US EARLY MORNING: US equity index futures start a key week with slight gains

US PRE-MARKETS: US equity futures are trading with slight gains. Treasury trade was closed overnight amid holidays in Japan, yields are currently wider by a couple of basis points, with the belly underperforming. Crude futures continue to tick higher, with many desks noting the potential inflationary implications, particularly in a week with a large number of major central banks set to make policy announcements. The Dollar index is trading flat. The session ahead is quiet, though the week ahead is very busy (See Week Ahead, below). There has been some incrementally positive news on the US-China front, with national security adviser Jake Sullivan attending a previously undisclosed meeting with China's Foreign Minister Wang Yi in Malta, part of efforts to improve strained US-China relations; the meeting addressed economic and security concerns, including Ukraine, export controls, and tensions around Taiwan, with discussions said to be candid, substantive and constructive. Reports suggested that the meeting might pave the way for a meeting between US President Biden and China President Xi Jinping in the autumn.

MS ON STOCKS: Morgan Stanley equity strategist Michael Wilson notes that uncertainty about the current economic cycle is high, with investors in Europe and the US grappling with uncertainty about where the economy is heading, which is typical of late-cycle environments. Wilson says the question is whether the rest of the year will see the continuation of mega-cap growth stocks leading the market, or if there will be a shift to areas that have underperformed so far, such as value and small/mid-cap stocks. In the absence of clear data on the remaining duration of the business cycle, the market is expected to trade in a "late cycle" manner, where holding a combination of defensive growth stocks -- including select growth stories and traditional defensive sectors like Healthcare and Consumer Staples -- along with late-cycle cyclicals like Industrials and Energy, is the recommended play, according to Wilson. Energy, in particular, is recommended within the cyclicals category; historically, the sector tends to outperform late in the economic cycle, supported by commodity strength, while the recent strong oil demand, significant production cuts, and stable crude prices contribute to its attractiveness. Wilson also finds the sector's valuation appealing, with strong free cash flow generation and low net debt-to-EBITDA relative to historical levels, and earnings revisions have also picked up, while positioning remains relatively light, making it an attractive option within the cyclicals sector.

GS ON IPOS: Goldman Sachs writes that, after a two-year drought, the US IPO market has re-opened in dramatic fashion. "Our IPO Issuance Barometer has been at a level consistent with the typical frequency of IPOs since June, suggesting a more normalised IPO backdrop going forward," the bank writes. Its analysis of nearly 5,000 IPOs over the last 25 years shows that 40%+ annualised sales growth through year 3 and positive net income by the 8th quarterly earnings report are associated with outperformance; it says that 67% of IPOs meeting these characteristics outperformed the Russell 3000 over 3yrs with the typical company outperforming by 22ppts. GS says investors must consider valuations, as firms with high Price/Sales multiples at IPO rarely outperform.

TODAY’S AGENDA:

• Our interactive daily calendar can be accessed here; a pdf version can be downloaded here.


• 
  EUROPEAN DAY AHEAD: The Bundesbank will release its monthly report for September. ECB Vice President de Guindos will give remarks at Foment del Treball, while ECB's Panetta will chair a panel discussion.


• 
  NORTH AMERICA DAY AHEAD: Canada housing starts, producer prices, and RMPI data is due. From the US, the NAHB housing market index for September, and TIC flow data are on the releases slate. The FOMC is in blackout ahead of its September 20th confab.


• 
  WEEK AHEAD: It is a heavy week for central bank activity, with rate decisions from the FOMC, PBoC, SNB, BoE, BoJ, Norges, Riksbank, Banxico, BCB, CBRT all due, while we will also get minutes from the recent RBA and BoC meetings. Additionally, CPI data from the UK, Canada and Japan, and Flash PMI data are due. Our week ahead briefing can be accessed here.

EQUITY NEWS:

US-CHINA

• 
  US-China - President Biden's national security adviser Jake Sullivan had a secret meeting with China's Foreign Minister Wang Yi in Malta, part of efforts to improve strained US-China relations. The meeting addressed economic and security concerns, including Ukraine, export controls, and tensions around Taiwan. Discussions were said to be candid, substantive and constructive. Reports suggested that the meeting might pave the way for a meeting between US President Biden and China President Xi Jinping in the autumn.


• 
  China Travel - China is expecting a busy travel season after National Day on October 1st, SCMP reports, with a significant increase in train and plane ticket sales. China Railway reported a record 22.9mln train ticket sales in one day, expecting around 190mln railway trips during the 12-day travel rush, double the previous year's numbers.


• 
  Cosmetic Stocks - China's cosmetics industry is thriving as consumers buy more personal care products post-pandemic. However, foreign cosmetics companies are struggling due to regulations imposed by China during the pandemic, NYT reports, causing trade disputes primarily related to financial interests rather than security or innovation.

AUTOMAKERS:

• 
  General Motors (GM), Ford (F), Stellantis (STLA) - The United Auto Workers (UAW) strike against GM, Ford, and Stellantis is in its fourth day with no immediate resolution on the horizon, Reuters reported. The UAW President Shawn Fain said talks were slow; talks with GM resumed on Sunday, and with talks set to resume with Stellantis and Ford on Monday. And asked whether workers will walk out at more plants this week, Fain said the union was "prepared to do whatever we have to do." Ford on Friday laid off 600 workers due to the UAW strike's impact on operations. 13,000 UAW members are on strike at Ford, GM, and Stellantis plants. Elsewhere, GM is more vulnerable to disruption in EV production due to a prolonged UAW strike compared to Ford and Stellantis, Reuters reports.


• 
  Tesla (TSLA) - The UAW strike against Detroit automakers could benefit Tesla, WSJ reports. The strike is pressuring automakers to increase wages, which could widen Tesla's cost advantage in electric vehicles. The report adds that Tesla's lower costs have allowed it to engage in price wars and maintain profitability. Separately, Turkish President Erdogan asked Tesla CEO Musk to build a Tesla factory in Turkey, Reuters reports.


• 
  Ferrari (RACE), Puma (PUMSY) - Ferrari's Scuderia Ferrari team has extended its partnership with Puma, making Puma its Premium Partner from next year. Puma will also supply team wear and Ferrari-branded products as part of the renewed collaboration that began in 2005.

CONSUMER:

• 
  Amazon (AMZN) - Amazon has been searching for its next major success, referred to as the "fourth pillar," to complement its existing successful businesses, WSJ reports.


• 
  ByteDance (private) - TikTok will offer significant discounts starting late October to attract shoppers to its new online marketplace, competing with Amazon (AMZN) and Walmart (WMT), BBG reports. TikTok will subsidise up to 50% discounts for sellers during a month-long Black Friday programme.


• 
  LVMH (LVMUY) - Demand for LVMH's Champagne brands is slowing down after a surge during COVID-19 lockdowns, Bloomberg writes. Moet Hennessy's CEO mentioned a return to normal in 2023 due to fading COVID effects and inflation, but high-end Champagne is still in demand in certain places like Mykonos and Paris.


• 
  Retailers' Shrink - Malls in California are facing a surge in thefts, with large groups of thieves stealing expensive items quickly. The National Retail Federation estimates the cost of “shrink” and other inventory losses has climbed to almost USD 100bln a year, BBG reports. Mentions of “theft” and “shrink” have more than doubled in company earnings calls since the first quarter of this year.


• 
  Global Ags - Ukraine intends to sue Hungary, Poland and Slovakia due to their refusal to drop a ban on Ukrainian agricultural products, Politico reports.

TECH:

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  Tech Shares - Technology stocks have driven the 2023 market rally but have become more expensive, WSJ notes. Investors are becoming sceptical of their valuations, especially as interest rates are expected to stay high, the paper added.


• 
  SoftBank (SFTBY) - SoftBank plans to invest billions in AI after the successful IPO of Arm, FT reports. It is considering investing in Microsoft (MSFT)-backed OpenAI, exploring partnerships, and looking at other AI opportunities like Graphcore, FT said.


• 
  Arm Holdings (ARM) - After Arm's successful IPO, shares have performed well. However, Barron's writes that its valuation is high, trading at over 25 times its revenue, and over 100 times profit, which some analysts already find concerning.


• 
  Apple (AAPL) - Apple's 2023 product lineup is just good enough to hold the company over until bigger advancements show up next year, Bloomberg wrote. The report added that Apple is poised for growth this holiday season, marking what could be its first sales increase in four quarters, but BBG added that was less because of a cannot-miss product lineup, and more because of an improved supply chain and favourable Y/Y comparison.


• 
  Hon Hai Precision (HNHPF) - Apple supplier Foxconn plans to double its workforce and investment in India by next year. This move is part of its efforts to expand in India and reduce reliance on China, Reuters reports.


• 
  CCC Intelligent Solutions (CCCS) - Private equity firm Advent is considering selling car insurance software provider CCC Intelligent Solutions, which is valued at USD 7.1bln, Reuters reports. Talks are ongoing with potential buyers, including other private equity firms.

COMMUNICATIONS:

• 
  Disney (DIS) - Disney chief information officer Diane Jurgens has left the company, the second C-level executive to leave in under three months as Chief Executive Bob Iger remakes the entertainment giant, WSJ reports.


• 
  Lumen Technologies (LUMN) - Lumen Technologies and its creditor advisers, including Houlihan Lokey and Davis Polk & Wardwell, are in talks to work out a deal that would provide the company with new funds and extend debt maturities, Bloomberg reports. The proposal involves creditors offering fresh cash and allowing debt buybacks at reduced prices, as well as imposing stricter credit terms.


• 
  Netflix (NFLX) - South Korean internet service provider SK Broadband and Netflix have resolved their legal disputes over network maintenance costs. They have agreed to partner on joint products and explore the use of SK's AI products.


• 
  Nexstar (NXST) - DirecTV and Nexstar have agreed to bring back Nexstar-owned channels and NewsNation temporarily after a dispute led to their removal in July. They're working on a new distribution deal.


• 
  T-Mobile (TMUS) - Chief accounting officer Dara Bazzano sold 3,953 shares on September 13th at USD 141.36/shr.

HEALTHCARE:

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  Bristol Myers Squibb (BMY) - Samsung Biologics has made a new agreement with Bristol Myers Squibb to manufacture a cancer drug substance at its facility in South Korea. This expands their existing partnership for commercial antibody cancer drug production.


• 
  GSK Plc (GSK) - FDA approved GSK's Ojjaara for treating myelofibrosis in adults with anemia; it is the only medicine for both newly diagnosed and previously treated patients with anemia.

REAL ESTATE:

• 
  British Land (BTLCY) - British Land is planning to sell Meadowhall shopping center in Sheffield for GBP 750mln, a significant deal that will gauge the market's interest in prime shopping centres in the UK, The Times reports.

ENERGY:

• 
  Chevron (CVX) - Chevron has resumed full production at its Wheatstone LNG facility in Western Australia after a recent fault led to a 20% production cut. The facility, along with the nearby Gorgon plant, accounts for more than 5% of global LNG supply. The fault and strikes did not affect scheduled deliveries, and Chevron continued to maintain supplies during the disruptions.

MATERIALS:

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  Trafigura (not listed) - Major commodity trader Trafigura Group is considering various options for its struggling metals business due to declining profits and a significant alleged nickel fraud incident, Bloomberg reports. This is causing internal tensions alongside succession questions within the company.

INDUSTRIALS:

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  General Dynamics (GD) - General Dynamics was awarded a USD 517.3mln order against a previously issued agreement, to provide unique parts and specialised materials for Virginia-class submarines.


• 
  Lockheed Martin (LMT) - LMT was awarded a USD 196.5mln contract for the upgrade of the verification and validation systems being utilized in the US Reprogramming Laboratory. Was also awarded a not-to-exceed USD 100mln modification to a previously awarded Navy contract, and a USD 104.7mln Army contract modification.


• 
  Thales (THLLY) - Europe's largest defense electronics group Thales is open to more acquisitions despite recent purchases worth EUR 4bln, FT reports. CEO Patrice Caine mentioned they could invest in various business areas but would prioritise integrating their recent acquisitions first.


• 
  Mercury (MRCY) - Positive mention in Barron's; the newspaper said that MRCY was a buy given it is poised for a turnaround.

FINANCIALS:

• 
  KKR (KKR) - Singtel and KKR have reached an agreement where KKR will invest up to SGD 1.1bln for a 20% stake in Singtel's regional data center business, valuing it at SGD 5.5bln. KKR can increase its stake to 25% by 2027 at a pre-agreed valuation.


• 
  Share Buybacks - Share buybacks in the US stock market have slowed down significantly due to rising interest rates, FT reports. In Q2, S&P 500 companies bought back USD 175bln worth of shares, a 20% drop from the previous year, signaling a potential long-term trend that might affect stock markets negatively.


• 
  SVB Financial (SIVBQ) - SVB Financial is close to selling its venture-capital and credit-investment arm, SVB Capital, out of bankruptcy. Potential buyers include SkyBridge Capital, Atlas Merchant Capital, and Vector Capital, with a decision expected soon. The business could be sold for USD 250-500mln, but the deal is not finalised and needs creditor committee approval.


• 
  Visa (V) - Constructive mention in Barron's; the newspaper said that the stock's declines over its share exchange proposal marked an opportunity to buy.


• 
  Robinhood (HOOD) - Robinhood now aims to attract retirement savings, WSJ reports. During the pandemic, amateur investors on Reddit caused stock surges. The founders, Vlad Tenev and Baiju Bhatt, want to grow up and expand their platform.

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