US EARLY MORNING: US stock futures pare some of the post-Powell gains ahead of more Fedspeak

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  OVERNIGHT: US stocks finished higher although whipsawed as the focus centred on comments from Fed Chair Powell who provided a message for both hawks and doves (see here). In Asia, stocks were more mixed, while US President Biden's State of the Union Address did little to excite markets (see here). Recaps for both of these events can be found below. The European morning started with gains amid a heavy focus on corporate earnings (see here).


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  US PRE-MARKETS: US equity futures are giving up some of the gains booked on Tuesday ahead of a very busy central bank speakers schedule, which includes bigwigs from both the Federal Reserve and the ECB. Powell’s remarks on Tuesday again had something for everyone, but many have noted that he didn’t ramp up the hawkishness (as some were fearing) after a run of strong US data recently – many are attributing that as the reason why global stocks have traded constructively after his comments. We recap Powell’s remarks below, and provide a brief primer on what we might expect from the Fed’s Williams when he speaks just before the cash equity open today. Elsewhere, Treasuries are bid, with yields falling by 2-3bps (belly outperforms); today’s 10yr sale will be eyed after the grim 3s auction on Tuesday, while the complex will be influenced by Fedspeak too: currently, markets are implying an almost certain probability that the Fed lifts rates by 25bps in Match to 4.75-5.00%; the terminal rate is expected between 5.00-5.25% (in line with the Fed’s December SEPs) in May and is expected to remain there until the end of this year, when markets are assigning an 80% chance of a rate cut by December. The Dollar Index is flat. Crude futures are over a percent higher after API data which reported a surprise draw for headline crude stocks, and after the EIA raised its estimate for world oil demand growth slightly.

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: The European data slate is thin, although commentary from ECB officials Knot (hawk) and Enria (who deals with supervision) is due. In EM, the National Bank of Poland is expected to hold rates at 6.75%, while the National Bank of Hungary’s January meeting minutes will be published.


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  NORTH AMERICAN DATA/SPEAKERS: US data releases for the day are thin, but there is a heavy slate of Fedspeak, which includes voters Williams, Waller, Barr, Cook, Kashkari and non-voter Bostic. For the BoC watchers, the central bank's meeting minutes are due for release (you can recap on the meeting in our central bank weekly here). Elsewhere, weekly US MBA mortgage applications data, and wholesale sales data for December will be released.


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  FIXED INCOME SUPPLY: From Europe, the UK will sell GBP 2bln in 2039 Gilts, while Germany will sell EUR 4bln of 2029 debt. The US will auction USD 35bln of 10yr notes; on Tuesday, the sale of 3yr notes which was judged as poor, marked by a 4bps tail and the lowest bid-to-cover since November 2021, with indirect participation notably falling off.


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  ENERGY: Weekly energy inventory data from the DoE is due in the US morning; for reference, the API data reportedly showed crude inventories -2.2mln (exp. +2.5mln), Cushing stocks +0.2mln; gasoline stocks +5.3mln (exp. +1.3mln), while distillate inventories +1.1mln (exp. +0.1mln).


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  CORPORATE EARNINGS: Today's major corporate earnings out of the US include CVS Health (CVS), Disney (DIS), Uber Technologies (UBER), Goodyear Tire (GT), Fox Corp. (FOX), Teva Pharmaceuticals (TEVA), Yum! Brands (YUM), Mattel (MAT), Coty (COTY), Under Armour (UAA). Our full daily earnings expectation sheet can be accessed here.


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  POWELL RECAP: Fed Chair Powell had a message for both the hawks and the doves; in his initial remarks, he reiterated the message from his post-meeting press conference last week, that the disinflationary process had begun but was at a very early stage and would be bumpy. He was encouraged that the process had begun without damaging the labour market. On the January jobs report, Powell said that the labour market was very strong, which he was not expecting, and added that if data were to continue to come in stronger than expected, the Fed would certainly raise rates more, adding that the jobs data showed why the Fed thinks returning inflation to target will be a process that will take a significant period of time. Powell emphasised again that the Fed probably needs to hike rates further as they have still not reached a sufficiently restrictive level. The Fed Chair concluded by stressing that if strong labour market continues, or higher inflation reports continue to be seen, the FOMC may need to hike more than what is priced in; his base case is that it will take some time to get inflation down, while the Fed will need to do more rate hikes, and then look to see if it is enough.


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  WILLIAMS PRIMER (14:15GMT/09:15EST): Following Tuesday's remarks from Fed Chair Powell, traders will be attentive to see whether the influential NY Fed President Williams (voter) confirms what Powell said. Speaking in January (before the February FOMC), Williams said he was forecasting that inflation would fall to 3% this year (vs December's SEP which saw headline PCE at 3.1%, and core PCE at 3.5%). Williams was more optimistic on the growth outlook than some of his colleagues, projecting US growth of around 1% this year (vs 0.5% in the SEPs), and was also a little more constructive on the labour market outlook, projecting an unemployment rate of 4.6% this year (vs 4.5% in the SEPs); he said that the labour market had been more resilient than expected, and that there was still a lot of underlying demand for labour. In January, Williams saw signs that inflation pressures were starting to moderate, but argued that inflation was still too high, and the Fed had more work to do on rate rises given that inflation risks were still tilted to the upside. Williams warned that the next stage of moving moving inflation down will be challenging, and the Fed still faced challenges with core inflation. He added that lowering inflation would need a period of slower growth and a softer jobs market. The NY Fed President tends not to pre-judge the outcomes of FOMC meetings, so is unlikely to give any signals on the size the Fed will hike at the next meeting. However, in January he said it made sense for the Fed to slow the pace of hikes in December, though the Fed still had a ways to go on rate hikes, and it must stay the course until inflation is brought back to 2%, adding that the 2% inflation goal had served the Fed well. In January, Williams felt that market pricing was roughly consistent with the Fed's rate outlook - note: following the data releases for January, this pricing has further converged with the Fed's view recently. Williams argued that where rates eventually peak will depend on incoming data, adding that the destination, not the speed, was the key issue. On the neutral rate, Williams suggested that it was likely to stay low going forward. The balance sheet reduction was going well, and the Fed still had lots of room to run on shrinking the balance sheet. Elsewhere, he said that the markets were functioning well, and on the debt ceiling debate, said addressing it was an issue for Congress. He also said that government borrowing levels don't directly influence the Fed. Further afield, Williams noted that China's reopening could have a mixed impact on the global economy, where ending lockdowns could stoke global inflation higher.


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  BIDEN SOTU RECAP: President Biden said he is announcing new standards to require all construction materials used in federal infrastructure projects to be made in America. He complained that the tax system was unfair, and called for Congress to pass a minimum billionaire tax and proposed to quadruple the tax on corporate stock buybacks. Biden said he was committed to working with China, but if China threatened US sovereignty, the US would act to protect the country, adding that the US was in the strongest position in decades to compete.

STOCK SPECIFIC NEWS:

CONSUMER CYCLICAL:

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  eBay (EBAY) - Announced that it will eliminate 500 jobs globally, which represents about 4% of its total employee base.


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  Chipotle Mexican Grill Inc (CMG) - Q4 adj. EPS 8.29 (exp. 8.90), Q4 revenue USD 2.18bln (exp. 2.23bln); adds USD 200mln to share buyback programme. Q4 comps +5.6% (exp. +7.04%), Q4 operating margin 13.6% (exp. 14.7%, vs. 8.1% Y/Y). CEO said it delivered strong growth in 2022, expanding average unit volumes and restaurant level margin, while opening the highest number of new restaurants in six years, despite facing a challenging and fluid macro environment. Sees Q1 comp. restaurant sales growth in high-single digits, and sees 255-285 new restaurants in 2023 (exp. 274).


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  Yum China (YUMC) - Q4 adj. EPS 0.13 (exp. 0.13), Q4 revenue USD 2.09bln (exp. 2.22bln); boosts cash dividend to 0.13/shr. Q4 comp. sales -4% (exp. -4.27%); Q4 KFC comps -3% (exp. -0.33%) and KFC revenue 1.59bln (exp. 1.66bln); Q4 Pizza Hut comps -8% (exp. +0.5%), and Pizza Hut revenue 404mln (exp. 491.9mln). Q4 restaurant margin 10.4% (exp. 10.2%). Exec said that as China enters the new phase of COVID response, it is cautiously optimistic. "The overall business environment and consumer sentiment have improved but near-term uncertainties remain”. “Looking ahead, we are encouraged by the new COVID policy and Chinese New Year holiday trading. But the real test will be the sales trajectory after the holiday and how the economy will rebound, given the fluid COVID conditions and macroeconomic headwinds."


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  VF Corp (VFC) - Q3 adj. EPS 1.12 (exp. 0.99), Q3 revenue USD 3.50bln (exp. 3.48bln). Unveils actions to strengthen financial position: cuts dividend 41% to USD 0.30/shr. Announced a review of strategic alternatives for its Global Packs business. Cuts FY23 adj. EPS view to USD 2.05-2.15 (exp. 2.07) from a prior 2.00-2.20 range.


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  Crown Holdings, Inc. (CCK) - Q4 adj. EPS 1.17 (exp. 1.05), Q4 revenue USD 3.01bln (exp. 3.12bln). Q1 adj. EPS seen between USD 1.00-1.10 (exp. 1.50); view includes headwinds from higher interest and pension expenses, and negative Y/Y impact from steel repricing. FY23 adj. EPS seen between USD 6.20-6.40 (exp. 6.84), while adj. EBITDA seen growing 8-12%.


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  H&R Block, Inc. (HRB) - Q2 EPS -1.37 (exp. -1.48), Q2 revenue USD 166.41mln (exp. 148.7mln). Reiterates FY23 adj. EPS outlook of between USD 3.70-3.95 (exp. 3.79), and reiterates its FY23 revenue outlook of USD 3.54-3.59bln (exp. 3.5bln). Expects double-digit annual adj. diluted EPS growth through 2025.


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  Automakers - Plug-in hybrid EVs from BMW (BMWYY), Renault (RNLSY) and Stellantis’ Peugeot unit (STLA) emit significantly more carbon dioxide than standard lab tests claimed, according to a Graz University study cited by The Guardian newspaper.


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  Volkswagen (VWAGY) - Prelim FY results in line with expectations, net cash was below target dragged lower by high inventories. Prelim FY revenue EUR 279bln (exp. 278bln), operating profit before special items EUR 22.5bln (exp. 23bln). Cash flow EUR 5.0bln (exp. 8.6bln). Said supply chain turmoil dragged on net cash flow.


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  Pandora A/S (PANDY) - Noted uncertainties around organic sales growth. Q4 revenue DKK 9.9bln (exp. 9.6bln), Q4 EBIT DKK 3.2bln (prev. 2.7bln). Will repurchase DKK 2.4bln in shares. "Initial guidance for 2023 is -3% to +3% organic growth and an EBIT margin around 25%. Current trading in 2023 has been solid with a good, broad-based pick-up in sell-out growth." Exec said traffic in Chinese stores improved in January but at rather low levels.

COMMUNICATIONS:

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  Activision Blizzard, Inc. (ATVI), Microsoft Corporation (MSFT) - ATVI CEO said a "fragile" UK government could miss a post-Brexit opportunity to attract thousands of jobs if it blocks Microsoft’s USD 75bln acquisition of Activision Blizzard.


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  Zoom Video Communications, Inc. (ZM) - Announced a restructuring plan intended to cut operating costs, and continue advancing its commitment to profitable growth. Estimates that it will incur about USD 50mln-68mln in charges related to the restructuring plan. Said actions associated with the employee restructuring plan are expected to be substantially complete by Q1 fiscal 2024.


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  Omnicom Group Inc. (OMC) - Q4 EPS USD 2.09 (exp. 1.98), Q4 revenue USD 3.87bln (exp. 3.75bln). Exec said Q4 organic revenue growth of 7.2% was stronger than it expected, led by performance across global geographies and continued strength in our faster growing disciplines. Enters 2023 in a very strong position, but saiys it is closely tracking the macroeconomic outlook and are fully prepared to respond appropriately.

TECH:

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  Microsoft Corporation (MSFT) - Exec said that its 'Edge' browser had taken share for the seventh consecutive quarter, and MSFT has more than 1.4bln active Windows devices. Added that it will attract new users and advertisers and drive higher engagement through new Bing, and that every one point of share gain in search ad market will lead to another USD 2bln in revenue.


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  Enphase Energy, Inc. (ENPH) - Q4 EPS 1.51 (exp. 1.24), Q4 revenue USD 724.7mln (exp. 706.5mln). Q1 revenue seen between USD 700-740mln (exp. 690mln). CEO said January activations were holding up; installers and distributors partners have started to see originations pick up in January M/M; thus, is cautiously optimistic about Q2. Said it was adding additional manufacturing capacity in the US due to the strong global demand for its products, and the incentives related to the Inflation Reduction Act.


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  Fortinet, Inc. (FTNT) - Q4 EPS 0.44 (exp. 0.39), Q4 revenue USD 1.28bln (exp. 1.29bln). Q1 EPS seen between USD 0.27-0.29 (exp. 0.27), and Q1 revenue seen between USD 1.18-1.22bln (exp. 1.2bln). For the FY23, EPS is seen between USD 1.39-1.41 (exp. 1.39), and FY23 revenue is seen between USD 5.37-5.43bln (exp. 5.4bln). CEO said "market share gains are being driven by Fortinet's integrated and single platform approach to cybersecurity combined with FortiASIC technology, which lowers the management costs and the total cost of ownership for organisations," and added that given its "cost-for-performance advantage, the convergence of security and networking, and the consolidation of products and vendors, we expect to continue our solid growth trajectory."


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  Jack Henry & Associates, Inc. (JKHY) - Q2 adj. EPS 1.10 (exp. 1.11), Q2 revenue USD 505.3mln (exp. 515.4mln). Sees FY23 EPS between 4.79-4.83 (exp. 4.94), and FY23 revenue between USD 2.048-2.055bln (exp. 2.1bln). Lumen Technologies, Inc. (LUMN) - Q4 adj. EPS 0.43 (exp. 0.19), Q4 revenue USD 3.8bln (exp. 3.8bln). On its divestiture of EMEA business to Colt, said parties expect to enter into a definitive purchase agreement in the next couple of days. Expects to close transaction on the terms previously announced as early as late 2023.


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  Paycom Software, Inc. (PAYC) - Q4 adj. EPS 1.73 (exp. 1.49), Q4 revenue USD 371mln (exp. 366.8mln). Sees Q1 revenue between USD 443-445mln (exp. 437.1mln). Sees FY23 revenue between USD 1.7-1.702bln (exp. 1.69bln).


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  SS&C Technologies Holdings, Inc. (SSNC) - Q4 adj. EPS 1.16 (exp. 1.16), Q4 revenue USD 1.34bln (exp. 1.33bln). Q1 adj. EPS seen between USD 1.10-1.16 (exp. 1.19), and sees Q1 revenue between USD 1.332-1.372bln (exp. 1.33bln). For the FY23, sees adj. EPS between USD 4.67-4.97 (exp. 4.98), and sees FY23 revenue between USD 5.455-5.655bln (exp. 5.47bln).

ENERGY:

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  TotalEnergies (TTE) - Saw record profits in 2022, confirms plan to spin off TotalEnergies EP Canada, and adds that French sites continue to be impacted by strike action. Q4 net income USD 7.6bln (exp 7.6bln), adj. EBITDA USD 16bln (exp. 14.08bln); proposes ordinary dividend of EUR 2.81/shr for 2022, with shareholders to benefit from a EUR 3.81/shr dividend for 2022 (exp. 3.47/shr). Confirms it intends to spin off TotalEnergies EP Canada and confirms 2023 payout of 35-40% for shareholders.


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  Equinor (EQNR) - Posted record profits in 2022, boosts dividend. Q4 revenue USD 34.3bln (exp. 40.1bln), Q4 adj. net profit USD 5.80bln (exp. 4.44bln), Q4 adj. operating profit USD 15.1bln (exp. 15.1bln). Raised quarterly dividend to USD 0.30/shr (prev. USD 0.20/shr). Proposes a USD 0.60/shr special dividend. Board to increase the USD 1.2bln share buy-back programme with up to USD 4.8bln, resulting in a programme of up to USD 6.0bln in 2023. Raises its FY24/25 organic capex around USD 13bln (prev. around 12bln). In 2023 Equinor expects production growth of around 3% in oil and gas, compared to 2022.


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  Aker Solutions ASA (AKRYY) - Q4 revenue and EBITDA top expectations, sees higher revenues in 2023.

INDUSTRIALS:

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  A P Moller Maersk AS (AMKBY) - Q4 profits and sales were short of expectations, and offered a wide outlook. Q4 revenue USD 17.8bln (exp. 18.5bln), Q4 EBITDA USD 6.54bln (exp. 6.42bln), Q4 EBIT USD 5.12bln (5.35bln). Sees 2023 underlying EBITDA between USD 8-11bln (exp. 13.45bln). "Guidance for 2023 is based on the expectation that inventory correction will be complete by the end of the first half leading to a more balanced demand environment. 2023 global GDP growth is expected to be muted and global ocean container market growth to be in a range of -2.5% to +0.5%. A.P. Moller-Maersk expects to grow in-line with the market." Capex guidance maintained at USD 9-10bln.

HEALTH CARE:

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  Illumina Inc (ILMN) - Q4 adj. EPS 0.14 (exp. 0.14), Q4 revenue USD 1.08bln (exp. 1.07bln).


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  Vertex Pharmaceuticals Inc (VRTX) - Q4 adj. EPS 3.76 (exp. 3.51), Q4 revenue 2.3bln (exp. 2.3bln).

MATERIALS:

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  BHP (BHP) - Announced a fatal incident at Port Hedland, and WAIO suspended operations for 24hrs.


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  Glencore (GLNCY) - Antapaccay copper mine in Peru has reopened after closing in January amid protesters attacks.


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  Akzo Nobel (AZKOY) - Q4 sales were in line with consensus, sees higher profits in FY23 as raw material costs ease.

FINANCIALS:

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  Prudential Financial Inc (PRU) - Q4 adj. EPS 2.42 (exp. 2.51); raises quarterly dividend +4.2% to USD 1.25/shr (prev. 1.20). Plans to buyback USD 1bln of shares this year.


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  Voya Financial, Inc. (VOYA) - Q4 adj. EPS 2.18 (exp. 1.55). Said the removal of stranded costs from prior divestitures was ahead of schedule. Expects to resume share buybacks in Q2.


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  Societe Generale SA (SCGLY) - Q4 profits fell after it raised provisions for bad loans fivefold. Q4 revenue EUR 6.89bln (exp. 6.42bln). Q4 adj. net EUR 1.16bln (prev. 1.79bln). Q4 operating profit EUR 1.86bln (prev. 1.97bln). Q4 underlying ROTE 7.6% (prev. 9.2% Y/Y).


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  ABN AMRO NV (AAVMY) - Q4 profits beat expectations, and it announced a EUR 500mln buyback. Q4 adj. net EUR 354mln (prev. 552mln Y/Y). Operating income EUR 1.86bln (prev. 2.28bln). Announces a EUR 500mln share buyback. "Credit quality remains solid. Impairments in Q4 were EUR 32mln, as additions for individual clients were partly offset by releases from macroeconomic scenarios."

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