US EARLY MORNING: US index futures start the week downbeat as hawkish hangover continues; Powell speaks on Tuesday

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  OVERNIGHT: On Wall Street, stocks ended Friday lower in a choppy session, as investors balanced a hot jobs report against the backdrop of disappointing big tech reports (see here for Friday's wrap). Asian stocks started the week mostly lower after Friday’s downside on Wall Street; Japan outperformed on reports that BoJ's Amamiya (considered dovish) was sounded out for the next Governor, though an official later denied this (see here for more). European equities opened with caution (see here).


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  US PRE-MARKETS: US equity futures are lower, with the tech heavy/yield sensitive Nasdaq-100 leading losses as the hangover from last week’s hawkish payrolls report continues, while sentiment in large cap tech was shaken last week following glum earnings updates. Treasuries are in negative territory, with yields up by 1-5bps, with most of the underperformance being seen along the short-end (rate-sensitive) part of the curve, with money markets converging on the Fed’s assessment that rates will be lifted to at least 5.00-5.25% this year. However, markets retain some pricing for rate cuts towards the end of the year, although the probability has diminished significantly after Friday’s data, which alluded to an economy that was digesting Fed hawkishness in its stride, buttressing hopes of a soft landing despite the central bank’s tighter brand of policy. The Dollar Index is around unchanged levels; within G10, the JPY underperforms on reports that the Japanese government is preparing to tap the dovish BoJ Deputy Governor Amamiya for the top job at the central bank. 


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  BEARISH: FT reports hedge funds have been wrongfooted by a sharp surge in stocks last week, and rushed to exit losing bets on falling markets at the fastest pace in years. Separately, WSJ reports that amateur investors appear to be retreating after the pandemic boom, and markets risk losing a key support now that some are backing away. Goldman Sachs told its clients that an improvement in US and global macro data, which has boosted the S&P 500 by 8% YTD, has led it to lift its 3-month S&P 500 target to 4,000 from 3,600. But the bank is still maintaining its year-end projection for 4,000, slightly below current levels. "A soft landing – and in fact above-trend growth – is already priced in US equities," GS writes, "valuations are elevated vs history and will be constrained by an eventual rise in interest rates." The bank argues that even if the US avoids a recession, earnings are unlikely to grow substantially this year. GS suggested alternatives to US equities, including non-US stocks, credit, and cash, which it said offers "superior risk-adjusted returns and are garnering assets," adding that "the debt ceiling deadline later this year adds uncertainty to the path for US stocks." Morgan Stanley's notable bearish strategist Mike Wilson has also reiterated his cautious view for stocks ahead, and said that markets will end up pricing a much lower view than the consensus and reverse gains seen recently, though added that the process could take longer than he originally anticipated. Wilson reiterated his view that the market had not priced in an earnings recession, noting that forward EPS growth has turned negative, and when that happened in 2001, 2008, 2015 and 2020, it caused a significant price downside. Wilson added that monetary policy was still hawkish and a headwind to earnings growth, while markets are still convinced of a dovish outcome.

DAY AHEAD:

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


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  US DATA: There is not much on the North American data slate, which should keep participants digesting the solid data from the tail end of last week, which has sent some shorts for cover, and brought market expectations of the Fed terminal rate in line with what the central bank has been forecasting; with little major on the economic slate this week, Fedspeak will be eyed for further colour; Chair Powell will be delivering remarks on Tuesday, but is expected to stick to the talking points from his post-meeting press conference last week (you can recap on these in our central bank weekly note here). For Monday, US January Employment Trends data, and Canadian Ivey PMI are due. Geopolitical developments between US/China will gain a lot of headline attention, but has not been rocking financial markets yet.


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  CORPORATE EARNINGS: ATVI is the standout on today’s docket; expectations can be accessed here. This week also will feature earnings reports from FISV, VRTX on Tuesday; CVS, ETN, EMR, CME, D, DIS, ORLY on Wednesday; AZN, PEP, TRI, PM, DUK, SPGI, ABBV, PYPL on Thursday. The weekly earnings expectations note can be accessed here.


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  WEEK AHEAD: MON: US Secretary of State Blinken to visit China (TBC), Australian Retail Sales (Q4), EZ Sentix Index (Feb), EZ Retail Sales (Dec), New Zealand National Day. TUE: RBA Announcement, US Trade Balance (Dec), Canadian Trade Balance (Dec), EIA STEO. WED: RBI Announcement, NBP Announcement, Banxico Announcement, BoC Minutes. THU: Riksbank Announcement, EU Leaders' Summit on US Inflation Reduction Act. FRI: EU Leaders' Summit on US Inflation Reduction Act, ECB TLTRO Publication of Repayment Amount, Chinese Inflation (Jan), Canadian Jobs Report (Jan), UK GDP (Dec), Norwegian CPI (Jan), US University of Michigan Survey (Feb), CBR Announcement. Our full week ahead briefing can be accessed here.

STOCK SPECIFIC NEWS:

TECH:

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  Big Tech - President Biden plans to call for tougher regulation of Silicon Valley in Tuesday’s State of the Union, leveraging the prime-time spotlight to galvanize Republicans and Democrats against industry abuses and signalling a new priority for his administration in its third year, WaPo reports. The focus on tech is likely to be part of the president’s pitch for bipartisanship with a divided Congress, and will address antitrust enforcement and the tech industry, as well as the need for stronger privacy protections.


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  Alphabet Inc. (GOOG) - Google has invested about USD 300mln in AI start-up Anthropic, FT reports. The deal involves Google taking an approximately 10% stake, and boosts Anthropic’s finances at a time when it is buying substantial computing resources from the search company’s cloud computing division.


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  Hon Hai Precision Industry Co., Ltd. (HNHPF) - The world’s largest contract electronics maker, and major iPhone assembler for Apple, Foxconn said January revenue jumped +48.2% Y/Y to a record high, as it shook off COVID disruptions in China, and as operations returned to normal. Shipments were also increasing at its Zhengzhou campus in China, a centre for iPhone production, Reuters reports.


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  Dell Technologies Inc. (DELL) - Dell will eliminate about 6,650 jobs (about 5% of its global workforce) as it faces plummeting demand for PCs, Bloomberg reports. The company is experiencing market conditions that “continue to erode with an uncertain future.”


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  Rogers Corporation (ROG) - Activist investor Starboard Value has amassed a sizable stake in Rogers, and is seeking seats on its board as it pushes for changes, Reuters reports. The challenge comes after DuPont in November walked away from a USD 5.2bln deal to acquire Rogers because it failed to secure regulatory approval for the transaction in China.


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  SoftBank Group Corp. (SFTBY) - In a bid to ensure the potential USD 40bln IPO occurs as a dual-listing between London and New York, UK FCA has reportedly offered to ease the rules on “related party transactions” that Arm Ltd is said to be concerned about.


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  STMicroelectronics NV (STM) - Foxconn and Vedanta close to choosing STMicroelectronics as the technology partner in their proposed semiconductor chip manufacturing unit in India, Economic Times reports.

COMMUNICATIONS:

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  Walt Disney Company (DIS) - Disney is exploring more licensing of its films and television series to rival media outlets as pressure grows to curb the losses in its streaming TV business as it seeks to earn more cash from its content library, Bloomberg reports, adding that the move would represent a shift in strategy, as Disney has in recent years tried to keep much of its original programming exclusively on its Disney+ and Hulu streaming services.

CONSUMER CYCLICAL:

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  Amazon.com, Inc. (AMZN) - FTC is preparing a potential antitrust lawsuit against Amazon, which could in the coming months challenge an array of its business practices as anticompetitive, WSJ reports. The timing of any case remains in flux, and the FTC could opt not to proceed. Separately, Amazon once had audacious plans for remaking physical retail, including a secret effort to take on Target, The Information reports. Now it’s closing stores and pausing the opening of ones that have already been completed, and there is pressure on the company to prove its giant bet on groceries can pay off.


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  Tesla, Inc. (TSLA) - Tesla raised prices of its Model Y SUV in the US after the Biden administration introduced measures to make more crossover SUVs qualify for the newly revamped EV tax credit, which expands the number of consumers who can take advantage of a lucrative USD 7,500 consumer tax credit by broadening the definition of how an SUV vehicle is defined, Bloomberg reports. Separately, CEO Elon Musk defeated a shareholder lawsuit alleging that tweets claiming he had the ‘funding secured’ to take Tesla private cost investors billions of dollars in losses, FT reports.


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  Bayerische Motoren Werke Aktiengesellschaft (BMWYY) - The automaker is looking to invest EUR 800mln in Mexico to produce high-voltage batteries; set aside EUR 500mln for the construction of a new assembly centre. Separately, is reportedly in talks with the UK over a GBP 75mln funding package for electric-Mini’s at the Oxfordshire plant.


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  Renault SA (RNLSY), Nissan Motor Co., Ltd. (NSANY) - Nissan has reportedly approved the planned restructuring with Renault, Reuters reports.

CONSUMER STAPLES:

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  Nestle S.A. (NSRGY) - Nestle CEO said it would have to raise prices of food products further this year to offset higher production costs that it has yet to fully pass on to consumers, Reuters reports. The increases will not be as steep as in 2022, but CEO said it had “some catching up to do over the full year.”

HEALTH CARE:

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  Catalent, Inc. (CTLT), Danaher Corporation (DHR) - Danaher has in recent months expressed takeover interest in Catalent, Bloomberg reports. DHR values CTLT at a significant premium, the report said. It is unclear how Catalent will proceed, or whether it’s receptive to a takeover offer, and any deal is not imminent.


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  Pfizer Inc. (PFE) - Positive mention in Barron’s; the newspaper said the pharma giant’s stock is a buy, as it is moving beyond COVID, and has a packed pipeline, is growing R&D spending, and there is the potential for deals and share buybacks, adding that there is more to the drugmaker than the market realises.


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  Novartis (NVS) - FDA has accepted Sandoz Biologics' License Application for proposed biosimilar denosumab.

INDUSTRIALS:

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  FedEx Corporation (FDX) - FedEx Freight has enacted another round of temporary driver furloughs in some US markets, to align its workforce with operational requirements, Freightwaves reports. The number of furloughed drivers was not disclosed, nor did it state how long they might be furloughed.


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  Southwest Airlines Co. (LUV) - Southwest will reduce by half the amount of experience prospective pilots must have flying jet or turboprop aircraft as it accelerates hiring this year, Bloomberg reports. The change will allow more highly-skilled aviators the opportunity to pursue a career at Southwest, it said.


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  Deutsche Lufthansa AG (DLAKY), Air France-KLM (AFLYY) - The airlines are said to be in talks to purchase collapsed airline Flybe, Telegraph reports.

MATERIALS:

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  Newmont Mining Corporation (NEM), Newcrest Mining Limited (NCMGY) - Gold producer Newmont made a USD 16.9bln offer for Australian peer Newcrest, although investors and analysts said it undervalued the target amid a leadership change, Reuters reports. If successful, the all-share deal would be the largest mining takeover and the third largest corporate buyout in Australian history.


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  Linde plc (LIN) - Positive mention in Barron’s; the newspaper said it was time to buy the stock as it is investing heavily in hydrogen.

FINANCIALS:

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  Positioning - FT reports hedge funds have been wrongfooted by a sharp surge in stocks last week, and rushed to exit losing bets on falling markets at the fastest pace in years. Separately, WSJ reports that amateur investors appear to be retreating after the pandemic boom, and markets risk losing a key support now that some are backing away.


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  Goldman Sachs Group, Inc. (GS), Bank of New York Mellon Corporation (BK) - According to an opinion published in the FT by William Cohan, a former investment banker and business author, Goldman Sachs can regain its swagger by buying a commercial bank such as Bank of New York Mellon, given there is no overlap.

REAL ESTATE:

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  Residential REITs - Positive mention in Barron’s; said Residential REITs could keep producing solid returns as high mortgage rates push down affordability for home buyers, while boosting demand for rentals. And although yields aren’t high for residential REITs (at 3-4%), investors might be able to pocket total returns of 8-10% through a mix of dividend income and capital gains, Barron’s said.

UTILITIES:

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  Enel S.p.A. (ENLAY) - Extends exclusivity period with Greece's PPC on negotiation for the sale of Enel's Romanian unit, according to Bloomberg. Elsewhere, the CEO has written in the FT, defending the company's push towards renewable energy.

06 Feb 2023 - 09:20- EquitiesData- Source: Newsquawk