Calls to rein in rate-cut bets

On Wednesday, major US equity indices extended their weekly decline, with the S&P 500 nearing a two-week low as the market adopted a defensive stance in 2024, influenced by ongoing profit-taking and a shift in Fed policy optimism. Higher-than-expected retail sales raised Treasury yields, dampening expectations of early interest rate cuts. Global equities faced headwinds from subdued Chinese growth and rising U.K. inflation. Real estate and utility shares weakened, and small-cap equities were under pressure. The US Dollar Index strengthened, closing at a five-week high. The Stoxx 50 dropped 1%, closing at 4,403 points, its lowest since 30^th November, driven by hawkish ECB comments and concerns about rate cuts impacting real estate. 

Summary for 18.01.2024 

• Most Asian equities traded within a narrow range on Thursday, influenced by strong US data that diminished expectations of early interest rate cuts by the Federal Reserve. Chinese shares extended losses following disappointing GDP readings, with the Shanghai Composite and CSI 300 at multi-year lows. Concerns about China’s economic weakness impacted broader Asian markets, while Japanese equities saw a modest rise.  
• European shares are expected to open steadily as investors assess the impact of the Fed’s adjusted rate expectations and US equity futures stabilised following recent losses. 
• Oil prices rose slightly in Asia this morning amid disruptions in US production due to severe cold weather and ongoing Middle East military action. However, gains were tempered by unexpected US inventory builds and a stronger dollar. Crude saw modest increases as concerns lingered over China’s weak GDP data impacting oil demand. OPEC maintained its global oil demand forecast for 2024, projecting a 1.85 million barrels per day growth in 2025. 
• US retail sales for December increased by 0.6%, signalling sustained consumer resilience at the close of 2023. Core sales, excluding volatile items, rose by a stronger 0.8%, the highest since July. Despite ongoing household consumption strength, a slowdown is anticipated in 2024 due to factors like slower wage growth and the impact of restrictive monetary policy. 
• The US Senate is reportedly working on a continuing resolution to extend government funding until early March, averting a potential shutdown as the current deadline approaches this Friday. While partisan negotiations for a long-term funding bill continue, the temporary measure aims to prevent increased political uncertainties, allowing the market to focus on incoming corporate earnings reports this week. 
• The UK’s annual inflation unexpectedly rose to 4% in December 2023, the first increase in ten months. Contributing factors included higher prices for alcohol, tobacco, recreation, culture, clothing, footwear, furniture, and household equipment. However, inflation slowed for food, non-alcoholic beverages, health, restaurants, hotels, and transport. The Consumer Price Index (CPI) increased by 0.4% compared to the previous month, while the core CPI rose by 0.6%, maintaining the annual rate at 5.1%. 
• TSMC, this morning reported a 19% decline in fourth-quarter net profit to T$238.7 billion ($7.6 billion) due to decreased demand for chips amid global economic challenges. The net profit surpassed analysts’ expectations of T$226.4 billion, driven by factors like a strong semiconductor industry and ongoing demand for chips in various applications, including automotive, smartphones, and servers. 
• Apple will remove the blood oxygen monitoring feature from its Apple Watch Series 9 and Ultra 2 models in the US due to an ongoing legal battle over patents with medical technology company Masimo. The legal dispute, expected to take about a year to resolve, led Apple to disable the feature rather than halt sales in a significant market.  
• Samsung’s latest premium smartphones, the Galaxy S24 series, feature multiple AI functions, including voice translation, image searching, and generative editing of photos. The move is part of Samsung’s strategy to compete with Apple, which surpassed Samsung in 2023 smartphone shipments. The base model starts at $799 in the United States, with higher-specification versions priced at $999 and $1,299. The series will be available from January 31, 2024. 
• Kinder Morgan reported a lower-than-expected profit for Q4 2023 due to higher interest expenses and weakness in the natural gas pipeline segment, impacted by declining CO2 volumes and lower prices of natural gas liquids. Earnings from the CO2 segment dropped, and adjusted core profit from the natural gas pipeline segment decreased. Despite this, the company raised its adjusted core profit guidance for 2024 and expressed confidence in future discretionary capital expenditure. 
• Alcoa’s shares fell over 2.7% in after-hours trading after reporting Q4 2023 earnings. While the company’s EPS beat expectations, adjusted EBITDA fell significantly short of estimates. The Q4 loss per share was narrower than expected, and revenue matched projections. Adjusted EBITDA stood at $89 million, below Wall Street’s expectation of $110.7 million. Production exceeded expectations but concerns about the Alumina Segment’s Q1 2024 adjusted EBITDA and offsetting cost factors further contributed to the market response. 
• Verizon announced a $5.8 billion write-down in Q4 2023, lowering the value of its declining wireline business. The company revised financial projections for its Business unit, catering to businesses and government clients, which constitutes over a fifth of its revenue. The wireline business faces pressure from strong competition, an uncertain economy, and the shift to wireless services. After the charge, the goodwill balance for the unit was $1.7 billion as of 31^st December. Verizon’s shares declined over 1%. 
• Netflix’s price target was raised by both KeyBanc and Bank of America analysts, who maintained bullish ratings. KeyBanc increased the target to $545, citing healthy member growth and revenue benefits from pricing and ads monetization. Bank of America raised the target to $585, stating that Netflix has emerged as the winner in the streaming wars, with changing market dynamics benefiting the company’s global reach and scale in streaming. 
• Deutsche Bank’s analysis of Boeing suggests a perceived market capitulation after a nearly 8% drop in shares. The recent price action, reminiscent of a prior significant decline, indicates an attractive risk-reward at current levels. With a 10% downside risk to $180 and a target price of $295 offering 47% upside, analysts emphasise the potential misalignment between market perception and Boeing’s valuation. The new price target is $295, down from the previous $325.  
• UBS downgraded Ford’s shares from Buy to Hold, citing a perceived fair valuation and limited upside to estimates for 2024 and 2025. Challenges in pricing, affordability, labour, and investment, along with potential obstacles compared to peers, were noted. UBS sees greater potential for earnings improvement at General Motors. Despite a positive view on CEO Farley’s vision, UBS expects it may take several years for the benefits of Ford’s plans to materialise. 
• Renault reported a 9% increase in global sales volumes for 2023, breaking four years of decline. CEO Luca de Meo’s restructuring plans, focusing on profitable markets and models, contributed to the growth. Renault aims to continue its performance in 2024, planning eight new global model launches by 2027. Electrified models represented 40% of Renault brand sales in 2023. The flagship Renault brand recorded a 9.4% sales increase, and the low-cost brand Dacia saw sales grow by 14.7%. 
• Bayer laid out plans for sweeping changes including significant job cuts in its managerial ranks, as new Chief Executive Officer Bill Anderson seeks to revive the crisis-rattled company. Workers supported the establishment of a new operating model that will mean slashing “many managerial employees,” with the job cuts beginning in the coming months and ending in 2025, according to a company statement Wednesday. 
• US Bancorp reported Q4 EPS of $0.99, surpassing the analyst estimate of $0.71. The revenue for the quarter was $6.88 billion, slightly exceeding the consensus estimate of $6.85 billion. Shares were down 1.3% in Wednesday’s session. 
• Indian budget carrier Akasa Air has placed an order for 150 Boeing 737 MAX narrowbody planes to support its domestic and international expansion plans. This marks the first major order for Boeing’s MAX jetliner program since a mid-air cabin panel incident this month. It remains unclear if the order includes the MAX 9 version, which has faced grounding issues after a cabin panel blowout incident.