US EARLY MORNING: US futures are lower after seeing their best two day rally since April 2020, and ahead of OPEC, Services ISM, ADP

SNAPSHOT: US equity futures are lower By 0.7-1.1%, with the Russell 2000 leading the downside; US indices giving back some of the solid gains booked over the previous two trading sessions this week (the biggest two-day rally since April 2020), where the S&P 500 price action has seen the index rally to and then subsequently become generally capped by the 3,800 level, with some desks suggesting that sellers lurk above that handle into key data releases, including today’s ADP and Services ISM, Thursday’s weekly claims data, and Friday’s official jobs data, all ahead of the CPI report due on October 13th. This week’s gains have been based on speculative hopes that the Fed could ease up on its hawkish monetary policy after a soft September Manufacturing ISM data on Monday, JOLTs data for August falling and undershooting expectations on Tuesday, all amid some nascent calls from some institutions like the IMF and the World Bank urging the Fed to be more cognizant of the impact its policy has on other nations, something that was acknowledged by the Fed’s 2024 voter Daly on Tuesday. Hopes that the Fed will relent on its hawkishness has resulted in a dovish repricing of the market’s expectations of where the peak Fed Funds Rate will be (now expects between 4.25-4.50% in Q1 2023; last week, this pricing was discounting a move to at least 4.50-4.75%, in line with the Fed’s September projections). For what it’s worth, key Fed officials have recently emphasised that tackling high inflation remains their priority, and even seem willing to push the economy into a recession to achieve its goals, though many have said they still see a path to a soft landing. Oversold technical conditions were also cited as a factor that supported equities this week. Meanwhile, US Treasury yields are climbing by 3-7bps, and breakevens are wider, as the market prepares for OPEC to announce an output cut, potentially as much as 2mln BPD – this could come from existing production rather than quotas, meaning that the upward price move in crude contracts could be sharp, the FT said. The Dollar Index is also trading with a firm tone on Wednesday, weighing on other peers; the NZD appears to be holding up a little better than other activity currencies, however, after its central bank lifted rates by 50bps overnight, in line with expectations, but showed no signs it was prepared to pare back the pace of its normalisation, which some suggest its Antipodean peer the RBA has done this week.

DAY AHEAD: OPEC’s policy meeting is in focus amid reports that OPEC and its partners will potentially cut output by as much as 2mln barrels at its meetings later today, an outcome that could trigger the US to release reserves from its SPR, analysts speculate; our updated primer can be accessed here. The US day sees the release of the ADP National Employment survey, which will help shape expectations for the official nonfarm payrolls data due Friday; that jobs data at the end of the week will in itself play a key role in building expectations for the Fed’s November policy meeting, at a time when many market participants, and money market pricing, is looking for the central bank to ease up on its hawkishness. The US day will also see the release of the key ISM services data, with particular attention to fall on the forward-looking new orders, the employment sub-component, as well as the prices measures; the manufacturing equivalent this week disappointed expectations and resulted in a dovish revision of the market’s implied view of the Fed rate hike trajectory. Full Day Ahead can be accessed here.

ENERGY:

• 
  OPEC - Recent reporting suggests OPEC is mulling cutting oil production by as much as 2mln BPD at its policy meetings today. The FT said that the cuts would be made from existing production, not quota levels that some OPEC+ member countries have been unable to fulfil, and that such a cut was likely to have a big impact on prices. The US is reportedly pushing OPEC+ nations not to proceed with an output cut, arguing that economic fundamentals do not support the move, Reuters reports. Earlier, the White House said that the Biden administration was not considering a new SPR release. Our updated OPEC primer can be accessed here.


• 
  Energy Inventories - A surprise drawdown in crude stocks and larger than expected drawdowns for product inventories: Crude -1.8mln (exp. +2.1mln), Cushing +0.9mln, Distillates -4mln (exp. -1.4mln), Gasoline -3.5mln (exp. -1.3mln). NOTE: the DoE's data is to be released at 10:30EDT/15:30BST.


• 
  Exxon Mobil Corporation (XOM) - Exxon flags strong Q3 earnings due to natgas pricing. Expects that change in liquids market will impact Q3 earnings by negative USD 1.4-1.8bln, but expects that the change in Gas prices impact Q3 by positive USD 1.8-2.2bln. XOM said that these factors were generally limited to market dynamics, seasonal patterns, planned activities.


• 
  EOG Resources, Inc. (EOG) - William R. Thomas is to retire from the Board, effective October 4th; Thomas' retirement is not due to any disagreement with EOG on any matter relating to EOG's operations, policies or practices, it said. EOG appoints CEO Ezra Y. Yacob to the additional position of Chairman.

COMMUNICATIONS:

• 
  Twitter, Inc. (TWTR) - Following Tuesday news that Elon Musk was now willing to proceed with his takeover of Twitter, Musk said "buying Twitter is an accelerant to creating X, the everything app." Separately, investor Carl Icahn has reportedly amassed a Twitter stake of over USD 500mln in the past few months, WSJ said.


• 
  Activision Blizzard, Inc. (ATVI), Microsoft Corporation (MSFT) - President of Blizzard Entertainment said its new Overwatch 2 game was facing a mass DDoS attack on its servers on the day of the games' launch.


• 
  InterActiveCorp (IAC) - Apollo-backed EmployBridge set to acquire IAC's Bluecrew, an hourly W-2 workforce-as-a-service platform, in cash and stock deal.

TECH:

• 
  Apple Inc. (AAPL) - Apple is asking suppliers to move some AirPods and Beats headphone production to India for the first time, Nikkei reports, part of Apple's gradual diversification from China as it looks to lower risks of supply chain disruptions stemming from the country's strict zero-COVID policy and tensions with the US. Elsewhere, Apple reportedly agrees to TSMC (TSM) chip price hike after refusing last week, Macrumors reprts; after refusing a price hike last week from its primary chip supplier TSMC, Apple has apparently reversed course and accepted the increase in prices set to be applied next year.


• 
  Taiwan Semiconductor Manufacturing Company Limited (TSM) - TSMC has reportedly begun negotiating prices with its suppliers of equipment and materials for 2023, considering price reductions of at least 10%, according to the DigiTimes.


• 
  STMicroelectronics (STM) - European Commission approves EUR 292mln Italian measure under the recovery and resilience facility, to support the construction of a semiconductor plant in Catania.


• 
  AI Names - Biden administration unveiled goals aimed at averting harms caused by the rise of AI, including guidelines for how to protect people’s personal data and limit surveillance, ABC reports. The Blueprint for an AI Bill of Rights notably does not set out specific enforcement actions, but instead is intended as a White House call to action for the government to safeguard digital and civil rights, officials said.


• 
  Duolingo, Inc. (DUOL) -  Duolingo acquires Detroit design and animation studio 'Gunner'; no terms disclosed.

INDUSTRIALS:

• 
  Airliners - A trade group representing major US airlines rebuffed a request by 70 lawmakers to voluntarily extend a expired prohibition on stock buybacks that was a condition of government COVID -19 payroll assistance, Reuters reports.


• 
  Emerson Electric Co. (EMR), Blackstone Group L.P. (BX) - Emerson in talks with Blackstone to sell part of its commercial and residential solutions business, in a deal that could be valued at between USD 5-10bln billion, Bloomberg reports.


• 
  General Motors Company (GM) - GM hit with USD 102.6mln jury verdict in Class Action over defective engines. A California federal jury today found that hid an engine defect that resulted in excessive oil consumption, leading to engine damage, stalling, and premature breakdown in tens of thousands of 5.3-litre SUVs and light trucks.

CONSUMER STAPLES:

• 
  Philip Morris (PM), Swedish Match (SWMA SS) - Philip Morris said it expects EU antitrust approval for its USD 16bln bid for Swedish Match in late October.


• 
  Altria Group, Inc. (MO) - E-cigarette Juul Labs, which is 35% owned by Altria, said it was starting talks on funding for a potential Chapter 11 bankruptcy, Bloomberg reports, adding that formal discussions with potential lenders were expected in the coming days. The preparations aren’t final, and plans could change, Juul said: "We will continue the preparation process for both a restructuring and other strategic options as we determine what path is best for our company."


• 
  Tesco (TSCDY) - H1 revenue GBP 32.5bln (prev. 30.4bln), Group Sales (ex-VAT/Fuel) GBP 28.2bln (prev. 27.3bln), adj. Operating Profit GBP 1.3bln (prev. 1.45bln), Retail FCF GBP 1.28bln (prev. 1.5bln), adj. Diluted EPS 0.1067 (prev. 0.1122), Interim Dividend/shr 0.0385 (prev. 0.0320). Noted solid UK market share performance, in line with expectations reflecting normalisation and with less inflation than market. CEO said that as it looks to H2, cost inflation remains significant, too early to predict how customers will adapt. Maintains FY profit guidance within prior range, but towards the lower end; now expects FY Retail adj. Operating Profit of GBP 2.4-2.5bln.

CONSUMER CYCLICAL:

• 
  Tesla, Inc. (TSLA) - Tesla will remove ultrasonic sensors from its vehicles starting this month, as it moves ahead with using only cameras in its safety and driver-assistant features, Reuters reports.


• 
  AutoZone, Inc. (AZO) - Board authorised the repurchase of an additional USD 2.5bln of the company's common stock.


• 
  McDonald's Corporation (MCD) - Chicago federal judge dismisses a 2020 lawsuit claiming from McDonald's 52 black former McDonald's franchise owners who claimed that MCD set them up for failure by steering them toward crime-ridden, low-income neighborhoods, Reuters reports.

MATERIALS:

• 
  Anglo American plc (NGLOY) - Value of rough diamond sales for De Beers’ eighth sales cycle of 2022 amounted to USD 500mln (vs USD 638mln in the seventh cycle, and vs USD 492mln Y/Y).


• 
  Schnitzer Steel Industries, Inc. (SCHN) - Sees Q4 afj. EPS between USD 0.42-0.47 (exp. 0.90), sees adj. EBITDA to be in the range of USD 38-40mln, and adj. EBITDA per ferrous ton between USD 30-32. Schnitzer said that the sharp decline in selling prices for recycled metals in Q4 is expected to lead to both a compression in metal spreads and an adverse impact from average inventory accounting of approximately USD 23 per ferrous ton. Average net ferrous and nonferrous selling prices expected to decrease vs Q3 by 28% and 7%, respectively. Ferrous sales volumes expected to increase 12% sequentially, reflecting the benefit from shipments delayed from Q3; nonferrous volumes expected to decrease 8%. Average net finished steel selling prices are expected to decrease by 1%, finished steel sales volumes expected to be down by 7%, sequentially. Schnitzer said that lower SG&A expense primarily as a result of lower incentive compensation accruals and benefits from productivity initiatives are expected to partially offset inflationary pressure on operating costs.


• 
  Sensient Technologies Corporation (SXT) - Sensient acquires Endemix Dogal Maddeler, a vertically integrated natural colour and extracts company servicing the food and beverage markets. No terms were disclosed.

HEALTH CARE:

• 
  Nevro Corp. (NVRO) - FDA approves manufacturing operations in Costa Rica to produce its proprietary spinal cord stimulation systems for the treatment of chronic pain.


• 
  AstraZeneca (AZN) - UK's NICE does not recommend Lynparza for the previously treated BRCA mutation-positive metastatic prostate cancer.


• 
  Roche (RHHBY) - To present new data from its expanding neuromuscular disease portfolio at 2022 World Muscle Society.

05 Oct 2022 - 09:23- Research Sheet- Source: Newsquawk