Mid-Morning Look

Wednesday, September 13, 2023

U.S. stocks initially open higher (has since fallen to lows) as markets digest a “hotter”-than-expected core CPI inflation print for August, but fed fund futures still expecting the Fed to pause when it meets next week (>90% probability), holding rates at 5.25-5.50%. The headline Aug consumer prices was in-line on a M/M basis +0.6% (and above prior month) while the y/y figure was above ests. The core CPI ex food and energy M/M was also above consensus and the prior month (see below) raising concerns the Fed’s job with interest rates may not be done by end of year. Treasury yields volatile post CPI – hitting pre-mkt highs of 4.352% (just below the recent Aug 22 hi of 4.362%) but has since reversed lower below 4.28% and the dollar index now flat. The pullback in yields/dollar helping boost growth related stocks. Early sector leaders include Utilities and Healthcare while Energy and Industrials fall the most. With CPI behind us, attention turns to the looming UAW auto union strike tomorrow if no agreement can be reached, as well as the ECB policy meeting tomorrow and PPI inflation data. Also tonight, the ARM semiconductor 95M share IPO is expected to price tonight (range expected $47-$51).

Economic Data

·     Aug Consumer Price Index (CPI) headline M/M rose +0.6% vs. est. 0.6% (vs. 0.2% in July) and y/y change +3.7% vs. est. 3.6% (vs. 3.2%). CPI Core inflation (ex: food & energy) M/M rose +0.3% vs. est. 0.2% (same as prior month) and on a y/y basis fell to +4.3%, in-line with estimates but below prior month of 4.7%). Aug CPI Energy Prices +5.6%; Food Prices +0.2%

Sector Movers Today

·     Airline stocks slide after lower guidance: 1) AAL guides Q3 adj EPS to $0.20-$0.30, down from prior $0.85-$0.95 saying its new labor contract with its pilots’ union and higher fuel prices (now sees paying avg $2.90-$3.00 a gallon for jet fuel vs. prior view $2.55-$2.65); 2) SAVE lowers Q3 adjusted operating margin to -14.5% to -15.5%, from prior -5.5% to -7.5%, estimate -7.22% and cuts revenue forecast; 3) ULCC lowers Q3 guidance stating there has been ‘recent significant unexpected change in the booking trajectory; now targeting adjusted pre-tax margin for the quarter to fall by -4% to -7% vs. previous forecast an increase of 4% to 7%.

·     In Asset managers: monthly Assets under management (AUM) data out: 1) APAM prelim AUM end of Aug totaled $142.8 billion; 2) BEN prelim AUM of $1.42 trillion on August 31, 2023, compared to $1.45 trillion at July 31, 2023; 3) IVZ prelim AUM of $1,527.7 billion, a decrease of 2.7% vs. prior month-end; 4) LAZ prelim AUM totaled approximately $237.3 billion (market depreciation of $4.4 billion, foreign exchange depreciation of $2.3 billion and net outflows of $0.4 billion); 5) TROW prelim AUM of $1.40 trillion as of August 31, 2023. Preliminary net outflows for August 2023 were $7.8 billion; 6) VRTS prelim AUM of $169.4 billion; 7) VCTR prelim AUM of $161.9 billion as of August 31, 2023; 8) AB prelim AUM decreased -1.4% to $694 billion during August 2023 from $704 billion at the end of July.

·     In Packaging and Containers: Credit Suisse downgraded BALL (tgt to $58 from $65), OI (tgt to $22 from $21) to Neutral from Outperform but upgraded SEE (tgt to $47 from $59) to Outperform as views Sealed Air as a major beneficiary of a soft-landing economic scenario in 2024 and sees the stock being priced for recession currently.

Stock GAINERS

·     F +2%; after co plans to double production of Hybrid F-150 pickup trucks in 2024 and as UBS assumed coverage with a Buy (from Sell) with $15 tgt as believes earnings will be more resilient than expected driven by the higher margin Ford Pro segment.

·     HAIN +6%; announces formal restructuring program targeting annualized savings of $130M-$150M by FY27; said expects to achieve 400 to 500 basis points of adjusted gross margin improvement and deliver $400 million in cumulative cash flow by fiscal 2027.

·     MRNA +6%; after saying a reformulated version of its mRNA-based flu shot met primary goals in a final-stage trial — a result that could pave the way for it to seek regulatory approval.

·     RCKT +38%; reached alignment with the FDA regarding its Phase 2 trial for the treatment of Danon disease; said study would evaluate the use of the investigational gene therapy RP-A501 to treat 12 patients with Danon disease – also, prices 7.8M-share secondary priced at $16 per share.

·     REVG +9%; raises FY net sales outlook to $2.55B-$2.6B from prior forecast of $2.45B-$2.55B after posts top and bottom-line beats citing better net sales in Q3 to higher demand for vehicles in Fire & Emergency and Commercial segments.

Stock LAGGARDS

·     AAL -4%; guides Q3 adj EPS to $0.20-$0.30, down from prior $0.85-$0.95 saying its new labor contract with its pilots’ union and higher fuel prices (now sees paying avg $2.90-$3.00 a gallon for jet fuel vs. prior view $2.55-$2.65) will weigh on quarterly earnings.

·     AAOI 12%; after it terminated its agreement to sell manufacturing facilities in China to Yuhan Optoelectronic Technology.

·     SLRN -12%; adds to yesterday’s weakness after its trial missed primary endpoint (shares fell -54% Tuesday after the data point).

·     U -7%; announced a new pricing structure for its game engine yesterday where Unity game creators will pay a small fee (Unity Runtime Fee) per install. Opco says while Unity’s pricing announcement resulted in a PR disaster, doubts it will lead to many developers leaving.

·     ULCC -9%; lowers Q3 guidance stating there has been ‘recent significant unexpected change in the booking trajectory; now targeting adjusted pre-tax margin for the quarter to fall by -4% to -7% vs. previous forecast an increase of 4% to 7%.

·     XPEV -2%; Chinese EV stocks weak overnight (LI, NIO, XPEV) after the Financial Times reported the European Union is launching an investigation into Chinese subsidies for electric vehicles in a bid to ward off a flood of cheap imports.