US EARLY MORNING: US index futures are lower as economic data continues to soften while central bankers continue to sound hawkish; more key data and central bank speakers ahead

SNAPSHOT: US equity futures are slightly below the neutral line, Treasury yields are lower by 2-3bps, the Dollar Index is a little lower, while crude benchmarks are in the red. The risk-off tone is being underpinned by questions over the soft-landing narrative as activity data continues to come in on the soft side and central bankers continue to talk a hawkish game.

GROWTH CONCERNS: After relinquishing the 4,000 level on Wednesday, the E-Mini S&P 500 is currently trading around unchanged levels, sub-3,950; other US equity futures are similarly little changed. Nascent hopes that the US economy can achieve a soft landing have been shaken by this week’s soft retail sales data, which missed expectations in December’s holiday spending season (analysts were expecting these to be resilient, but start inching down in the New Year as consumers retrench in the face of economic uncertainty and potential recession), as well as the soft industrial and manufacturing production data. These weak data points chime with the recent ISM services and manufacturing data, where the headlines for both are in contraction, and the forward-looking new orders measures are also in contraction, signalling challenging growth conditions ahead. And it appears that the January ISM data, out early February, will take a similar shape, after the Empire Manufacturing survey this week collapsed; today’s Philly Fed manufacturing report will help develop these expectations. And in the face of all of these proxies which suggest that a growth slump is on the cards for 2023, and it may not be as soft as many hope, central bank rhetoric this week continues to push the hawkish line, with Fed policymakers seemingly continuing to signal interest rate hikes to above 5.00%+ – this is more hawkish than market expectations, which sees the peak at 4.75-5.00%. This hawkishness is not just confined to the US either – the hawks on the European Central Bank have been aggressively pushing back on dovish reports this week that suggested the central bank could downshift the pace of its rate hikes in the months ahead. And amid the increasing growth fears, Morgan Stanley’s celebrity strategist Michael Wilson reiterated his bearish thesis for stocks, arguing that this year’s rally has been led by low quality and heavily shorted stocks, and noting the strong move into cyclical stocks relative to defensive ones, which has fooled investors into thinking that they are missing out on alpha opportunities. “Truth be told, it has been a powerful shift, but we also recognise bear markets have a way of fooling everyone before they’re done,” Wilson told CNBC, “we’re not biting on this particular head fake/bear market rally because our work and process is so convincingly bearish, and we trust it.” Wilson is given a lot of attention after he correctly called the downside in stocks post-pandemic; he has recently been arguing that the looming corporate earnings recession could be similar to that seen in 2008-09, and that could trigger a stock market sell-off where the S&P 500 could potentially fall to as low at 3,000. So long as data continues to come in soft, and central bankers continue to sound the hawkish siren, Wilson’s celebrity status may endure.

DAY AHEAD: The ECB’s meeting minutes (primer here) will be scoured for clues as to whether officials are open to downshifting the pace of rate hikes from March, after recent dovish reporting suggested that they could – this dovish reporting has seen push back from hawks, however. ECB President Lagarde is due to deliver remarks from Davos, while its markets chief Schnabel will also be speaking today. The US Day will have speeches from the influential Fed Vice Chair Brainard, while the FOMC’s Vice Chair Williams may also give remarks (there was some reporting on Wednesday that Fed Chair Powell has COVID; in the event he cannot participate at the February 1st FOMC, Williams will fill-in for him). On the US data slate, weekly jobless claims data will coincide with the survey period for the January jobs report. The Philly Fed’s regional manufacturing gauge will be eyed in wake of the collapse in the Empire Fed survey earlier in the week – these surveys will help build expectations for the ISM data, due early February (both ISM manufacturing and services headlines, and new orders, are currently in contraction). Elsewhere, the DoE will release weekly energy inventory data; API data showed crude stocks building 7.6mln (exp. -0.6mln), Cushing stocks building 3.7mln, gasoline built 2.8mln (exp. +2.5mln), while distillates drew down 1.8mln (exp. +0.1mln), according to Citi. Our full Day Ahead schedule can be accessed here. Today’s US corporate earnings slate features updates from NFLX, PG, and TFC; expectations can be accessed here.

MATERIALS:

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  Alcoa Inc (AA) - Q4 adj. EPS -0.79 (exp. -0.75), Q4 revenue USD 2.66bln (exp. 2.65bln). Q4 aluminium production 516k MT (vs 554k Y/Y); says in FY23, aluminium segment will ship between 2.5-2.6mln MT - relatively unchanged levels vs FY22 - as additional shipments from the restart of the Alumar and Portland smelters are offset by lower anticipated trading volume. The company said it worked to mitigate challenging market conditions throughout the year that included high costs for raw materials and energy and lower sequential pricing in the Alumina and Aluminum segments in Q4. Ahead, AA said positive long term aluminium fundamentals driven by decarbonisation remain formative, and is expected to continue developing in 2023.


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  H.B. Fuller Company (FUL) - The speciality chemicals company reported Q4 adj. EPS 1.04 (exp. 1.24), Q4 revenue USD 958mln (exp. 1.01bln). Exec said that during Q4, it experienced a more pronounced and accelerated slowdown in demand for Construction Adhesives than it anticipated, driven by customer inventory de-stocking actions prior to the end of the calendar year. It also experienced unexpected softness in China due to more dramatic COVID-related lockdowns and on a global basis, greater than expected headwinds from FX. Expects global economic conditions to remain slow, and it said it was prepared to control expenses. Sees FY23 adj. EPS between 4.15-4.55 (exp. 4.63), and sees FY23 revenue flat-to-down 3% (exp. USD 3.9bln).


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  BHP Group (BHP) - Q2 iron ore output +1% Y/Y at 66.9MT, Q2 copper production +16% Y/Y at 424.3KT, Q2 Metallurgical coal production +4% Y/Y at 7.0MT. Maintains FY23 production guidance and maintains unit cost guidance for Escondida and WAIO. Believes China will be a stabilising force when it comes to commodity demand in 2023, with OECD nations experiencing economic headwinds. China’s pro-growth policies, including in the property sector, and an easing of COVID-19 restrictions are expected to support progressive improvement from the difficult economic conditions of the first half.


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  Glencore (GLNCY) - The miner and India's Tata Motors are said to be among the potential bidders for the recently-collapsed battery firm Britishvolt, according to the FT.

ENERGY:

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  Kinder Morgan Inc (KMI) - Q4 adj. EPS 0.31 (exp. 0.30), Q4 revenue USD 4.58bln (exp. 4.91bln). Board authorises USD 1bln increase in share repurchase programme. President Kim Dang named new CEO, effective August 1st, as current CEO Steve Kean announced his intention to transition out of his role. Sees FY23 EPS at 1.12 (exp. 1.13), and expects declare dividends of USD 1.13/shr (+2% vs FY22).

INDUSTRIALS:

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  Matson, Inc. (MATX) - The marine shipping company pre-announced Q4 metrics; sees Q4 EPS between USD 1.88-2.01 (exp. 3.42). Said China service achieved lower Y/Y volume and freight rates. Reiterates that it expected Q4 and Q1 to be challenging in the Transpacific tradelane as retailers' inventories adjust to consumer demand levels and as ocean liners reduce vessel capacity to meet lower demand levels.

TECH:

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  Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG) - After it this week relaunched its larger HomePod speaker, iPhone maker Apple is working on devices aimed at challenging Amazon and Google in the smart-home market, including new displays and a faster TV set-top box, Bloomberg said.


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  Alphabet Inc. (GOOG) - Google is reportedly working on a location tracker like Apple's AirTag codenamed "Grogu," Engadget reports, which could be announced during Google I/O, which is likely to take place in May 2023.


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  Super Micro Computer, Inc. (SMCI) - Lifted its outlook for Q2 adj. EPS, now sees between USD 3.07-3.22 (exp. 2.73) from 2.64-2.90; also narrowed its Q2 revenue outlook to between USD 1.77-1.8bln (exp. 1.73bln) from USD 1.7-1.8bln.


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  nCino, Inc. (NCNO) - The software company said it would reduce its headcount by 7%. Announced Greg Orenstein as new CFO, succeeding David Rudow, who will leave the company at the end of the month. NCNO reaffirmed Q4 guidance.

COMMUNICATIONS:

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  Video Games Makers, Electronic Arts Inc. (EA), Activision Blizzard, Inc. (ATVI) - European games market struggled in December as new releases faltered, gamesindustry.biz reported. The publication said 27.4mln tracked games were sold across European markets in December, -13% Y/Y; 11.4mln of those sales were digital (-17% Y/Y), nearly 16 million sales were physical (-10% Y/Y). EA's 'FIFA 23' was the biggest selling game of the month (+5% Y/Y), ahead of ATVI's 'Call of Duty' (+6% Y/Y).


• CONSUMER CYCLICALS:


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  Amazon.com Inc. (AMZN) - Amazon began cut jobs in the US, Canada and Costa Rica on Wednesday, as part of its plan to lay off 18,000 employees, Reuters reports.


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  Bally's Corporation (BALY) - The entertainment company announced it will cut its Interactive workforce by 15% to reduce operating costs. Will incur charges between USD 10-15mln in Q1.

FINANCIALS:

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  Discover Financial Services (DFS) - Discover's shares slipped in after hours trade as it lifted provisions for credit losses, and saw a higher-than-expected net charge-off rate for FY23, both contributing to a negative macro read. Q4 adj. EPS 3.77 (exp. 3.66), Q4 revenue 3.73bln (exp. 3.66bln), Q4 provisions for credit losses USD 883mln (prev. 773mln Q/Q), Q4 net interest income USD 3.067bln (prev. 2.843bln Q/Q). Q4 Loan Fee Income +39% due to higher late fees, Q4 Card Sales Volume +8% (vs +15% Q/Q). Sees FY23 net charge-off rates between 3.5-3.9% (exp. 2.85%, prev. 1.82% in FY22).


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  Credit Suisse (CS) - the Swiss bank is cautiously optimistic as mainland investors return with China's reopening, SCMP reports. Separately, the bank will pay senior bankers an upfront cash bonus again this year, Bloomberg said.


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  Allstate Corporation (ALL) - Sees an adj. net loss of USD 335M-385mln in Q4. Q4 net investment income seen at USD 557mln.


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  First Horizon National Corporation (FHN) - The financial services company reported Q4 adj. EPS of 0.51 (exp. 0.48), and Q4 revenue of USD 882mln (exp. 850mln); Q4 net charge-offs USD 26mln (up USD 14mln), Q4 nonperforming loans of +8% at USD 316mln, Q4 non-performing loan ratio 0.54% (vs 0.51% in Q3).


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  Nelnet, Inc. (NNI) - The financial services company announced changes to manage excess staff capacity due to delays in the government's student debt relief and return to repayment programmes. Approximately 350 associates who were hired within the last six months will be laid off, and approximately 210 associates will be terminated for performance reasons in its Diversified Services division.


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  Synovus Financial Corp. (SNV) - The financial services company reported Q4 adj. EPS at USD 1.35 (exp. 1.36), and Q4 revenue USD 603.8mln (exp. 601.5mln). Pre-provision net revenue up 19%.

HEALTH CARE:

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  Roche (RHHBY) - Pivotal Phase III IMbrave050 study investigating Tecentriq plus Avastin met the primary endpoint of recurrence-free survival. Tecentriq plus Avastin is the first treatment combination to reduce the risk of cancer returning in people with certain types of early-stage liver cancer in a Phase III trial.

REAL ESTATE:

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  Veris Residential (VRE) - Fell in after hours trade on news hat Kushner Co. pulled out of deal talks. Kushner said financing partners' had an unwillingness to move forward despite numerous attempts to engage.


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  Vornado Realty Trust (VNO) - The REIT cut its quarterly dividend by 29% to 0.375/shr; decrease was in recognition of the current state of the economy and capital markets, and is reflective of Vornado's reduced projected 2023 taxable income, primarily due to higher interest expense, it said.

19 Jan 2023 - 09:20- Data- Source: Newsquawk