US EARLY MORNING: US index futures are steady ahead of PCE inflation and weekly jobs data

US equity futures are trading around neutral, Treasury yields are lower, but only by a couple of bps, while the Dollar Index is a touch better than flat. The action may have been influenced by European events, where the ECB's Scnhabel, which sparked a dovish reaction (see here); Fed's Bostic (2024) was out with comments in pre-market trade too, and where he continued to make the argument that US monetary policy is appropriately restrictive, enough to bring inflation to 2% over a reasonable time frame, adding that the Fed should be cautious, patient and resolute. For US traders, the main event is the PCE inflation data and weekly initial jobless claims data, ahead of Friday's NFP report. PCE is expected to rise on both a monthly and annual basis; last week, Fed Chair Powell suggested that the data would more-or-less be in line with the market consensus (see below for our primer).

TODAY’S AGENDA:

• An interactive calendar can be accessed here; a pdf version can be downloaded here.


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  EUROPEAN DAY AHEAD: Eurozone inflation data is the main event, with the consensus looking for the headline to pare back to 5.1% Y/Y from 5.3%, while the super core rate is expected to pare to 5.3% Y/Y from 5.5% (our primer is here). Goldman Sachs is in line with the consensus with regards to its core inflation view; "Euro area headline inflation forecast to 5.3 Y/Y... we therefore expect seasonally adjusted sequential core inflation of 0.33% M/M in August on our top-down approach, 11bps below the July pace according to our methodology, and 4bps below the ECB's estimate of the July sequential pace," the bank said. The Eurozone July unemployment rate is expected to be unchanged at 6.4%. On the speaker slate, ECB's Holzmann and ECB's de Guindos are scheduled to make remarks.


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  PRIMER - ECB MINUTES (12:30BST/07:30EDT): As expected, the ECB pulled the trigger on another 25bps hike, taking the deposit rate to 3.75%. Aside from the decision itself, focus for the statement was on the modest adjustment to the Bank's language on future decisions whereby the key ECB interest rates will be "set at" sufficiently restrictive levels for as long as necessary vs. the previous wording of "brought to". Elsewhere, the GC also opted to set the remuneration of minimum reserves at 0% (vs. prev. matching the deposit rate). In the follow-up press conference, Lagarde stated that policymakers were unanimous in their stance. When initially questioned over whether she thinks the Bank has more ground to cover, she said the decision will be based on the data and the GC is "open-minded". When pressed on the matter later during the press conference, Lagarde stated that at this moment in time she "would not say so" with regards to there being more ground to cover; given the mixed interpretations of this statement, it will be interesting to see if the account can provide any greater clarity on the matter. On the balance sheet, Lagarde remarked that a reduction had not been discussed and there would be no trade-offs between rates and QT. Overall, the main takeaway ahead of the September meeting was that the ECB was happy to either pause on rate hikes or carry out further tightening, however, any decision to do so would be based on how the data plays out between now and then. On which, it is worth noting that the inflation data the morning of the release may well tip the balance for the September meeting which is a near-enough coin flip between unchanged and a 25bps hike after the soft PMI data for August prompted a dovish repricing last week. With this in mind, and as is often the case, the account of the previous meeting will be deemed stale and pass with little in the way of fanfare. (Newsquawk)


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  US DAY AHEAD: The consensus looks for headline PCE to print 3.3% Y/Y in July, rising from 3.0%; the core rate is expected to tick up to 4.2% Y/Y from 4.1%. In his remarks last Friday, Fed chair Powell suggested that the July headline will come in at 3.3% (in line with consensus), while he saw the core rate printing 4.3% Y/Y (one-tenth above consensus). Credit Suisse says that the PCE deflator, the Fed’s preferred measure of inflation, is likely to confirm the disinflation already evident in July’s CPI report. The bank is in line with the consensus regarding its expectations. "Gradual disinflation in shelter should weigh on the run rate of PCE in the coming months," it writes, "however, shelter is a smaller weight in PCE than CPI inflation, and more limited progress on other core services, which are a higher weight, could keep PCE stickier than CPI later in the year." Meanwhile, US jobless claims are seen at 235k in the week from 230k, while continuing claims are seen little changed at 1.703mln. On the speakers slate, Fed's Bostic (2024), Fed's Collins (2025) are due to make remarks today.

EQUITY NEWS:

TECH:

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  Apple (AAPL) - Tests using 3D printers to make devices in major shift, according to Bloomberg.


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  Microsoft (MSFT) - Microsoft is to unbundle its chat app Teams from Office products in order to address EU antitrust concerns, Reuters reports. MSFT says that Office without Teams will be cheaper. Says changes will apply to Europe and Switzerland from October 1st. MSFT says it will make it easier for rival products to work with Office.


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  Salesforce (CRM) - Rose 5.6% afterhours after Q2 earnings. Q2 adj. EPS 2.12 (exp. 1.90), Q2 revenue USD 8.60bln (exp. 8.52bln), Q2 professional services and other revenue USD 597mln (exp. 618.9mln), Q2 adj. operating margin 31.6% (exp. 28.2%), Q2 current revenue performance obligation growth +11% (exp. 10.3%). Exec said non-GAAP operating margin rose to 31.6%, up 1,000 basis points or more for the second quarter in a row, driven by savings from our restructuring actions, strength in revenue, and investment timing. This allowed us it exceed its 30% non-GAAP margin target three quarters early. They saw strong new business growth internationally, highlighted by Canada, France, and India, while the United States continued to be constrained. From an industry perspective, manufacturing, automotive, and energy saw greater resilience, while high tech and retail and consumer goods were more measured. CRM also noted that it was still seeing elongated sales cycles, additional deal approval layers, and deal compression. Sees Q3 EPS between 2.05-2.06 (exp. 1.83), and sees Q3 revenue between USD 8.7-8.72bln (exp. 8.66bln). For the FY, sees EPS between 8.04-8.06 (exp. 7.45), and sees revenue between USD 34.7-34.8bln (prev. 34.5-34.7bln).


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  CrowdStrike (CRWD) - Q2 EPS 0.84 (exp. 0.56), Q2 revenue USD 0.732bln (exp. 0.72bln), Q2 net new ARR 196.2mln (exp. 189.2mln). Q3 EPS seen at 0.74 (exp. 0.61), Q3 revenue seen between USD 775-778mln (exp. 774mln). Lifts FY outlook, now sees EPS between 2.80-2.84 (prev. guided 2.32-2.43), and FY sales seen between USD 3.03-3.043bln (prev. guided between 3.00-3.036bln).


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  Pure Storage (PSTG) - Q2 adj. EPS 0.32 (exp. 0.28), Q2 revenue USD 688.7mln (exp. 680.1mln). Sees Q3 revenue at USD 760mln (exp. 757.1mln). Sees FY24 revenue growth of mid to high single digits (exp. 2.95bln).


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  Okta (OKTA) - Q2 adj. EPS 0.31 (exp. 0.22), Q2 revenue USD 556mln (exp. 534.5mln). Q3 adj. EPS 0.29-0.30 (exp. 0.22), sees Q3 revenue between USD 558-560mln (exp. 552.4mln). Lifts FY24 adj. EPS outlook to between 1.17-1.20 (prev. guided 0.88-0.93, exp. was for 0.91); lifts FY24 revenue outlook to between USD 2.207-2.215bln (prev. guided 2.17-2.185bln, exp. 2.2bln).

COMMUNICATIONS:

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  Baidu (BIDU) - Four Chinese tech companies, including Baidu and SenseTime, have launched ChatGPT-rival AI chatbots after government approval, Reuters reports. Baidu's Ernie Bot and SenseTime's SenseChat are now accessible to the public. China aims to expand AI product usage.

CONSUMER:

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  Costco (COST) - Total SSS +4.1% Y/Y in August, with US SSS +3.2%.


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  Victoria's Secret (VSCO) - Q2 adj. EPS 0.24 (exp. 0.26), Q2 revenue USD 1.43bln (exp. 1.44bln), Q2 comparable sales +11%. Exec said the macro environment continues to put pressure on customer base and core intimates categories. Q2 sales performance was particularly challenging in the overall stores and digital intimates market in North America which impacted both our Victoria's Secret and PINK businesses; international business saw sales growth of 25%+ Y/Y. Sees Q3 EPS between -1.00 to -0.70 (exp. -0.14), and sees Q3 revenues down low- to mid-single digit range (exp. 1.3bln). FY23 revenue seen down low single digits (exp. 6.2bln, prev. saw flat to down low single digits).


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  Five Below (FIVE) - Q2 EPS 0.84 (exp. 0.83), Q2 revenue USD 758.98mln (exp. 758.6mln), Q2 comparable sales +2.7% (exp. 2.6%). Sees Q3 EPS between 0.17-0.25 (exp. 0.40), and sees Q3 revenue between USD 715-730mln (exp. 737.8mln), Q3 comp sales seen flat to up 2%. Exec said that it is adjusting guidance to reflect an anticipated increase in shrink reserves, but sales outlook remains unchanged. Lowers FY23 EPS outlook to between USD 5.27-5.55 (prev. guided 5.31-5.71, consensus expected 5.58), though reiterated its FY23 revenue outlook at between USD 3.5-3.57bln (exp. 3.56bln); sees FY23 comp sales growth of between 1-3%.


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  Chewy (CHWY) - Q2 adj. EPS 0.15 (exp. -0.05), Q2 revenue USD 2.78bln (exp. 2.76bln). Sees Q3 revenue between USD 2.74-2.76bln (exp. 2.79bln). Reiterates FY23 revenue outlook between USD 11.15-11.35bln (exp. 11.3bln). Chewy said its Canadian expansion is on track for Q3. Noted strong customer participation was helping sales.


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  Greif (GEF) - Q3 adj. EPS 1.75 (exp. 1.54), Q3 revenue USD 1.33bln (exp. 1.4bln). Has acquired a 51% stake in ColePak, the second largest supplier of paper partitions in North America, via an all-cash transaction. Said that ColePak margin profile was immediately accretive to the Greif portfolio, and the ColePak financial results will be reported within the Greif Paper Packaging & Services segment as part of its Q4 results.


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  Target (TGT) - Said that five stores have been temporarily closed due to Hurricane Idalia, and 48 stores were working with reduced hours.


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  Pernod Ricard (PRNDY) - Annual results topped expectationsm but sees a soft Q1 in China and the US. FY23 net EUR 2.26bln (prev. 2.08bln Y/Y), revenue EUR 12.1bln (prev. 10.7bln Y/Y). Organic Revenue +10% Y/Y. Recurring Operating Income 3.35bln (exp. 3.47bln).

HEALTHCARE:

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  Veeva (VEEV) - Q2 adj. EPS 1.21 (exp. 1.13), Q2 revenue USD 590.2mln (exp. 587.1mln). Q2 subscription services revenues +10% Y/Y at USD 470.6mln. Exec said it continues to see project scrutiny across the board, and the challenging funding environment is putting pressure on smaller companies. Sees Q3 adj. EPS between 1.26-1.27 (exp. 1.25), and Q3 revenue seen between USD 614-616mln (exp. 621.8mln). Lifts its FY24 adj. EPS outlook to 4.68 (prev. saw 4.59, exp. 4.53), sees FY24 sales between USD 2.365-2.37bln (prev. saw 2.36-2.37bln, exp. 2.37bln); reiterates its FY25 revenue outlook for at least USD 2.8bln in sales (exp. 2.82bln).


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  Cooper Companies (COO) - Q3 EPS 3.35 (exp. 3.34), Q3 revenue USD 930.2mln (exp. 899.8mln). Sees Q4 EPS between 3.39-3.57 (exp. 3.48), and sees Q4 sales between USD 912-929mln (exp. 915mln).

FINANCIALS:

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  Goldman Sachs (GS) - US banking regulators are reportedly concerned about Goldman Sachs' partnerships with fintech companies due to compliance issues, FT reports. A bank division has stopped working with riskier fintech clients after a Federal Reserve warning, citing problems with due diligence and monitoring processes. FT says these concerns pose a challenge for the bank's expansion plans.


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  UBS (UBS) - Q2 revenue USD 9.54bln (exp. 8.57bln). Said Q2 net profit of USD 29bln included USD 29bln of negative goodwill from CS acquisition. The Credit Suisse Swiss bank is to be fully integrated. Q2 operating expense USD 8.486bln (prev. 6.295bln Y/Y), Q2 diluted EPS 8.99 (prev. 0.61). UBS Global Wealth Management recorded highest Q2 net new money in over a decade at USD 16bn, and momentum was continuing into Q3, exec said. (Note, UBS' numbers are not comparable to YY priors following the Credit Suisse acquisition).


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  Visa (V) - US Payments volume grew 7% Y/Y in August; payments volume for international markets improved slightly relative to July 2023 annual growth rate.  August cross-border volume excluding intra-Europe transactions was 151% of 2019, with card not present volume excluding travel at 172% of 2019. And August global processed transactions grew 10% year-over-year.


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  Visa (V), Mastercard (MA) - Senators call on Visa and Mastercard to withdraw their plan to raise fees.


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  FTSE 100 - An index reshuffle will see Dechra Pharma (DPH LN), Diploma (DPLM LN), Hikma Pharma (HIK LN) and Marks & Spencer (MKS LN) join the FTSE 100; Abrdn (ABDN LN), Hiscox (HSX LN), Johnson Matthey (JMAT LN) and Persimmon (PSN LN) will depart.

MATERIALS:

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  Glencore (GLNCY) - Dozens of the world’s largest asset managers have accused Gelncore's trading house of misleading in previous prospectuses to mask corrupt activity, FT reports. Claimant’s allege they suffered losses from such statements, claimants holdings in the Co. are in excess of GBP 3.7bln. Claimants include numerous sovereign wealth and pension funds.

31 Aug 2023 - 09:30- Research Sheet- Source: Newsquawk