Contrasting signals from Fed, ECB, and BOE

US equities closed with mixed results on Tuesday, driven by corporate earnings and Fed Chair Powell’s remarks. While the S&P 500 and Nasdaq saw slight declines of 0.2% and 0.1%, respectively, the Dow Jones gained 63 points, lifted by UnitedHealth’s robust performance. Powell’s emphasis on maintaining higher rates to address inflation concerns weighed on market sentiment. In contrast, the Euro Stoxx 50 in the Euro Area dropped 1.3% to a six-month low amidst ongoing Middle East tensions. ECB President Christine Lagarde’s indication of potential adjustments to the bank’s restrictive monetary policy highlighted a differing approach from the Fed. 

Summary for 17.04.2024 

• Asian equity markets were mixed on Wednesday, responding to US Federal Reserve Chair Jerome Powell’s cautious stance on interest rate cuts. Japan’s trade balance shifted to surplus in March, buoyed by surging exports and declining imports, but sentiment among Japanese manufacturers softened in April due to import cost pressures from a weakening yen. Shares in Japan and South Korea declined, contrasting with gains in Australian, Hong Kong, and Chinese equities. 
• European shares are poised for a positive start, anticipating inflation data, while US equity futures show a slight rise this morning as the first quarter earnings season gains momentum. 
• Oil prices eased amid concerns over global demand, driven by China’s weak economic momentum and reduced expectations for US interest rate cuts. Brent futures for June delivery slipped to $89.16 a barrel, while US crude futures for May delivery fell to $85.26. Market sentiment was tempered by geopolitical tensions in the Middle East. 
• Fed Chair Powell, speaking alongside Bank of Canada Governor Macklem, suggested recent inflation data imply a delay in lowering interest rates. He emphasised the need to let current policy measures continue and rely on evolving economic data to guide future decisions, hinting at potential rate cuts toward the end of 2024, if at all. 
• ECB President Lagarde affirmed Tuesday that rate cuts are imminent, citing a steady disinflationary process. She noted geopolitical events’ limited impact on commodity prices and expressed confidence in the economy’s trajectory. The ECB signalled readiness to cut rates in April, with expectations for the first reduction in June. 
• Bank of England Governor Bailey hinted at potential interest rate cuts before the Federal Reserve, citing greater “demand-led inflation pressure” in the US compared to the UK. Evidence of price pressures easing in the UK supports forecasts of a lower CPI. Chancellor Hunt suggests policy easing could boost voter morale, widening the gap between UK and US yields. 
• The IMF revised its global growth forecast, increasing it to 3.2% for 2024 from the previous 3.1% in January. This adjustment reflects the global economy’s resilience and returning inflation, particularly in the US. Global headline inflation is expected to decrease from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Stronger growth projections were noted for the US and India, while downward revisions were made for the Euro Area, Germany, and the UK. 
• ASML reported first-quarter earnings of €1.22 billion, with sales at €5.29 billion, below analyst expectations. Net income declined from the previous quarter. Despite the disappointing inflow of new bookings, CEO Peter Wennink maintains an unchanged outlook for 2024, anticipating stronger performance in the second half amid industry recovery. 
• United Airlines maintained its full-year earnings outlook of $9 to $11 per share after reporting better-than-expected first-quarter results. Despite a $200 million hit from the grounding of Boeing 737 Max 9 jets, the airline’s Q2 adjusted EPS forecast of $3.75 to $4.25 aligns with analyst estimates. Total revenue per available seat mile increased by 0.6% compared to Q1 2023. United Airlines’ shares rallied over 5% in after-hours trading following the report. 
• LVMH‘s first-quarter sales rose by 3%, matching analyst expectations, but slowed from the previous quarter due to comparisons with 2023’s pandemic recovery. Slower growth in Asia, particularly China, raised concerns, contrasting with Gucci-owner Kering’s recent sales warning. The luxury sector anticipates mid-single-digit growth amid cautious consumer spending, with LVMH’s shares seen as a barometer for industry performance. 
• Adidas raised its 2024 profit outlook to approximately €700 million, citing a better-than-expected first quarter. The company expects currency-neutral sales to rise by a mid-to-high single-digit percentage, up from a mid-single-digit rate. Quarterly operating profit reached €336 million, boosted by strong Yeezy sales. However, unfavourable currency effects are anticipated to impact profitability in 2024. 
• Bank of America shares dropped over 3% yesterday after a decrease in first-quarter profits and increased provisions for souring loans. Net charge-offs rose to $1.5 billion mainly from credit card losses. Despite challenges, investment banking fees surged, partially offsetting declines in interest payments. The bank aims for growth in the latter half of 2024. 
• Morgan Stanley‘s first-quarter profit surpassed expectations, driven by robust investment banking and wealth management growth. Investment banking revenue surged 16%, while wealth management revenue rose to $6.9 billion. CEO Ted Pick anticipates a multi-year M&A cycle amid geopolitical risks, with momentum across all divisions despite regulatory scrutiny in wealth management. 
• Tesla has reportedly postponed Cybertruck deliveries without explanation, according to buyers cited by the Wall Street Journal. Details regarding the extent of the delay or the number of affected buyers remain undisclosed.  Meanwhile in a note on Tuesday, JPMorgan question Tesla’s explanation for its Q1 delivery miss and foresee significant downside risk for the shares due to the shift in narrative. 
• UnitedHealth Group projects up to $1.6 billion in costs due to the Change Healthcare cyberattack but maintains its 2024 earnings forecast, alleviating Wall Street concerns. Despite disruptions, first-quarter earnings exceeded expectations, driving shares up 5.3%. The company vowed to restore operations fully and has already provided over $6 billion in advance funding to affected healthcare providers. 
• Johnson & Johnson‘s first-quarter 2024 results showed a slight beat in adjusted EPS but a marginal revenue miss. Despite this, operational sales saw growth, particularly in Innovative Medicine and MedTech segments. CEO Joaquin Duato highlighted their solid performance and increased guidance for full-year operational sales and adjusted EPS, signaling confidence in continued growth. 
• Evercore ISI initiated AMD coverage with an Outperform rating and $200 target, citing its strong position in server CPUs and accelerators. The Xilinx acquisition is seen as strategic despite cyclical downturns. HSBC also expressed a bullish outlook, raising the price target to $225, focusing on AMD’s AI GPU revenue potential. Meanwhile, BofA and Morgan Stanley expressed concerns about AI accelerator competition and NVIDIA’s pricing. 
• Super Micro Computer Inc remarkable rally may have further potential, according to Loop Capital, which assigned a 70% higher price target. Analysts highlight SMCI’s leadership in the AI server market and strong demand, expecting robust quarterly results. JPMorgan also started SMCI at Overweight, emphasising its leading position in AI computing while Barclays has recently expressed bullishness on SMCI’s upcoming results, expecting strong guidance. 

• Macquarie and Guggenheim raised their price targets for Netflix ahead of its earnings release. Guggenheim increased its target to $700, citing high investor confidence and expectations of strong subscriber adds. Macquarie raised its target to $685, emphasising Netflix’s crackdown on password-sharing and its potential for revenue growth. Both firms maintain positive outlooks on Netflix’s leadership in streaming. 
• UBS upgraded Rivian‘s equity rating to Neutral from Sell, citing a more balanced risk-reward profile at current valuations. They believe the equity now reflects midterm concerns and potential upside catalysts like positive R2 orders. However, downside risks include R1 price reductions and weaker demand, exacerbated by rising interest rates. 
• UBS analysts anticipate S&P 500 earnings per share growth of 7-9% in Q1, aligned with their 9% full-year target for 2024. Despite remaining neutral on US equities, they expect a healthy earnings season, with growth broadening beyond tech firms. Their S&P 500 price targets range from 5,100 to 5,200.