US EARLY MORNING: US index futures rise in sympathy with European counterparts following softer than expected German inflation data

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  OVERNIGHT: On Wednesday, major stock indices on Wall Street were lower amid a slew of Fed Speak that was received hawkishly (see here). Asia traded mixed amid the hawkish Fed perception, while Chinese markets rallied on tech strength and liquidity boost (see here). The European start was constructive amid a heavy earnings docket, after German inflation data surprised to the downside, supposedly putting less pressure on the ECB to act aggressively in the months ahead; however, the data was notable by an absence of key core inflation data (see our data wrap below for more).


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  US PRE-MARKET SNAPSHOT: US equity futures are trading on the front foot, with gains accelerating after the European open. The global fixed income complex also lent a small bid to Treasuries after softer than expected German inflation numbers for January; yields are lower across the Treasury curve by between 1-3bps,with the 20s sector outperforming. The Dollar Index has declined amid the pick-up in risk sentiment, with the DXY now eying 103.00 to the downside; risk sensitive currencies are in the ascendency, with the SEK outperforming in G10FX after the Sweden's central bank lifted its Policy Rate by 50bps (as expected), but decided to reduce its asset holdings at a quicker pace from April, and its policy rate will probably be raised further during the spring (see below for more). Crude benchmarks were initially struggling for upside momentum after weekly data showed US inventories of crude hitting the highest level in a few months, which offset optimism about China’s demand recovery; futures saw some upside after the start of the European day amid a constructive risk tone. Ahead, the data docket is benign today, but there are a few events on our radar, which we summarise below.

DAY AHEAD:

• Our live day ahead calendar can be accessed here; a PDF version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: Ahead, EU policymakers will be holding a leader’s summit on the US Inflation Reduction Act. On the speakers front, ECB Vice President de Guindos will deliver some remarks, but no text will be released. BoE policymakers including Governor Bailey, Chief Economist Pill, dove Tenreyro and hawk Haskel will appear before the Treasury Select Committee and give testimony on last week’s monetary policy report (recap on the meeting’s main points in our central bank weekly note here).


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  NORTH AMERICAN DATA/SPEAKERS: After a heavy slate of Fedspeak this week, we will get a breather on Thursday. On the data front, weekly initial jobless claims are seen ticking up to 190k from 183k, while continuing claims are seen little changed at 1.658mln.


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  FIXED INCOME SUPPLY: No Eurozone supply is due. The US will auction USD 21bln of 30yr bonds; the sale follows a grim auction of 2s on Tuesday, but a solid sale of 10s on Wednesday.


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  ENERGY: The EIA is expected to report a NatGas storage draw of 195 BCF (vs prev. draw of 151 BCF).


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  CORPORATE EARNINGS: Today's major corporate earnings out of the US include PepsiCo (PEP), Phillip Morris (PM), AbbVie (ABBV), PayPal (PYPL), Kellogg (K), Willis Towers Watson (WTW), Motorola (MCI), Tapestry


• (TPR), S&P Global (SPGI), Hilton (HLT), Ralph Lauren (RL), Warner Music Group (WMG), Lyft (LYFT). Full earnings expectations can be accessed here.


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  BOE SPEAKERS PRIMER (09:45GMT): Chief Economist Pill has spoken extensively since the last gathering, so while always noteworthy, the focus on him is lessened, and a similar approach can be taken with Governor Bailey. Most pertinently, Tenreyro was a dovish dissenter once again alongside Dhingra, calling for rates to be left unchanged at last week's policy meeting, arguing that the current settings would likely reduce inflation to well below target in the medium-term. Traders will be looking for any further insight around the stance that “as the policy setting had become increasingly restrictive, this would bring forward the point at which recent rate increases would need to be reversed.” Finally, Haskel hasn’t spoken in several months, so his insight will be of note; historically, he is regarded as having a slight hawkish bias – though, this is based off of hawkish dissent at the mid-point of 2022.


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  GERMAN INFLATION REVIEW: Delayed German HICP inflation data for January came in beneath expectations at 0.5% M/M (exp. 1.2%), seeing the annual rate fall to 9.2% Y/Y (exp. 10.0%). Capital Economics said the main takeaway was that headline inflation in both Germany and the Eurozone fell further in January, but less than Eurostat had estimated in its flash release. However, while European fixed income rallied on the data, which supposedly puts less pressure on the ECB to act aggressively in the months ahead, there is a lack of detail around core inflation, which some argue is more important for the monetary policy reaction function rather than the headline level of inflation. "While the German flash inflation release is usually accompanied by a CPI breakdown by category and state, this was not available this time, as Destatis says is customary when there are base period changes," CapEco writes, "accordingly, we don’t have any information on what happened to core inflation." The consultancy adds that we also do not know how Destatis accounted for the government gas and electricity price caps which officially come into force in March, but will then apply retroactively to January and February. "Our hunch is that the retroactive payments may have been accounted for January, and if not, we would have expected headline inflation to rebound, given January also saw the expiry of some temporary government gas and heating subsidies," it said. CapEco concludes that overall, "a quite disappointing lack of clarity at a time when inflation statistics are being watched so closely by policymakers and investors."


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  RIKSBANK REVIEW: As expected, the Riksbank hiked by 50bp to 3.00% and lifted the Repo Path to a new peak of 3.33% (prev. 2.85%, from November). A decision that implies another 25bp hike at the April meeting and thereafter the modest possibility for further tightening, if inflation remains persistently hot. The statement's commentary on the economy was fairly balanced, acknowledging the pressure Sweden is facing but taking the view that it is better to take action now to reduce the risk of inflation remaining entrenched.  Additionally, the Riksbank provided us with more details then perhaps expected on their asset holding plans, after guiding us towards a decrease in-line with maturities this year at the November gathering. Notably, this is currently scheduled to begin in April and as such provides the Bank with the potential to adjust this as necessary; an adjustment which could, as has been flagged before, entail some tightening of policy and thus be used as a complementary tool to rates. Reminder, Governor Thedeen will hold a press conference at 10:00GMT, where we look for further insight into the policy path, their desire for a stronger SEK and any explicit nod towards their asset holdings being used as a policy tool. On the last point, departed governor Ingves said in Decemer that they would "...allow its holdings of securities to decrease in line with maturities, which also entails some tightening of monetary policy".

EQUITY SPECIFIC NEWS:

COMMUNICATIONS:

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  Walt Disney Co (DIS) - Q1 adj. EPS 0.99 (exp. 0.78), Q1 revenue 23.51bln (exp. 23.37bln). Q1 Disney+ subscribers 161.8mln (exp. 164mln), Q1 ESPN+ subscribers 24.9mln (exp. 25.7mln), Q1 Hulu subscribers 48mln (exp. 49mln), Q1 Media and entertainment distribution revenue USD 14.78bln (exp. 15.36bln), Q1 Parks, experiences and products revenue USD 8.74bln (exp. 8.08bln). Is cutting 7,000 jobs. Will reorganise into three units which will be entertainment, ESPN and parks; targets USD 5.5bln in cost cuts; said it will reinstate dividend by year-end. Reaffirmed guidance that Disney+ will achieve profitability by end of fiscal 2024. CEO said ESPN will have to become more selective on sports rights, and said that it was not engaged in conversations about spinning out ESPN; confirmed reports that said DIS will consider creating content for third parties.

TECH:

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  Salesforce.com, inc. (CRM) - Third Point has a stake in Salesforce, WSJ Reports, becoming the fifth known activist shareholder with a position in the software company. The size of the position and what Third Point’s plans are couldn’t be learned, WSJ said, adding that it was possible that the firm will stay quiet and not launch a campaign.


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  Robinhood Markets Inc (HOOD) - Q4 EPS -0.19 (exp. -0.14), Q4 revenue USD 0.38bln (exp. 0.4bln); Q4 Monthly Active Users (MAU) -0.8mln Q/Q to 11.4mln (exp. 12.1mln), as customers continued to navigate the volatile market environment, Q4 assets under custody USD 62bln (exp. 67bln). Q4 adj. EBITDA USD 82mln (exp. 49.9mln). Execs said it cancelled nearly USD 500mln of share-based compensation. Will repurchase 55mln remaining shares that Emergent Fidelity Technologies bought in May 2022. Execs said Q1 net interest revenue will likely by up around USD 20mln from Q4.


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  Sonos, Inc. (SONO) - Q1 EPS 0.79 (exp. 0.40), Q1 revenue USD 672.6mln (exp. 588mln). Exec said it remains on track to deliver its FY23 guidance as momentum builds, and it prepares to launch multiple new products this year. Added that significant macroeconomic uncertainty remains. Affirmed FY23 revenue outlook of between USD 1.7-1.8bln (exp. 1.7bln), and FY23 GMs between 45-46%.


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  Monolithic Power Systems, Inc. (MPWR) - Q4 EPS 2.45 (exp. 3.14), Q4 revenue USD 460mln (exp. 460.7mln). Sees Q1 revenue between USD 440-460mln (exp. 448.5mln). Raises dividend by +33% to USD 1.00/shr.


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  AppLovin Corporation (APP) - Q4 adj. EBITDA +17% at USD 260mln, Q4 revenue USD 702.3mln (exp. 689.9mln). Sees Q1 revenue between USD 685-705mln (exp. 682.2mln).


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  FleetCor Technologies, Inc. (FLT) - Q4 adj. EPS 4.04 (exp. 3.93), Q4 revenue USD 883.6mln (exp. 874mln). Exec noted "very favorable sales and retention trends exiting the year." Q1 adj. EPS expected between USD 3.55-3.75 (exp. 3.82), and Q1 revenue between USD 875-890mln (exp. 864.8mln); for the FY23, sees adj. EPS between 16.25-17.25 (exp. 17.09), FY23 revenue seen between USD 3.8-3.85bln (exp. 3.7bln).

CONSUMER DISCRETIONARY:

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  Toyota Motors (TM) - Reported an 8% decline in Q4 profits, maintained its outlook. Nine-month net JPY 1.9tln (prev. 2.3tln Y/Y), revenue JPY 27.5tln (prev. 23.7tln Y/Y). Q3 oper. profit unexpectedly rose +22% to JPY 956.7bln (exp. 764.7bln), Q3 revenue +23% to JPY 9.8tln. Maintains FY global group-wide retail sales forecast at 10.4mln units, but cuts FY global production forecast to 9.1mln from 9.2mln.


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  Nissan Motor (NSANY) - Q3 operating profits doubles, topping expectations, now sees FY global retail sales of 3.4mln vs prev 3.7mln. Nine-month net profit JPY 115bln, -42%; Operating Profit 289bln, +51%; Recurring Profit 380bln, +48%. Sees FY22/23 sales in N. America of 1.06mln units (prev. 1.19mln), Japan 470k (prev. 480k), China 1.045mln (prev. 1.22mln).


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  Goodyear Tire & Rubber Company (GT) - Q4 adj. EPS 0.07 (exp. 0.06), Q4 revenue USD 5.374bln (exp. 5.2bln). Exec said volume outperformed the industry in both replacement and OE in Q4. Performance in replacement driven by share gains in the Americas consumer business, global OE volumes grew above industry levels after the ramp-up of new fitments. Replacement volume was helped by a US consumer who remained resilient through Q4. Execs encouraged by the recent moderation in raw material and other input costs, should provide relief as the year progresses if current trends continue.


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  O'Reilly Automotive Inc (ORLY) - Q4 EPS 8.37 (exp. 7.75), Q4 revenue USD 3.64bln (exp. 3.51bln), Q4 comp sales +9% (exp. +4.3%). FY23 comp sales view +4-6% (exp. +3.75%), FY23 EPS seen around USD 36.00 (exp. 36.91).


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  Watches of Switzerland (WOSG) - Q3 revenue +17%, maintains FY guidance.


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  Mattel Inc (MAT) - Q4 adj. EPS 0.18 (exp. 0.29), Q4 revenue USD 1.4bln (exp. 1.68bln). Sees FY23 adj. EPS between 1.10-1.20 (exp. 1.66). MAT expects stock repurchases will resume in FY23 due to strong FCF generation.


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  MGM Resorts International (MGM) - Q4 adj. EPS -1.53 (exp. -1.91), Q4 revenue USD 3.59bln (exp. 3.35bln). Approves additional USD 2bln share buyback programme. MGM China Q4 net revenue USD 174.7mln (exp. 147.2mln), Q4 MGM China adjusted property EBITDAR USD -55.0mln (exp. -39.8mln).


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  Wynn Resorts (WYNN) - Q4 adj. EPS -1.23 (exp. -0.91), Q4 revenue 1.00bln (exp. 954mln). Exec said that in Macau, it was awarded with a new 10-year gaming concession in the quarter, and it saw a meaningful return of visitation and demand during the recent Chinese New Year holiday period, adding that it believes it is well-positioned for success in Macau's next phase of growth.


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  Sonoco Products Company (SON) - Q4 adj. EPS 1.27 (exp. 1.21), Q4 revenue USD 1.7bln (exp. 1.8bln). Q1 EPS seen between 1.14-1.25 (exp. 1.34), and FY23 EPS seen between 5.70-5.90 (exp. 5.73).

CONSUMER STAPLES:

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  Unilever (UL) - Topped estimates in Q4, sees underlying slaes growth at least in upper-half of multi-year range. FY22 sales EUR 60.1bln (exp. 59.54bln). Underlying EPS EUR 2.570 (exp. 2.549). Expects cost inflation to continue in 2023. In H1, 2023 underlying price growth will remain high. Q4 Underlying operating profit EUR 9.68bln (exp. 9.62bln), Q4 Underlying sales +9.20% (exp. +9.21%). Sees 2023 Underlying sales growth of at the upper half of 3-5%.


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  British American Tobacco (BTI) - Said it would complete sales of Russia business this year. FY22 revenue GBP 27.66bln (exp. 27.92bln), FY adj. EPS GBP 3.71 (exp. 3.66), adj. operating profit GBP 12.41bln (exp. 12.27bln). Guides FY23 global tobacco industry volume -2% Y/Y.

FINANCIALS:

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  Credit Agricole (CRARY) - Q4 profits rose above expectations on the back of lower loan loss provisions and higher trading sales. Q4 revenue EUR 5.97bln (exp. 5.60bln), Q4 net EUR 1.56bln (exp. 1.07bln), Q4 underlying EPS 0.48 (prev. 0.46). Loan production +5.8% Y/Y. Q4 operating expenses +4.6% Y/Y. Exec said that "in terms of monetary policy, fighting inflation remains the priority. Central banks will not risk letting their guard down too quickly, and the pivot that the markets are hoping for will be more of a pause than a prelude to a rapid decline." After the publication, ECB policymaker Villeroy said French banks were in good shape.


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  Credit Suisse (CS) - Slumped to an annual loss, said bonus pool for 2022 was slashed in half, and is moving towards carving out its IB unit. Q4 net CHF -1.39bln (exp. -1.14bln), Q4 Revenue CHF 3.06bln (exp. 3.35bln), Q4 Global Investment Banking business revenue -73% Y/Y. Q4 Provisions for credit losses CHF 41mln (prev. 21mln Q/Q). Reported outflows of CHF -110.5bln in the quarter (prev. CHF -12.9bln Q/Q; prev. CHF +1.6bln Y/Y). Acquired M. Klein & Company investment banking business for USD 175mln.


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  Standard Chartered PLC (SCBFY) - First Abu Dhabi Bank is reportedly mulling a bid for Standard Chartered after the UK takeover rules lapse, according to Bloomberg. In January, First Abu Dhabi Bank confirmed that it had previously been at the stage of looking at a potential offer for Standard Chartered but was no longer doing so.


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  Deutsche Boerse (DBOEY) - Q4 profits topped expectations, rising 24%; announced a strategic partnership with Google Cloud (GOOG).


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  Euronext (ERNXY) - January ADV cash market transactions +12% M/M and -32% Y/Y.

HEALTH CARE:

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  Abbott Laboratories (ABT), Cardiovascular Systems (CSII) - Abbott to acquire medical device company Cardiovascular Systems; CSI holders will receive USD 20/shr at a total expected equity value of approximately USD 890mln.


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  AstraZeneca (AZN) - Revenue rose a little less than analysts estimated, sees FY sales up low-to-mid single digits. Q4 revenue GBP 11.207bln (exp. 11.233bln), Q4 adj. EPS 1.38 (exp. 1.28), Sees FY23 total revenue in the low/mid-single-digit percentage increase (exp +3.3%), Core EPS high single-digit/low double-digit percentage increase (exp. +10.3%); Total Revenue from China is expected to return to growth and increase by a low single-digit percentage. Said it was on track to deliver industry-leading revenue through 2025+. Expects to see another year of double-digit revenue growth at CER in 2023, excluding COVID-19 medicines.


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  Bayer AG (BAYRY) - Activist investor Bluebell said Bayer's new CEO was a step in the right direction.


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  Roche (RHHBY), Johnson & Johnson (JNJ) - Roche expands collaboration with Janssen on personalised healthcare through companion diagnostics.


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  Molina Healthcare, Inc. (MOH) - Q4 adj. EPS 4.10 (exp. 4.02), Q4 revenue USD 8.22bln (exp. 7.9bln). Sees FY23 adj. EPS at minimum of USD 19.75 (exp. 19.59), and FY23 revenue at USD 33bln (exp. 33.1bln).

INDUSTRIALS:

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  Siemens AG (SIEGY) - Q1 metrics topped expectations and guidance, and CEO is confident on the outlook given exceptional order backlog. Q1 revenue EUR 18.1bln (exp. 18.3bln), Q1 industrial business profit EUR 2.69bln (exp. 2.50bln), Q1 EPS 2.08 (prev. 2.24 Y/Y). Raises FY23 EPS guidance to between EUR 8.90-9.40 (prev. 8.70-9.20), and revenue guidance to +7-10% (prev. +6-9%). CFO said digital industries and smart infrastructure, in particular, achieved excellent results for both top and bottom line. "With full order books and a temporary and deliberate build-up of critical inventories, we are well prepared for further profitable growth in the upcoming quarters."


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  Toshiba Corp. (TOSYY) - Toshiba said it has received a USD 15bln buyout proposal from a consortium led by a Japanese private equity firm, Japan Industrial Partners, FT reports. The buyout would mark Japan’s biggest take-private deal.


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  Equifax Inc. (EFX) - Q4 adj. EPS 1.52 (exp. 1.49), Q4 revenue USD 1.2bln (exp. 1.18bln). Mortgage revenue fell 41% in the quarter. Q1 adj. EPS seen between 1.30-1.40 (exp. 1.75), and sees Q1 revenue between USD 1.27-1.29bln (exp. 1.27bln). FY23 adj. EPS seen between 7.05-7.35 (exp. 7.56), and FY23 revenue is seen between USD 5.275-5.375bln (exp. 5.23bln).


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  XPO Logistics, Inc. (XPO) - Q4 adj. EPS 0.98 (exp. 0.85), Q4 revenue USD 1.83bln (exp. 1.84bln). Exec noted that it grew tonnage and shipment count Y/Y at a time when the industry saw these metrics decline. Yield came in at the low end of its outlook, reflecting a strategic change in channel mix that execs believe will be a tailwind for both volume and yield as freight demand improves. In January, tonnage was up Y/Y and trended better than typical seasonality, it added.

MATERIALS:

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  ArcelorMittal (MT) - Q4 EBITDA in line with estimates on weak steel prices and soft demand, and it expects to raise steel shipments 5% this year.


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  Glencore (GLNCY) - Said it deposited more Russian aluminium on the LME's system.


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  International Flavors & Fragrances Inc. (IFF) - Q4 adj. EPS 0.97 (exp. 0.96), Q4 revenue USD 2.8bln (exp. 2.9bln). Sees FY23 revenue around USD 12.5bln (exp. 12.7bln), and sees comp FXN sales growth of approximately 6%.

REAL ESTATE:

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  AvalonBay Communities, Inc. (AVB) - Q4 core FFO/shr 2.59 (exp. 2.58), Q4 same store total revenue +10.2% USD 578.45mln, Q4 same store residential rental revenue +10.3% to USD 571.83mln. Boosts quarterly +3.8% dividend to USD 1.65/shr. Sees FY23 core FFO/shr between USD 10.07-10.56 (exp. 10.51), and sees Q1 core FFO/shr between USD 2.47-2.57 (exp. 2.59).

09 Feb 2023 - 09:31- Research Sheet- Source: Newsquawk