Chinese shares extend rebound on State Fund support

Tuesday’s market performance in the US was marked by mixed results, with the S&P 500 and NASDAQ posting slight gains. Leading sectors included real estate and materials, while small-cap equities rebounded. Bond yields dipped as investors awaited clarity on Fed rate cuts, with anticipation surrounding speeches from Fed governors. Transportation shares, particularly UPS, showed strength, and energy shares also registered gains.  In Europe, the STOXX 50 index increased to a near 23-year high, after gaining 4.4% over the past 4 weeks. 

Summary for 07.02.2024 

• On Wednesday, Asian equity markets mostly rose, driven by hopes of increased government support in China. Chinese markets rebounded, buoyed by pledges from a sovereign fund and discussions of further supportive measures. Elsewhere, South Korea’s KOSPI reached a one-month high, while Japan’s Nikkei 225 dipped ahead of earnings reports. 
• European shares are poised for a stable start following gains in Asian markets fueled by optimism about continued support from China, while US equity futures show little change as investors evaluate earnings reports, with Snap plunging 32% but Ford rising 6% and Enphase Energy rallying 12%. 
• Oil prices edged higher for a third consecutive day on Wednesday, driven by industry data indicating lower-than-expected growth in US oil stocks. The US sharply cut its forecast for the country’s oil output growth, easing concerns about oversupply. Meanwhile, geopolitical tensions in the Middle East persisted, with traders closely monitoring developments in the region. 
• Italy’s parliament passed a bill affecting how boards of listed companies are chosen, sparking debate. The changes aim to empower long-term investors and shield family-owned businesses from takeovers. Additionally, efforts are made to lure companies back to Italy from the Netherlands. The bill now awaits Senate approval. 
• Shares of Toyota Motor Corp surged to record highs after strong quarterly earnings and plans for increased investment in electric vehicles and semiconductor manufacturing. Toyota’s robust performance lifted other automobile shares, despite an ongoing scandal involving its Daihatsu unit and alleged safety certification test manipulation. 
• Eli Lilly forecasts robust 2024 profit driven by high demand for Zepbound and Mounjaro. Despite plans to expand manufacturing, demand may exceed supply. Shares dipped slightly, but fourth-quarter profit exceeded expectations. Meantime, Truist Securities raised the price target to $850, maintaining a Buy rating, citing confidence in the product pipeline. 
• BP reported better-than-expected Q4 earnings of $3 billion, reassuring investors and leading to a more than 4% increase in shares. CEO Auchincloss vows to balance oil output reduction with pragmatic investments. The company plans to repurchase $3.5 billion of shares in H1 2024 and $14 billion by 2025, maintaining dividends. 
• Linde’s fourth-quarter earnings and revenue surpassed expectations, with EPS at $3.59 and revenue at $8.3 billion. While operating cash fell short at $2.73 billion, sales in the Americas and EMEA met forecasts. For Q1, adjusted EPS is anticipated at $3.58-$3.68, and for the full year, EPS is expected between $15.25 and $15.65. 
• Snap missed revenue estimates, leading to a 33% drop in shares in after-hours on Tuesday. Concerns persist over its ability to compete with larger rivals like Meta Platforms and Alphabet in digital advertising. Despite plans to focus on user growth and targeted advertising, questions remain about Snap’s competitive disadvantage. 
• VF Corp missed third-quarter expectations, with revenue down 16%, driven by weakened demand during the holiday season. The company’s CEO announced a strategic review of its Global Packs business, including brands like Kipling and JanSport. CFO Matt Puckett will step down. Revenue fell to $2.96 billion, below expectations, impacted by a cyber security incident.  Shares fell 7.0% in after-hours. 
• Ford Motor announced plans to return more cash to shareholders with an extra dividend and forecasts $10 to $12 billion in pretax profit for 2024. Despite losses in electric vehicle operations, Ford focuses on profitable EVs and gas-electric hybrids. Ford Pro’s commercial business is expected to drive profits.  Shares rallied by 4.1% during Tuesday’s session and another 6.3% in after-hours trading.  
• Enphase Energy anticipates inventory levels to stabilize and demand to increase by the end of the second quarter, boosting shares by nearly 13% in extended trading. The solar inverter maker faced challenges with declining revenue in Europe and softening US demand due to metering reform. Fourth-quarter revenue fell short of analysts’ expectations. 
• Gilead Sciences reported a 4% decline in fourth-quarter revenue due to lower sales of HIV drugs and COVID-19 treatment Veklury. The company forecasts weaker-than-expected 2024 sales. Its experimental oral COVID antiviral drug, obeldesivir, failed to meet its primary goal in a clinical trial. Shares dropped nearly 2% in after-market trading. 
• Fortinet’s shares surged 11.4% after exceeding Q4 earnings expectations. While service revenue rose by 25%, product revenue declined by 9.6%. Deferred revenue grew by 24%, with billings up by 8.5%. For Q1 2024, EPS is projected at $0.37-$0.39, with revenue of $1.3-$1.36 billion. Full-year 2024 forecasts align with analyst estimates. 
• Prudential Financial announced Yanela Frias as its new CFO, succeeding Ken Tanji, as it shifts focus to more stable income sources. Fourth-quarter adjusted profit rose 1.2%, driven by higher net investment returns in its U.S. unit. Assets under management increased to $1.63 trillion. After-tax adjusted operating income was $943 million. 
• Spotify exceeded Q4 expectations with 602 million monthly active users and 236 million premium subscribers. Despite a 16% revenue increase to $3.94 billion, missing estimates, it anticipates Q1 revenue below expectations due to foreign exchange losses. Wells Fargo raised Spotify’s price target to $310 from $280, emphasizing improved operating income margins and profitability, reflecting confidence in the company’s financial improvements. 
• UPS shares surged over 4% following a UBS upgrade to Buy from Neutral, with a new price target of $175. UBS expects UPS to implement a robust cost reduction program, driving margin expansion and EPS growth despite modest revenue growth. The bank anticipates a strong performance in 2025, projecting a 10.4% domestic margin. 
• HSBC analysts upgraded PayPal Holdings Inc to Buy with a price target of $68, citing the potential for enhanced platform success and user engagement. They anticipate improved financial results, focusing on transaction profit growth. Expectations include a slight dip in fourth-quarter 2023 profits but a return to growth in 2024. 

• Ferrari’s financial outlook received a boost as Bernstein increased its price target to €310 but maintained a Neutral stance, citing alignment with 2024 guidance and the potential for higher personalisation prices. RBC provided a more optimistic view, setting a new target of €380 per share, anticipating margin expansion and upside potential from increased vehicle personalisation. 
• Bernstein maintains an Underperform rating on Tesla with a 12-month price target of $150, citing a lack of catalysts. Despite robust but decelerating growth in the EV market globally, Tesla faces challenges, including margin drops and market share fluctuations. Tesla’s 2025 unit deliveries might be half of expected growth. 
• Jefferies updated Estee Lauder’s price target following its earnings report, reflecting an uptick in shares due to a cost-saving plan and solid results. The company’s guidance aligns with market estimates, projecting sales and EPS growth in the second half of fiscal year 2024, with potential benefits extending into fiscal year 2025.