US EARLY MORNING: US index futures are modestly higher ahead of ADP jobs data and the FOMC rate decision

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 equity futures are trading with modest gains of between 0.1-0.3%, led by the Nasdaq-100; Treasury yields are lower by 1-4bps, with the rally concentrated in the front-part of the curve. The Dollar Index is a little lower, perhaps due to jawboning by Japanese policymakers which has pressured USDJPY, while the constructive risk tone appears to be supporting activity currencies. Crude benchmarks are up by around a buck a piece after API data reportedly showed a surprise draw for headline crude stocks. Traders are focussing on today’s FOMC meeting, where the central bank is likely to increase the Federal Funds Rate target by 75bps, talking it to 3.75-4.00%; any commentary that alludes to the Committee moving towards a slower pace of rate hikes ahead will be welcomed by the market. The API’s gauge of national employment will be released before the FOMC meeting, and is expected to show 193k jobs being added to the economy; the data will help shape expectations for Friday’s official jobs data, even though the data series still garners some criticisms from the analyst community with regards to its forecasting power; looking to Friday, the street currently expects 200k after the 263k in September. While the jobs data is unlikely to shift the narrative too much for today’s FOMC, we note that JOLTs data released yesterday surprisingly picked up, alluding to still very tight conditions in the labour market, and that resulted in money markets increasing their view on where the eventual terminal rate will be; a week ago, money markets had expected terminal to be just over 4.8% in May 2023; current pricing is pricing rates to be slightly above 5.00% by next May.

DAY AHEAD: FOMC is the highlight of the day, and is expected to raise rates 75bps, and there is some very negligible pricing for a larger 100bps after yesterday's decent ISM data and JOLTs data which continues to allude to a tight labour market (our Fed preview can be accessed here). Traders will eye the ADP's gauge of US national employment to help shape expectations for Friday's key official jobs data (193k expected vs 208k prior). Elsewhere, weekly US MBA mortgage applications data, weekly energy inventory data from the DoE (API data reportedly showed Crude -6.5mln vs exp. +0.4mln, Cushing stocks +0.9mln, gasoline -2.6mln vs exp. -1.4mln, distillate +0.9mln vs exp. -0.6mln). The US Treasury will make its refunding announcement (preview below). On the central banks front, remarks are expected from the ECB's Villeroy and BoC's Morrow. Our full day ahead schedule can be accessed here. Earnings-wise, highlights include CVS and QCOM (earnings expectations can be accessed here).

FOMC PREVIEW (18:00GMT/14:00EDT): The Fed is expected to hike its target Fed Funds range by another 75bps to 3.75-4%, with a firm focus on the guidance and Powell's presser as the FOMC looks to step down the pace of tightening as it approaches the terminal rate, roughly in the 4.5-5% area. That comes despite a lack of progress in bringing inflation down, with concerns rising around the risk of overshooting on hikes. As a hawkish offset to expectations around an approaching Fed pause, Powell could use the meeting to signal a higher terminal rate - there are no new SEPs at this meeting - than the September 'Dot Plot' implied [4.6%], whilst continuing to lean on the "higher for longer" messaging. Although dovish risks include Powell signalling 50bps in December whilst failing to guide to a higher terminal rate; too much focus on financial stability also risks shifting expectations to a Fed pause. (Full preview here).

US REFUNDING (12:30GMT/08:30EDT): The US Treasury is expected by many to leave almost all of its coupon auction sizes for the upcoming quarter unchanged after the August refunding saw the Treasury Borrowing Advisory Committee (TBAC) say "auction sizes are expected to level out next quarter." However, there are some expectations for the 20yr bond to see additional cuts, with desks gravitating around an estimated USD 1bln reduction for both the new issue and reopenings. A key issue in focus will be any decisions regarding the previously touted Treasury buybacks after the TBAC said the option warranted further discussions, while Treasury Secretary Yellen said recently that it was conceivable something could be done. Briefly, the appeal of buybacks, where the Treasury would purchase outstanding debt securities which would then be cancelled, include improving liquidity in illiquid Treasury securities (mainly those further out the curve), whilst funding the purchases with more T-Bill issuance, which would be desirable in the current environment where short-end paper is seeing high demand. On the other hand, some of the cons with buybacks include higher taxpayer costs due to refinancing (during an inverted yield curve) at higher bill rates, creating uncertainty about the Treasury's issuance path, and signalling issues with the Fed carrying out QT at the same time.

TECH:

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  Advanced Micro Devices Inc (AMD) - Analysts were encouraged after AMD said Q4 sales were likely to be flat, helping to soothe some concerns about the downturn in demand for PC chips, with some taking it as a sign that this may have bottomed. Q3 EPS 0.67 (exp. 0.68), Q3 revenue USD 5.57bln (exp. 5.62bln). Q3 adjusted gross margin 50% (exp. 50%), Q3 capital expenditure USD 123mln (exp. 102mln), Q3 adj. operating margin 23% (exp. 23.3%), Q3 FCF USD 842mln (exp. 1.23bln). Sees Q4 adj. gross margin 51% (exp. 52.4%), Q4 revenue seen between 5.20-5.80bln (exp. 5.85bln), and sees FY22 revenue between USD 23.2-23.8bln (exp. 23.88bln).


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  Oracle Corporation (ORCL) - Oracle laid off as many as 200 employees in its cloud unit on Tuesday, Business Insider reports. The unit had largely been insulated from layoffs this year.


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  Intuit Inc. (INTU) - Said that it will in November report Q1 results higher than previously forecast despite uncertainties around its Credit Karma unit.


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  Paycom Software, Inc. (PAYC) - Q3 EPS 1.27 (exp. 1.18), Q3 revenue USD 334.2mln (exp. 327.6mln). Q4 revenue seen between USD 366-368mln (exp. 356.4mln), and FY22 revenue is seen between USD 1.371-1.373bln (exp. 1.36bln).


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  TomTom (TMOAY) - New maps platform expected to be rolled out in Q2 2023, positions the company for accelerated growth. Record EUR 2.4bln of automotive backlog provides a strong foundation for accelerated revenue growth, backlog has increased by EUR 500mln vs end-2021.


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  ZoomInfo Technologies Inc. (ZI) - Q3 EPS 0.24 (exp. 0.20), Q3 revenue USD 287.6mln (exp. 278.5mln). Sees Q4 EPS between 0.21-0.22 (exp. 0.21), and sees Q4 revenue between USD 298-300mln (exp. 297.7mln). Lifts FY22 EPS outlook to 0.83-0.84 (exp. 0.80), and lifts FY22 revenue outlook to USD 1.094-1.096bln (exp. 1.09bln). Lowers FY FCF view to USD 430-435mln (prev. 438-446mln)

COMMUNICATIONS:

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  Airbnb, Inc. (ABNB) - Q3 EPS 1.79 (exp. 1.47), Q3 revenue USD 2.88bln (exp. 2.84bln), Q3 gross bookings USD 15.6bln (exp. 15.25bln), Q3 average daily rate USD 156, Q3 experiences booked 99.7mln (exp. 99.85mln). Execs noted strong demand amid macro headwinds. Q4 revenue seen between USD 1.80-1.88bln (exp. 1.85bln)


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  Electronic Arts Inc. (EA) - Q2 Adj. EPS USD 1.45 (exp. 1.37), Q2 revenue USD 1.904bln (exp. 1.788bln), Q2 net bookings USD 1.754bln (exp. 1.8bln). Q3 EPS seen between USD 0.43-0.59 (exp. 3.01), and Q3 net bookings seen between USD 2.425-2.525bln (ex. 2.6bln). Lifts its FY23 EPS outlook to between USD 3.11-3.34 (exp. 7.17, prev. range 2.79-2.87), and sees FY23 net bookings between USD 7.65-7.85bln (exp. 7.97bln).


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  Match Group, Inc. (MTCH) - Q3 EPS 0.44 (exp. 0.51), Q3 revenue USD 809.5mln (exp. 794.2mln). Payers increased +2% to 16.5mln in Q3 (vs 16.3mln Y/Y). Said Hinge continues to achieve all-time highs in users and grow its market share globally; Azar app at Hyperconnect has returned to solid growth. Expects a challenging operating environment for the foreseeable future, and plans to accelerate efforts to control costs, especially in headcount-related expenses and marketing spend. Q4 revenue seen between USD 780-790mln (exp. 810.4mln), where FX is expected to be nearly a nine-point drag on total revenue.

INDUSTRIALS:

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  A.P. Moeller-Maersk (AMKBY) - Q3 revenue USD 22.8bln (exp. 21.7bln), EBITDA USD 10.8bln (exp. 9.2bln), adj. EBIT USD 9.3bln (exp. 8.4bln). Lowers FY22 global container demand forecast to -4% to -2%; confirms EBITDA, EBIT and FCF guidance. Said it expects the global economic slowdown to lead to a softer market in ocean, will continue to pursue growth opportunities within the logistics business. Freight rates have begun normalising during Q3.


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  Verisk Analytics, Inc. (VRSK) - Q3 adj. EPS 1.46 (exp. 1.47), Q3 revenue USD 745.3mln (exp. 754.4mln).

ENERGY:

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  Devon Energy Corporation (DVN) - Q3 adj. EPS 2.18 (exp. 2.13), Q3 revenue USD 5.43bln (exp. 4.95bln), Q3 fixed-plus-variable dividend hiked by +61% Y/Y to USD 1.35/shr. Due to the impact of acquisitions, Devon is revising its production forecast higher for Q4 to a range of 640-660k BOE/day (+6% Y/Y); Q4 volume growth will be driven by 35k BOEPD of incremental production from the company's Eagle Ford acquisition.


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  TotalEnergies (TTE) - Is lifting production levels at multiple units following an upset, Reuters said.

MATERIALS:

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  DuPont de Nemours, Inc. (DD), Rogers Corporation (ROG) - DuPont terminates previously announced agreement to acquire Rogers Corporation as the companies have been unable to obtain timely clearance from all the required regulators. DuPont is paying Rogers a termination fee of USD 162.5mln in accordance with the agreement.


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  FMC Corporation (FMC) - Q3 adj. EPS 1.23 (exp. 1.12), Q3 revenue USD 1.38bln (exp. 1.34bln). Narrows FY22 adj. EPS outlook to 7.10-7.60 (exp. 7.42, prev. range was 7.00-7.70), and lifts its FY22 revenue outlook to USD 5.6B-5.8bln (exp. 5.6bln, prev. range 5.5-5.7bln), while lowers its FY22 FCF view to USD 440-560mln, reflecting the increased revenue outlook and inflationary impacts on working capital.


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  Polymetal International Plc (AUCOY) - Q3 revenue USD 714mln (prev. 819mln), Gold equivalent output 490k/oz (prev. 457k/oz). On track for FY production guidance.

FINANCIALS:

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  Credit Suisse (CS) - Qatar Investment Authority intends to increase its stake in the bank, FT said, and will occur via investment in a share sale alongside the Saudi National Bank. Separately, the bank's top wealth exec Yves-Alain Sommerhalder is leaving the firm, Bloomberg said.


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  Prudential Financial, Inc. (PRU) - Q3 adj. EPS 2.13 (exp. 2.01). Exec said results reflected the impact of market conditions, including the variability in alternative investment returns and lower fee income, as well as an elevated level of COVID-19 hospitalisation claims in Japan, partially offset by underlying business growth, including the benefit from rising interest rates.


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  American International Group, Inc. (AIG) - Q3 adj. EPS 0.66 (exp. 0.53). Life and Retirement delivered premiums and deposits +23% Y/Y at USD 8.9 billion.


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  Julius Baer (JBAXY) - Intends to expand in Hong Kong, will explore wealth management opportunities in the region, SCMP reports.

CONSUMER CYCLICALS:

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  Tesla, Inc. (TSLA) - Tesla has reportedly closed its flagship showroom in Beijing's Parkview Green as it adjusts its sales and service strategy in its second-largest market, Reuters reports. The showroom was shut late last week, Reuters said.


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  Yum China Holdings, Inc. (YUMC) - Q3 adj. EPS 0.49 (vs 0.22 Y/Y), and Q3 revenue USD 2.68bln (vs 2.55bln Y/Y); Q3 total system sales +5% Y/Y; Q3 SSS flat Y/Y, SSS recovered sequentially in July and August, with August exceeding the prior year level, but SSS declined Y/Y in September as preventive health measures were tightened; Q3 restaurant margin 18.8% (vs 12.2% Y/Y). Said COVID continued to impact operations and results in Q3, with China's COVID-related health measures impacting travel and social activities.


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  Cheesecake Factory Incorporated (CAKE) - Q3 adj. EPS -0.03 (exp. 0.28), Q3 revenue USD 784mln (exp. 799.4mln), Q3 Cheesecake Factory comparable restaurant sales +1.1% Y/Y, and +9.5% vs 2019. Said that through October 25th, Q4 comparable sales were up +2.8% Y/Y and +14.0% vs 2019. Board authorised an increase of 5mln shares to its buyback programme. Sees Q4 revenue between USD 900-930mln (exp. 899.3mln) amid a dynamic operating environment. Is working on a +2.8% incremental menu price increase. FY22 revenue seen around USD 3.33bln (exp. 3.33bln), and it is still progressing towards primary financial objectives for FY22. FY23 revenue seen between USD 3.5-3.6bln (exp. 3.5bln), and sees FY23 inflation in the mid single digits.


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  Caesars Entertainment Corporation (CZR) - Q3 EPS from cont ops 0.24 (exp. 0.14), Q3 revenue USD 2.89bln (exp. 2.82bln). Q3 same-store adj. EBITDA USD 1bln (vs 880mln Y/Y). Exec said October was the strongest month in history of Las Vegas for the company. Is no longer looking to sell a Las Vegas strip property, renovations in Atlantic City will finish in H1 2023.


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  O-I Glass Inc (OI) - Q3 EPS 0.63 (exp. 0.60), Q3 revenue USD 1.7bln (exp. 1.67bln). Lifts Q4 EPS outlook to 0.28-0.33 (exp. 0.30, prev. range 0.20-0.30); says results are expected to lag prior year adjusted earnings of 0.36/shr due to an estimated USD 0.12/shr headwind from unfavourable FX translation and others, adding that results should reflect a higher net price, which will benefit from the recently implemented third price increase in Europe. FY22 EPS seen at the high-end of its 2.20-2.25 guidance (exp. 2.19).


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  H&R Block, Inc. (HRB) - Q1 adj. EPS -0.99 (exp. -1.08), Q1 revenue USD 180mln (exp. 182mln). Sees FY23 adj. EPS between 3.70-3.95 (exp. 3.76), FY23 revenue seen between USD 3.535-3.585bln (exp. 3.54bln).


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  Aston Martin (ARGGY) - Q3 revenue +16% Y/Y at GBP 857mln; adj. EBITDA +10% Y/Y at GBP 80mln.

CONSUMER STAPLES:

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  Mondelez International, Inc. (MDLZ) - Q3 adj. EPS 0.74 (exp. 0.69), Q3 revenue USD 7.76bln (exp. 7.4bln). Raises its FY22 adj. EPS outlook to +10% (prev. 'up mid-to-high single digits'), and sees adj. EPS growth (FXN) of 10%+ (prev. 8%+). Adds three new members to its senior management team.


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  Chegg, Inc. (CHGG) - Q3 EPS 1.23 (exp. 0.14), Q3 revenue USD 164.7mln (exp. 158.3mln). Sees Q4 revenue between USD 200-203mln (exp. 204.8mln). FY22 revenue seen between USD 762-765mln (exp. 761mln).


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  Clorox Company (CLX) - Q1 adj. EPS 0.93 (exp. 0.75), Q1 revenue USD 1.74bln (exp. 1.69bln), Q1 GM -110bps Y/Y to 36% due to higher manufacturing and logistics costs, higher commodity costs, and lower volume, partially offset by the benefits of pricing and cost savings initiatives. Reiterates its FY23 adj. EPS outlook of between USD 3.85-4.22 (exp. 4.07), and sees FY23 revenue growth in a range of -4% to +2%. Adds that in FY23, FX headwinds now represent around a 2-point reduction in sales, from 1.5 points assumed in the prior outlook.

HEALTH CARE:

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  GlaxoSmithKline (GSK) - Q3 revenue GBP 7.8bln (exp. 7.3bln), adj. EPS 0.469 (exp. 0.398), dividend 0.1375/shr; no changes to its FY22 guided dividend of 0.6125/shr (exp. 0.596/shr). The majority of expected COVID solutions sales for FY22 have been achieved. Is raising FY guidance: expects good momentum in 2023. Is taking a GBP 45mln charge for significant legal matters, primarily relating to provisions around Zantac.


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  McKesson Corporation (MCK) - Q2 adj. EPS 6.06 (exp. 6.07), Q2 revenue USD 70.2bln (exp. 70.2bln). Raises its FY23 adj. EPS outlook to 24.45-24.95 (exp. 24.50, prev. range 23.95-24.65).


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  Perrigo Company plc (PRGO), Nestle (NSRGY) - Perrigo announced a USD 170mln strategic investment to expand its US infant formula manufacturing, which is expected to bolster industry capacity. Perrigo has purchased Nestle's (NSRGY) Gateway infant formula plant in Wisconsin, along with the US and Canadian rights to the Good Start infant formula brand.


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  Novo Nordisk (NVO) - Q3 revenue DKK 45.5bln (exp. 44.5bln), EBIT DKK 20.2bln (exp. 19.2bln). Growth is being driven by increasing demand for GLP-1 based diabetes treatments, especially Ozemic, which had sales of DKK 16.3bln. FY22 sales and operating profit growth now seen 10-15ppts higher at constant currency.

02 Nov 2022 - 08:29- Fixed IncomeData- Source: Newsquawk