US EARLY MORNING: US index futures a little higher; geopolitics in focus ahead of more key data and Fedspeak

SNAPSHOT: Equity futures are higher by 0.3-0.4%, led by the Russell and Nasdaq-100; stocks staged a recovery overnight after US officials suggested a Russian-made missile launched into Poland was probably not fired by Russians. Treasury yields are 0-2bps higher across the curve ahead of 20yr supply, as well as retail sales data (preview below) and Fedspeak. The Dollar Index is a little beneath neutral, though major peers remain flat against the greenback. Crude futures are higher after API weekly inventory stats reportedly printed a larger than expected draw in crude stocks: Crude -5.8mln (exp. -0.4mln), Cushing -0.8mln, Gasoline +1.69mln (exp. +0.3mln), and Distillate +0.9mln (exp. -0.5mln); Crude has also seen some upside in early European trade after reports that an oil tanker had been struck by an exploding drone attack off Oman.

ERP PUZZLE: Goldman Sachs notes that since the COVID crisis, equities have outperformed bonds due to both strong earnings and dividend growth, but more recently as equities have re-rated versus bonds. “For investors this is a material change to the last cycle, which was dominated by ‘TINA’ (There Is No Alternative), when low bond yields forced them up the risk curve and towards equities; now they are facing ‘TARA’ (There Are Reasonable Alternatives),” and notes that IG credit offers relatively high nominal yields with comparably low risk, while US TIPS allow investors to lock in purchasing power for the long run. GS explains that a less positive yield gap can point to strong expected growth, or a lower required equity risk premium. “The re-rating of equities vs bonds increases the risk of disappointment for equity investors, either because growth is weaker than expected from here and/or equities need to de-rate again vs bonds due to higher risk.” GS argues that ERP will likely be lower than the last cycle, with greater risks given the higher macro volatility today. “The likelihood of equities outperforming bonds in the coming decade remains high based on history but with less support from relative valuations the prospective ERP will depend on growth,” it writes. Currently, it sees implied long-term growth prospects as relatively optimistic, and as a result, and ERPs could see upward pressure from cyclical and structural headwinds. “With relatively high bond yields, peaking rates volatility but elevated growth uncertainty, the case for higher equity allocations is still mixed,” GS says, “we think with attractive yields in fixed income, the case for allocations to higher quality credit remains strong into next year with lingering growth risks.” It also points out that dividend swaps are pricing more negative growth than equities are.

DAY AHEAD: Geopolitics will likely be the key focus in the European morning, after reports that a Russian-made rocket landed in Poland on Tuesday; a NATO emergency meeting will take place at 09:00GMT/04:00ET, and SecGen Stoltenberg will hold a press conference at 11:30GMT/06:30EST. The Polish President said it will likely activate Article 4 of the NATO Treaty on Wednesday at the NATO meeting, which involves intensifying discussions between members, but does not guarantee NATO will take action. According to the Associated Press, a US official said its initial findings suggested that the missile that hit Poland was fired by Ukrainian forces at an incoming Russian missile. Elsewhere, the ECB’s financial stability review is the only notable data release out of Europe today. ECB speakers will include de Cos, Panetta and President Lagarde. From the UK, Governor Bailey, Broadbent, Mann and Dhingra will appear before the UK Treasury Select Committee regarding the November MPC meeting. Much attention will be on the North American day, which includes US October retail sales data, weekly MBA mortgage applications, October import and export price data, as well as October industrial and manufacturing production metrics. The Canadians will publish October inflation data. Today’s docket of Fedspeak features Fed’s Williams (voter), Barr (voter), and Waller (voter). On the energy front, the DoE weekly inventory data is due. Highlights of today’s US corporate earnings calendar includes LOW, TGT, TJX, CSCO, NVDA. Our full Day Ahead can be accessed here; our earnings expectations note can be accessed here.

US RETAIL SALES (13:30GMT/08:30EST): Analysts expect US retail sales to rise 1.0% M/M in October (vs 0.0% M/M in September); the ex-autos measure is seen rising 0.4% M/M (prev. +0.1%), and the ex-gas and autos measure is seen rising 0.2% (prev. 0.3%); the Control Group is seen rising 0.3% (prev. 0.4%). Credit Suisse estimates the deflator at 0.2%, which it says could imply retail sales growth of 1.0% in the month. The bank says auto sales will support the headline after unit vehicle sales rose strongly, while gasoline prices also ticked higher. Many analysts will be keeping an eye on the components relating to real estate activity, given the downside seen in home sales of late, which is likely to weigh on components relating to building materials and household durables. “High-frequency card spending data suggest consumer spending remained solid in October,” CS writes, “healthy balance sheets and excess savings should support consumption,” and adds that “results in-line with our expectation [for 1.2% M/M headline] suggest real sales remain above trend.”

CONSUMER:

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  Estee Lauder Companies Inc. (EL) - Estee Lauder to buy Tom Ford for USD 2.8bln; will pay USD 2.3bln for the brand and its IP, funded by cash, debt and USD 300mln of deferred payments; USD 250mln to come from Marcolin SpA, whose existing license with Tom Ford will be extended. Deal to be dilutive to EL’s FY23 EPS by 0.05-0.15, neutral for FY24 EPS. Ermenegildo Zegna to enter long term license for Tom Ford with Estee Lauder.


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  NIKE, Inc. (NKE) - Lifts quarterly dividend +11% to 0.34/shr, payable December 28th. The 11% increase matches its last dividend hike made in November 2021.


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  Advance Auto Parts, Inc. (AAP) - Fell after weak profits and lowered guidance. Q3 adj. EPS 2.84 (exp. 3.34), Q3 revenue USD 2.6bln (exp. 2.64bln), Q3 SSS -0.7% Y/Y (in-line with previous guidance). Exec said “our deliberate move to increase owned brand penetration, which carries a lower price point, reduced net sales by approximately 80 basis points and comp sales by approximately 90 basis points.” Lowers FY22 EPS outlook to 12.60-12.80 (prev. 12.75-13.25, exp. 13.02), reiterates FY22 revenue outlook between USD 11-11.2bln (exp. 11.1bln).


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  O’Reilly Automotive, Inc. (ORLY) - Board adds USD 1.5bln to share repurchase authorisation, raising the size of the total authorisation to USD 21.75bln.


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  Carnival Corporation (CCL) - Carnival commences private offering of USD 1bln of convertible senior notes due 2027 to be used as part of the Company’s 2024 refinancing plan.

TECH:

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  Intel Corp. (INTC) - A federal jury said Intel had to pay VLSI Technology LLC USD 948.8mln for infringing a computer chip patent, Reuters reports.


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  Amkor Technology, Inc. (AMKR) - Boosts quarterly dividend +50% to 0.075/shr (prev. 0.05).


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  Asana, Inc. (ASAN) - Will lay off 9% of its workforce to improve operating costs, Computer World reports.


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  Sage Group PLC (SGPYY) - Profits rise, sees more margin growth. FY revenue GBP 1.947bln (exp. 1.939bln), EBITDA GBP 468mln (exp. 452mln), operating profit GBP 383mln (exp. 345mln). Said it enters FY23 with strong momentum, made good strategic progress to accelerate growth.


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  Teradyne, Inc. (TER) - CEO Mark Jagiela to retire; Gregory Smith to succeed Jagiela effective February 1st, 2023.

COMMUNICATIONS:

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  Warner Bros. Discovery, Inc. (WBD) - Warner Bros. Discovery Sports laid off around 70 people in a round of across-the-board cuts that affected Turner Sports, Bleacher Report and the company’s studio operations in Atlanta, Sports Business Journal reports. The report added that WBD Sports cut a little more than 10% of its workforce, counting both people that were let go and open positions that will remain unfilled.


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  TikTok - FBI Director Christopher Wray told lawmakers he was “extremely concerned” about TikTok’s operations in the US, CNBC reports, and added that “it is certainly something that’s on our radar and we share your concerns.”


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  Macy’s, Inc. (M) - Macy’s is the latest brand to pause its advertising on Twitter, AdAge reports. The halt comes just as it had been in the middle of big-spending campaigns heading into the holiday shopping season and Thanksgiving, a holiday it’s closely tied to with the Macy’s Thanksgiving Day Parade, a moment typically shared on Twitter, the report added.

MATERIALS:

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  BHP (BHP) - The miner is reportedly preparing the sale process for its Blackwater and Daunia coal mines, according to The Australian; could fetch USD 2bln.


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  Anglo American PLC (NGLOY) - Anglo American announced the value of rough diamond sales for De Beers’ ninth sales cycle of 2022 amounted to USD 450mln (vs 508mln in Cycle 8).

ENERGY:

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  Williams Companies, Inc. (WMB), Sempra Energy (SRE) - Williams enters heads of agreement with Sempra Infrastructure to integrate LNG value chain capabilities.


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  Siemens Energy (SMNEY) - Sales top estimates but it won’t pay a dividend as Gamesa challenges weigh. Q4 sales EUR 9.2bln (exp. 8.8bln), net EUR 378mln (prev. -383mln); no dividend proposed for 2022. 2023 sales growth seen between +3-7% (prev. -2.5%).


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  Tullow Oil (TUWOY) - Tullow’s November update notes that it delivered on operating and financial targets in the first 10 months of the year. Narrows FY production guidance to 61-62k BOEPD.

INDUSTRIALS:

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  Alstom (ALSMY) - Half year orders and cash flow top expectations, and confirms 2024-25 objectives; H1 sales EUR 8.05bln (exp. 8.09bln), H1 adj. EBIT EUR 397mln (exp. 409mln), adj. net EUR 179mln (prev. 172mln).

HEALTH CARE:

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  Alcon Inc. (ALC) - Q3 core EPS 0.50 (exp. 0.48), Q3 revenue USD 2.12bln (exp. 2.13bln). Narrows its FY22 EPS outlook to USD 2.20-2.25 (exp. 2.28, prev. 2.20-2.30), and lowers its FY22 revenue outlook to USD 8.5-8.7bln (exp. 8.7bln, prev. 8.6-8.8bln). Raises size of cost-cutting programme, now sees an additional USD 100mln in cost savings.

16 Nov 2022 - 09:30- EquitiesData- Source: Newsquawk