US EARLY MORNING: US index futures are lower as yields rise ahead of Wed's FOMC, where a 75bps rate rise is expected

NOTE: Daylight saving time in the UK has now ended, and the time differential between London and New York will be four hours this week. Daylight saving will end in the US on Sunday 6th November, upon which the usual five-hour time differential will be restored.

SNAPSHOT: US index futures are starting the week in the red, with the tech heavy Nasdaq-100 leading the losses (-0.7%), as US yields rise 2-6bps across the curve, with much of the underperformance in the front-end as the Treasury curve braces for a 75bps rate rise from the FOMC on Wednesday. The Dollar Index is trading firmer, while crude futures are trading around a buck or so in the red. Political/Geopolitical themes are being noted this morning: the FT reports that new polling over the weekend showed Republicans hold an edge over Democrats with just over a week before midterm elections on Nov. 8th, with voters focussed on high inflation and the risks of recession. On the ags front, Russia has pulled out of the UN-brokered grains deal, although some geopolitical analysts note that the Russian commentary is holding open the prospect for talks with the US. Elsewhere, the US seems to be coaxing Europe to consider export controls on China, drawing lessons from the tactics used on Russia, though Europeans don’t seem inclined yet.

DAY AHEAD: Flash Eurozone CPI data for October is today’s main data release (consensus looks for broadly unchanged Y/Y rates). Q3 GDP data from the bloc is also on the slate, and is expected to show no quarterly growth. ECB’s chief economist Lane will deliver remarks in the morning. The highlight of the US day is the Chicago PMI release. Central banking events later in the week are being eyed (RBA, FOMC, Norges, BoE), while we also get monthly US jobs data and ISM surveys. Our full Day Ahead can be accessed here, our week ahead preview can be accessed here. Earnings-wise, there are still a few notable names to report; this week we get SYK today; On Tuesday, LLY, PFE, UBER, ABNB, AMD; On Wednesday, EL, CVS, HUM; On Thursday, CI, REGN, COP, MRNA, AMGN, SBUX, PYPL; and on Friday, DUK, D; our full weekly earnings expectations can be accessed here.

THEMES:

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  Buybacks - Goldman Sachs told clients that in an environment of attractive alternatives to equities, own stocks with high cash return yield and growth. The bank wrote that despite disappointing 3Q earnings results, the S&P 500 rallied 4% last week. "Roughly half of firms have now exited their repurchase blackout windows but the pace of buyback executions has slowed sharply," GS says, and last week, the bank revised its forecasts for S&P 500 uses of cash. "In a soft landing scenario, we expect 2023 S&P 500 cash spending will total USD 3.2tln (0% growth)," where "weak buybacks (-10% Y/Y) will be offset by R&D (+10% Y/Y), dividends (+5% Y/Y) and cash M&A (+3% Y/Y)." GS adds that in a recession scenario, it would expect buybacks to fall 40%, and cash M&A to fall 20%. "We recommend owning stocks with high cash return yield and growth, given the attractive yield offered by cash today," GS says.


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  USD - The rise of the USD is set to wipe more than USD 10bLn from US corporate earnings in Q3, the FT reports citing analysts estimates, piling pressure on companies that are already grappling with high prices and a gloomy domestic outlook. The report adds that the trend is becoming increasingly difficult for investors to ignore as concerns grow about its knock-on impact on demand.


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  Dividend Stocks - Barron's says dividend-paying stocks can help battle inflation, and mentions United Rentals (URI), IBM (IBM), Kinder Morgan (KMI), US Bancorp (USB), Truist Financial (TFC).

GEOPOLITICS:

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  Ags - Russia has suspended its involvement with a UN-brokered grain deal with Ukraine after an alleged attack on Russian ships in Sevastopol, Crimea. A Kremlin spokesperson suggested that if the US is ready to address Russia's concerns regarding security and to strive to better the relations between the two countries, it could be a platform for Putin-Biden talks, Tasnim reports.


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  Russia Oil Price Cap - The Biden administration’s effort to roll out a price cap on Russian oil has hit delays, as the Treasury Department tries to ease industry concerns about the novel sanctions regime at the centre of the West’s economic battle with Russia, WSJ reports. The US and its allies had hoped to finalise the plan before December 5th, but that timeline is now slipping, and officials are not planning to set the level of the cap until after the US midterm elections on November 8th, WSJ said.


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  US-China - US is said to have asked Europe to consider export controls on China and draw lessons from the export-control regime used on Russia to address issues with China, Bloomberg reports. EU officials are currently not inclined to pursue that route, the report said. China said US export controls towards China had severely damaged its legitimate rights and must be rectified, and that the US should stop the practice of containment and suppression against China.


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  China PMIs - China's official NBS PMI data series saw manufacturing, non-manufacturing and composite indices slip beneath 50.0: The non-manufacturing PMI fell to 48.7 in October (exp. 50.2) from 50.6 in September, while the manufacturing PMI fell to 49.2 (exp. 50.0) from 50.1 in September, leaving the composite at 49.0 (prev. 50.9). The data points to a further loss of momentum as virus disruptions worsened and export orders remained under pressure, Capital Economics said, adding that with the zero-COVID policy here to stay, we think the economy will continue to struggle heading into 2023.


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  Brazil Election - Lula edged-out Bolsonaro by a margin of 50.8% vs 49.2% to return as Brazil president. The two candidates are polar opposites, BBC notes, with Lula a left-wing former trade union leader while Bolsonaro is a right-wing populist and former army captain

TECH:

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  Foxconn Intl (FXCNY), Apple Inc. (AAPL) - Workers have been staging an exodus this weekend from the world’s largest iPhone factory in Zhengzhou, amid a coronavirus outbreak at the Foxconn plant in central China, according to the FT. Workers said the situation at the plant had gradually deteriorated as Covid continued to spread, with food and medical supplies running low and workers being locked in dormitory rooms for quarantine — causing hundreds of employees to flee on foot over the weekend.


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  Apple Inc. (AAPL) - Apple’s first unionised workers say the company is withholding new benefits, The Verge reports. As the company’s first retail location to unionize in the US pushes to negotiate a contract, workers say it’s making it difficult for them to bargain for their benefits.


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  MGM Resorts International (MGM) - Macau’s MGM Cotai casino locked down after new Covid-19 case as city puts residents through daily tests, SCMP reports. Macau requires all its residents to go through daily rapid antigen tests after detecting two new cases this month versus none in September.


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  ASML Holding NV (ASML) - Positive mention in Barron's, which urged investors to take another look at its stock, which could soar 40%.

COMMUNICATIONS:

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  Twitter, Inc. (TWTR), General Motors Company (GM) - GM has pulled paid advertising on Twitter after Elon Musk completed his USD 44bln takeover of the social media company. GM said it had temporarily halted paid ads on the platform as a "normal course of business" after a significant change in a media platform, Sky reports. Separately, Musk is proceeding with plans to lay off a large number of Twitter employees, layoffs are expected to be broad, according to the Washington Post. The Information reported that when Musk terminated four top Twitter executives, including its former CEO and CFO, he did so "for cause" in an apparent effort to avoid paying out tens of millions of dollars in severance pay and unvested stock awards; Musk tweeted that "this is false".

FINANCIALS:

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  Credit Suisse Group AG (CS) - Credit Suisse has invited at least 20 banks to join the syndicate for a CHF 4bln rights issue that should help the lender finance another multi-year restructuring programme, Bloomberg reports citing sources. BBG said that


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  Visa Inc. (V) - Positively mentioned in Barron's, which argued that Visa's stock had been "unfairly beaten up," and it was now time to buy.


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  EGBs - Germany rejected EU common borrowing as a way to finance the bloc’s energy crisis; Germany said it was cheaper for individual states to raise debt by themselves given the higher interest rates faced by the European Commission.

INDUSTRIALS:

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  Boeing Company (BA) - China Southern Airlines cancelled two scheduled flights that would have used Boeing’s 737 Max, further postponing the return of the aircraft in the country since it was grounded in March 2019, Bloomberg reports. Separately (apparently, at least), after more than a decade in development, China’s first passenger jet, the single-aisle C919 built by state-backed Comac, won regulatory approval by authorities late last month, a move hailed as a major milestone by officials, as Beijing continues with its aim to break the duopoly enjoyed for decades by Airbus and Boeing.


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  Raytheon Technologies Corporation (RTX) - The Biden administration has discussed slow-rolling military aid to Saudis, including Patriot missiles, as payback for oil production cut, NBC reports. Some military officials back the idea, but others want the military relationship between the US and Saudi Arabia to be kept separate from any punishment.


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  TuSimple Holdings Inc. (TSP) - Self-driving trucking company TuSimple faces federal investigations into whether it improperly financed and transferred technology to a Chinese start-up, according to the WSJ.


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  Stellantis (STLA) - JV between STLA and China's Guangzhou Group is filing for bankruptcy after a lengthy decline for the oldest foreign auto brand in the world's largest market, Reuters reported. The JV produced Jeep vehicles in China.

CONSUMER CYCLICALS:

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  Starbucks Corp. (SBUX) - Interim CEO Schultz made comments during an April meeting with employees that US labour officials view as an illegal anti-union threat, according to a complaint Friday reported by Bloomberg. An employee asked Schultz about retaliation against union supporters, to which Schultz is said to have replied "I’m sensing a lot of anger from you about Starbucks," and "if you hate Starbucks so much, why don’t you work somewhere else?"

MATERIALS:

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  Rio Tinto (RIO), BHP (BHP) - The miners are to collaborate on new tailings technology to increase water recovery from mine tailings; the first project will involve testing the application at BHP's copper mine in Chile.


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  Glencore (GLNCY), Tesla (TSLA) - Tesla held prelim talks with Glencore about taking a 10-20% stake in the commodities group last year, according to the FT. Talks continued in March 2022 when Glencore CEO visited Tesla’s factory in California.


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  Metals - China's iron and steel association will ramp up efforts to promote M&A in the steel sector to increase industrial concentration and profits, Global Times reports.

HEALTH CARE:

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  Thermo Fisher Scientific Inc. (TMO) - TMO is nearing a deal to acquire UK diagnostic firm Binding Site for more than GBP 2bln from private equity fund Nordic Capital, according to Bloomberg. Deal could be announced this week, and would mark a revival to dealmaking in Europe where volumes collapsed this quarter.

31 Oct 2022 - 08:30- MetalsData- Source: Newsquawk