US EARLY MORNING: White House, Republicans inch closer to debt deal; PCE inflation data ahead

DEBT CEILING TALKS: US President Joe Biden and House Speaker McCarthy are nearing a potential deal to raise the government's debt ceiling for two years, while imposing spending caps on most items, according to Reuters. The proposed agreement would allocate increased funds for military and veterans' discretionary spending, while keeping non-defence discretionary spending at current levels. The White House confirmed progress in debt ceiling talks, with negotiations centring around the top-line number and the difference between White House and Republican proposals narrowing to less than USD 70bln on discretionary spending. Sources suggest a simplified agreement with key figures is likely to be reached. House Speaker McCarthy stated that no agreement was reached on Thursday and committed to continue working throughout the weekend until a resolution is achieved, acknowledging the challenges involved, as reported by Reuters. Elsewhere, the Treasury is planning to modify payment processing for federal agencies if the debt ceiling is breached. Under the new approach, agencies would submit payments to the Treasury no earlier than the day prior to the due date. In the event that the Treasury lacks sufficient funds for full-day payments, delays would occur until enough cash is available, Wall Street Journal reported.

DAY AHEAD: The focus will be on the US Personal Income, Spending and PCE metrics for April. Core PCE prices are seen rising 0.3% M/M, matching the prior rate, but the annual gauge of core PCE is still expected to be unchanged at 4.6% Y/Y (see below). Durable goods data for April is expected to show a decline of 1.0% M/M vs last month's rise of 3.2%. The advanced goods trade data for April is also out at the same time. Meanwhile, after the open, final University of Michigan sentiment stats for May will be released, and there will be particular focus on the inflation expectations measures after the flash data showed that the long-term inflation gauge jumped to a 12-year high (3.2%) in May while headline consumer sentiment declined. On the speakers slate, ECB chief economist Lane, ECB's Enria, ECB's Vujic are all due to speak again. Baker Hughes weekly rig count data will be eyed after the previous two reports triggered market moves at the tail end of the week. Finally, on the credit ratings front, we will be alert to the possibility that S&P and Moody's will join Fitch and DBRS in warning about US debt ceiling dynamics. Elsewhere, Fitch is set to review Spain's Sovereign Debt Rating (currently A-), while Moody's may review the Czech Republic's rating (currently Aa3). Out interactive Day Ahead calendar is here, a pdf version can be accessed here.

PREVIEW – PCE (13:30BST/08:30EDT): Core PCE prices are expected to rise 0.3% M/M in April, matching the rate of growth seen in March, while the annual measure is likely to remain at 4.6% Y/Y. "The PCE deflator is likely to confirm that gradual disinflation continued in April, but the run rate remains above the Fed’s target," Credit Suisse. Although the two series have differences, CPI data for April showed core goods prices picking up, but Credit Suisse says that disinflation in shelter (which has a smaller weight in the PCE series vs the CPI) should offset most of this so to keep the monthly inflation rate flat. Meanwhile, analysts expect both Personal Income and Personal Spending to register 0.4% M/M growth in April (from the prior 0.3% and 0.0% respectively). As a reference point, the April retail sales data was mixed (the headline disappointed, but the details were more encouraging); Capital Economics said the data indicated that the economy remained resilient to the impact of higher interest rates and tightening lending standards, but real consumption growth was still likely to slow quite sharply in H2.

EQUITY NEWS:

FINANCIALS:

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  US Banks - OCC warns that US banks with persistent risk management issues and other shortcomings will face increased government intervention, requiring them to strengthen capital or withdraw from certain business lines, WSJ reports. The OCC has introduced a policy to address these concerns, aiming to establish stricter oversight for complex banks, OCC chief Michael Hsu announced.


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  JPMorgan (JPM) - The bank is reportedly working on a software service called IndexGPT that uses AI to assist with investment selection, CNBC reports. The move is seen as potentially disruptive to traditional financial advisors.


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  JPMorgan (JPM), First Republic (FRC) - JPMorgan is laying off approximately 1,000 employees from First Republic after its recent acquisition, accounting for around 15% of First Republic's workforce, FT reports. The affected employees were informed by JPMorgan on Thursday that they will not be offered a position in the company.


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  Capital One (COF), KeyCorp (KEY), Wells Fargo (WFC) - NY banking commission voted unanimously to freeze deposits at Capital One and KeyBank for failing to submit required plans to address discrimination, MarketWatch reports. Wells Fargo, PNC Bank, and International Finance Bank are also denied the designation to hold public funds. Comptroller Brad Lander states that these banks are not taking sufficient action against discrimination and are not responsible with public funds. Both banks can still fulfill existing contracts for one year.

CONSUMER:

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  Gap (GPS) - Gap shares rose almost 14% in afterhours trade as it posts surprise profit and improves margins. Q1 adj. EPS 0.01 (exp. -0.16), Q1 revenue USD 3.28bln (exp. 3.28bln), Q1 comp sales -3% due large drops at Banana Republic and Athleta, Old Navy down slightly, Gap brand +1%. Sees Q2 revenue down mid to high-single digits Y/Y (exp. 3.67bln). FY23 revenue seen down low to mid-single digits Y/Y (exp. 15.07bln).


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  Ford (F), Tesla (TSLA) - Ford CEO Farley and Tesla CEO Musk announced on Twitter that the two automakers had struck a deal where Ford drivers get access to 12,000 Tesla charging stations, FT reports, which will see Ford's charging network in North America double. the deal on Twitter Spaces.


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  Tesla (TSLA) - A Tesla whistleblower leaked 100GB of data to Handelsblatt, revealing customer complaints about safety issues with Tesla's Full Self-Driving features. Complaints include over 2,400 self-acceleration problems and 1,500 braking issues, including reports of unintended emergency braking and false collision warnings. Incidents mentioned involve sudden braking or acceleration, resulting in accidents.


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  Volkswagen (VWAGY) - Texas AG said Volkswagen and subsidiary Audi reach prelim USD 85mln settlement over violations of Texas environmental regulations related to the diesel emission scandal, Reuters reports.


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  Ulta Beauty (ULTA) - Q1 EPS 6.88 (exp. 6.87), Q1 revenue USD 2.63bln (exp. 2.62bln); Q1 comp sales +9.3% (exp. +8.85%). Still sees FY EPS between 24.70-25.40 (exp. 25.41), tightens net sales guidance to between USD 11.0-11.1bln (prev. 10.95-11.05bln), and sees FY comp. sales up between +4-5% (exp. +5.2%).


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  Costco (COST) - Earnings and sales were short of expectations as dial back discretionary spending. Q3 EPS 2.93 (exp. 3.29), Q3 revenue USD 53.65bln (exp. 54.57bln); comp sales ex-gas and FX +1.8% (exp. +3.48%); e-commerce comps -10%.


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  RH (RH) - Q1 EPS 2.21 (exp. 2.09), Q1 revenue USD 739bln (exp. 726.6mln). Q2 revenue seen between USD 765-775mln (exp. 784.3mln), and Q2 operating margin seen between 14.0-14.5%. Exec said that with 30yr mortgage rates trending at 20yr highs, the possibility of continued economic tightening required to tame inflation, and uncertainty regarding the recent regional banking crisis, expects the luxury housing market and broader economy to remain challenging throughout FY23 and into next year. Based on the current demand trends, it now forecasts increased markdowns to clear discontinued inventory. Narrows FY23 revenue view to between USD 3.0-3.1bln (exp. 3.04bln) from 2.9-3.1bln, lowers outlook for adj. operating margin to 14.5-15.5% from 15-17%, which includes an approximate 150bps drag due to the ramp up of global expansion.


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  Deckers (DECK) - Q4 EPS 3.46 (exp. 2.67), Q4 revenue USD 791.6mln (exp. 720.7mln). Sees FY24 EPS between 21.10-21.60 (exp. 21.77), and sees FY24 revenue between USD 3.95bln (exp. 3.97bln), and EPS between 21.10-21.60 (exp. 21.69).

TECH:

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  Autodesk (ADSK) - Sales, revenue in line, next quarter guide light, but raises FY view. Q1 adj. EPS 1.55 (exp. 1.55), Q1 revenue USD 1.30bln (exp. 1.27bln), Q1 billings USD 1.172bln (exp. 1.036bln). Sees Q2 EPS USD 1.70-1.74. (exp. 1.78), and sees Q2 revenue between USD 1.32bln-1.33bln (exp. 1.33bln). Raises FY24 EPS forecast to USD 7.07-7.41 from 6.98-7.32 (exp. 7.23), and FY24 revenue seen between USD 5.36bln-5.46bln (exp. 5.413bln).


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  Workday Inc (WDAY) - Earnings top expectations. Q1 adj. EPS 1.31 (exp. 1.12), Q1 revenue USD 1.68bln (exp. 1.67bln), Q1 subscription backlog +31.6% Y/Y to USD 16.65bln (exp. 15.95bln), Q1 subscription revenue +20.1% Y/Y at USD 1.53bln. Zane Rowe named CFO, succeeding Barbara Larson. Lifts FY24 subscription revenue outlook to USD 6.55-6.575bln from 6.525-6.575bln.


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  Marvell Technology (MRVL) - Q1 adj. EPS 0.31 (exp. 0.29), Q1 revenue USD 1.32bln (exp. 1.3bln); Q1 Data centre revenue USD 435.8mln (exp. 427.2mln); Q1 Consumer revenue USD 142.1mln (exp. 165.3mln); Q1 Carrier infrastructure Revenue USD 289.9mln (exp. 287.2mln). Exec expects revenue growth to accelerate in H2, and gross and operating margin expansion. Exec said AI has emerged as a key growth driver for the company, and forecasts FY24 AI revenue to at least double Y/Y, and grow rapidly in coming years.

COMMUNICATIONS:

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  Meta Platforms (META) - CEO Zuckerberg attempted to 'rally his troops' in a companywide meeting, expressing his desire for greater stability and reduced bureaucracy in the future, Washington Post reports. The meeting comes after significant layoffs that have impacted Meta's workforce.


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  Paramount (PARA), National Amusements (NAI) - Paramount Global controlling shareholder National Amusements, run by Shari Redstone, has received a USD 125mln preferred equity investment from BDT Capital Partners, Deadline reports.

MATERIALS:

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  Teck Resources (TECK), Glencore (GLNCY), Bunge (BG) - Nippon Steel remains in talks with Teck Resources despite the Glencore bid. Elsewhere, Glencore's global grain trading unit Viterria is in talks to merge with US rival Bunge (BG), Reuters reports.

26 May 2023 - 09:30- Fixed IncomeData- Source: Newsquawk