US EARLY MORNING: US index futures are flat ahead of key PCE inflation data for April

APAC trade was supported after a positive lead from Wall Street, European stocks have started the last trading session of the week with gains. US equity futures, meanwhile, are trading around flat ahead of today’s key PCE data for April – the Fed’s preferred gauge of price pressures – but the ES and NQ are on track to snap their seventh straight week of losses. For today’s data, the street expects the annual rate of core PCE prices to pare back to 4.9% from 5.2%, but if the other inflation releases for the month of April are a guide, investors will also want to see a cooling in the monthly rate before pinning (or re-pinning, in many cases) their colours to the ‘peak inflation’ mast. April’s CPI data disappointed expectations, and although the annual measures narrowed, the monthly rate of core inflation picked-up; producer prices for April were similarly disappointing, with wholesale prices rising by double-digits for the fifth straight month. The consensus looks for April’s core PCE prices to rise 0.3% M/M, which would match the prior rate (range of forecasts is between 0.2-0.5% M/M – any upside above this range would match the firmest rate of monthly core PCE rises in the post-pandemic era and would lean against peak inflation narratives). PCE and CPI both have different methodologies, but some are hoping that the former will show more signs of easing this month, particularly due to legislated cuts for Medicare payments. Market-based pricing for the course for the Federal Funds Rate this year have narrowed slightly in recent sessions as some officials suggest that a reassessment of tightening might be needed after rates have been lifted to neutral (pause? Slower pace? Fed will likely be data dependent here), and while 50bps hikes are fully priced for June and July, the market expects a 25bps move in September; any upside in the PCE prices may manifest themselves in the pricing for September. By the end of the year, the market sees Fed Funds between 2.50-2.75%. Full Day Ahead calendar here.

WEEKLY FLOWS:

• Bank of America’s weekly flows report noted USD 20bln into equities, USD 28.2bln into cash, USD 800mln into gold, and USD 5.8bln out of bonds in the week. Regionally, the bank said US markets saw USD 21.8bln of inflows (third week of inflows), Japan saw USD 500mln of outflow (the first in four weeks), while Europe saw outflows of USD 200mln (15th week), and EM saw USD 300mln of outflows (second week). In terms of the more granular updates, BofA said US large caps had seen USD 19.6bln of inflows in the week, USD 1.2bln inflows into consumers, USD 1.2bln outflows from financials, and USD 1bln outflows from tech.

KEY US EQUITY LEVELS (via Credit Suisse):

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  SPX: 3663, 3700/3694, 3730/23, 3800, 3815/10, 4047/52, 4090/91, 4123/28, 4139, 4156/58.


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  NDX: 11280, 11356, 11492, 11512, 11768, 12048/66, 12190, 12334, 12573, 12736/48.


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  RUT: 1652/42, 1670, 1705/1697, 1713, 1739/31, 1839/41, 1584, 1868/80, 1894, 1920.

CONSUMER CYCICAL:

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  The Gap, Inc. (GPS) - Fell 13% following the publication of Q1 results, where it missed on top- and bottom-lines, and as it slashed guidance. Q1 EPS -0.44 (exp. -0.11), Q1 revenue USD 3.48bln (exp. 3.43bln), Q1 gross margins 31.5% (exp. 35.2%). Old Navy Comp sales -22% (exp. +16.8%), while Old Navy revenues slipped 19%. CEO expects issues at Old Navy to negatively impacting FY22 diluted EPS by 0.90-1.00/shr, but expects issues to be resolved by year-end. CEO noted Old Navy and Gap North America brands were most exposed to rising inflation. Said it was cutting its outlook due to execution challenges at Old Navy, an uncertain macro consumer environment, inflationary cost headwinds, slowdown in China; sees FY adj. EPS between 0.30-0.60 (exp. 1.32, prev. 1.85-2.05).


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  Ulta Beauty, Inc. (ULTA) - Rose 7.1% after hours following top- and bottom-line beats, while it also boosted its guidance. Q1 EPS 6.30 (exp. 4.46), Q1 revenue USD 2.35bln (exp. 2.1bln), Q1 comp sales +18.0% (exp. +8%). Exec noted double-digit comp sales growth across all major categories, and strong guest demand. Lifted FY22 EPS outlook to 19.20-20.10 (exp. 18.66, prev. 18.20-18.70), and raised its FY22 revenue outlook to USD 9.35-9.55bln (exp. 9.2bln, prev. 9.05-9.15bln), and also raised its FY22 SSS view to +6-8% (prev. +3-4%).


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  Wendy’s (WEN) - Postpones investor day amid reports this week that its largest shareholder Trian Fund Management is exploring a potential deal. Backed its FY22 EPS outlook between 0.82-0.86 (exp. 0.83), reiterated FY22 global system-wide sales growth of +6-8%. Exec noted continued progress across its three growth pillars (breakfast, digital business, global).


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  American Eagle Outfitters, Inc. (AEO) - Tumbled 11.5% after results and guidance cut. Q1 EPS 0.16 (exp. 0.25), Q1 revenue USD 1.055bln (exp. 1.14bln), Q1 consolidated store revenue +2%, total digital revenue -6%. Store revenue +1% vs Q1 2019, digital revenue increased +48% vs Q1 2019. Sees Q2 top-line growth similar to Q1. Management expects Q2 top-line growth to trend similarly to Q1; reflects higher markdowns to clear through spring inventory, higher freight costs and the impact of the supply chain acquisitions. Incorporating shifts in the macro environment, AE lowers its outlook for the year. Management expects operating profit to be above USD 314mln achieved in FY 2019, with total revenue up in the low single digits compared to FY 2021. Expects to enter H2 better aligned with demand, with a more balanced inventory position and leaner expense base. Will provide updates to the longer-term outlook once visibility into the macro and business trends improves.


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  Farfetch Limited (FTCH) - Q1 EPS -0.24 (exp. -0.28), Q1 revenue USD 514.8mln (exp. 560mln), Q1 GMV +1.7% Y/Y, Q1 Digital GMV +2.5% Y/Y. Sees FY22 Digital GMV up 5-10%, FY22 Brand Platform GMV +10-15%, FY22 adj. EBITDA margin 0%-1%. Exec said core business remained very strong despite macro events in China and ceasing operations in Russia; noted strong marketplace growth in the Americas and the Middle East.

CONSUMER STAPLES:

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  Costco Wholesale Corp (COST) - Q1 EPS 3.04 (exp. 3.03), Q1 Revenue USD 51.6bln (exp. 51.52bln); Q1 had a one-time charge of USD 77mln (0.13/diluted shr) due to employee benefits. US Comp sales ex-gas/FX +10.7% (exp. 9.56%). Exec said it was not seeing trade down, but was seeing a little shift in spending, adding that a number of items in the basket were a little less than last year because there was more trip consolidation Y/Y during COVID.


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  Danone (DANOY) - FDA expands collaboration with Danone’s Nutricia business to boost supplies of specialised medical baby formula bottles.

TECHNOLOGY:

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  VMware, Inc. (VMW), Broadcom Inc. (AVGO) - VMWare said Broadcom acquisition of VMware includes a termination fee of USD 1.5bln for Broadcom, while VMWare would pay a lower 750mln break up fee.


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  Dell Technologies Inc. (DELL) - Gained almost 12% on a decent profit beat. Q1 adj. EPS 1.84 (exp. 1.39), Q1 revenue USD 26.1bln (exp. 25.0bln). Said COVID lockdowns in China caused temporary supply chain interruptions in Q1; expects Q2 component costs to turn inflationary, while logistics costs are to remain elevated. Sees Q2 EPS between 1.00-1.15, Q2 adj. EPS USD 1.55-1.70, and Q2 revenue between USD 26.1bln-27.1bln. Sees FY23 revenue growth of around 6%, EPS growth of 12%+.


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  Autodesk, Inc. (ADSK) - Up over 3% after hours on top and bottom-line beats. Q1 adj. EPS 1.43 (exp. 1.34), Q1 revenue USD 1.17bln (exp. 1.15bln). Exec said it exited Q1 with strong momentum, save for Russia and currency movements during the quarter, for which it adjusted its outlook. Sees Q2 adj. EPS between 1.54-1.60 (exp. 1.60), and sees Q2 revenue between USD 1.22-1.235bln (exp. 1.22bln). For the FY, sees adj. EPS between 6.43-6.66 (exp. 6.69), while FY23 revenue is seen between USD 4.96-5.06bln (exp. 5.04bln).


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  Workday, Inc. (WDAY) - Slipped 9% after hours on a profits miss. Q1 EPS 0.83 (exp. 0.86), Q1 revenue USD 1.43bln (exp. 1.43bln). Sees Q2 subscription revenue +22% Y/Y, between USD 1.353-1.355bln, and raised FY23 subscription revenue outlook to between USD 5.537-5.557bln (prev. 5.53-5.55bln). Maintains its maintaining FY23 adj. operating margin guidance of 18.5%. Exec said it was a solid start to the year.


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  Marvell Technology Group Ltd. (MRVL) - Rose 3.6% after hours. Q1 adj. EPS 0.52 (exp. 0.51), Q1 revenue USD 1.447bln (exp. 1.43B), Q1 adj. gross margin 65.5%. Exec said revenue topped guidance on higher-than-forecast results from the datacenter end market. Sees Q2 adj. EPS at 0.56c +/- 0.03/shr (exp. 0.55), and sees Q2 revenue at USD 1.515bln, +/- 3% (exp. 1.49bln), adj. gross margin seen between 65.0-65.5%.


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  Zscaler, Inc. (ZS) - Added 1.3% in after hours trading following a Q3 results beat and constructive guidance for the next quarter. Q3 adj. EPS 0.17 (exp. 0.11), Q3 revenue USD 286.8mln (exp. 271.7mln). Sees Q4 Adj. EPS between 0.20-0.21 (exp. 0.17), and sees Q4 revenue between USD 304mln-306mln (exp. 292mln).


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  DiDi Global Inc. (DIDI) - DiDi is reportedly drawing interest from China’s FAW Group regarding a stake purchase, Bloomberg said.

COMMUNICATIONS:

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  T-Mobile US, Inc. (TMUS), AT&T Inc. (T), Verizon Communications Inc. (VZ) - T-Mobile raised fees in February for some customers, after exec later criticised peers like AT&T and Verizon for price rises.


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  Lions Gate Entertainment Corp. (LGF-A) - Rose 4.1% after results. Q4 adj. EPS 0.06 (exp. -0.13), Q4 revenue USD 929.9mln (exp. 905.9mln). Exec said Television Group achieved record new series launches in Q4, current series renewals and Motion Picture Group continued to add to a strong pipeline of branded properties and our library turned in another standout performance. It increased investment in Starz content generated a robust slate that drove strong subscriber growth and a notable reduction in churn.


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  Telecom Italia (TIIAY) - Could sign a pact with CDP on regards integration of Open Fibre, according to Reuters sources.

INDUSTRIALS:

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  Raytheon Technologies Corporation (RTX) - Pratt and Whitney awarded a USD 408mln Navy contract modification for F135 propulsion system annual sustainment.


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  General Dynamics Corporation (GD) - Awarded a USD 324mln contract to establish the ground Operations and Integration segment for Tranche 1 of the National Defense Space Architecture.


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  Airbus (EADSY) - A UK judge has granted Qatar Airlines a relatively quick trial against Airbus in the USD 1bln corporate divorce.


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  Crane Co. (CR) - Lifted its FY22 adj. EPS outlook to 7.45-7.85 (exp. 7.40, prev. 7.00-7.40) to reflect the inclusion of Engineered Materials’ earnings contribution.


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  easyJet (ESYJY) - Said issues that caused cancellations of over 200 flights Wednesday have been resolved.

ENERGY:

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  BP (BP) - Sees the UK oil and gas windfall tax having a multi-year impact, and is also looking into the impact on its UK investment plans.


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  Saipem (SAPMY) - Enters USD 2.7bln JV with Clough for the development of a plant in Australia.

HEALTH CARE:

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  Eli Lilly and Co (LLY) - Data from its oncology portfolio will be presented at the 2022 American Society of Clinical Oncology Annual Meeting, June 3-7th; data include new analyses from studies of Verzenio, Retevmo, and imlunestrant.


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  Bristol-Myers Squibb Company (BMY) - Data from Phase 2 PILOT Study of CAR T cell therapy Breyanzi show substantial durable responses in patients with refractory or relapsed large B-cell Lymphoma after first-line therapy.


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  Amgen Inc. (AMGN) - Will present new data from across its oncology medicines and biosimilars portfolio and pipeline at the ASCO Annual Meeting.


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  Roche (RHHBY) - To present data demonstrating clinical benefit of Genentech’s Glofitamab; new pivotal data demonstrated clinical benefit of Genentech’s Glofitamab, a potential first-in-class bispecific antibody for people with aggressive lymphoma. Separately, has developed test kits for monkeypox.


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  GSK (GSK) - China has approved Co’s Cervarix for 9-14 years old females.


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  Ipsen (IPSEY) - New Cabometyx data shows encouraging results in monotherapy and in combination across different tumor types including Metastatic Non-Small Cell Lung Cancer.

FINANCIALS:

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  Unipol (UFGSY) - Mulls sale of NPLs, could fetch EUR 2.5bln, according to Reuters.

27 May 2022 - 09:32- EquitiesData- Source: Newsquawk