Investors question US economic strength

The S&P 500 and Nasdaq edged higher while the Dow dropped, starting June on a sluggish note due to a weaker-than-expected manufacturing PMI report, raising concerns about the economy’s strength. Tech and health sectors posted gains, with Nvidia up 4.9% on new AI chips, while energy and industrial sectors were the biggest losers. GameStop surged 21% following ‘Roaring Kitty’s’ Reddit post revealing a $116 million position. Meanwhile, European equities rose, with the Stoxx 50 surpassing 5000, led by LVMH, ASML, SAP, and Linde, while Carrefour and RWE saw notable increases and L’Oréal declined. Investors now await the ECB’s interest rate decision amid high inflation concerns. 

Summary for 04.06.2024 

• Asian equity markets mostly fell on Tuesday, taking cues from a weak lead on Wall Street. Investors also awaited the final results of India’s general elections, with Prime Minister Narendra Modi projected to win a third consecutive term. Shares in Australia, Japan, South Korea and China declined, while Hong Kong equities rose.  
• European equity futures are subdued while US futures steadied on Tuesday after mixed performance in major averages and significant gains in GameStop amid investor focus on upcoming job and factory order data. 
• Oil futures fell for the fifth straight session to a four-month low this morning amid concerns over increased global supply and economic weakness in the US. OPEC+ plans to unwind voluntary cuts, adding over 1.8 million bpd by June 2025. US manufacturing contraction and potential Fed interest rate hikes also pressured prices. 
• The US ISM Manufacturing PMI fell to 48.7 in May from 49.2 in April, below the forecast of 49.6. The reading indicated continued contraction in manufacturing, with declines in new orders, inventories, and production. However, employment rebounded, prices rose more slowly, and supplier deliveries remained stable, reflecting soft demand and stable output. 
• A glitch at the NYSE caused major swings in Berkshire Hathaway and Barrick Gold shares yesterday, halting trading in numerous companies. Trades were cancelled, with some equities briefly showing drastic declines before correction. The issue was related to limit up-limit down bands, a measure to prevent extreme price movements. 
• Johnson & Johnson was ordered to pay $260 million to an Oregon woman who claimed she developed mesothelioma from using the company’s talc powder. The jury’s verdict included compensatory and punitive damages. J&J maintains its talc products are safe and plans to appeal. 
• Illumina has approved the spinoff of Grail amidst antitrust scrutiny and opposition from investor Carl Icahn. Shareholders will receive one Grail share for every six Illumina shares. Illumina will retain a 14.5% stake. Grail, acquired in 2021 for $7.1 billion, faced delays and expenditures leading to impairments. 
• AMD unveiled its latest artificial intelligence processors at Computex, aiming to challenge Nvidia’s dominance. CEO Lisa Su introduced the MI325X accelerator, set for Q4 2024 release, with plans for annual chip releases. The move targets improved performance to compete in the booming AI market, driving investor interest. 
• Spotify raised prices for its premium plans in the US, with the individual plan up to $11.99, duo plan to $16.99, and family plan to $19.99. The move aims to boost margins after reducing marketing spending and layoffs, with revenue in the US growing 11% in 2023. 
• Arm Holdings aims to seize over 50% of the Windows PC market within five years, buoyed by Microsoft’s push for AI-capable PCs on Arm technology. With investments in software tools and Qualcomm’s introduction of Arm-based chips, a shift from x86 architecture dominated by Intel is imminent, potentially reshaping the market. 
• GameStop shares surged 21% after “Roaring Kitty” disclosed a $116 million bet on the company, reviving interest in meme shares. The surge caused significant losses for short sellers and raised questions about the authenticity of the Reddit post. Other meme equities like AMC also rallied amid market concerns over excessive speculation. 
• GSK‘s shares tumbled over 9.1% on Monday after a Delaware judge allowed over 70,000 Zantac-related cancer lawsuits to proceed. GSK plans to appeal immediately. Analysts anticipate potential liabilities surpassing market expectations of $2-3 billion. The ruling permits expert testimonies alleging Zantac’s cancer risk. Sanofi’s exposure is comparatively minimal, analysts noted. 
• Rolex has raised prices on select gold watches in the UK amid growing investor interest in gold. With models like the Daytona Chronograph seeing increases of up to £1,500, the move follows gold’s 14% rise this year and anticipation of US interest rate cuts. Rising luxury watch thefts accompany the surge in prices. 
• Mizuho analysts reiterated a Buy rating and $575 price target for Meta Platforms, citing ample drivers to pass revenue and capital expenditure stress tests. They believe product upgrades can offset the slowdown of Chinese advertisers, maintaining Meta as a top pick with significant long-term potential. 
• Bank of America raised NVIDIA‘s price target to $1,500 from $1,320, maintaining its Buy rating. This decision followed CEO keynotes at the Computex expo, highlighting NVDA’s AI leadership with new platforms. They foresee opportunities in large hyperscaler clusters by 2026 and expect sustained growth in networking, projecting EPS potential of $50+ within two years. 
• JP Morgan updated its US Analyst Focus List, adding CarGurus, Carvana Co, and L3Harris Technologies, selected for growth, income, or value prospects. Analysts observed strong revenue and earnings growth for CARG and CVNA, with LHX showing progress in profitability. CarMax, Cars.com, and Inspire Medical Systems were removed from the list, reflecting changes in market analysis and strategy. 
• Global airlines, represented by IATA, raised their 2024 profit forecast to $30.5 billion, citing a surge in travellers. Despite past losses due to the pandemic, increased demand boosts profits, especially in Asia. However, supply chain disruptions hinder fleet deliveries. Passenger yields rise, but cargo declines as markets normalise.