Equities extend gains amid renewed rate cut hopes

US equity indices maintained their upward trend for the third consecutive session on Monday, buoyed by optimism over softer labour data and expectations of a Federal Reserve interest rate cut. The S&P 500 climbed 1%, Nasdaq rose 1.2%, and the Dow added 176 points.  Notable share movers included Nvidia, Micron, Super Micro Computer, and Berkshire Hathaway.  European shares also had a positive session, with the Stoxx 50 index rising 0.7%, with financial equities leading gains, including AXA, Intesa Sanpaolo, and Munich Re. 

Summary for 07.05.2024 

• Most Asian equities rose this morning amid optimism over potential US interest rate cuts. Japan’s Nikkei 225 and South Korea’s KOSPI surged in catch-up trade following softer US nonfarm payroll data. Australia’s ASX 200 added 0.4% despite weak retail sales, with doubts over a hawkish stance from the Reserve Bank of Australia. Other Asian markets were muted, with Hong Kong’s Hang Seng falling after a 10-session rise. 
• European shares are heading for higher ground as they open later today on optimism for interest-rate cuts this year.  US equity futures held steady on Tuesday as investors await further Fed speakers and earnings reports, including those from Disney and Occidental Petroleum. 
• Oil prices rose in Asian trade due to doubts about an Israel-Hamas ceasefire amid an Israeli strike in Southern Gaza. Brent oil futures increased to $83.73 a barrel, while West Texas Intermediate rose to $78.56. The escalation led to a risk premium in crude markets, while a weaker dollar supported prices amidst rate cut speculation. 
• The Reserve Bank of Australia maintained its interest rates at 4.35%, noting that inflation was easing slower than expected. While not directly threatening further rate hikes, the RBA expressed caution, citing concerns over persistent service price inflation. Amid strong Q1 inflation data, markets scaled back expectations of rate cuts in 2024. 
• Producer prices in the Euro Area fell by 7.8% year-on-year in March, slightly below expectations of a 7.7% decline. Energy prices dropped by 20%, while costs for intermediate goods eased by 4.8%. On a monthly basis, producer prices declined by 0.4%, marking the fifth consecutive monthly drop, driven by lower energy costs. 
• This morning, UBS reported a net income of $1.8 billion for January-March, surpassing estimates, and marking its first quarterly profit since acquiring Credit Suisse. The bank achieved $1 billion in additional cost savings, totalling $5 billion, and aims for another $1.5 billion by year-end.  
• Apple Inc is reportedly developing an in-house chip, internally named ACDC, to power artificial intelligence programs in data centres, aiming to gain an edge in the industry. This initiative follows the successful implementation of in-house chips in iPhones and other devices, resulting in improved performance and battery life, as reported by the Wall Street Journal. 
• Palantir Technologies raised its annual guidance after reporting strong quarterly revenue of $634.3 million, up 21% year-on-year, beating estimates. Adjusted earnings per share were $0.08. The increase was driven by new contract wins, with commercial revenue up 27% and government revenue up 16%. However, Palantir’s shares fell by over 8% in after-hours trading. 
• Banco de Sabadell‘s board rejected BBVA’s €12 billion all-share merger proposal, deeming it significantly undervalued Sabadell’s potential and growth prospects. BBVA’s offer, a 30% premium over April 29 closing prices, was dismissed by Sabadell, which believes in its standalone strategy and saw an 8.8% increase in its shares since the offer. 
• Loop Capital raised Amazon‘s price target to $225, maintaining a Buy rating. They highlighted Amazon Web Services (AWS) reacceleration and the underestimated profitability of its retail segment. Loop’s forecast for retail segment margin is higher than consensus, driven by strong first-quarter results and AWS’s all-time high margin. Generative artificial intelligence is seen as a significant growth factor. 
• Morgan Stanley analysts maintained an underweight rating on Carvana shares but raised the price target to $75 from $45, suggesting a 40% downside risk. They noted Carvana’s transition to profitability in 2024 after six quarters of decline but cautioned that the current Price to Sales appears high given economic and execution risks. 
• Citi downgraded Peloton from Buy to Neutral, lowering the price target from $8 to $4 per share, citing concerns over recent management changes and a $200 million restructuring plan affecting revenue prospects. Despite recognising Peloton’s leadership and strong subscriber engagement, Citi awaits clarity on the company’s strategic direction.