US EARLY MORNING: US equity indices trade slightly red ahead of data (ADP, JOLTs, ISM) and FOMC policy meeting (+25bps expected)

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  OVERNIGHT: Stocks on Wall Street rallied into month-end on Tuesday. Asia traded with cautious gains ahead of the FOMC and after Chinese Caxin Manufacturing PMI remained at subdued levels, missing expectations, despite the reopening in the country which has supported activity; along with the official NBS PMI data released this week, it suggests that weak foreign demand is holding back factory activity even as domestic services activity is rapidly improving, Capital Economics said. European equities started on a note of caution ahead of key Eurozone inflation data, while traders are also looking to Thursday's central bank bonanza, with the ECB (our preview will be released after the HICP data today) and BoE policy decisions due (preview here).


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  US PRE-MARKETS: Communication names came under pressure afterhours on disappointing updates from SNAP and EA, which pressured peers including META ahead of its own earnings due afterhours today. US equity futures are trading beneath neutral ahead of a huge day for US data (ADP and JOLTs jobs data ahead of Friday's NFP; ISM manufacturing) and central bank events (FOMC tonight; ECB and BoE tomorrow), as well as a few mega cap earnings (META afterhours). Treasury yields are lower by 1-5bps, with the long-end outperforming ahead of today's Quarterly Refunding Announcement from the Treasury. The Dollar Index has slumped to sub-102 levels. Crude futures are firmer despite a larger than expected build reported by the API afterhours on Tuesday; OPEC’s JMMC are unlikely to recommend any policy changes today.

DAY AHEAD:

• Our full day ahead calendar can be accessed here (or here for the live, online version).


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  EUROPEAN ECO DATA: The primary focus will be the January inflation data, where headline HICP is expected to ease to 9.0% Y/Y from 9.2%; the core measure is seen easing to 5.1% Y/Y from 5.2%. There was hot data out of Spain for the month, released on Monday, which gave rise to fears that the Eurozone data could also come in hot. But French data released Tuesday helped assuage these fears, and although it rose in the month, it did not deviate from the consensus view. A note about the January Eurozone data: Germany’s stats office had technical issues in putting together the German inflation data for the month, and accordingly, that release has been delayed (we’ll find out on Friday when the re-scheduled data will be published); Eurostat has said it will therefore use an estimate for the German measures within its inflation data.


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  US ECO DATA: The ADP’s gauge of payrolls in January will provide us with the customary preview for the official jobs data, released Friday, and is expected to show the additional of 170k jobs in the month, cooling from 235k previously. There will also be attention on the wages measures, which are expected to cool, in line with other gauges of wages. NOTE: the consensus for Friday’s official data is for a cooling from 223k to 185k, while the average hourly earnings are seen cooling from 4.6% Y/Y to 4.3%. We’ll also get the JOLTs data for January, which is expected to show job openings falling to 10.23mln from 10.46mln; although the data is stale, it is a series that Fed officials watch closely. The ISM manufacturing PMI is expected to see the headline moderate to 48.0 in January from 48.4; there will also be attention on the new orders sub-index – in the December reports, analysts become worried as both the headline ISM Services and Manufacturing, and their respective new orders components all found themselves sub-50, which divides contraction and expansion. NOTE: Foinal S&P Global PMI data will be released around 15 minutes before the ISM report. Later, the FOMC rate decision is due, and the central bank is expected to downshift the pace of its rate hikes to a 25bps increment; Powell’s commentary after the announcement will be eyed – see below for our preview link. Elsewhere, weekly MBA mortgage applications data is due, while the December construction spending data will be released at the same time as the ISM report.


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  PREVIEW - QUARTERLY REFUNDING (13:30GMT/08:30EST): The US Treasury is expected to leave all its coupon auction sizes unchanged at the February refunding announcement. For November, the Treasury estimated USD 578bln in net marketable debt for Q1, but it's possible this could rise when the latest estimates are released on January 30th on account of the likely lower Treasury General Account (TGA) balance at quarter-end. There is great uncertainty as to how the month-to-month T-Bill issuance will pan out given the ongoing debt limit saga, but in general, it is expected that issuance will ramp up later in the year after a resolution on the debt limit is reached, which is expected to take place at some point in the summer. Meanwhile, an area of discussion is likely to be around adjustments to the auction calendar, which follows the Primary Dealer Questionnaire asking about the liquidity benefits of reducing the number of CUSIPs for Treasuries. Finally, after saying in November that research into a Treasury buyback programme would continue, alongside positive feedback from dealers, any progress on the issue will be eyed.


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  PREVIEW - US ISM MANUFACTURING PMI (15:00GMT/10:00EST): The headline is expected to slip a little further below the 50-level, which divides expansion and contraction, with the consensus view expecting 48.0 in January from 48.4 in December. Although the data sets don’t always behave in the same way, S&P Global’s flash PMI data for January reported a small increase from 46.2 to 46.8, signalling a solid decline in operating conditions at the start of 2023 as manufacturing demand conditions remained subdued, the survey compiler said. The report also noted that input prices increased at a faster pace in January, ending a sequence of moderation in cost inflation that began in mid-2022. There will be attention on the forward-looking new orders sub-index, which has not been above the 50-mark since August. “The worry is that, not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation has accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks,” S&P Global said.


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  PREVIEW - FOMC RATE DECISION (19:00GMT/14:00EST): The analyst consensus sees the FOMC lifting its Federal Funds Rate target by 25bps to 4.50-4.75%, with a small minority noting the potential for a larger 50bps hike increment. Money markets are pricing the smaller move with almost certainty, but further through the year, are under-pricing the December SEP-implied terminal rate of 5.1% and are even pricing risks of Fed easing at the back half of 2023. Chair Powell is likely to stay the course around the fight against inflation not being over and the "higher for longer" policy stance, guiding to more hikes in the future despite the latest encouraging disinflationary data, but it's seen as unlikely that any efforts to jawbone tighter financial conditions will be successful barring a change in the data, with markets themselves in data-dependency mode. Meanwhile, Powell may provide the Fed more optionality to cater for a 'soft landing' by leaning into recent Fed Speak regarding the potential for disinflation absent a meaningful rise in unemployment. See here for our full preview.


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  ENERGY: Weekly DoE energy inventory data is due; for reference, the API’s data is said to have shown Crude stocks +6.3mln (exp. +0.4mln), Cushing +2.7mln, Gasoline +2.7mln (exp. +1.4mln), Distillate +1.5mln (exp. -1.3mln). Elsewhere, the OPEC+ JMMC meeting takes place today, and reports this week have suggested that the panel is unlikely to recommend any policy changes.


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  EARNINGS: Today’s US corporate earnings docket includes GSK, NVS, TMUS, TMO, BSX, HUM, MO, WM, META, MCK. Full daily earnings estimates can be accessed here.

TALKING POINTS FOR TODAY’S MAJOR US CORPORATE EARNINGS:

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  META: Benchmark maintained its hold on META ahead of its earnings release, stating that it does not see enough 2023 opex leverage to spark the stock price in a weak ad spend environment, and lingering ROAS impact from Apple ATT. "With management determined to expand Reality Labs operating losses 'significantly' in 2023, core ad-related (net) headcount cuts must continue to mount, adding long-tail pressure to ad revenue," Benchmark writes. (Benchmark) Elsewhere, previewing the numbers from Big Tech companies, Wedbush said "we expect a few key narratives to be the common theme... : 1) tech layoffs will accelerate with more pain ahead to curb expenses, 2) digital advertising remains under pressure with some signs of stabilization on the Meta/Google front, 3) prudence around guidance and conservative 2023 expectations which we believe 'clears the deck' on Street numbers, and 4) cloud and cyber security spending is seeing relatively stable growth with pockets of demand weakness." (Wedbush)


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  MO: "Altria’s outlook should be similar to 2022 but we estimate a 6% volume decline, we estimate strong pricing, and we expect new information on its RRP pipeline through the year. We continue with a Buy rating for Altria." (Stifel)


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  TMUS: "T-Mobile announced preliminary 4Q22 subscriber results (no financials) and provided some color at an investor conference. Postpaid phone net adds of 927k matched sell-side consensus though we believe were encouragingly ahead of buy- side expectations in the mid-800k range or lower given concerns over the impact of iPhone supply chain disruption (which appears to have somewhat normalized exiting the quarter). Churn was again a bright spot and helped offset a 7.0% decline in gross adds, with the latter potentially suggesting margin upside in the quarter. Management sees total industry postpaid phone net adds normalizing in 2023 after outsized growth in 2021/2022, though remains bullish on its share gain opportunities. High speed internet net adds were a touch light (524k vs. consensus of 555k) and moderated slightly over the two prior quarters (560k/578k), with management continuing to expect a quarterly pace of ~500k going forward (in line vs. 2023 consensus net adds at 1.98mm) — while this level of growth remains problematic for cable/telco operators, there is some relief from their perspective that T- Mobile’s trends have actually begun to stabilize or perhaps decline. Lastly on 2023 financials, while we’ll have to wait for 4Q22 results for more granular guidance for next year, management did note that it expects capex will be in the $9.0-10.0bn range it outlined at the March 2021 investor day (vs. consensus at $10.0bn), though this does not include incremental investments around fixed wireless or fiber (whether it be a partnership or direct investment) which are both currently being contemplated." (RBC)

EQUITY SPECIFIC NEWS:

TECH:

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  Advanced Micro Devices, Inc. (AMD) - Q4 sales and profits topped expectations, but warns of revenue decline in Q1. Q4 adj. EPS 0.69 (exp. 0.67), Q4 revenue 5.6bln (exp. 5.5bln), Q4 gross margin 51% (exp. 50.8%). Sees Q1 rev. 5.0bln-5.5bln (exp. 5.57bln). Q4 gaming revenues -7% Y/Y, Q4 data segment revenue +42% Y/Y, Q4 client segment revenue -51% Y/Y. Said client and gaming segments were expected to decline, partially offset by embedded and data centre segment growth in Q1. CEO expects overall demand environment to remain mixed with H2 stronger than H1, expects to continue to ship below consumption in Q1 to reduce downstream inventory which is reflected in the guidance. Sees elevated levels of inventory with some Cloud customers which will lead to a softer H1 and stronger H2 for the year.


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  SK Hynix Inc (HXSCL) - Posted a record quarterly loss in Q4, and warned chip slowdown would worsen in Q1 Q4 net KRW -3.5tln (exp. -1.4tln), revenue KRW 7.7tln (exp. 7.9tln). DRAM output to fall in 2023, expects double-digit percentage DRAM bit contraction in Q1 Q/Q. Sees limited growth for NAND in 2023, expects high single-digit NAND bit contraction in Q1 Q/Q.


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  Western Digital (WDC) - Q2 sales and profits miss expectations, Q3 guidance was weak, and announced a convertible equity investment. Q2 EPS -0.42 (exp. -0.08), Q2 revenue USD 3.11bln (exp. 3.01bln). Q2 gross margin 17.4% (exp. 20.5%); Q2 cloud sales -33% Q/Q. Sees Q3 loss per share of between 1.40-1.70 (exp. -0.36), sees Q3 revenue between USD 2.60bln-2.80bln (exp. 3.10bln). Q3 outlook includes underutilisation charges of USD 250mln in flash and HDD, as flash will see a 30% reduction in wafer starts from January. Also announced that it had entered into a USD 900mln convertible preferred equity investment by Apollo Global and Elliott; said the investment strengthens its financial position and flexibility as it continues its review of strategic alternatives.


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  Juniper Networks, Inc. (JNPR) - Prelim Q4 EPS 0.65 (exp. 0.65), prelim Q4 revenue USD 1.45bln (exp. 1.48bln). Exec said it saw strong momentum during the quarter. Lifts quarterly dividend to USD 0.22/shr (prev. 0.21). Sees Q1 EPS between USD 0.37-0.47 (exp. 0.40), and sees Q1 revenue between USD 1.29-1.39bln (exp. 1.3bln), sees Q1 gross margin between 56-58%.


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  Super Micro Computer, Inc. (SMCI) - Q2 EPS 3.26 (exp. 3.03), Q2 revenue USD 1.80bln (exp. 1.78bln). Q3 EPS is seen between 1.88-2.14 (exp. 2.12), and Q3 revenue is seen between 1.42-1.52bln (exp. 1.60bln). Reiterates FY23 EPS outlook of USD 9.00-11.30 (exp. 10.49), and FY23 revenue outlook of USD 6.5-7.5bln (exp. 6.91bln).


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  Software AG (STWRY) - Fell in European hours after it said FY23 production growth seen between 6-10% Y/Y, and sees EBITDA margins between 16-18%.

COMMUNICATIONS:

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  Snap Inc (SNAP) - DAUs and DAUs guide was weak, while it does not provide revenue guidance and sees Q1 revenues falling. Q4 adj. EPS 0.14 (exp. 0.11), Q4 revenue USD 1.30bln (exp. 1.31bln). Q4 adj. EBITDA 233.3mln (exp. 207mln), Q4 DAUs 375mln (exp. 374.7mln), Q4 ARPU 3.47 (exp. 3.49). Sees Q1 DAUs between 382-384mln (exp. 385mln). Said it was not providing expectations for revenue or adj. EBITDA for Q1 2023, but the company's internal forecast assumes Q1 revenue to drop 2-10%. Said that it has a path to adj. EBITDA breakeven in Q1.


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  Electronic Arts Inc. (EA) - Soft sales and profits for the quarter, delayed some key titles and axed others. Q3 EPS 0.73 (exp. 3.05), Q3 net bookings USD 2.34bln (exp. 2.51bln). Exec said the current macro environment impacted Q3 results. Q4 EPS seen between USD 0.05-0.20 (exp. 2.22), Q4 net bookings seen between USD 1.675-1.775bln (exp. 2.22bln). Lowers FY23 EPS outlook to USD 2.97-3.11 (exp. 7.16) from 3.11-3.34, and lowers FY23 net bookings outlook to USD 7.07-7.17bln (exp. 7.76bln). Delayed launch of its 'Star Wars Jedi: Survivor' game to April 28th (was to be released March 17th). Has stopped development of 'Apex Legends Mobile' and 'Battlefield Mobile' titles. Said it was taking a more measured approach to Q4 game launches. Separately, Chair Andrew Wilson sold 5,000 shares at USD 129/shr on January 30th for a total USD 645,007.


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  Match Group, Inc. (MTCH) - Q4 EPS 0.30 (exp. 0.46), Q4 revenue USD 786mln (exp. 787.3mln), Q4 payers -1% Y/Y to 16.1mln. Q4 Tinder direct revenue was flat Y/Y, with +3% payers growth to 10.8mln, offset by RPP declines of 2%. Said that with macroeconomic challenges and uncertainties persisting, we will continue to look for opportunities to streamline operations and maximise profitability. Expects at least the first half of 2023 to remain challenging, but expects to build momentum as the year progresses and remain confident in its ability to deliver full year financial outlook. Q1 revenue is seen between USD 790-800mln (exp. 817.3mln), and Q1 adj. operating income is seen between USD 250-255mln. For the FY23, reaffirms revenue growth expectations of 5-10% Y/Y (exp. 3.44bln).


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  Vodafone Group plc (VOD) - Trading update noted slowdown in Q3 driven by Germany, Italy and Spain. Q3 revenue EUR 329mln, Q3 organic service revenue +1.8% (exp. 1.75%); slowdown in the quarterly trend driven by Europe. Confirms FY23 adj. EBITDaL guidance at EUR 15.00-15.2bln, and FCF at EUR 5.1bln. 

HEALTH CARE:

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  GSK plc (GSK) - Q4 sales and profits topped expectations, sees profit and sales growth ahead. Q4 revenue GBP 7.38bln (exp. 7.04bln), Q4 adj. EPS GBP 0.258 (exp. 0.225); declares GBP 0.1375p dividend for Q4. No change to expected dividend from GSK of 0.565p/shr for FY23. FY23 sales expected to increase between 6-8%; FY23 adj. operating profit expected to increase between 10-12%; FY23 EPS expected to increase between 12-15%. 2023 Guidance at CER and excludes any contribution from COVID-19 solutions.


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  Roche (RHHBY) - European Commission approves label expansion of Roche’s Hemlibra to include people with moderate haemophilia A in the EU.


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  Novartis AG (NVS) - Q4 sales and profits declines, although core EPS was above expectations; the health care giant also lifted its dividend, and forecasts profits in FY23. Q4 revenue USD 12.7bln (exp. 12.9bln), core EPS 1.52 (exp. 1.42). Proposes dividend of CHF 3.20/shr (+3.2% Y/Y). Sandoz planned spin-off is on track for H2 2023. Sees FY23 sales (ex. Sandoz) growing low-to-mid single digits.


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  Amgen Inc (AMGN) - Q4 adj. EPS 4.09 (exp. 4.10), Q4 revenue 6.8bln (exp. 6.77bln). Sees FY23 EPS between USD 17.40-18.60 (exp. 18.43), and FY revenue between USD 26.0bln-27.2bln (exp. 28.5bln). Sees FY23 capex around USD 925mln, and said FY23 share buybacks would not exceed USD 500mln.


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  Stryker Corporation (SYK) - Q4 adj. EPS 3.00 (exp. 2.84), Q4 revenue USD 5.2bln (exp. 4.96bln). Exec said it expects continued positive sales momentum in 2023, and for adj. earnings to gradually improve over the course of the year; sees FY23 organic net sales view up 7-8.5% (exp. +5.7%), and sees FY adj. EPS between USD 9.85-10.15 (exp. 9.86). Exec said he believes that there will continue to be macro-economic volatility caused by alleviating supply chain disruptions, inflationary risks and currency fluctuations. "If foreign exchange rates hold near their current levels, we anticipate sales and EPS will be modestly unfavourably impacted as compared to 2022." Added that based on the steady progress of pricing actions, expects the impact of price to be between 0% and -0.5% on EPS.


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  Edwards Lifesciences Corporation (EW) - Q4 adj. EPS 0.64 (exp. 0.61), Q4 revenue USD 1.35bln (exp. 1.33bln). Q1 adj. EPS seen between USD 0.58-0.64 (exp. 0.59), and Q1 revenue seen between USD 1.37-1.45bln (exp. 1.37bln); reiterates FY23 adj. EPS guide of between USD 2.45-2.60 (exp. 2.50), and FY23 revenue guide of USD 5.6-6bln (exp. 5.8bln).

FINANCIALS:

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  Chubb Ltd (CB) - Q4 operating EPS 4.05 (exp. 4.25). Exec said pricing conditions in commercial P&C remained favourable, the vast majority of its portfolio was achieving good risk-adjusted returns, and it was on top of loss cost inflation. Exec noted strong start to the new year.


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  PayPal Holdings, Inc. (PYPL) - Will cut 2,000 jobs (around 7% of its workforce) in an effort to reduce costs; slowdown and pandemic retreat weighed on spending growth, Bloomberg said.

CONSUMER:

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  Mondelez International Inc (MDLZ) - Q4 adj. EPS 0.73 (exp. 0.70), Q4 revenue USD 8.70bln (exp. 8.33bln). Q4 organic revenue was up +15.4% (exp. +11%). Sees FY23 organic revenue growth of +6% (exp. +6%). Board approves new USD 6bln share repurchase program which replaces existing authorisation.


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  O-I Glass (OI) - Q4 EPS 0.38 (exp. 0.32), Q4 revenue USD 1.7bln (exp. 1.6bln). Exec said it has good momentum into 2023, expects improved results reflecting strong net price realisation, despite higher interest expense. Exec said sales volume should be flat or up slightly, operating costs will likely benefit from continued margin expansion initiatives, which should mostly offset higher expense associated with elevated asset project activity. Q1 EPS seen between USD 0.80-0.85 (exp. 0.53), and sees Q1 revenue down low single digits. FY23 EPS is seen above USD 2.50 (exp. 2.28), and FY23 revenue volume growth is seen flat to up 1% (exp. 6.98bln).


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  BMW (BMW) - The German automaker has increased the suggested retail price for some models within China with immediate effect, Shanghai Securities News reports, due to higher raw materials and logistic costs.

MATERIALS:

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  Anglo American (NGLOY) - provisional rough diamond sales value for De Beers’ first sales cycle of 2023 was USD 450mln (vs USD 660mln in Cycle 1 of 2022, and vs USD 417mln in Cycle 10 of 2022)


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  Rio Tinto (RIO) - The missing radioactive capsule was found in Australia.


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  Glencore (GLNCY) - Copper output fell -12% Y/Y, but it maintains 2023 outlook; coal production grew 6% Y/Y.

INDUSTRIALS:

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  Canadian Pacific Railway Limited (CP) - Q4 adj. EPS CAD 1.14 (exp. 1.08), Q4 revenue CAD 2.46bln (exp. 2.441bln), Q4 volumes +8%, Q4 operating ratio +60bps to 59.8%, Q4 adj. operating ratio +160bps to 59.1%. Expects US decision on proposed merger with KSU later this quarter.


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  BAE Systems (BAESY) - Awarded a US Air Force contract worth around USD 650mln.

01 Feb 2023 - 09:20- Research Sheet- Source: Newsquawk