Markets on edge amid economic and geopolitical crosswinds

US equities closed mixed on Thursday, with the S&P 500 and Nasdaq extending their 5-day losing streaks, down 0.2% and 0.5%, while the Dow Jones gained 24 points. Traders digested corporate results, robust economic data, and expectations of prolonged higher interest rates. Semiconductor shares mostly declined, except for Nvidia, while Taiwan Semiconductor Manufacturing reported its first profit increase in a year driven by strong AI demand. Tesla declined 3.5% following a Deutsche Bank downgrade, while Meta rose 1.5% after announcing its AI assistant. Meanwhile, European stocks rallied, with the Euro Stoxx 50 reaching 4,940. Industrial stocks, including Siemens and Schneider, saw gains due to strong operational guidance by Swiss-Swedish ABB. Banking shares like Santander, BNP Paribas, UniCredit, and BBVA also rose. 

Summary for 19.04.2024 

• Asian equity markets plummeted on Friday amid escalating geopolitical tensions as Israel reportedly targeted sites in Iran, Iraq, and Syria. Concerns over a potential Iranian nuclear facility being hit added to market unease. Losses mirrored Wall Street’s downturn fuelled by hawkish remarks from Federal Reserve officials, including Neel Kashkari’s call for patience on rate cuts until 2025. Japan’s inflation data also disappointed. 
• European equity markets are expected to open lower amid heightened geopolitical tension in the Middle East. Meantime, US equity futures also plunged sharply this morning compounded by Netflix’s decline despite robust quarterly results, while investors remained cautious amidst uncertainty over Federal Reserve rate cuts and upcoming earnings reports from major companies. 
• Oil prices spiked in Asian trading on Friday as tensions flared in the Middle East following reported explosions in Iran, Syria, and Iraq, allegedly due to Israeli retaliation. Brent crude surged almost 3% to $89.74, while West Texas Intermediate climbed 3% to $85.16. Despite the gains, both contracts were on track to end the week with mild losses. 
• Gold surged past $2,400 per ounce, hitting record highs and marking its fifth consecutive weekly gain. Investor demand for the safe-haven asset intensified amid escalating geopolitical risks in the Middle East, triggered by Israel’s missile attack on Iran in retaliation to recent hostilities. The geopolitical tensions overshadowed recent hawkish remarks from Federal Reserve officials, who are inclined to keep borrowing costs steady due to sluggish inflation progress and the robust US economy. 
• With oil prices on the rise, concerns about inflation intensify, exacerbated by recent hawkish remarks from Federal Reserve officials. New York Fed President John Williams suggests no urgency for rate cuts, implying a potential hike if economic indicators align with inflation goals. Raphael Bostic echoes patience, hinting at policy easing by year-end. Neel Kashkari suggests a stable interest rate stance throughout the year. 
• The annual inflation rate in Japan eased to 2.7% in March from February’s 3-month peak of 2.8%, meeting market expectations. Core inflation declined slightly to 2.6%. Price slowdowns were observed in various sectors, while stable prices persisted for food and housing. Energy prices dropped ahead of the end of government subsidies. 
• Elections in India, the world’s largest democratic exercise, commenced as Prime Minister Narendra Modi seeks a historic third term. Modi’s BJP contends with opposition alliances promising increased welfare and democratic preservation. Despite concerns over unemployment and inflation, BJP remains favoured, emphasising economic growth and Hindu nationalism. 
• Netflix surpassed expectations in Q1 with earnings of $5.28 per share and revenue of $9.37 billion, driven by robust subscriber growth of 9.33 million users. However, weaker revenue forecasts for Q2 led to a nearly 5% drop in after-hours trading. Despite anticipating a slowdown in paid net additions, Netflix expects 13% to 15% revenue growth. The company plans to stop reporting quarterly membership and revenue per subscriber from Q1 2025. 
• TSMC‘s first-quarter earnings report anticipated a robust 30% sales increase for the upcoming quarter, signalling positive momentum. However, despite maintaining capex and full-year revenue guidance, the company adjusted growth forecasts for the semiconductor industry, leading to a nearly 5% drop in shares during US trading. Investors expressed concerns over unchanged capital spending plans for the year and a revised outlook for the global semiconductor industry. Additionally, expectations for increased expenditure on high-end packaging were not met, contributing to market unease. 
• Intuitive Surgical surpassed Wall Street expectations for first-quarter profit and revenue, driven by increased demand for its da Vinci surgical robots. Quarterly earnings stood at $1.50 per share, exceeding analysts’ estimates of $1.41, while sales reached $1.89 billion, slightly above the projected $1.87 billion. Da Vinci procedures grew by 16% globally compared to the same period last year. 
• L’Oréal Co. shares surged 1.3% after reporting strong quarterly sales growth. First-quarter sales reached €11.24 billion, up 8.3% reported and 9.4% like-for-like. Dermatological beauty sales rose 19.6%, offsetting a decline in North Asia. CEO Nicolas Hieronimus expressed optimism despite economic and geopolitical tensions, expecting continued growth in sales and profit. 
• EasyJet expressed confidence in summer travel demand, anticipating further growth despite pandemic challenges. Shares rose as the airline forecasted a smaller-than-expected winter loss. Concerns over rising fares and Middle East tensions persist, but reallocated flights aim to meet demand. Strong performance in holiday hotspots and planned capacity increase indicate positive momentum. 
• Sanofi announced a restructuring of its US vaccine commercial operations, aiming for a streamlined strategic sales structure, though details on changes, timeframe, and impacted jobs remain undisclosed. CEO Paul Hudson’s move reflects efforts to strengthen investor confidence in the company’s drug pipeline amid increased drug development spending. 
• Tesla‘s shares hit a year-low as Deutsche Bank downgraded the equity due to concerns over the company’s focus on autonomous vehicles amidst profit pressures. This follows Tesla’s decision to cancel a promised budget car, while continuing Robotaxi development. Tesla’s market value is set to drop, despite remaining the top automaker. 
• Needham & Company reiterated its buy rating on Amazon, raising profit estimates for FY24 after CEO Andy Jassy’s focus on cost-cutting measures. FY24 revenue remains at $636.9B, but EBITDA and EPS estimates rose by 10% and 12% respectively. FY25 estimates show similar growth, with a positive outlook on profitability. 
• HSBC Global Research analysts upgraded Johnson & Johnson’s shares from Hold to Buy on Thursday, citing attractive upside despite ongoing challenges like patent expirations and Talc litigation. They believe the company’s size and stability will help it navigate these obstacles and raised the target price from $169 to $170. 
• Morgan Stanley analysts upgraded eBay to Overweight, highlighting accelerating growth metrics and strategic shifts toward broader innovations like AI. They see eBay’s shift towards horizontal solutions and proactive innovation as key drivers for maintaining or expanding margins while achieving slight GMV acceleration. 
• Bernstein analysts highlighted Apple‘s focus on AI, with plans to integrate it into various products like Apple Music and iPhone 16. They foresee potential revenue boosts from hardware sales, advertising, and AI-driven apps, though there’s a risk of cannibalisation. On-device AI may have the most immediate impact on financials. 
• Evercore ISI analysts anticipate a continued market correction following recent declines, citing signs of an economic downshift and challenges in the transportation sector. They highlight a divergence in the NASDAQ Transportation Index as indicative of broader issues and suggest the correction has more room to run.