Mid-Morning Look

Thursday, April 14, 2022

U.S. stocks open flat to slightly higher after trading in a narrow range overnight before breaking lower, as Treasury yields spiked across the board and investors took profits heading into the long 3-day holiday weekend (Europe closed for four days, with Monday as well). The Euro tumbles over 1% to 1.0768 vs. the dollar after ECP President Lagarde said earlier fiscal, monetary support remains critical after the ECB leaves benchmark refinancing rate unchanged at 0.00% noting conflict and associated uncertainty are weighing heavily on confidence of businesses and consumers. Treasury yields meanwhile spike with the 10-yr up over 10 bps to 2.79% as top/bottom end of the curve all aggressively higher. In stock news, TWTR shares jump initially after TSLA CEO Elon muck said he made a “best and final” offer to buy the co for $54.20 per share in cash. Leisure and travel stocks getting another boost after DAL upbeat earnings yesterday lifts sentiment. Major sectors mixed early heading into big earnings next week, while financials a drag early given downbeat results from a handful of names (WFC among biggest decliners). Handful of economic data today and tomorrow as well.

Economic Data

·     Retail Sales for March rose +0.5% m/m vs. est. +0.6% expected and upwardly revised +0.8% (from +0.3%) while ex-gas and autos rose +0.2% m/m vs. -0.1% expected and -0.1% prior; retail sales less autos rise +1.1% m/m vs. +1.0% expected and +0.6% prior

·     U.S. Jobless Claims rose to 185K vs. est. 171K while prior week revised to 167K from 166K; the 4-week moving avg rose to 172,250 from 170,250 prior; continued claims fell to 1.475M from 1.523M prior week (est. 1.5M) and U.S. insured unemployment rate unchanged at 1.1%

·     Import prices for March rose +2.6% m/m above the +2.3% expected and upwardly +1.6% prior, while Export prices rose +4.5% m/m vs. +2.2% estimate and +3.0% prior; March Non-Petroleum Import Prices +1.1% and Petroleum Import Prices +16.1%

·     Business Inventories for February rose +1.5% vs. est. +1.3% and vs Jan +1.3%; U.S. Feb business sales +1.0% vs Jan +4.1% and Feb retail inventories ex-autos revised to +1.4% from +1.2%

·     University of Michigan consumers sentiment survey prelim April 65.7 above consensus 59.0 and vs final March 59.4; current conditions index prelim April 68.1 vs final March 67.2 and the consumers expectations index prelim April 64.1 vs final March 54.3

Sector Movers Today

·     Bank movers after earnings:

·     Citigroup (C) Q1 profit falls 46%, but Q1 EPS of $2.02 tops estimates of $1.55; Q2 revs decline 2% to $19.2B, while net income fell to $4.3B from $7.9B a year ago; Q1 operating expenses of $13.2B fell 3% q/q and increased 15% y/y; Q1 net credit losses of $872M vs. $866M in Q4 and $1.75B in Q1 2021; Institutional Clients Group revenue of $11.2B vs. $8.91B in Q4

·     WFC Q1 revs of $17.6B missed the $17.8B consensus and fell from $20.9B in Q4 2021 and $18.5B in Q1 2021; noninterest revenue fell 28% from Q4 and 14% from a year ago; Q1 EPS of $0.88 beat by 8c and compared with $1.38 in Q4 2021 and $1.02 in the year-ago quarter; Q1 noninterest income of $8.37B fell from $11.6B in Q4 2021 and from $9.72B in Q1 2021

·     USB Q1 EPS $0.99 vs. est. $0.94; Q1 revs $5.6B vs. est. $5.55B; Q1 net interest margin 2.44% vs. 2.50% a year ago; Return on average assets of 1.09% and return on average common equity of 12.7%

·     PNC Q1 EPS $3.29 vs. est. $2.73; Q1 revs rose 11% to $4.69B vs. est. $4.76B; Net interest margin 2.28% vs. 2.27% y/y, net charge-offs $137 million, -6.2% y/y, non-interest income $1.89 billion, +0.9% y/y, and non-interest expenses $3.17 billion, +23% y/y, estimate $3.12 billion

·     STT Q1 adj EPS $1.59 vs. est. $1.47 and revs rises 4.4% y/y to $3.08B vs. est. $3.04B; said fee revenue rose 3.6% y/y to $2.57B; Net interest income was $509M, compared with $467M a year ago, driven by growth in investment portfolio and loan balances, as well as higher market interest rates

·     GS reported a 43% drop in profit but beat expectations (Q1 GAAP EPS of $10.76 vs. estimate of $8.98 and fell from $18.60 in Q1 2021); consumer and wealth management saw a 21% jump in net revenues to $2.10 billion; total Q1 net revenue of $12.9B vs. $12.6B in the previous quarter and $17.7B in the year-ago quarter; operating expenses $7.72B, down from $9.44B y/y; investment Banking revs down -36% to $2.41B; global markets net revs rise 4% y/y to $7.87B with FICC revenue of $4.72B rising 21% Y/Y and Equities revenue of $3.15B falling 15% Y/Y.

·     MS posted 11% profit drop for Q1 with revs down 6% to $14.80B topping the $14.19B estimate; earned $258M in revenue from its equity underwriting business, down sharply from $1.50B a year ago; brought in $944M in advisory revenues in the quarter, compared with $480M y/y; Wealth management net revenue $5.94B below views

·     Pharma movers; SNY said data from a phase 1/2 of rilzabrutinib to treat adults with heavily pre-treated immune thrombocytopenia were published in The New England Journal of Medicine; PFE and BNTX announce data showing high immune response following booster dose of COVID-19 vaccine in children 5 through 11 years of age; ADGI said it was pausing the submission of an emergency use authorization (EUA) request for adintrevimab (ADG20) with the FDA after the drug was seen to show a lack of neutralizing activity against the Omicron BA.2 variant; SUPN reiterates full year 2022 financial guidance provided on February 28, 2022

·     Industrial & Machinery; ahead of earnings, Deutsche Bank with catalyst calls, recommending buying HON as believe we are entering the sweet spot with respect to timing as company should benefit from its late-cycle end market exposures including Aerospace, Oil & Gas; also catalyst call buy on URI saying expectations are not low, see few clear opportunities for beats and raises this quarter, and a high probability of this for URI; Deutsche with catalyst sell call on ITW saying they already thought the company’s full year EPS guidance looked aggressive post-4Q earnings; GWW was downgraded to underweight from equal weight at Morgan Stanley as pace of price rises dips, PMI data points to slowing volumes and smaller competitors enter the market

Stock GAINERS

·     DAL +3%; travel and leisure names extend gains after positive earnings from DAL yesterday provided upbeat sentiment for the industry/spending

·     HII +3%; upgraded to Outperform at Cowen and raise tgt to $270 from $200 saying defense sector’s improved budget prospects and HII’s severe discount to peers augur substantial upward re-rating headroom

·     IBM +2%; upgraded to Overweight from Equal Weight $150 PT at Morgan Stanley as view it as a defensive play amid growing macro risks, given its negative correlation to PMIs and historical late cycle outperformance

·     RAD +10%; after earnings results and mixed guidance as sees adjusted EBITDA $460M-$500M vs. est. $401M and revs $23.1B-$23.5B vs. est. $23.44B

·     TSM ; said 2022 sales may exceed upper end of the previous guidance of mid-to-high 20% in USD and doesn’t expect change to CAPEX for 2022

·     TWTR +7%; after Tesla CEO Elon Musk made a “best and final” offer to buy the co for $54.20 per share in cash, in a deal valued at about $43 billion (comes a week after revealing a 9% stake)

·     UNH +2%; raised its forecast for the year as double-digit revenue growth and lower operating costs helped beat analysts’ estimates

·     VALN +9% following Britain’s approval of the French firm’s COVID-19 vaccine, a sixth coronavirus shot approved in the country

Stock LAGGARDS

·     BBBY -8%; after analyst at Telsey downgrades post earnings/guidance yesterday

·     CMBM -24%; guides Q1 revs $61M-$63M, down from prior view of $77.5M-$81.5M and below est. $79.5M and announces the departure of its CFO

·     GWW -4%; downgraded to underweight from equal weight at Morgan Stanley as pace of price rises dips, PMI data points to slowing volumes and smaller competitors enter the market

·     PTGX -25%: after announced FDA intent to rescind the Breakthrough Designation, or BTD, for Rusfertide

·     STX -2%; and WDC both downgraded to Neutral from Positive at Susquehanna noting both are down 28% YTD but argue the extent of deceleration in Cloud CAPEX spend by YE22 and into 2023, and its impact, is still not dialed into expectations

·     TSLA -3%; after CEO Elon Musk makes an offer to buy Twitter Inc for $54.20 in cash just a week after revealing a 9.2% stake

·     WFC -4%; Q1 revs of $17.6B missed the $17.8B consensus and fell from $20.9B in Q4 2021 and $18.5B in Q1 2021; noninterest revenue fell 28% from Q4 and 14% from a year ago