US EARLY MORNING: US index futures are now mixed, and have picked-up off overnight lows

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  STOCKS: US equity index futures are mixed, with the Nasdaq-100 and S&P 500 in the red, while the Dow and Russell are slightly above neutral. Asia finished in the red, while European opened on the back foot. It is worth noting that indices have been paring back losses as the US day approaches. Soft guidance from Netflix (NFLX) saw shares sink by over 20% in extended trade, exacerbating the negative sentiment seen towards the Tech sector and the Growth style in 2022, as the Federal Reserve prepares to ease the amount of accommodation it provides in the months ahead, which suggests there could be further pain ahead. But Barclays provides some caution, with the bank noting that the Values outperformance may have run ahead of itself, arguing that it should moderate; but its strategists note that relative valuations and positioning suggest further rotation would be a pain trade. “Two weeks rebound doesn’t make up for 15 years of Value underperformance, but what if rotation continues?” Barclays asks, “while the rotation may lose steam for now, the still very high valuation and ownership of Growth stocks in the backdrop of tightening liquidity, normalizing EPS growth and smarter ESG investing could push investors to seek a more barbell approach, and gradually rebalance towards Value.” 


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  BONDS/FX: Yields are lower by 3-5bps across the Treasury curve, with the belly slightly outperforming, amid the cautious risk tone. Next week’s FOMC meeting is coming into focus, as well as other key data including the December PCE report, which should keep the theme of inflation – and the tightening monetary response – in vogue; next week will also see the sale of 2s, 5s and 7s out of the US Treasury. The Dollar Index is slightly below neutral, but activity currencies do not seem able to capitalise on that; EMFX is mixed. 


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  CRUDE: After rising to seven-year highs this week, crude futures are giving back some of the gains, with benchmarks lower by USD 1.60-1.70/bbl, with profit taking being cited following the reported build in US stocks this week, while the overarching risk narrative is being pressured as equities slide and bonds are bid. Analysts still make the case that supply dynamics and geopolitics are a tailwind for the complex in Q1 of this year.

GLOBAL NEWS:

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  WASHINGTON: Moderate Democratic Manchin indicated he was open to re-engaging on a revised BBB but talks will have to start from scratch, according to NBC.


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  CRYPTO: A Federal Reserve white paper on a US Central Bank Digital Currency made no recommendations on whether to adopt a CBDC and it does not intend to proceed with CBDC issuance without clear support from the executive branch and from Congress.


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  COVID: Hospitals in early Omicron hot spots like New York and Washington DC, said the pressure is starting to ease, with many reporting fewer COVID-19 patients filling beds and smaller numbers of staff side lined by infections, WSJ reported. The article added that while these improvements follow declines in new case counts in parts of the US, health authorities have warned Omicron has yet to peak nationally, and hospitals around the country remain under significant strain from Covid-19 patient counts still at record levels. But the report goes on to say that there is also growing evidence Omicron’s surges, it can be short lived.


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  CHINA: A cabinet advisor said China's potential economic growth rate was between 5-6%. Late last year, sources suggested China was to downgrade its GDP growth target for 2022 from "at least 6%" in 2021, and sources have suggested the target could be lowered to "at least 5%" or to "5.5-6%."


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  PBOC: Sources said that the PBoC was to lower interest rates on its Standing Lending Facility for all tenors by 10bps on Friday, with rates on Overnight, 7-day and 1-month SLF to be cut to 2.95%, 3.10% and 3.45% respectively, according to Reuters. Elsewhere, Bloomberg reported that China was reportedly encouraging banks to increase lending following a slow start to 2022.

GEOPOLITICS:

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  US/CHINA: China and US are in talks over a potential meeting between China top diplomat Yang Jiechi and US National Security Adviser Sullivan regarding core national security concerns, although sides are split on protocol and agenda, according to SCMP.


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  US/N.KOREA: China and Russia delayed a US bid to impose UN sanctions on five North Koreans, Reuters reported; the move by China and Russia came ahead of a closed-door UN Security Council meeting on North Korea on Thursday -- the second in two weeks -- after Pyongyang fired tactical guided missiles on Monday.


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  US/RUSSIA: US gave approval for three Baltic NATO members to send American-made weapons to Ukraine, WSJ reported.


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  BREXIT: European Commission VP briefed that talks with UK Foreign Minister on NI protocol had a much-improved tone and atmosphere, but little substantive development.

EQUITY NEWS:

COMMUNICATIONS:

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  Netflix (NFLX) shares fell by over 20% in afterhours trade after its Q4 earnings report, where it provided soft guidance. Q4 2021 (USD): EPS 1.33 (exp. 0.82), Revenue 7.71bln (exp. 7.71bln). Q4 2021 Net Subscriber Additions: 8.28mln (exp. 8.38mln; company guided 8.5mln in October). Q4 FCF was negative USD 569mln. Sees Q1 EPS USD 2.86 (exp. 3.46). Sees Q1 Rev. USD 7.9bln (exp. 8.11bln). Sees Q1 Net Subscriber Additions 2.5mln (exp. 5.87mln). Executive said the streaming company didn't grow acquisition as fast as they would have liked, but noted that business was still healthy, retention was strong, and viewing was up.


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  Twitter's (TWTR) new CEO terminated the company's head of security this week, NYT reports, while the social media company's chief information security officer is also leaving. Lea Kissner, the current head of privacy engineering, will take over as chief information security officer.

TECH:

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  Microsoft (MSFT) Xbox exec said he had good calls this week with leaders at Sony (SONY), and confirmed its intent to honour all existing agreements upon acquisition of Activision Blizzard (ATVI), and its desire to keep Call of Duty on PlayStation. Exec added that Sony was an important part of the gaming industry, and Microsoft values the relationship with it.


• The Senate Judiciary Committee voted 16-6 on a bipartisan basis to approve a major tech competition bill, that would prevent big tech platforms to show preferences for their own businesses. CNBC reported that some experts consider the American Innovation and Choice Online Act legislators’ best shot at making substantial reform to laws that govern Big Tech, and if passed, the bill would have significant implications for Amazon (AMZN), Apple (AAPL) and Google (GOOG) in particular.


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  Intel (INTC) is committing USD 20bln for a manufacturing mega-site in Ohio; will build at least two semiconductor fabs and hire at least 3k employees, Time reported. Intel will on Friday announce the next step in its plan to bolster semiconductor output in the US, Bloomberg reported.

FINANCIALS:

• A Federal Reserve white paper on a US Central Bank Digital Currency made no recommendations on whether to adopt a CBDC and it does not intend to proceed with CBDC issuance without clear support from the executive branch and from Congress.


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  Robinhood (HOOD) announced the next phase of its crypto 'Wallets' beta programme is now live; will begin rolling out crypto Wallets to 1,000 customers from the top of the Wallets waitlist, and by March, intends to expand the programme to 10,000 customers before wider roll out.


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  Goldman Sachs (GS) and JPMorgan (JPM) informed staff of bumper bonuses for 2021 following a record-breaking year for Wall Street dealmaking, Reuters reported. Goldman increased its annual bonus pool by 40-50%, while JPMorgan increased its pool by 30-40%, sources said.


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  SVB Financial (SIVB) Q4 2021 (USD): EPS 6.22 (exp. 6.51), which included 0.34 of one-off items. Net interest income 947mln (exp. 920mln).

CONSUMER CYCLICAL:

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  Peloton (PTON) rose by over 9% in afterhours trade after it guided Q2 revenues at USD 1.14bln (exp. 1.16bln). Ending Connected Fitness Subscriptions 2.77mln (vs guidance of 2.8-2.85mln). Average Net Monthly Connected Fitness Churn 0.79%. CEO said rumours of halting all bike and treadmill production is false, Bloomberg reported, though the report suggested that PTON was mulling staff layoffs. CEO also said it is taking significant corrective actions to improve its profitability outlook and optimise its costs, including gross margin improvements, moving to a more variable cost structure, and identifying reductions in operating expenses; CEO said work was still underway and it expects to have more details in its February earnings report.

AUTOS:

• Democrat Representatives Pascrell and Blumenauer criticised Tesla (TSLA) after the automaker last month announced opening of new showroom in China's Xinjiang region, which is region at heart of China’s years-long campaign of repression against Uyghur people, Guardian reported.


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  Renault (RNLSY) and Geely (GELYY) will jointly design and produce electric hybrid and internal combustion engine vehicles in South Korea; production to commence in 2024.

INDUSTRIALS:

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  CSX Corp (CSX) Q4 2021 (USD): EPS 0.42 (exp. 0.41), Revenue 3.43bln (exp. 3.32bln). Operating ratio 60.1% (exp. 58.6%, prev. 57.0% Y/Y). Operating income 1.37bln (exp. 1.37bln), +12% Y/Y.


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  FAA issued new approvals for additional altimeters that allow about 78% of the US commercial air fleet to perform low-visibility landings at airports where 5G C-band wireless is deployed, Reuters reported.


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  General Dynamics (GD) was awarded a USD 199.7mln Navy contract modification to exercise options on a previously awarded contract for the USS Iwo Jima FY22 docking selected restricted availability.


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  Airbus (EADSY) accused Qatar Airways of engineering the A350 grounding, and said it cancelled a separate Qatar order for 50 A321 jets, according to a court filing.


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  Siemens Gamesa (GCTAY) Q1 revenue EUR 1.8bln (exp. EUR 2.2bln); cuts FY22 revenue guidance to -9% to -2% (prev. -7% to 2%). EBIT margin guidance cut to -4% to +1% (prev. +1% to +4%). Continues trying to pass on inflation to clients. Has not seriously considered spinning off their onshore business.

MATERIALS:

• Serbia halts Rio Tinto (RIO) USD 2.4bln lithium project following demands from environmental groups.


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  Ecolab (ECL) sees Q4 EPS between 1.26-1.28 (exp. 1.41) due to temporary COVID related effects on broad business activity impacting the speed of the market recovery in the quarter. CEO said it had also absorbed significant short-term cost increases to assure seamless customer supply in a very tight environment that impacted margins in the short-term. On supply chains, CEO said supply and customer logistics issues remain significant.


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  PPG (PPG) Q4 2021 (USD): Adj. EPS 1.26 (exp. 1.18), revenue 4.2bln (exp. 4.04bln). Said product demand remained strong and continues to rapidly implement additional selling price increases. Sales were aided by acquisition-related sales and above-market sales volume performance in several of our end-use markets, including automotive refinish, marine, and PPG-Comex architectural coatings. Sees Q1 Adj. EPS between 1.02-1.20 (exp. 1.59).


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  Stelco Holdings CEO said the US steel market was subject to excess supplies, rising inventories and shrinking demand, calling it a "falling knife," Bloomberg reported. "The question is when does it go the other way and where are we in the economic cycle? I think it turns at some point, but I don’t know where it bottoms out," he added.

ENERGY:

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  Shell (RDS.A) agreed to supply Pemex's Deer Park refinery for at least 15 years.


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  Siemens Energy (SMNEY) prelim. Q1 revenue EUR 6.0bln (prev. EUR 6.5bln Y/Y). Adj. EBITA EUR -63mln (prev. EUR +366mln). Cuts outlook for FY comparable revenue development, now sees between -2% to -3% (prev. -1% to +3%), and EBITA margin now seen between +2% to +4% (prev. +3% to +5%).

HEALTH CARE:

• Japan gave Pfizer (PFE) approval for its COVID-19 vaccine for children aged 5-11.


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  Intuitive Surgical Inc (ISRG) Q4 2021 (USD): Non-GAAP EPS 1.30 (exp. 1.28), Revenue 1.55bln (exp. 1.52bln). Shipped 385 da VINCI Surgical Systems, vs. 326 in Q4 '20. Worldwide da VINCI procedures increased ~19% compared with Q4 20; USD 8.6bln in cash, cash equivalents, and investments.


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  UCB (UCBJY) announced positive top-line results from the Phase 3 study evaluating the efficacy and safety of BIMZELX.

21 Jan 2022 - 09:28- EquitiesResearch Sheet- Source: Newsquawk