US EARLY MORNING: US futures are a little higher; FOMC to keep rates unchanged, traders eye updated forecasts and clues on 2024 cuts

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  EQUITIES: US equity futures are a touch in positive territory ahead of today's FOMC policy announcement, where the central bank is expected to keep rates unchanged, though traders will be looking to updated economic projections and for any hints on 2024 rate cuts (see below for our preview). HSBC, who introduced an S&P500 end 2024 PT of 5,000, points out that the index returns an average of 22% between the first Fed pause and six months after the first cut, if a recession is avoided, and has a soft landing in its base case scenario (see below).


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  TREASURIES: Treasury yields are modestly lower across the curve. In wake of yesterday's CPI report, money market pricing for the Fed's trajectory has become a little more hawkish, though markets still see the first cut fully priced for May (still a very decent chance of a cut in March), while there is around 110bps of rate cuts priced over the course of 2024. The Dollar Index is a little higher, though remains sub-104.00.


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  CRUDE: After falling to fresh six-month lows on Tuesday, crude benchmarks are in negative territory on Wednesday, despite API data reportedly showing a drawdown in weekly stocks; analysts continue to cite oversupply concerns for next year; OPEC will release its MOMR later today.

TODAY’S AGENDA:

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  DAY AHEAD: Eurozone industrial production is seen slipping further in October, though the annual rate of decline is expected to improve a little. The main focus of the US day will be the FOMC’s policy announcement; while no changes to rates are expected, traders will be looking to updated economic projections, and any hints that the central bank could begin cutting rates next year (our preview link is below). Before that, PPI metrics for November will be eyed, and the annual rates of producer price inflation is expected to ease. Weekly MBA mortgage applications data and DoE energy inventory stats are also released today. Energy traders will also be looking to the monthly oil market report from OPEC. After the US close, software giant Adobe (ADBE) will report earnings; estimates can be accessed here.


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  PREVIEW - FOMC (19:00GMT/14:00EST): The Fed is all but certain to keep rates unchanged on Wednesday at 5.25-5.50% with focus on the accompanying SEPs ('Dot Plot') to gauge the magnitude of cuts in store for 2024 and beyond. The statement is expected to see minor tweaks but still maintain the optionality for further tightening. The SEPs will be the key focus, and there are expectations for a downward revision to the 2024 median Fed rate projection from the 5.1%seen in September on account of the faster progress than expected in the reduction of inflation and some signals of deteriorating economic growth, although the continued strength of the labour market will be capping the magnitude of any downward revision we may see. Chair Powell is expected to use his presser to push back against some of the recent aggressive pricing of rate cuts. (Newsquawk)

EQUITY NEWS:

INDEX:

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  Nasdaq-100 (NDX), Take-Two Interactive Software (TTWO) - Take-Two to be added to Nasdaq-100 index, effective prior to market open on December 18th. Pfizer's (PFE) pending acquisition of Seagen (SGEN) is expected to close on December 14th, and as a result, Take-Two will be added to the Nasdaq-100 Index and Seagen will be removed.


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  HSBC ON 2024 - HSBC sees S&P 500 2024 year-end price target of 5,000, says a soft-landing scenario could pave the way for further upside. HSBC says market expectations are more optimistic heading into 2024 but far from euphoric. HSBC says that while growth should slow, the US will likely avoid a recession. "Historically, the S&P 500 returns 22%, on average, between the first Fed pause and six months after the first cut – if a recession is avoided," the bank writes, "we believe we are in one of those cycles," it says, adding that "since the Fed pause in July, the S&P 500 has been roughly flat, but history suggests we could see another 20%+ return from now through the six months following the first rate cut (which we expect in 3Q 2024)." Says timing and extent of rate cuts, US elections, and earnings growth in a slowing economy are key themes for 2024. "While upcoming Fed cuts add significant tailwinds for US equities, the US election cycle, slowing economic activity, and earnings growth expectations below consensus temper our enthusiasm a bit."

CONSUMER:

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  Inditex (ITX SM) - The world's biggest fashion retailer reported net profit +32.5% in the February-October period, but sales growth in the nine-month window slowed amid pressure on consumers. The world's biggest fashion retailer reported 9-month net at EUR 4.10bln (exp. 4.06bln), EBIT at EUR 5.19bln (exp. 5.13bln), revenue at EUR 25.6bln (exp. 25.7bln). Sales in stores and online +11% Y/Y vs +19% Y/Y reported a year ago; in H1, Inditex saw +13.5% Y/Y rise in sales, and +40% rise in net profits. Raises FY23 margin view to around +75bps (prev. guidance saw "stable +/-50bps").


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  Tesla (TSLA) - Tesla secured land permits from Mexico's environment ministry for a Nuevo Leon "gigafactory" on 645 acres. No set timeline or cost have been disclosed by Tesla yet; the state itself has an estimate of USD 5bln estimate for the plant. Separately, Tesla Model 3 RWD and Long Range models will no longer be eligible for the USD 7,500 US IRS federal EV tax credit from January 1st.


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  BMW (BMWYY) - North American Executive expects EV sales to grow as a percentage of US sales in 2024 and 2025.


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  Volkswagen (VWAGY) - Volkswagen-backed PowerCo. SE said it had reached significant milestones in the St. Thomas gigafactory project.


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  Amazon (AMZN) - Online retailer Zulily sues Amazon for "bullying" behavior, blames Amazon for its closure, citing antitrust issues. The lawsuit accuses Amazon of pressuring suppliers to raise Zulily's prices, Axios reported.


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  Cal-Maine (CALM) - Cal-Maine's Kansas facility detected avian influenza in 1.6% of its flock, pausing production while implementing USDA protocols. No public health threat is indicated from the incident.


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  Mondelez (MDLZ) - CPO Paulette Alviti to retire; Stephanie Lilak will become executive VP and chief people officer in January.


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  Signet Jewellers (SIG) - CFO Joan Hilson sold 10,000 shares at USD 96.69/shr on December 11th for a total USD 0.967mln.

TECH:

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  Alphabet (GOOG) - Google's loss to Epic in an antitrust trial concerning Google Play might not immediately affect the company, CNBC reports. Potential changes to its billing model and antitrust implications could occur, but CNBC says Wall Street remains unconcerned, expecting an appeal to delay significant alterations for an extended period.


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  Lam Research (LRCX) - CEO Timothy Archer disclosed the sale of 8,500 shares on December 11th at USD 710.24/shr.


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  Oracle (ORCL) - Oracle launched a second Cloud Region in Chile, becoming the first hyperscaler with two regions in the country.


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  TE Connectivity (TEL) - Board approves an additional USD 1.5bln share buyback plan. Board also approved an increase to its quarterly dividend to USD 0.65/shr (prev. 0.59), and lifts the annual rate of dividend +10% to USD 2.60/shr; will be presented for shareholder approval at its AGM in March.

COMMUNICATIONS:

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  Meta Platforms (META) - Meta lawyers had warned it about the legal perils of using thousands of pirated books to train its AI models, but the company did it anyway, according to a new filing in a copyright infringement lawsuit, Reuters reports. The report adds that the new filing consolidates two lawsuits brought against Meta by comedian Sarah Silverman and Pulitzer Prize winner Michael Chabon, as well as other prominent authors, who allege that Meta has used their works without permission to train its AI language model.


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  Fox Corporation (FOX), Warner Bros. Discovery (WBD) - Fox's ad-supported platform, Tubi, expanded its deal with Warner Bros. Discovery, launching 10 new curated channels.


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  Advertising Stocks - Elon Musk's X (formerly Twitter) is projected to earn about USD 2.5bln in advertising revenue in 2023, significantly down from previous years, recording approximately USD 600mln per quarter compared to over USD 1bln in 2022, Bloomberg reports.

INDUSTRIALS:

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  BAE Systems (BAESY), General Dynamics (GD) - BAE's US arm secured a USD 8.8bln, 10yr contract to manage Tennessee's Holston Army Ammunition Plant, aiming to bolster weapons production. BAE defeated bids from General Dynamics and Day & Zimmerman, according to sources cited by the WSJ.


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  Boeing (BA) - Boeing has embarked on deeper-than-expected cuts in its strategy ranks, halving the number of planners working within key divisions as it refocuses energies on tackling industrial pressures, Reuters reports. The report added that the move is the latest evidence of renewed industrial priorities after it Monday named Stephanie Pope to the new role of chief operating officer, putting her front in line to succeed Dave Calhoun as CEO.


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  SpaceX (Not listed) - SpaceX plans to sell insider shares at USD 97 each in a tender offer, raising its valuation towards USD 180bln, Bloomberg reports. That valuation would be up from a previously discussed USD 95/shr offer, possibly totaling USD 500-750mln, BBG said. Separately, SpaceX is standing down from Wednesday's Falcon Heavy launch of USSF-52 to perform additional system checkouts.


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  Lockheed Martin (LMT) - LMT was awarded a USD 442.96mln Army contract modification for the Black Hawk helicopter programme. It was also awarded a USD 174.64mln Navy contract modification.


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  XPO (XPO), Yellow Corporation (YELL) - XPO wins court approval to acquire 28 Yellow Corporation service centers in strategic freight markets. The move will help XPO boost capacity.


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  Toro Company (TTC) - Raises quarterly dividend to 0.36/shr (prev. 0.34).

MATERIALS:

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  3M (MMM), DuPont (DD) - An Ohio resident urged a US appeals court to reconsider its decision ending a major class action lawsuit against 3M and others over PFAS exposure, warning it could set a dangerous precedent favouring chemical manufacturers and hinder litigation progress, Reuters reports.


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  Antofagasta (ANFGF) - The miner and workers at the Centinela mine extend talks to allow workers to vote on a new contract offer, according to the union.


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  Anglo American (NGLOY) - The miner's production forecasts had reportedly previously been overestimating technology’s role in boosting output; new revised forecasts are regarded as more realistic, FT reports.

ENERGY:

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  Energy Inventories - API data reportedly showed weekly crude inventories -2.3mln (exp. -0.7mln), Cushing +1.4mln; gasoline stocks +5.8mln (exp. +1.9mln), and distillates +0.3mln (exp. +0.6mln).

HEALTHCARE:

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  Amgen (AMGN) - Amgen lifts quarterly dividend to USD 2.25/shr (prev. 2.13).

FINANCIALS:

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  Franklin Resources (BEN) - Franklin Resources announced a quarterly cash dividend of USD 0.31/shr (+3.3% Q/Q and Y/Y). It also authorised share buybacks of up to an additional 27.2M shares for a total of up to 40mln shares available for repurchase. The new authorisation is in addition to the existing one, of which around 12.8mln shares remained available for repurchase.


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  SLM Corporation (SLM) - Said it sees capacity to return over USD 2bln to shareholders over the next five years.


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  Clearing/Settlement - A UK government task force is reportedly having difficulties agreeing on a date to cut the time for the finalisation of the securities deal from a two-day settlement to next-day, FT reports.

13 Dec 2023 - 09:30- Research Sheet- Source: Newsquawk