Fed downplays risks of a hike in interest rates

Shares in the US ended mixed on Wednesday as investors absorbed Fed Chair Powell’s speech following the Federal Reserve’s decision to keep borrowing costs unchanged. The S&P 500 and Nasdaq dipped 0.3% each, while the Dow Jones gained 85 points. Due to disappointing results, CVS and Starbucks tumbled 16.8% and 15.8% respectively. The chip sector also struggled, with Nvidia falling 3.9% amid AMD’s 8.9% decline on weak AI chip sales forecast, and Super Micro Computer dropping 14.3% after missing Q3 revenue expectations. 

Summary for 02.05.2024 

• Asian equities had a mixed performance this morning. Hong Kong’s Hang Seng index rose 1.2% as property developers surged following China’s easing of restrictions on home buying. Japanese shares fell 0.1% amid yen volatility, while broader markets were mixed, with Australia’s ASX 200 up 0.6% and South Korea’s KOSPI slightly lower. 
• European markets head for a positive open while US equity futures rose in overnight trading after Federal Reserve Chair Jerome Powell’s comments, indicating that the next move from the Fed is likely to be a rate cut, providing some relief to markets amid ongoing concerns about inflation and interest rates. 
• Oil prices rose in Asian trade, recovering from near two-month lows as the dollar dropped after a Federal Reserve meeting. However, gains were limited due to increased US oil inventories and production. Brent crude rose to $83.71 a barrel, while West Texas Intermediate climbed to $78.73 a barrel. 
• The Federal Reserve expressed concerns about inflation but opted to maintain steady interest rates, awaiting further evidence of cooling. Although Jerome Powell’s suggestion of no imminent rate hikes pleased Wall Street, the lack of a promise for rate cuts left uncertainty. Additionally, the Fed plans to reduce the pace of quantitative tightening, starting 1^st June, halving monthly Treasury securities removal to $25 billion from $60 billion. The Fed’s stance contrasts with the ECB’s signal for a potential rate reduction, highlighting different approaches to monetary policy amidst global economic challenges. 
• The ISM Manufacturing PMI in the US declined to 49.2 in April, indicating a contraction in the sector, contrary to expectations of stalling growth. New orders fell to 49.1, driven by decreased demand in various industries. Production remained slightly above 50, but employment dropped for the seventh consecutive month. Costs surged due to increased prices of commodities. 
• Private businesses in the US added 192,000 jobs in April, surpassing expectations. Job gains were broad-based, led by services (+145,000) and goods-producing sectors (+47,000). Annual pay for job-stayers rose 5.0%, while pay growth for job-changers slightly decreased to 9.3%, though remaining higher than earlier in the year. 
• Qualcomm forecasted robust quarterly sales and adjusted profit, beating Wall Street expectations, buoyed by increased demand for chips in Android smartphones with AI features, particularly in China. The company’s second-quarter results also surpassed analyst estimates, with sales and adjusted profit exceeding expectations. Qualcomm shares rose 4% in after-hours trading in response to the positive outlook. 
• Hong Kong-listed Chinese electric vehicle makers surged this morning after reporting strong delivery figures for April. Nio Inc’s shares led gains, rising 23% as deliveries more than doubled from last year. Xpeng Inc followed with an 8.7% increase, while BYD saw a 4.5% rise after recording a nearly 50% jump in April sales. 
• DoorDash shares plummeted over 14% in extended trading as it projected second-quarter core profit below estimates due to increased costs from new regulations in New York City and Seattle. Despite a rise in total orders and revenue, higher expenses impacted earnings, leading to a narrowed net loss of $23 million. 
• eBay beat first-quarter expectations with adjusted earnings of $1.25 per share on revenue of $2.60 billion, but its revenue guidance for Q2 fell slightly short of estimates. Despite a 1% rise in gross merchandise volume, active buyers decreased by 1% to 132 million. eBay’s shares fell 3% in after-hours trading following the report. 
• Carvana Co. reported a remarkable first-quarter performance, with earnings per share of $0.23, beating expectations for a loss of $0.67 per share, and revenue of $3.06 billion, surpassing estimates of $2.68 billion. The company’s shares surged over 32% in after-hours trading, fuelled by its record-setting adjusted EBITDA margin and positive outlook for FY 2024. 
• Mastercard reported Q1 earnings per share of $3.31 on Wednesday, beating estimates, but revenue of $6.3 billion fell slightly short. Operating margin was 56.8%, below expectations of 58.3%. Gross Dollar Volume was $2.29 trillion, missing forecasts. Q2 net revenue is expected to grow at the high end of high-single digits, with full-year net revenue growth at the low end of low-double digits. Meanwhile, Mizuho reiterated its Buy rating, while Goldman Sachs noted a deceleration in volumes and higher expenses. 
• Estee Lauder‘s Q3 earnings and revenue exceeded expectations, driven by strong sales in Europe, the Middle East & Africa, and Asia travel retail. Despite this, Q4 EPS guidance fell short, leading to a full-year EPS forecast slightly below consensus. Analysts are concerned about challenges in Asia travel retail and weakness in developed markets. 
• Pfizer raised its annual earnings forecast after reporting a first-quarter profit above estimates, driven by strong sales of its COVID antiviral treatment and Padcev for bladder cancer. However, sales of Adcetris and Abrysvo fell short. Despite a drop in Paxlovid sales, they surpassed expectations. Prevnar pneumonia vaccines also performed well. 
• Kraft Heinz missed Wall Street estimates for first-quarter sales, attributing it to inflation-weary consumers pushing back against higher prices. Overall volumes fell, while prices rose. Second-quarter sales are expected to be similar to the first due to unplanned maintenance. Despite this, adjusted earnings per share met estimates. 
• Amazon‘s first-quarter results beat estimates, with EPS of $0.98 on revenue of $143.31 billion. Amazon Web Services (AWS) saw strong growth, with cloud revenue up 17% to $25 billion, surpassing expectations. North America segment sales rose 12%. Q2 revenue guidance was slightly below analyst expectations. Analysts remain bullish, citing strength in operating margins and AWS revenue. 
• Super Micro Computer reported mixed results for fiscal Q3 2024, with EPS of $6.65 (beating estimates) but revenue at $3.85 billion (below expectations). Gross margin was 15.6%. Q4 EPS is forecasted at $7.62-$8.42, with revenue projected at $5.1-$5.5 billion, although gross margin is expected to decline. AI demand remains strong. For FY 2024, EPS is estimated at $23.29-$24.09, with revenue of $14.3-$14.7 billion. 
• Eli Lilly raised its annual sales forecast by $2 billion due to increased demand and manufacturing capacity for its weight-loss drug Zepbound and diabetes drug Mounjaro. The company plans significant production increases in the second half of the year and is expanding its manufacturing capabilities to meet demand. 
• PayPal aims to boost growth in branded checkout products, addressing concerns over competition from tech giants like Apple and Google. The company reported a 3% rise in shares after signalling resilience in consumer spending. PayPal expects adjusted profit to grow by mid-to-high single digits in 2024, focusing on cost discipline and profitability. Total payment volumes increased by 14% to $403.9 billion, and net revenue climbed 10% to $7.7 billion, with an adjusted operating margin of 18.2%. Analysts believe the company’s initiatives show promise for improving results in the long term. 
• Starbucks saw its shares decline significantly yesterday as it adjusted its annual forecasts downward, reflecting subdued demand in the US and a slower-than-expected recovery in China’s economy. This revision came as same-store sales experienced a decline for the first time in nearly three years. Analysts responded by downgrading their ratings and reducing target prices, expressing concerns about prolonged challenges facing the coffee chain. 
• CVS Health Corp slashed its 2024 adjusted earnings forecast to at least $7.00 per share, down from $8.30, due to persisting higher medical costs in its Aetna unit. Despite strong demand for biosimilar drugs, challenges include lower performance-based bonuses and disappointing Medicare Advantage reimbursement rates for 2025. 
• GSK reported a mixed first-quarter performance, with adjusted EPS falling short of expectations but revenue increasing by 10%. Despite the EPS miss, GSK’s raised profit outlook for 2024 to 8% to 10% Core EPS growth and improved operating profit forecasts of 9% to 11% were well-received by the market. CEO Emma Walmsley highlighted the company’s strong start to 2024 and positive pipeline progress. Analysts at Bank of America maintained an Underperform rating, citing non-recurring benefits, while Jefferies kept a Buy rating, noting sales beats and improved margins. 
• Pinterest reported strong first-quarter results, with earnings per share of $0.20, surpassing estimates, and revenue of $740 million, a 23% increase. The company’s 518 million monthly active users marked a 12% rise. Analysts at Goldman Sachs and Stifel raised price targets, emphasising Pinterest’s partnerships and upcoming initiatives. Pinterest forecasts second-quarter revenue of $835-850 million. CEO Bill Ready highlighted user and revenue growth, driven by investments in AI and shoppability. 
• Norwegian Cruise Line Holdings reported a downbeat first-quarter revenue, overshadowing an increase in its annual profit forecast. Despite strong demand for cruises, costs rose, impacting revenue. Quarterly revenue was $2.19 billion, missing expectations. However, adjusted profit per share beat estimates at 16 cents. The company raised its full-year profit forecast to $1.32 per share. 
• AMD CEO Lisa Su announced on Tuesday that the company forecasts AI chip sales of around $4 billion for 2024, up $500 million from previous estimates. Despite strong demand for AI chips, AMD faces slower adoption compared to Nvidia, partly due to enterprises prioritizing spending on AI server chips over traditional server semiconductors. 
• Tesla has scaled back its ambitious gigacasting plan, opting for its more traditional method of casting vehicle underbodies in three pieces instead of one, due to falling sales and increased competition. The move aligns with Tesla’s shift towards developing self-driving technology and its decision to focus on more affordable models. 
• Block is under investigation by federal prosecutors following reports of financial transaction irregularities. Alleged compliance issues at Square and Cash App include inadequate customer information collection, processing transactions from sanctioned countries, and handling cryptocurrency transactions for terrorist groups. These claims were made by a former employee to NBC News, who also highlighted systemic flaws in Block’s compliance section and criticised the leadership’s response to regulatory matters. 
• Johnson & Johnson will allocate $6.5 billion to settle most US lawsuits alleging its talc-based products caused ovarian cancer. The settlement, facilitated through a subsidiary’s bankruptcy filing, will cover 99% of current and future ovarian cancer claims. J&J also mentioned handling remaining mesothelioma lawsuits separately. It revised Q1 net earnings downward due to increased reserves for claims. 
• Flutter shareholders voted overwhelmingly in favour of moving the primary listing of its shares from London to New York, with 98% support. The decision comes as many companies opt for US listings due to higher valuations and the growing US betting market, where Flutter’s Fanduel brand leads. The move is expected to take effect on 31^st May. 
• Moody’s Ratings upgraded Brasil’s credit outlook to positive from stable, citing the implementation of structural reforms that have improved the country’s economic prospects. Despite the positive outlook, Brasil’s credit score remains at Ba2, two levels below investment grade. Other rating agencies like Standard & Poor’s and Fitch maintain stable outlooks.