US EARLY MORNING: US index futures are up; debt ceiling talks postponed until next week; Fedspeak, Michigan sentiment data ahead

OVERNIGHT: US were mixed on Thursday, with outperformance in Nasdaq led by Communication names, with Google (GOOGL) continuing its recent rally. But gains were not broad, and the Russell, Dow, and S&P closed lower, while sectors were predominantly red (only upside in Communication, Discretionary, and Staples). The Regional banking ETF finished lower on fresh deposit concerns. Our US wrap is here. APAC stocks were mostly lower; Aussie shares were constrained by weakness in the energy and mining sectors after the recent pressure in underlying commodity prices. Japanese shares outperformed, driven by earnings results. China shares were indecisive as talks between US National Security Adviser Sullivan and China's top diplomat Wang Yi provided some encouragement towards a potential Biden-Xi call, though participants also digested weaker-than-expected Chinese loans and financing data. APAC wrap here. European indices are starting the last trading day of the week higher, although the broad Stoxx 600 index of shares as well as the narrow Euro Stoxx 50 index of blue chips are both currently on a course to post small weekly losses. GDP data out this morning from the UK disappointed expectations (see our review, below) although IP was more constructive. Final French HICP data for April was unrevised. Our European cash open note is here.

US PRE-MARKETS: US equity futures are trading higher, and the ES is on course to post a small weekly gain after data this week showed headline CPI continues to cool and traders bet that the Fed will pivot towards rate cuts this year, but the price action ultimately is a continuation of the horizontal range we have seen since April, with investors still anxious over the outcome of fiscal talks in Washington, the health of regional banks, and while Fed officials have this week been impressing that they are still prepare to raise rates (see below). Treasury yields are drifting slightly higher as we eye the weekend, but that follows a decent rally seen over the last couple of sessions. The Dollar Index is a little better than flat. Crude futures are continuing lower, with demand concerns (China, US banks, US debt ceiling) and supply (possible return of Kurdish flows) factors weighing. Today’s focus was going to be on further debt ceiling talks, but a meeting between US President Biden and Congressional leaders has been pushed into next week (see below). Instead, the focus will be on Fedspeak (Jefferson, Bullard, Daly) and data (prelim University of Michigan sentiment), while any commentary on the debt ceiling (Treasury Secretary Yellen has been reiterating her warnings today) and regional banks will continue to influence price action.

DEBT CEILING TALKS DELAYED: Fiscal talks between US President Biden and Congressional leaders that was scheduled for Friday has been postponed, the White House said, though added that staff will continue working and all the principals agreed to meet early next week. House Speaker McCarthy said postponing the debt ceiling meeting did not mean that debt talks have fallen apart, adding that leaders decided it was in the best interest to let staff meet again; McCarthy does not think there was enough progress for the leaders to get back together, but expects them to meet next week. Separately, Treasury Secretary Yellen will meet with top Wall Street bankers in Washington next week as the Biden administration and Republican leaders scramble to reach a deal to avoid a debt default, Politico reports; Yellen will speak with board members of the Bank Policy Institute, a lobbying group whose board is led by JPMorgan Chase CEO Jamie Dimon and includes Citigroup CEO Jane Fraser, to discuss the impasse over raising the government’s borrowing limit.

HAWKISH FEDSPEAK: Fed Governor Bowman (voter) gave hawkish remarks and said additional rate hikes may be likely if inflation stays high and the labour market remains tight; her comments cast some doubt on the notion that the Fed is ‘on pause’, and follows similar remarks from other influential Fed officials, like NY Fed President Williams earlier in the week, as well as others.

DAY AHEAD:

• Our interactive Day Ahead calendar is here; a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: There is not much left on today's European data slate; however, there will be speeches due from the ECB Vice President de Guindos (no text), the Riksbank's Jansson on monetary policy, and the BoE Chief Economist Pill speaking on the MPR.


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  US DATA/SPEAKERS: Talks between US President Biden and Congressional leaders on the debt ceiling that were due to take place today have been pushed into next week, though sides have been framing the delay in a positive light as aides continue work. US import and export price data is due in the pre-market, where the former is seen rising 0.3% M/M, and the latter is seen rising 0.2%. The University of Michigan's prelim consumer sentiment survey for May will be released after the cash equity open; the signals on consumer inflation expectations has been mixed: the BLS data this week showed a cooling in inflation pressures, although the NY Fed survey at the beginning of the week showed consumer inflation expectations rising; it is worth noting that consumer inflation expectations tend to move more slowly, and always tend to be more pessimistic than market based measures. On the speaker's slate, Fed's Daly (non-voter) will make remarks, as will Fed's Bullard (non-voter). Voter Jefferson, who has been linked to the Fed Vice Chair role, will deliver further remarks; earlier in the week, Jefferson said that the banking system was "sound and resilient," banks have started to raise lending standards, and that is typical for where the US in the economic cycle. Meanwhile, Treasury Secretary Yellen will give further remarks on the side lines of the G7 meetings in Japan, where she is expected to continue urging Congress to resolve their fiscal differences and raise the debt limit.


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  ENERGY: Baker Hughes will release rig count data for the week at 1pm Eastern.


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  RATINGS: Today's credit ratings docket includes potential reviews from: Fitch on Italy's (BBB), Fitch on Sweden (AAA), and DBRS on the EU (AAA).


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  REVIEW - UK GDP: Data out of the UK showed GDP output slipped in March by 0.3% against expectations of an unchanged reading; the 3-month/3-month estimate was 0.1% in March, as expected, while the annual gauge printed 0.3% Y/Y in March, short of the expected 0.4%; the prelim figure for Q1 came in at 0.2% Y/Y, in line with the consensus. The ONS said output was depressed by strikes, and it could not yet fully quantify its impact. The ONS also noted that GDP was now 0.1% higher than pre-pandemic levels from February 2020. For the quarter as a whole, the ONS said there had been no growth in household consumption in Q1, but there was a positive contribution from gross fixed capital formation. Pantheon Macroeconomics said the data highlights that the UK is still at the bottom of the G7 league table, and that support from rising investment will fade. Ahead, PM says the BoE's new forecast for GDP to hold steady in Q2 is in the right ballpark; "In Q3, households should be in a position to lead a recovery, given that consumer energy prices look set to fall by about 20% in July, and the rate of increase in other prices looks set to slow," it writes, "but with fiscal policy contractionary this year and most of the impact of the increase in Bank Rate still to permeate into the economy, we doubt the recovery will gather much momentum."

EQUITY NEWS:

INDEX:

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  MSCI ACWI Stock Index - MSCI said 86 securities will be added to, and 39 deleted, from its MSCI ACWI Stock Index. Three largest additions to Emerging Markets Index are Beijing-Shanghai High Speed Railway (601816 CH), Jinko Solar (688223 CH) & Xinjiang Daqo New Energy (688303 CH).

FINANCIALS:

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  JPMorgan (JPM), Citi (C) - Treasury Secretary Yellen will meet with top Wall Street bankers in Washington next week as the Biden administration and Republican leaders scramble to reach a deal to avoid a debt default, Politico reports. Yellen will talk with board members of the Bank Policy Institute, a lobbying group whose board is led by JPMorgan Chase CEO Jamie Dimon and includes Citigroup CEO Jane Fraser, to discuss the impasse over raising the government’s borrowing limit.


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  US Banks - Fed Discount Window borrowing stood at USD 9.3bln on May 10th (prev. 5.3bln on May 3rd), BTFP lending at USD 83.1bln (prev. 75.8bln), Other Credit at USD 212.5bln (prev. 228.2bln).


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  US Bancorp (USB) - S&P downgraded US Bancorp credit ratings to 'A' From 'A+' on narrower outperformance versus its peers; outlook is stable. The CRA said that although USB continues to generate higher earnings than its large regional bank peers, its overall performance advantage has narrowed as those peers have gained market share and delivered stable results. S&P thinks USB will need to build capital ratios to meet possible regulatory requirements by earliest year-end 2024 should it move into a category II bank designation.


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  UBS (UBS) - The bank is prioritising integrating Credit Suisse’s (CSGN SW) investment bank and an acceleration of cost reductions, FT reports. Decisions on the Swiss unit are expected within months.


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  Allianz (ALIZY) - Posts a profit after taking a large charge a year ago. Q1 net income EUR 2.16bln (exp. 2.33bln), Q1 EPS 5.43 (exp. 5.73). Announces a new share buyback of up to EUR 1.5bln. Confirms 2023 guidance.


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  Societe Generale (SCGLY) - Earnings top estimates on solid bond trading. Q1 revenue EUR 6.67bln (exp. 6.829bln), Q1 adj. net EUR 1.51bln (prev. 1.54bln Y/Y). FIC Sales and Trading Revenue +16% Y/Y to EUR 890mln. Reduces FY23 cost of risk guidance to "under 30bps" from "30-35bps". CET1 ratio 13.4% (prev. 165% Q/Q).

MATERIALS:

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  AngloGold Ashanti (AU) - AngloGold Ashanti will become a UK-based company and move its primary listing to the NYSE after selling its last remaining South African assets in 2020, Bloomberg reports. AngloGold will have secondary listings on the Johannesburg Stock Exchange, South Africa’s A2X market and on the Ghana Stock Exchange, following a comprehensive review of its domicile and listing structure, the report added.

TECH:

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  Software AG (STWRY) - Schroders, who owns an 8% stake in Software AG, said the offer from Silver Lake materially undervalues the company and criticised the technology group's handling of the sales process, FT reports, arguing that Software AG's apparent unwillingness to engage with other potential bidders could raise conflict of interest issues.


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  Apple (AAPL) - Apple will next week open its first online store in Vietnam, Reuters reports, as it eyes product sales in countries that are just starting to become wealthy, and as it sells fewer iPhones in China than before.


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  Gen Digital (GEN) - Q4 adj. EPS 0.46 (exp. 0.44), Q4 revenue USD 948mln (exp. 940.05mln), Q4 billings USD 1.02bln (exp. 0.985bln). Sees Q1 EPS between 0.45-0.47 (exp. 0.46), and sees Q1 revenue between USD 940-950mln (exp. 954.1mln).


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  Sanmina (SANM) - Q2 adj. EPS 1.59 (vs 1.05 Y/Y), Q2 revenue USD 2.32bln (vs 1.9bln Y/Y). Exec said results reflected continued improvement in the supply chain environment. Sees Q3 adj. EPS between 1.50-1.60 (exp. 1.55), and sees Q3 revenue between USD 2.2-2.3bln (exp. 2.23bln).

COMMUNICATIONS:

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  Meta (META) - Announced a 'testing playground' for generative AI ad tools, called AI Sandbox; its tools are initially available to a small group of advertisers, with plans to expand into products later this year. Meta is also expanding AI-powered ad targeting features to include video options and new audience parameters.


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  News Corporation (NWS) - Q3 EPS 0.09 (vs 0.16 Y/Y), Q3 revenue USD 2.45bln (vs 2.49bln Y/Y). Exec said that in a period in which advertising was insipid in certain parts of the world, its core non-advertising revenue was robust, and saw +38% rise in revenues at Dow Jones. More broadly, exec said various macro and sectoral trends were more positive. Anticipates cost saving programmes will yield at least USD 160mln in annualised savings by the end of this year.


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  Getty Images (GETY) - Q1 EPS 0.01 (exp. 0.04), Q1 revenue USD 235.6mln (exp. 228.7mln). Backs previous full year guide: sees FY23 revenue between USD 936-963mln (exp. 947.5mln), and sees FY23 adj. EBITDA between USD 305-315mln.


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  BuzzFeed (BZFD) - Sees FY23 adj. EBITDA in high teens mlns; sees adj. EBITDA margin expansion in 2024-2025. Expects to be cash flow positive in the medium-term. Said it was using generative AI to innovate around new content formats.

CONSUMER:

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  Tesla (TSLA) - The automaker has increased prices on its Model S, X, and Y electric vehicles in the US by low single-digit percentages, Reuters reports, though the prices on these models were still lower than they were at the beginning of the year. Separately, Tesla will recall a total of 1,104,622 of imported Model S, Model X, Model 3 and domestic Model 3 and Model Y, according to China's market regulator.


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  Tesla (TSLA), Twitter (private) - Tesla’s shares saw some upside into late Thursday trading after its chief Elon Musk announced that Twitter has hired a new CEO who will start in six weeks, and Musk's role transition to being executive Chair and CTO, overseeing product, software and system operations. WSJ said NBCUniversal's head of advertising Linda Yaccarino was the candidate in talks to become the new CEO of Twitter.


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  Toyota Motor (TM) - Said customer information affecting 2.15mln users in Japan was leaked due to setting error on cloud environment between November 2013 through April 2023.


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  Richemont (CFRUY) - Sales surged to all-time highs, and it launches a new buyback. FY sales EUR 19.95bln (exp. 19.64bln), FY operating profit EUR 5.03bln (exp. 4.99bln). Launches new buyback to hedge awards under the long-term incentive plan, will buyback up to 1mln shares.


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  Pirelli (PRLLY) - Operating profits rise, confirms FY view. Q1 adj. EBIT EUR 248.1mln (exp. 236mln), Q1 revenue EUR 1.70bln (exp. 1.65bln), Q1 net profit EUR 115mln (exp. 109mln); confirms FY23 guidance.


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  THG Plc (THGHY), Apollo Global Management (APO) - THG terminated takeover discussions with Apollo, deciding that the deal was not in the internet retailer's best interest; THG reiterated expectations to deliver positive FCF in FY24.

ENERGY:

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  US SPR - Energy Secretary Granholm said the DoE aims to purchase crude to rebuild stocks in the SPR next month. She added that a congressionally mandated sale of 26mln barrels of crude will be completed in June, and at that point, the administration would "flip the switch" and then seek to make crude purchases.


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  Petrobras (PBR) - Brazil's state-run oil company reported Q1 net profits of BRL 38.16bln (exp. 31.96bln). Board approved dividends later this year for around BRL 24.7bln, but hinted at future changes in its payout policy, Reuters reports.

INDUSTRIALS:

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  Ferrovial (FRRVY) - Core earnings driven higher after decent North America revenues. Q1 EBITDA EUR 189mln (exp. 200mln), Q1 revenue EUR 1.8bln (exp. 1.7bln).

12 May 2023 - 09:00- Data- Source: Newswires