US EARLY MORNING: US futures are a little lower after OPEC+ surprise announcement to cut output; ISM manufacturing later today, ahead of the jobs data due on Good Friday

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  OVERNIGHT: Asia-Pac equity markets were mostly positive amid strength in the energy sector after oil prices were boosted by a surprise voluntary output cut by OPEC+ members although gains in the broader market were capped heading into this week’s key events and as participants digested a slew of data releases including disappointing Chinese Caixin Manufacturing PMI; Pantheon Macroeconomics said the data pointed to Chinese private sector manufacturing activity stalling in March. There was also a mixed BoJ Tankan Survey; Capital Economics said the data suggests that while the Japanese services sector remains resilient, the outlook for its manufacturing sector has worsened materially (see here). European equities started the week on a note of caution, with higher oil prices applying upward pressure on bond yields amid fears that there could be implications for the continuing battle against high inflation. The disappointing Caixin manufacturing PMI out of China and mixed Tankan report out of Japan is also adding to the downbeat mood, particularly for the manufacturing sectors ahead of today’s release of final PMI data across Europe (see here).


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  US PRE-MARKETS: US equity futures are below neutral, with the Nasdaq-100 leading the downside as Treasury yields tick higher in wake of the surprise OPEC+ announcement to cut output (see below); the short-end of the Treasury curve underperforms as traders bet this will likely be incrementally hawkish for the Fed rate trajectory (yields are up around 6bps in the 2s sector). Currently, money markets are discounting a greater probability of a 25bps rate rise at the May 3rd FOMC - for much of last week, even after the PCE data, it was around 50-50. For the rest of the year, the market is still pricing around 37bps of rate cuts (implying one cut is fully priced, while it is 50-50 on if we get a second); this is still significantly more dovish than Fed officials have been guiding (apparently none of them are envisaging rate cuts this year!), with markets convinced that the central bank's focus will shift onto slowing growth and recession risks later this year vs its current focus on inflation. There are, of course, many other data prints to go before that May meeting that will give data-dependent officials fodder to chew over, including today's Manufacturing ISM (the Services gauge is out Wednesday), and the jobs data due on Friday; note, current scheduling suggests that the NFP report will still be released on Friday, despite it being Good Friday, and all markets outside of FX will be shut; the Newsquawk desk will run a special service covering the data from 13:00-13:45BST/08:00-08:45EDT on Friday.


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  OPEC+ CUTS: Nine OPEC+ producers Sunday announced a voluntary output cut totalling around 1.16mln BPD from May through to year-end, a surprise move that the US called inadvisable, Reuters reports. The move brings the total volume of cuts by OPEC+ to 3.66mln BPD, or around 3.7% of global demand. After the announcement, Goldman Sachs wrote that “as we have argued, OPEC+ has very significant pricing power relative to the past, and the surprise cut is consistent with its new doctrine to act pre-emptively because it can without significant losses in market share.” The bank said that it was already assuming that Russian cuts would extend into the second half of 2023, and it has now lowered its end-2023 OPEC+ production forecast by 1.1mln BPD. “Incorporating this significantly lower OPEC+ supply, slightly lower demand, and the modest French SPR release, we have nudged up our Brent forecasts by USD 5/bbl to USD 95/bbl for December 2023, and to USD 100/bbl for December 2024 (prev. USD 97/bbl). NOTE: A JMMC meeting is scheduled to take place today at 11:00BST/06:00EDT.


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  JPM REITERATES CAUTIOUS EQUITY VIEW: JPMorgan’s strategists reiterated their cautious view on equities. The bank says investors will have to grapple with the disconnect that around hopes of a soft-landing (or ‘no-landing’) without any impact on corporate profits, labour markets or credit markets, while at the same time expecting inflation will fall quickly. It also seems sceptical that the worst is behind us, given that monetary tightening has historically operated with a lag, adding that we have never seen a sustained rally before the Fed has stopped lifting rates, and the consensus view that policy rates will come down quickly might be disappointed. The bank also notes that the read through from leading indicators, like the rebound in PMIs at the start of the year, are unlikely to hold. “To be positive on equities at this stage, one has to have a very bullish set of assumptions on growth and rates, as there is an alternative, the main risk-free rate is offering 5%, duration risk free,” and adds that these factors suggest that stocks may weaken for the remainder of the year. Ahead, however, the bank is more constructive: “we were bullish equities in Q4, and we expected positive trading to spill over into Q1 2024, but we believe one should be Underweight stocks from here.” In terms of styles, JPM points out that Value is lagging growth this year, and that beta trade is waning. “We think this is set to continue, as bond yields move lower in the second-half.” JPM has added to Staples, which underperformed last year, and also lower in 2023; JPM says the sector offers improved valuations, is a beneficiary of lower yields and typically performs well close to the last Fed hike,” adding that “it is likely to have stronger top-line, healthier margins and better relative EPS momentum in the second half.” It is funding that view via the Autos and Mining sectors, it says.

DAY AHEAD:

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


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  DAY AHEAD: The week begins with little on the docket of note. OPEC+’s JMMC will be looked to after the surprise weekend announcement to cut crude output, which has sent crude prices higher, and has drawn criticism from the US (see here). On the data front, final PMI data across the Eurozone is due, with the major indices from the Eurozone, Germany and France expected to be unrevised. The US Day will see the release of the ISM Manufacturing survey for March, where the headline is seen little changed. US Construction Spending for Feb is also set to be released. Fed’s Bullard (non-Voter, Hawk) will give an interview to Bloomberg TV; Bullard last week was making the case the financial stress should be contained with macro prudential tools, and monetary policy should keep its focus on applying downward-pressure to inflation. Fed's Cook (voter) will again speak on monetary policy and the economic outlook after the close; on Friday, she said she was watching credit conditions when weighing her rates view. BoC watchers will note the release of the Business Outlook Survey ahead of the April 12th confab.


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  ISM MANUFACTURING PREVIEW (15:00BST/10:00EDT): The Manufacturing ISM is seen easing to 47.5 in March vs 47.7 in February. As a basis for comparison, the S&P Global PMI series reported an improvement in manufacturing conditions, with the index rising from 47.3 to 49.3, but new orders fell, and have now fallen for six straight months. “Unless demand improves, there seems little scope for production growth to be sustained at current levels,” S&P said, adding that the manufacturing upside was mainly a reflection of improved supply chains allowing firms to fulfil backlogs of orders. Taking both the Services and Manufacturing PMIs in aggregate, S&P said that overall March witnessed an encouraging resurgence of economic growth, with the business surveys indicating an acceleration of output to the fastest pace since May of last year, and was implying annualised GDP growth approaching 2%. That said, the upturn is uneven, and largely driven by the services sector. NOTE: The services ISM is due to be released on Wednesday.


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  WEEK AHEAD: ISM manufacturing and services PMIs from the US, Caixin PMI data out of China, rate decisions from the RBA, RBNZ and RBI, and the key US jobs report on Friday (Good Friday, markets will be shut, although the desk will run a special service covering the event). EU policymakers will be visiting China this week amid reports that the bloc aims to "de-risk" its relationship with Beijing rather than "decouple" from it, according to RANE Group. See here for our full week ahead briefing.

EQUITY NEWS:

ENERGY:

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  OPEC - OPEC+ producers on Sunday announced further oil output cuts of around 1.16mln BPD from May through to year-end, a surprise move that the US called inadvisable, Reuters reports. Brings the total volume of cuts by OPEC+ to 3.66mln BPD, or around 3.7% of global demand. A JMMC meeting is scheduled to take place today at 11:00BST/06:00EDT.


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  Crude Oil - Iraq’s government and the Kurdistan Regional Government (KRG) reached an initial agreement to resume northern oil exports this week, Al Jazeera reports. Oil exports will resume jointly through Ceyhan in Turkey this week.


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  Equinor (EQNR) - UK regulators are expected to announce approval for the Rosebank oilfield during April; Energy Secretary will then have to decide on signing the project off or not, FT reports.

FINANCIALS:

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  US Banks - Recent turmoil in the banking industry has made the task of selling off billions of buyout debt even harder for Wall Street firms, WSJ reports. Bank of America, Barclays, Morgan Stanley, others together currently hold USD 25-30bln of “hung debt” on their balance sheets, according to 9fin, tied to LBOs that banks agreed to finance before worsening credit conditions last year. Banks had recently started to chip away at the backlog, WSJ says, but the recent crisis brought that process to a standstill. The report adds that the biggest single chunk of hung debt — USD 13bln+ in loans backing Elon Musk’s takeover of Twitter — have become less attractive after Musk wrote down the value of the social-media platform.


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  UBS Group AG (UBS), Credit Suisse Group AG (CS) - UBS will cut its workforce by 20-30% after completing Credit Suisse takeover, as Swiss prosecutors started gathering evidence as part of a possible criminal investigation into the deal, according to SonntagsZeitung. As many as 11,000 employees will be laid off in Switzerland, and 25,000 worldwide, Bloomberg said.


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  Commerzbank AG (CRZBY), Deutsche Bank AG (DB) - Commerzbank AG supervisory board chairman Helmut Gottschalk pushed back against a potential combination of Commerzbank and Deutsche Bank, stating that was important for Germany to have two larger domestic banks, Bloomberg reports. “I’m convinced that policy makers sees it like that as well,” Gottschalk said.


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  Corebridge Financial, Inc. (CRBG), Blackstone Inc. (BX) - Blackstone’s Corebridge Investment receives a constructive mention in Barron’s, which notes that it has lost half of its value, but the cheap valuation, dividend and relationship with Blackstone is a positive.


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  Julius Baer Group (JBAXY) - CEO said the Swiss government and regulators needed to communicate more effectively with investors, cautioning that the nation’s status as banker to the super-rich cannot be jeopardised.


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  NatWest (NWG) - UK announces an extension to the trading plan for NatWest, which will now terminate no later than August 2025 (prev. 2023). Plan will still be managed by Morgan Stanley and continue to contain the provision that up to but no more than 15% of aggregate total trading volume be sold during the two-year extension.

COMMUNICATIONS:

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  Restrict Act - The Anti-TikTok Bill known as the “RESTRICT Act” is starting to look shakier, Politico reports. The bill would give the Commerce Department and White House sweeping new powers to ban or restrict a wide range of communications and technology products, and had appeared to be sailing ahead. But key senators are now suggesting they’re ambivalent about RESTRICT, and a right-wing backlash is building, with top Republicans in the House claiming the Senate bill goes too easy on TikTok.


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  World Wrestling Entertainment, Inc. (WWE), Endeavor Group Holdings Inc (EDR) - Endeavor is in advanced talks to acquire World Wrestling Entertainment in an all-stock deal, Reuters reports. A deal could be announced as early as this week. Endeavor holders will own 51% of the combined company, WWE holders would get 49%, the report said.


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  Fox Corporation (FOX) - Dominion Voting Systems’ defamation case against Fox News will proceed to a high-stakes jury trial in mid-April, CNN reports, adding that the judge’s decision was a setback for Fox.


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  Lyft, Inc. (LYFT) - Cautious mention in Barron’s, which said Lyft has struggled since the pandemic, and a CEO may not be enough.


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  Cineworld Group PLC (CNWGY) - Intends to raise USD 2.26bln via a senior secured debt credit facility of USD 1.46bln, and issuance of new stock for an aggregate USD 800mln. Elsewhere, former finance chief of Regal Cinemas is the leading candidate to replace Mooky Greidinger as CEO, FT reports citing sources.

TECH:

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  Apple Inc (AAPL) - The iPhone maker won its appeal against the decision by UK regulators to launch an investigation into its mobile browser and cloud gaming services, Competition Appeal Tribunal ruled.


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  Capita (CPI LN), Microsoft Corporation (MSFT) - Capita said on Friday, it experienced a cyber incident largely impacting access to internal Microsoft Office 365 applications, adding that there was no evidence of compromised data.

CONSUMER:

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  McDonald’s Corporation (MCD) - McDonald’s is temporarily closing its US offices this week as it prepares to inform corporate employees about layoffs undertaken as part of a broader company restructuring, WSJ reports. The company asked employees to cancel all in-person meetings with vendors and other outside parties at its HQ so it can deliver staffing decisions virtually. McDonald’s declined to comment on the number of employees being laid off.


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  Automakers - Rising borrowing costs exacerbated by recent turmoil in the banking sector have sidelined some buyers in the US new car market, putting pressure on manufacturers to discount vehicles, FT reports. The report adds hat autos were becoming increasingly unaffordable after shortages over the past two years forced consumers to pay at or above sticker prices. The Fed’s efforts to curb inflation have now driven the average interest rate on a new car or truck loan to 8.95% vs 5.66% Y/Y.


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  Tesla (TSLA) - Q4 deliveries 422,875 (vs. Refinitiv exp. 430,008, Bloomberg exp. 421,164, FactSet exp. 432,000). Production 440.8k (prev. 440k Q/Q). Some sell-side firms (Barclays, Bernstein) said the data continued to show that further price cuts were likely needed. Separately, a federal appeals court affirmed a finding that Tesla illegally fired an employee involved in union organising, NYT reports, and that CEO Elon Musk had illegally threatened workers’ stock options if they chose to unionise.


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  China Auto Sales, Li Auto Inc. (LI), XPeng Inc. (XPEV), NIO Inc. (NIO) - Li Auto and Xpeng reported growth in deliveries for a second consecutive month in March, bucking a downwards trend in the world’s largest automotive market, SCMP reports. Li Auto March deliveries 20,823 vehicles, +25.3% vs February, and its second-highest monthly sales figure since its founding in 2015. Xpeng delivered 7,002 EVs in March, +16.5% vs the previous month. Nio’s deliveries were -14.6% last month to 10,378 units.


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  Casino Gaming - Macau’s casinos had their best month since the earliest days of the pandemic, Bloomberg reports. Gaming revenue +247% Y/Y in March (exp. +205% Y/Y), to the highest since January 2020. March revenue +23% M/M, still 51% down vs 2019 levels.


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  Natura & Co. (NTCO), L’Oreal (LRLCY) - China’s Primavera Capital has entered the race to acquire a stake in Natura’s high-end cosmetics brand Aesop, Bloomberg reports, and is through to the latest round of bidding for the holding. Deal could value Aesop at about USD 2bln. L’Oreal and private equity firm Permira are also in the race, recent reports have said.


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  Bed Bath & Beyond Inc. (BBBY) - Was sued by ousted-CEO Mark Tritton in a complaint accusing the company of failing to honor his USD 6.77mln severance agreement, Reuters reports.

INDUSTRIALS:

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  JetBlue Airways Corporation (JBLU), Spirit Airlines, Inc. (SAVE) - California, Maryland, New Jersey, North Carolina joined a DOJ lawsuit aimed at preventing JetBlue from buying rival Spirit for USD 3.8bln, Reuters reports. DOJ in March sued to stop the transaction, saying the planned merger “will lead to higher fares and fewer seats, harming millions of consumers on hundreds of routes.” JetBlue said “it’s unfortunate that these states have decided to join the DOJ’s effort to protect the dominant position of the four largest airlines in the US.”


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  Thyssenkrupp AG (TKAMY) - ThyssenKrupp has revived plans to sell its submarine and maritime systems unit, FT reports, a move likely to face scrutiny from politicians and government officials as Berlin seeks to boost its defence manufacturing. A bidding contest is expected to start after Easter, and private equity firms are among the parties interested.


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  Rolls-Royce Holdings PLC (RYCEY) - Awarded USD 714mln contract by US Air Force.

HEALTH CARE:

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  US Health Insurers - The US government announced a lower than expected 1.1% average cut of 2024 reimbursement rates for health insurers that cover via the Medicare Advantage programme, Reuters reports. It improved the rates it would pay insurers after pushback from the industry, which contended the government was cutting reimbursement rates by too much for them to adequately serve older people enrolled in their plans.


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  Medtronic plc (MDT), DaVita Inc. (DVA) - Medtronic, DaVita announced the launch of Mozarc Medical, an independent new company in the kidney health sector. Under the terms of the agreement announced last year, Mozarc Medical will be co-owned by Medtronic and DaVita, each with equal equity stakes.


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  AstraZeneca (AZN) - Ultomiris recommended for NMOSD EU approval.


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  Getinge AB (GNGBY) - US FDA said Datascope/Getinge recalled certain Cardiosave Hybrid and Rescue Intra-Aortic Balloon Pumps (IABP) because the coiled cable connecting the display and base on some units may fail, causing an unexpected shutdown. (FDA) US FDA identifies recall of Getinge’s heart devices as most serious.

03 Apr 2023 - 09:30- Research Sheet- Source: Newsquawk