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24/11/22 Briefing

Today's trade shaped up to be mostly on the positive side, building on yesterday's gains. The upside bias was supported by a pullback in Treasury yields, a weakening dollar, and leadership from mega cap stocks. The main indices hit an air pocket, however, around midday without a specific news catalyst that brought the S&P 500 and Dow Jones Industrial Average into negative territory.

The positive disposition was not unusual for Thanksgiving week, so a seasonal bias was likely another support factor for stocks.

Other supportive factors today included a positive response to earnings from Deere (

DE 5.03%

437.52, +20.96, +5.0%) and renewed interest in stocks that have sold off recently like Tesla (

TSLA 7.82%

183.20, +13.29, +7.8%), which received an upgrade to Neutral from Sell at Citigroup.


In addition to Tesla, other mega caps were important directional drivers today. The Vanguard Mega Cap Growth ETF (MGK) closed with a gain of 1.1%, but fell as low as the unchanged mark. This move coincided with the stock market taking its midday leg lower.

Market participants also had a slew of economic data to digest today. Some reports, like October Durable Goods Orders, October New Home Sales, and the November University of Michigan Index of Consumer Sentiment, were better than expected, but others, like the Weekly Initial Claims and Preliminary November IHS Markit Manufacturing and Services PMIs, were worse than expected.

The Treasury market and dollar seemed to key off the IHS data, which showed contraction readings (i.e., sub-50) for both the manufacturing and services numbers, and the uptick in initial claims, as a reason to think the Fed might not be overly aggressive with its future rate hikes.

On a related note, the FOMC Minutes for the November 1-2 meeting seemed to support that thought. The Minutes revealed that, "a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate."

That view was not entirely surprising; nonetheless, the market liked the implication and rallied to session highs following the release of the Minutes. The indices settled the day just below their best levels of the session on light trading volume.

The 2-yr note yield settled the day down five basis points to 4.47% and the 10-yr note yield dropped five basis points to 3.71%. The U.S. Dollar Index declined 1.0% to 106.12.

Ten of the 11 S&P 500 sectors closed with gains that ranged from 0.2% (real estate) to 1.3% (consumer discretionary). The lone holdout in negative territory was energy (-1.2%).

As a reminder, the market will be closed Thursday and will have an abbreviated session on Friday that ends at 1:00 p.m. ET.

Reviewing today's economic data:

  • The final reading for the November University of Michigan Index of Consumer Sentiment increased to 56.8 (Briefing.com consensus 55.5) from the preliminary reading of 54.7. The final reading for October was 59.9. In the same period a year ago, the index stood at 67.4.

  • The key takeaway from the report is that the weakening sentiment has been influenced by the ongoing impact of inflation, rising borrowing costs, declining asset values, and expectations for a weaker labor market.


  • New home sales increased 7.5% month-over-month in October to a seasonally adjusted annual rate of 632,000 units (Briefing.com consensus 578,000) from a downwardly revised 588,000 (from 603,000) in September. On a year-over-year basis, new home sales were down 5.8%.

  • The key takeaway from the report is that it reflects how the spike in mortgage rates has created affordability pressures for lower-income buyers and how the jump in building costs has crimped the supply of lower-priced homes. The jump in median and average selling prices was skewed by higher-priced homes accounting for a larger percentage of total new homes sold.


  • Initial jobless claims for the week ending November 19 increased by 17,000 to 240,000 (Briefing.com consensus 226,000) while continuing jobless claims for the week ending November 12 increased by 48,000 to 1.551 million.

  • The key takeaway from the report is that initial jobless claims are moving in a direction the Fed would prefer at this juncture, yet they are still not high enough to suggest that there has been some acute loosening in the labor market.


  • Durable good orders, meanwhile, increased 1.0% month-over-month in October (Briefing.com consensus +0.4%) following a downwardly revised 0.3% increase (from 0.4%) in September. Excluding transportation, durable goods orders rose 0.5% month-over-month following a downwardly revised 0.9% decline (from -0.5%) in September.

  • The key takeaway from the report is that business spending rebounded, evidenced by a 0.7% increase in new orders for nondefense capital goods, excluding aircraft, which had declined 0.8% in September. Shipments of these orders were up 1.3% month-over-month in October, which will be a positive input for Q4 GDP forecasts.


  • The weekly MBA Mortgage Application index rose 2.2% week-over-week after last week's 2.7% increase

  • The weekly EIA Crude Oil Inventories showed a draw of 3.69 million barrels after last week's draw of 5.40 million barrels.

  • The weekly EIA Natural Gas Inventories showed a draw of 80 bcf after last week's build of 64 bcf.

Dow Jones Industrial Average: -6.2% YTD S&P Midcap 400: -10.4% YTD Russell 2000: -17.1% YTD S&P 500: -16.0% YTD Nasdaq Composite: -28.6% YTD

Overseas:

  • Europe: DAX +0.0%, FTSE +0.2%, CAC +0.3%

  • Asia: Nikkei market closed, Hang Seng +0.6%, Shanghai +0.3%

Commodities:

  • Crude Oil -3.38 @ 77.73

  • Nat Gas +0.21 @ 7.72

  • Gold +12.40 @ 1751.60

  • Silver +0.48 @ 21.59

  • Copper +0.04 @ 3.64

Spotlight Comment: Autodesk tumbles on weak demand in Europe and China; U.S remains strong

Shares of CAD software provider Autodesk (ADSK 197.07, -11.83, -5.7%) are tumbling today on cautionary comments made by management regarding sales outside the U.S., as well as a reduction in the company's FY23 (Jan) billings guidance. ADSK's growth is largely dependent on robust demand within manufacturing and industrial sectors around the globe, as around 60% of sales stem from the EMEA and APAC regions. Therefore, manufacturing and industrial weakness in Europe and China weighed heavily on Q3 (Oct) results and FY23 billings.

  • Drilling deeper, ADSK commented that its channel partners are still optimistic about the demand backdrop, with some hints of caution. Usage rates still grew modestly in the U.S. and APAC, excluding China, but were flat in Europe.

  • Additionally, ADSK is seeing less demand for multi-year upfront payments and more demand for annual contracts than expected, resulting in its reduced FY23 billings forecast. ADSK now expects FY23 billing of $5.57-5.67 bln, down $135 mln at the midpoint from its prior projection. Management was hopeful that this development indicated a positive signal for its transition next year to annual billings for multi-year contracts.

  • FX headwinds also played a minor part in FY23 billings, clipping the figure by about $10 mln.


  • Looking beyond Q3, new business growth is slightly decelerating in EMEA and APAC, outside of Russia and China, but ADSK remarked that overall growth remained "good." Its Q4 (Jan) guidance was in-line with estimates, forecasting adjusted EPS of $1.77-1.83 and revs of $1.303-1.318 bln.

  • On the plus side, ADSK remained confident in its long-term growth potential, continuing to target double-digit revenue growth, adjusted operating margins of 38-40%, and double-digit free cash flow growth on an annualized basis. Although not doing much to help shares today, these metrics provide a floor to ADSK's long-term growth profile.

  • ADSK also authorized $5.0 bln for share repurchases, which equates to over 10% of its current shares outstanding, in addition to its already roughly 3.8 mln shares remaining on its current authorization.

We were nervous ahead of ADSK's Q3 report that even though its peer Procore (PCOR) posted excellent SepQ results earlier this month, it derives only around 15% of its total revs from outside the U.S., well below ADSK's ~60%. With many companies operating in the construction, manufacturing, and industrial markets noting softness in Europe and China, this was a red flag for ADSK.

Bottom line, ADSK's geographic diversity acted as a net negative in Q3. However, we think this will remain a net positive over the long term. Secular tailwinds also remain, like the acceleration in the convergence of workflows within the industries it serves.

Today's News Summary:

For a full rundown of today's market and after hours developments, see Live In Play

  • Earnings/Guidance (Full Earnings Calendar):

  • Autodesk (ADSK) reports EPS in-line, revs in-line; guides Q4 EPS in-line, revs below consensus; lowers FY23 billings guidance; authorized additional $5 bln for share repurchases

  • Credit Suisse (CS) provides updated Q4 outlook

  • Deere (DE) beats by $0.33, beats on revs; provides FY23 net income guidance

  • Guess? (GES) misses by $0.11, beats on revs; guides Q4 EPS below two analyst estimate, revs below two analyst estimate

  • HP Inc. (HPQ) beats by $0.01, reports slight beat on revs; guides JanQ EPS below consensus; guides FY23 EPS below consensus; to reduce global headcount by 4,000-6,000; increases quarterly dividend by 5%

  • Kingsoft Cloud (KC) reports Q3 (Sep) results, misses on revs; guides Q4 revs below two analyst estimate

  • Nordstrom (JWN) beats by $0.05, reports revs in-line; reaffirms FY23 EPS guidance, revs guidance

  • VMware (VMW) misses by $0.13, misses on revs, note: co previously announced it is being acquired by AVGO


  • General News:

  • China imposing more coronavirus restrictions, according to Reuters

  • Western nations could agree on $60/barrel Russian oil price cap today, according to the Wall Street Journal

  • Reserve Bank of New Zealand increased the official cash rate from 3.5% to 4.25%

  • New York passed law to limit cryptocurrency mining, according to the Wall Street Journal

  • UK CMA has launched a market investigation into cloud gaming and mobile browsers after receiving widespread support for its proposals first published in June

  • Germany plans 33% windfall tax on coal, gas, and oil firms, according to Reuters

  • Several EU members are not happy with Russian gas price cap discussions; they are worried that price cap is too high, according to CNBC

  • FDIC agencies announce results of resolution plan review for largest and most complex domestic banks

  • EU talks over price level of Russian energy cap have stalled, according to Bloomberg

  • 360 DigiTech (QFIN) prices global offering of 5.54 mln shares at HK$50.03/share (or about $12.75)

  • AbbVie (ABBV) receives EC approval for SKYRIZI

  • AC Immune (ACIU) announces the upcoming presentations of its vaccine technology SupraAntigen

  • Aclaris Therapeutics (ACRS) announces several leadership changes, including the transition of its CEO to role of Chair of the Board

  • AMC Entertainment (AMC) follow up to report Amazon (AMZN) plans to invest $1 bln per year in movies for theatrical release

  • Amedisys (AMED) names CFO Scott Ginn as its acting COO, effective immediately

  • America First Multifamily Investors, L.P. (ATAX) files $300 mln mixed securities shelf offering

  • Amneal (AMRX) Launches Second Biosimilar with RELEUKO (filgrastim-ayow) in the United States

  • Apple (AAPL): There are violent protests occurring at a China Apple plant (HNHPF), according to Bloomberg

  • Azenta (AZTA) announces $500 mln accelerated share repurchase program

  • Berry Global (BERY) announces appointment of three new directors and forms capital allocation committee

  • BioMarin Pharmaceutical (BMRN) announces advancements in the U.S. Food and Drug Administration review of the Biologics License Application of ROCTAVIAN for adults with severe hemophilia A

  • Blueprint Medicines (BPMC) Submits Supplemental New Drug Application to FDA for AYVAKIT (avapritinib) for the Treatment of Indolent Systemic Mastocytosis

  • Chevron (CVX) will soon receive approval to increase production in Venezuela, according to Reuters

  • Cisco (CSCO) is facing some resistance to its software bundles from bargain focused companies, according to The Information

  • Consolidated Communications (CNSL) Announces Extension of Revolving Credit Facility

  • Coupa Software (COUP) follow up to report that Vista Equity is interested in acquisition of COUP, according to Bloomberg

  • Disney's (DIS) "Avatar: The Way Of Water" will be released in China on December 16, according to the Wall Street Journal

  • Dolby Labs (DLB): Tesla (TSLA) to use Dolby Atmos for 1 million cars, according to BGR

  • EchoStar (SATS) announces amended agreement with Maxar Technologies (MAXR) for production of the EchoStar XXIV satellite, also known as JUPITER 3

  • Johnson & Johnson (JNJ): A federal judge cancels an RSB Spine LLC patent for implant devices used in spinal fusion surgeries, according to Bloomberg Law

  • Manchester United (MANU) to explore strategic alternatives, including possibility of new investment into the club or sale of the club

  • Manchester United (MANU): David Beckham is "open" to discussions regarding MANU sale, according to FT

  • Manchester United (MANU): Sir Jim Ratcliffe aiming to bid for MANU, according to Telegraph

  • MDU Resources (MDU) announced 5-year capital investment plan

  • News Corp (NWSA) and Fox (FOXA) merger is opposed by key shareholder, according to WSJ

  • New Found Gold Corp (NFGC) Intercepts 18.6 g/t Au Over 15.95m Extending Keats West High-grade Discovery by 200m Up-dip & Intersects Broad Domains of Gold Mineralization

  • QuidelOrtho (QDEL), Access Bio, iHealth Labs, and OraSure Technologies share a maximum $803 mln Defense Logistics Agency contract

  • Raymond James (RJF) reports October operating metrics

  • Science Applications (SAIC) received approximately $950 mln in space and intelligence contract awards during 3Q23, reflecting work in intelligence, space systems, JADC2 efforts, and model-based systems engineering

  • Sempra Energy (SRE) subsidiary and ConocoPhillips (COP) executed a 20-year Sale and Purchase Agreement for 5 mln tonnes per annum (Mtpa) of LNG from Phase 1 of the proposed Port Arthur LNG project

  • Sonder (SOND) advises that measures have been undertaken to respond to an information technology security incident resulting in unauthorized access to one of the company's systems that included certain guest records

  • Sterling Infrastructure (STRL) awarded $45 mln Phase 4 Terminal Redevelopment Program at the Salt Lake City International Airport

  • Tiziana Life Sciences (TSLA) announces publication of a scientific article in the peer-reviewed journal Frontiers in Immunology

  • uniQure (QURE) announces FDA approval of first gene therapy for adults with hemophilia B

  • Vision Sensing Acquisition Corp. (VSAC): Watersight and Newsight Imaging announce the start of the field test at MEKOROT's water monitoring facility in northern Israel alongside the addition of U.S. global companies to its pilot water monitoring program utilizing the AquaRing

  • Walmart (WMT): Multiple people were killed after shooting at Wal Mart store in Virginia

  • Western Copper (WRN) announces that Rio Tinto Canada Inc. (RIO) has exercised its right to extend certain rights under the investor rights agreement between the co and Rio Tinto dated May 28, 2021

  • Xeris Biopharma (XERS) announces research collaboration and option agreement with Horizon Therapeutics (HZNP) XeriJect formulation of teprotumumab

  • ZIM Integrated Shipping (ZIM) updates on withholding tax procedures on December 2022 cash dividend


(see Upgrades/Downgrades calendar for full list):

  • Upgrades:

  • Alamos ( AGI 3.28% ) upgraded to Sector Outperform from Sector Perform at Scotiabank; tgt raised to $11


  • Downgrades:

  • Autodesk ( ADSK 5.66% ) downgraded to Neutral from Buy at Mizuho; tgt lowered to $210


  • Others:

  • Cigna (CI) assumed with an Overweight at Morgan Stanley; tgt raised to $347


Upcoming Events:

  • Econ data (Thursday):

  • No econ data for the day ahead.


  • Earnings:

  • Monday (Nov. 21)

  • Pre-Market: SJM J

  • After-Hours: A DELL GDS MMS URBN ZM


  • Tuesday (Nov. 22)

  • Pre-Market: ANF AEO AMWD ADI BIDU BBY BURL CAL CSIQ ROAD DKS DLTR DY JACK MDT SGHC VIPS WMG

  • After-Hours: ADSK GES HPQ JWN


  • Wednesday (Nov. 23)

  • Pre-Market: DE KC

  • After-Hours: None


  • Thursday (Nov. 24)

  • Pre-Market: None

  • After-Hours: None


  • Friday (Nov. 25)

  • Pre-Market: None

  • After-Hours: None






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