev. 854mln). CET1 +16bps Y/Y. (Reuters)

CONSUMER STAPLES:

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  Diageo (DEO) - H1 2022 Revenue GBP 7.96bln (prev. 6.87bln). Adj. operating profit GBP 2.74bln (prev. 2.24bln). Net 2.09bln (prev. 1.66bln). Co. expects organic net sales momentum to continue throughout H2 2022. (CNBC)

CONSUMER CYCLICAL:

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  Valeo (VLEEY) - Prelim FY21 EUR 17.3bln (prev. 16.9-17.2bln). EBITDA margin 13.4% (prev. 13-13.4%). (Newsquawk)


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  Swatch (SWGAY), Richemont (CFRUY) - Swiss Watch Exports vs 2019 (Dec) +8.5% vs prev. +8.6%. (RTRS)

27 Jan 2022 - 09:51- Fixed IncomeData- Source: Newsquawk