Equities lose some momentum

On Tuesday, US equities closed lower amidst mixed economic data and anticipation of the PCE inflation report, which influenced expectations for future Fed rate cuts. The S&P 500 and Dow Jones fell nearly 0.3%, while the Nasdaq dipped 0.4%. Although durable goods orders exceeded expectations, consumer confidence remained subdued. Nvidia and Apple experienced declines, contrasting with Tesla’s rise following its Full Self-Driving trial announcement. Concurrently, Trump Media and Reddit shares saw significant gains. In European markets, the Stoxx 50 surged 0.6%, with Tui shares climbing 6% despite concerns over Easter holiday strikes. However, S&P Global, OECD, and IMF revised downward their growth forecasts for the Eurozone in 2024, indicating a challenging economic outlook for the region. 

Summary for 27.03.2024 

• Asian markets showed a varied performance this morning, influenced by a tepid Wall Street, prompting investors to lock in profits and reconsider market values after a significant surge to all-time highs. Economic data from the Asia Pacific, notably Australia’s CPI and China’s industrial profits, were scrutinised. Australia and Japan saw gains, while South Korea, Hong Kong, and China experienced losses. 
• European shares are set to ease from a record high while US futures climbed this morning after recent losses, as traders assess their positioning heading into the end of the quarter. 
• On Wednesday, WTI crude futures dipped towards $81 per barrel due to concerns over a significant rise in US crude inventories, contrasting with the prior week’s decline. This uptick, coupled with Ukrainian drone attacks impacting Russian oil refineries, and geopolitical tensions in the Middle East, kept traders cautious. 
• In the first two months of 2024, China’s industrial profits surged by 10.2% year-on-year, following a 2.3% decline in 2023. State-owned companies saw a slight recovery (0.5% vs -3.4% in 2023), while the private sector experienced robust growth (12.7% vs 2.0%). Key contributors to profit growth included the computer industry, communications, electronics, electricity, and non-ferrous metal smelting. 
• Australia’s Consumer Price Index for February 2024 at 3.4%, meeting market expectations but marking the lowest since November 2021. Notably, food prices rose at the slowest pace in 25 months, while other sectors like alcohol, tobacco, and communications moderated. However, inflation remained above the RBA’s target range of 2-3%. 
• US manufactured durable goods orders in February increased by 1.4% month-over-month, surpassing expectations following a decline in January. Rebounding orders were observed in transportation equipment, machinery, fabricated metal products, primary metals, and capital goods. Excluding transportation, orders increased by 0.5%, while excluding defense, they rose by 2.2%. 
• Visa and Mastercard agreed to a landmark settlement of $30 billion, reducing credit card interchange rates in the US for at least five years after a two-decade legal battle. Merchants gain flexibility at the point of sale, including options for preferred payment methods and surcharging, addressing small business concerns. 
• Apple Inc faced a significant 33% drop in iPhone shipments in China, continuing a downward trend exacerbated by Lunar New Year timing, totalling 5.5 million units in February. Huawei’s resurgence in the premium segment adds to Apple’s challenges. Analysts foresee a slowing trend for Apple in China amid a broader smartphone market contraction, with Jefferies projecting over 20% market decline for the iPhone in 2024. 
• Merck & Co‘s shares surged to a record high in aftermarket trading on Tuesday following FDA approval of its drug, Winrevair, for treating pulmonary arterial hypertension (PAH). The approval stems from positive Phase 3 trial results, with the drug showing significant efficacy in reducing mortality and symptoms. Winrevair is expected to launch by end-April, priced at $14,000 per vial, addressing a critical need in PAH treatment, a condition previously lacking a cure. 
• Viking Therapeutics‘ VK2735 tablet demonstrated weight loss of up to 3.3% in a small trial, aligning with market expectations and prompting a 17% surge in shares. The company plans to proceed with higher-dose testing and initiate mid-stage trials for obese patients, considering transitioning from oral to injectable therapy for weight management. 
• UPS revealed its financial goals for 2026, targeting a revenue range of $108 billion to $114 billion and a consolidated adjusted operating margin exceeding 13%. Specific segment margins include at least 12% for US Domestic Package and 18-19% for International Package. Analysts anticipate favorable market response pending further details at UPS’s Investor Day. 
• Flutter expects a 30% increase in core profit for 2024, driven by a four-fold rise in its US brand Fanduel. Despite new competitors entering the market, Flutter’s strong growth persists, with a 43% share of the US online sports betting market. Revenue increased in the U.S. and UK/Ireland but fell in Australia due to trading and regulatory challenges. 
• Spain plans to acquire a 10% stake in Telefonica, aiming to counterbalance Saudi Arabia’s STC’s investment. Government spokesperson Pilar Alegria emphasized a gradual approach to avoid impacting Telefonica’s share price. Madrid aims to enhance shareholder stability and safeguard Telefonica’s strategic capabilities, treating it as a defense services provider. 
• Tesla shares faced multiple price target cuts, including Bernstein’s reduction from $150 to $120 due to high valuation compared to peers and reduced growth expectations. Their discounted cash flow (DCF) valuation lowered to $93, influenced by factors like slow EV adoption growth and scepticism about future catalysts, maintaining an Underperform rating. Meantime, reports emerged that Italy’s Industry Ministry reached out to the carmaker regarding the production of the electric truck. 
• Wedbush raised Microsoft‘s price target to $500 from $475, maintaining an outperform rating, citing optimism in the firm’s AI offerings. They view Microsoft’s Copilot as an ‘iPhone Moment,’ expecting over 70% adoption among its user base within three years and foresee AI contributing $25-30 billion to revenue by 2025. 
• Mizuho initiated coverage of Carnival Corp. with a Buy rating and $21 price target, also naming it a top pick. They cite two drivers: asset sale transformation benefiting margins and future earnings growth, and a valuation discount to peers, with accelerating free cash flow as capex requirements drop significantly in 2025 and 2026. 
• Bernstein raised Chipotle Mexican Grill‘s price target to $3,200 and maintained an Outperform rating, citing recent initiatives and performance metrics driving traffic growth. They anticipate low to mid-single-digit traffic increases, driven by throughput expansion, brand momentum, product innovation, digital sales, Chipotlanes, and talent focus, forecasting 7% same-store sales growth in 2024 and AUV surpassing $4 million within 5-6 years, contributing to restaurant-level margin expansion beyond 28%. 
• NewStreet Research initiated coverage on Reddit with a Neutral rating and a $54 price target, indicating over 20% downside. They highlight potential upside from increased data licensing revenue, particularly with Open AI, but express uncertainty about its scale and long-term sustainability. Analysts also project robust double-digit daily active user growth through 2027, emphasising the importance of enhancing advertiser diversity for ad revenue growth. 
• Citi reiterates a Buy rating and €141.00 price target for Volkswagen AG, citing confidence in CEO Oliver Blume’s ability to enact change. They highlight support from Porsche family and workers’ council, a strategic shift, and market undervaluation. Despite recent market scepticism, Citi sees substantial potential for improved free cash flow and valuation under Blume’s leadership. 
• Jefferies lowered Burberry Group Plc‘s share price target to £12.00 from £13.00 ahead of the company’s final financial results, maintaining a Hold rating. Concerns arise from industry challenges, especially competition shifts in the Chinese market. Revised profit forecasts anticipate a performance dip, yet Burberry’s robust equity base offers some share price resilience. 
• BofA Securities replaced Netflix with Spotify on its prestigious US 1 List, signalling a shift in investment preference within the entertainment and technology sectors. The move reflects confidence in Spotify’s growth potential. Changes to the list are closely watched by investors for market insights and strategic shifts by financial analysts. 
• HSBC adjusted Porsche Automobil Holding SE‘s share price target to €45.00 from €47.00, maintaining a Hold rating. The revision stems from unforeseen impairment losses within the Volkswagen Group, causing Q4 earnings to deviate roughly 13% from expectations. Porsche SE’s strategic focus on debt reduction over higher dividends aligns with long-term financial goals. 
• Citigroup strategists observed a growing preference for European shares over US ones, noting increased bullishness in Europe contrasted with rising uncertainty in the US. Euro Banks and EuroStoxx are notably extended, while Australian equities remain bullish amid challenges in Chinese markets. Profit-taking risks are highlighted in European and Australian markets.