Fed push back against March rate cut

On Wednesday, equities closed lower as markets reacted to earnings reports and the Fed’s decision to hold rates steady, dampening hopes for imminent cuts. Tech giants Microsoft and Google showed growth but saw shares decline due to high expectations. The Fed signalled it needs more evidence of inflation control before considering rate cuts. Global equities dipped, gold rose slightly, and oil prices fell over 2%. US indices declined, with the S&P 500, Dow, and Nasdaq dropping notably by 1.6%, 0.8%, and 2.2% respectively.  In Europe, the Stoxx 50 index declined 0.3% from its 23-year peak as equities followed Wall Street lower amid anticipation of the Fed policy announcement, despite positive corporate earnings reports and cooling inflationary pressures in Germany and France. 

Summary for 01.02.2024 

• Asian equities saw a mixed performance on Thursday, with Japan and Australia declining due to profit-taking and cautious sentiment following the Fed’s dismissal of immediate rate cuts. China rebounded despite economic concerns, while South Korea’s KOSPI rose. China’s manufacturing grew as expected, but new home sales plummeted, reflecting ongoing challenges in the property market despite government stimulus. Hong Kong’s Hang Seng was the top performer. 
• European shares are poised for a quiet opening as US equity futures stabilise post-Powell remarks, with attention shifting to jobless claims, ISM PMI, and tech earnings amidst anticipation of a rate decision from the England. 
• Global oil prices rose in early trade this morning, buoyed by signals from the US Federal Reserve regarding potential rate cuts and China’s unveiling of new support measures for its struggling property market. These factors countered previous session losses, with market sentiment also influenced by expectations of lower interest rates and sustained economic growth. Additionally, concerns over geopolitical tensions in the Middle East, particularly attacks by Yemen-based Houthi forces on shipping in the Red Sea, contributed to market unease. 
• China’s factory activity expanded in January, with the Caixin/S&P Global manufacturing PMI staying at 50.8, unchanged from December, surpassing forecasts of 50.6. Despite challenges like weak employment and subdued prices, new export orders rose marginally for the first time since June. Policymakers face the task of revitalizing the economy amid a property downturn and tepid overseas demand. 
• The Federal Reserve maintained the Fed funds rate at 5.25%-5.5% in January 2024, signalling a cautious approach to rate reductions until confident about sustained inflation nearing 2%. Chair Powell suggested a potential rate cut later in the year but ruled out a March cut. The Fed removed reference to further rate hikes, citing improving balance in employment and inflation risks, yet remains vigilant as inflation remains elevated.  
• The latest ADP private-payrolls report for January showed a gain of 107,000 jobs, below expectations but still indicating overall healthy job growth. However, it suggests a softening labour market, potentially slowing GDP growth and affecting consumer spending. Official nonfarm-payrolls data on Friday will provide further insight. 
• In January 2024, German consumer price inflation dropped to 2.9%, below the consensus of 3.0%, driven by decreased goods inflation, notably in energy costs. Meanwhile, French inflation eased to 3.1%, with slower increases in food, energy, and manufactured products, while tobacco costs rose. Monthly, French prices fell 0.2%. Harmonized CPI for both countries showed similar trends. 
• Qualcomm forecasts fiscal second-quarter profit slightly above estimates and sales in line. Concerns arise over Android sales in China, with Qualcomm expecting flat chip sales. Despite a chip supply deal with Samsung, challenges persist from rivals like MediaTek. Qualcomm’s stock seesaws in after-hours trading, finally closing 0.2% lower. 
• Adidas anticipates a nearly doubled operating profit of around €500 million in 2024 following its split with Kanye West and the discontinuation of its Yeezy business. The company’s preliminary earnings for 2023 exceeded expectations, with a fourth-quarter boost from not writing off most of its Yeezy inventory, now set to be sold at cost. 
• Mastercard surpassed fourth-quarter profit estimates, benefitting from robust consumer spending during the holiday season amid a strong labour market. Despite higher projected annual costs, revenue growth outlook for 2024 met expectations. Shares rose 1% in trading. Operating expenses increased by 10%, yet adjusted profit per share exceeded estimates. Gross dollar volume climbed 10%, while cross-border volume surged 18%. 
• Thermo Fisher Scientific forecasts lower-than-expected annual profit and revenue for 2024, citing a continued slump in demand for its services, particularly in China. Quarterly profit exceeded estimates due to cost-cutting measures and increased sales of analytical tools. Shares fell nearly 5%, affecting peers Danaher and Agilent Technologies. 
• Teva Pharmaceuticals forecasts lower profit but higher sales for 2024 after a strong fourth quarter in 2023, boosted by a collaboration with Sanofi, where Teva received a substantial upfront payment for the development of a treatment for inflammatory bowel disease.  Additionally, the company plans to divest its active pharmaceutical ingredient unit as part of its strategic focus on growing its innovative and generics business. 
• GSK’s London-listed shares rose by 2% yesterday after surpassing Q4 expectations and forecasting a strong full-year financial performance, driven by robust demand for its RSV vaccine, Arexvy. The company anticipates 6-9% growth in adjusted income per share and 5-7% sales expansion, fuelled by upcoming major launches in infectious diseases, HIV, respiratory, and oncology. 
• Novo Nordisk’s shares surged over 4% on Wednesday after reporting strong 2023 earnings, with sales up 31% and operating profit rising 37%. Analysts at Jefferies maintained an Underperform rating, citing expected results, but noted potential consensus sales and EBIT upgrades for 2024. 
• Novartis shares dropped 3.5% yesterday as the Swiss pharmaceutical company reported Q4 core earnings below expectations. Despite missing estimates, Novartis exceeded consensus Cosentyx sales forecasts. Looking forward, it anticipates mid-single-digit net sales growth and high-single-digit core operating profit. Jefferies analysts reiterated a Buy rating, citing potential upside from new launches like Kisqali, Pluvicto, and Fabhalta. 
• Boeing faces a shareholder lawsuit alleging prioritisation of profit over safety, following a mid-air cabin panel blowout on an Alaska Airlines 737 MAX 9. Shareholders claim Boeing misled about safety commitment, leading to inflated share prices. Boeing’s share price fell 18.9% after FAA safety concerns. The lawsuit aims for changes in Boeing’s practices. 
• Argus downgraded UPS from Buy to Hold, citing a tepid outlook for 2024 with slow growth expected. Despite potential benefits from e-commerce, recent results disappointed, prompting concerns about earnings and dividend growth. UPS’s CEO transition was noted positively, but Argus believes other industrial companies are more suitable for diversified portfolios. 
• China equity funds experienced significant domestic-driven inflows, with a recent weekly inflow of $12.6 billion, the highest since 2015. While domestic ETFs saw substantial inflows, international ETFs experienced outflows. Analysts view this as a domestic anomaly, potentially influenced by sovereign wealth fund purchases, rather than a shift in general investor sentiment towards China.