US EARLY MORNING: US index futures start September in the red; NDX pressured as yields rise, news that the US bars AMD/NVDA from selling some tech to China/Russia

SNAPSHOT: US index futures have started the month with losses of 0.5-1.2%, with the duration sensitive Nasdaq-100 leading the downside as Treasury yields climb 5-7bps and the curve bear steepening. Semis are also under pressure after news that the US barred Nvidia (NVDA) and Advanced Micro Devices (AMD) from selling certain products to China and Russia, while the complex is also cognizant of increasing Sino-Taiwan tensions after reports that the Taiwanese have begun shooting at drones said to be from China in recent days. A hawkish monetary policy impulse on the other side of the Atlantic also reminds us that most global central banks will continue to tighten conditions to manage price pressures: many now expect the ECB to lift interest rates by 75bps next week after a wave of hawkish commentary from officials at and after the Jackson Hole Economic Symposium; money markets are now discounting this outcome with a probability greater than 80%, according to Reuters data. That doesn’t appear to be the case in China, however, where authorities have been looking to provide targeted support to vulnerable sectors; the fragility of the world’s second largest economy was impressed in Caixin PMI data released overnight, which declined ­– the fall is at odds with the rise in the official gauge, but suggests downward pressure on industry intensified last month, and there may be more pain to come, Capital Economics said. Tightening monetary policy will also be a theme in the US today with the release of the key ISM manufacturing report (we provide a brief preview below), ahead of Friday’s jobs data; money markets have been pricing in a greater chance of a 75bps FOMC rate hike on September 21st than a smaller 50bps increment, but Fed officials have been reminding us this week that they remain data dependent, and the inflation metrics due September 13th may provide greater steer than the jobs numbers tomorrow; that said, the average hourly earnings figures (and the prices paid components in today’s ISM) should give us a gauge on how inflation dynamics are progressing. Full Day Ahead here.

PREVIEW - US ISM MANUFACTURING PMI (15:00BST/10:00EDT): The consensus expects the ISM manufacturing report to fall in August to 52.0 from 52.8 in July. The Prices Paid component is seen easing to 55.5 from 60.0, while the Manufacturing Employment sub-component is seen slipping further to 49.0 from 49.9. As a point of comparison, regional Fed manufacturing indices have been mixed in the month; but S&P Global’s US manufacturing PMI, which was expected to be little changed, actually fell by almost one point to 51.3 to its lowest in just over two years, and continues to signal subdued operating conditions across the manufacturing sector amid muted demand conditions and production cutbacks. Within the S&P report, the manufacturing output index slipped to a 26-month low at 49.3 (vs 49.5 in July), in contraction for the second straight month. “Ongoing supply chain issues, paired with weak client demand, led to the drop in output,” S&P said, “higher input prices also served to dampen customer demand, as some firms stated that clients were monitoring inventories and essential spending more closely.” The report noted that new export orders fell solidly as inflationary pressures in key export markets weighed on demand, but that said, manufacturers registered the slowest rise in cost burdens since January 2021, and the pace of inflation reportedly softened following lower prices for some key inputs, while goods producers raised their selling prices at the slowest pace for a year-and-a-half in an effort to drive sales. S&P said there were signs of improvements in supply chain disruptions, and delivery times lengthened to the least marked extent since October 2020.

EQUITY NEWS:

TECH:

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  NVIDIA Corporation (NVDA), Advanced Micro Devices, Inc. (AMD) - NVIDIA Fell 6.5% in afterhours trading. In a filing, NVIDIA said the US government is implementing new license requirements that restrict sales exports to China (and Russia) to reduce risks that the products will be used by the Chinese military, CNBC reports. Nvidia said the restriction would affect its A100 and H100 GPUs, and the company expects that it could lose USD 400mln in potential sales in China in the current quarter as a result. AMD did not issue an SEC filing, but a spokesperson reportedly confirmed that it has been told to stop shipping its top AI accelerator, the MI250, to China. AMD -- which is said to have alerted its China operations of the changes on Wednesday -- said it does not expect the rules to have a significant business impact, The Register reported.


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  Smartphones - IDC’s Worldwide Quarterly Mobile Phone Tracker forecasts shipments of smartphones will decline 6.5% to 1.27bln units in 2022, due to record-breaking inflation, geopolitical tensions, and other macroeconomic challenges that have significantly dampened consumer demand. It previously had forecast a decline of -3.5% from its previous projections. However, IDC expects the setback to be short term and the market to rebound in 2023 with +5.2% Y/Y growth and, in the long term, a five-year compound annual growth rate of +1.4%.


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  C3.ai, Inc. (AI) - Q1 adj. EPS -0.12 (exp. -0.24), Q1 revenue USD 65.3mln (exp. 66mln). Said it had implemented a new pricing model, a new sales model, a new partner model, and new applications to accelerate sales cycles, accelerate product adoption, increase market share, and increase revenue growth and profitability in the medium and long-term. Lowers its FY23 revenue outlook to USD 255-270mln (exp. 310mln, prev. guidance 308-316mln.


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  MongoDB, Inc. (MDB) - Q2 adj. EPS -0.23 (exp. -0.28), Q2 revenue USD 303.7mln (exp. 282mln). MongoDB said it was seeing robust growth in new workloads being deployed on its platform. Sees Q3 adj. EPS between -0.19 and -0.16 (exp. -0.14), and sees Q3 revenue between USD 300-303mln (exp. 295mln). For the FY23, it sees adj. EPS between -0.35 and -0.28 (exp. -0.21), and sees FY23 revenue between USD 1.196-1.206bln (exp. 1.2bln).


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  Nutanix, Inc. (NTNX) - Q4 EPS -0.67 (exp. -0.38), Q4 revenue USD 385.5mln (exp. 355mln). Sees Q1 revenue between USD 410-425mln (exp. 373mln), and sees Q1 ACV Billings between USD 210-215mln. For the FY23, sees revenue between USD 1.77-1.78bln (exp. 1.66bln), and sees FY23 ACV Billings between USD 895-900mln.


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  Okta Inc (OKTA) - Q2 adj. EPS -0.10 (exp. -0.30), Revenue USD 451.8mln (exp. 430.74mln). Subscription revenue rose 44% Y/Y to USD 435.4mln. Adj. oper margin -3% (prev. -8% Y/Y). Adjusted gross margin 77% (exp. 76%). R&D expenses rose 27% Y/Y to USD 155.8mln. Sees Q3 revenue 463mln-465mln (exp.  463mln). Revises FY Adj. loss/shr view to 0.70-0.73 from loss/shr 1.11-1.14 (exp. loss 1.11). Sees FY revenue 1.81bln-1.82bln (exp. 1.82bln).


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  Pure Storage, Inc. (PSTG) - Q2 adj. EPS 0.32 (exp. 0.22), Q2 revenue USD 646.8mln (exp. 634.2mln). Exec said it saw continued growth and solid market share gains; said customers were struggling with their ability to manage their exploding volumes of data. Sees Q3 revenue at USD 670mln (exp. 652mln). Sees FY23 revenue at USD 2.75bln (exp. 2.6bln).


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  Semtech Corporation (SMTC) - Q2 EPS 0.87 (exp. 0.85), Q2 revenue USD 209.3mln (exp. 208mln). Exec said that the macro demand environment was deteriorating and it anticipates a weaker H2. Sees Q3 EPS between 0.60-066 (exp. 0.91), and sees Q3 revenue between USD 170-180mln (exp. 217mln).


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  SentinelOne, Inc. (S) - Q2 EPS -0.35 (exp. -0.25), Q2 revenue USD 102.5mln (exp. 95.6mln). ARR growth accelerated to 122%, and adj. operating margins expanded 42ppts Y/Y; raising full-year growth expectations: Sees Q3 revenue USD 111mln (exp. 108mln), FY23 revenue outlook raised to USD 415-417mln (exp. 406mln, prev. guidance 403-407mln).

COMMUNICATIONS:

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  Meta Platforms, Inc. (META) - Meta is setting up a product organisation to identify and build possible paid features for Facebook, Instagram, and WhatsApp, according to The Verge. The new division is Meta’s first serious foray into building paid features across its main social apps, and is being set up after Meta’s ads business was severely hurt by Apple’s ad tracking changes on iOS and a broader pullback in digital ad spending, The Verge said.


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  Netflix Inc. (NFLX), Microsoft Corporation (MSFT) - Netflix will charge brands premium prices to advertise on its coming ad-supported platform, WSJ reports, a sign that it is strong interest from companies that have long looked to reach its audience. The Journal said that execs from both Netflix and Microsoft (which is supplying the tech to facilitate ad placements), met some ad buyers last week; Netflix seeks to charge roughly USD 65 for reaching 1,000 viewers, a substantially higher rate than most other streaming platforms.


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  Walt Disney Co. (DIS) - Disney is reportedly exploring a membership programme similar to Amazon’s Prime service, that could offer discounts or special perks to encourage customers to spend more on its streaming services, theme parks, resorts and merchandise, WSJ reports. Discussions at Disney were in the early stages, and the WSJ could not learn how much the company would charge for the service, or how long it would take to launch.


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  Tencent Holdings Limited (TCEHY) - Tencent is pivoting from years of aggressive stake building to a focus on divestments as it comes under pressure from investors and Beijing’s recent antipathy towards Big Tech, FT reports. As part of the shift in strategy, it has reportedly outlined a soft target of divesting around USD 14.5bln of its USD 88bln listed equity portfolio this year, sources told the FT, which added that this would be contingent on market conditions and internal profit targets.

CONSUMER:

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  Amazon.com, Inc. (AMZN) - Amazon introduced a new service to help sellers store bulk inventory and ease distribution to tackle supply chain issues, Reuters reports. The Amazon Warehousing & Distribution (AWD) will launch in 2023, and will allow sellers to send inventory to any location, including to wholesale customers or brick-and-mortar stores.


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  Costco Wholesale Corporation (COST) - Total Company comparable sales ex-gasoline/FX +8.7% in August (prev. +7% in July). US Total Company comparable sales ex-gasoline/FX were +7.6% (prev. 5.8%).


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  Pernod Ricard (PRNDY) - Earnings top expectations, driven by solid demand in Europe, China and the US, and cost control measures. FY22 revenue EUR 10.7bln (prev. 8.82bln Y/Y). Net EUR 2.0bln (prev. 1.3bln). Operating profit EUR 3.0bln (prev. 2.4bln). Affirms guidance; expects FY23 share buyback programme of EUR 500-750mln.


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  Five Below, Inc. (FIVE) - Q2 EPS 0.74 (exp. 0.79), Q2 revenue USD 668.9mln (exp. 681.1mln). Sees Q3 EPS between 0.08-0.19 (exp. 0.29), sees Q3 revenue between USD 600-619mln (exp. 636.5mln). For FY22, sees EPS between 4.26-4.56 (exp. 4.83), and sees FY22 revenue between USD 2.97-3.02bln (exp. 3.1bln).

INDUSTRIALS:

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  3M Company (MMM) - 3M plans to eliminate jobs as part of a broader cost-cutting drive in response to the slowing economy, according to Bloomberg, which notes that the news comes days after 3M suffered a setback over a key legal strategy designed to mitigate mounting liabilities, while it also faces other challenges, ranging from inflationary woes to sluggish growth. Bloomberg could not learn the scope of the workforce reduction.


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  Boeing Company (BA) - An executive said that certification of the 737-7 Max is expected by the end of the year, and the 737-10 Max in H1 2023. Separately, Boeing was awarded a USD 2.21bln Air Force contract modification, and a USD 927.5mln Air Force contract.


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  Lockheed Martin Corporation (LMT) - Awarded a USD 121.6mln Army contract.


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  Toyota Motor Corporation (TM) - Japan’s largest buyer of steel Toyota will raise the price of automotive steel it sells to parts makers by approx. USD 289/tonne in October-March, following its latest round of negotiations with Nippon Steel, Nikkei reports, with the article adding that the purchase price serves as a benchmark for contracts in a range of industries from shipbuilding to home appliance, and the latest hike could be felt through a wide swath of Japan’s business sector.


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  Volkswagen (VWAGY) - Is set to miss software development goal, Handelsblatt reports. Separately, reports suggest a majority of workers at its Mexican plant rejected a pay offer.

ENERGY:

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  Energy - The White House said G7 finance ministers will Friday discuss a US proposal to place a price cap on Russian oil.


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  Exxon Mobil Corporation (XOM), Shell plc (SHEL) - Exxon joins Shell in seeking to divest its Aera JV, Reuters reports, and the duo are in advanced talks with a buyer for the California oil and gas producer. Aera, one of California’s largest oil producers, pumps 125k BPD and 32mln cubic feet of natgas per day, generating about USD 1bln a year in cash, putting the value of any deal at several billion dollars, Reuters said.

MATERIALS:

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  Rio Tinto (RIO) - Strikes an agreement in principle to acquire Turquoise Hill for CAD 43/shr in cash, transaction will require approval of 66.67% of votes cast by Turquoise Hill shareholders.


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  Scotts Miracle-Gro Company (SMG) - CFO David Evans has been named chief financial officer on an interim basis replacing Cory Miller, who departs the company. SMG initiates search for permanent CFO with a focus on external candidates. It is revising its FY FCF guidance, now sees FCF in a range from negative USD 275mln to negative USD 325mln (prev. saw USD -150mln); company said the revised guidance reflects a more accurate estimate of certain balance sheet items at the end of the current fiscal year.

HEALTH CARE:

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  Veeva Systems Inc. (VEEV) - Q2 adj. EPS USD 1.03 (exp. 1.01), Q2 revenue USD 534.2mln (exp. 530.6mln). Sees Q3 EPS between 1.07-1.08 (exp. 1.07), and sees Q3 revenue between USD 545-547mln (exp. 558.3mln); Lifts FY22 adj. EPS outlook to 4.17 (exp. 4.14, prev. 4.16), but cuts its FY23 revenue outlook to USD 2.14-2.15 (prev. 2.165-2.175bln).


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  Cooper Companies, Inc. (COO) - Q3 EPS 3.19 (exp. 3.23), Q3 revenue USD 843.4mln (exp. 830mln). Sees Q4 EPS between 3.05-3.20 (exp. 3.42), and sees Q4 revenue between USD 830-850mln (exp. 841mln).


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  GoodRx Holdings, Inc. (GDRX) - Board approved layoffs of 140 employees, or around 16% of its workforce; job cuts are mostly in the technology-focused and marketing areas.


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  Sanofi (SNY) - FDA approved Xenpozyme for intravenous infusion in pediatric and adult patients with Acid Sphingomyelinase Deficiency.

01 Sep 2022 - 09:22- Research Sheet- Source: Newsquawk