Oil jumps on supply concerns

US equities closed slightly lower on Friday, breaking a six-day winning streak. Tech shares led the previous gains, but the Nasdaq fell due to Intel’s disappointing earnings, dropping 11%. European shares rose on upbeat earnings from LVMH. WTI oil climbed to $78, up 6% for the week, supported by strong US economic data and Chinese stimulus news. The S&P 500 edged down, the Dow reached a record high, and the Nasdaq declined. 

Summary for 29.01.2024 

• Asian equity markets mostly rose on Monday as investors look forward to key economic data across the region this week. Markets are also preparing for the Fed’s policy decision on Wednesday, where it is expected to hold to hold rates steady.  Shares in Australia, Japan, South Korea and Hong Kong advanced, while mainland China equities were sluggish amid fears of wider US sanctions on Chinese firms. 
• European markets are expected to open steadily as traders consider tensions in the Middle East and China’s actions to stabilise its equity market, while US equity futures declined ahead of tech giants’ earnings and the Federal Reserve’s policy decision, amid anticipation of possible interest rate adjustments. 
• Oil prices climbed this morning due to heightened tensions in the Middle East after a drone attack on US forces in Jordan and increased Houthi attacks on Red Sea vessels. Analysts caution about wider conflict implications and potential Russian supply cuts, ahead of an OPEC+ meeting on Thursday to address production levels. 
• Friday’s PCE data revealed a slowdown in core inflation, with a 2.9% increase in December year-over-year, marking a nearly three-year low. Over the past six months, the annualised rate remained below the Fed’s target, potentially paving the way for rate cuts. Additionally, inflation-adjusted consumer spending rose by 0.5% for the second consecutive month, indicating a resilient economy amid moderating inflation, bolstering expectations for potential rate cuts this year. 
• European Central Bank policymaker Francois Villeroy de Galhau hinted at the possibility of implementing interest rate cuts in the near future. He emphasised that no specific date is ruled out, indicating that monetary policy decisions could be made at any of the upcoming meetings throughout the year. 
• China Evergrande Group was issued a liquidation order by a Hong Kong court, initiating a challenging process to dismantle one of the largest casualties of a prolonged property debt crisis. A wind-up will result in the company being overseen by provisional liquidators, as per the Monday ruling. Trading in Evergrande equity was halted following a 21% decline. 
• President Biden paused approvals for LNG exports from new US projects, citing climate concerns. The review aims to assess economic, environmental impacts, potentially delaying decisions until after November’s election. The move drew praise from environmentalists but criticism from industry and Republicans. 
• The Biden administration plans to award subsidies to semiconductor companies like Intel and TSMC to build new factories in the US, aiming to boost advanced semiconductor manufacturing for smartphones, AI, and defence systems. Recipients could include Intel, TSMC, Samsung, Micron, Texas Instruments, and GlobalFoundries. 
• The UK government is actively seeking proposals from City of London firms regarding a potential retail offering of NatWest Group shares, marking a significant privatisation move for the year. The Treasury aims to receive bids by late February, aiming to synchronize the share sale announcement with the March 6 budget. Currently, the government holds approximately 36% of the bank’s shares, making it the largest shareholder. 
• American Express forecasts better-than-expected profit for 2024, buoyed by affluent customer spending resilience amid higher interest rates. Record revenue in 2023 surpassed recession fears. Shares hit all-time high, up 7.3%. Plans include a 17% dividend increase in Q1 2024. However, Net Interest Income growth is expected to moderate due to interest rate environment sensitivity. 
• United Airlines is considering buying more Airbus A321neo jets to fill the void from Boeing 737 MAX 10 delays. Talks follow a mid-air emergency on an Alaska Airlines MAX 9, raising concerns over MAX certification. Airbus seeks A321neo positions amid Boeing’s crisis. United’s A350 deliveries were also discussed. 
• Carnival, along with other companies, acknowledged the potential operational challenges posed by the recent attacks in the Red Sea by the Iran-backed Houthis. The disruptions have escalated shipping costs and insurance premiums, prompting concerns about the impact on cruise operations. This acknowledgment follows similar actions by Royal Caribbean and MSC Cruises, which have already cancelled voyages to avoid the affected region. 
• Holcim plans to spin off its North American operations in a New York flotation valued at around $30 billion, appointing Miljan Gutovic as new CEO. The move aims to boost US sales and profit, with Holcim focusing on global building solutions. Jan Jenisch remains chairman for the listing. 
• Lonza’s Chairman Albert Baehny will step down amid a management reshuffle as the company confirms better-than-expected sales and margins for 2023. Shares rose 14.4% on Friday, as analysts cited relief over the outlook and leadership change. Lonza seeks a new CEO by Q2. Flat sales are expected in 2024 due to the lost Moderna contract. 
• Bayer was ordered to pay $2.25 billion to a Pennsylvania man who developed cancer from Roundup weedkiller. The jury’s decision adds to recent wins by plaintiffs, although Bayer plans to appeal. Over 165,000 claims have been filed against Bayer in the US over Roundup-related injuries. 
• Tesla is recalling nearly 200,000 Model S, X, and Y vehicles in the US due to a software glitch affecting rearview visibility while reversing. This follows a recent recall for Autopilot safety updates. Tesla has issued a free software update to address the issue. 
• CFRA Research upgraded LVMH to Buy, raising the price target to EUR790. LVMH reported positive growth across segments in 2023, with Selective Retailing standout at 76% profit growth. CFRA anticipates strong revenue and profit growth in 2024, with shares considered attractive given valuation and growth prospects. 
• Morgan Stanley analysts predict Apple’s Vision Pro VR headset could generate $4 billion revenue by FY2027, with potential for $40 billion if achieving 1% penetration of iPhone user base. Revised forecasts show upward adjustments based on supply expectations and higher average selling prices. 

• Deutsche Bank and Stifel raised Microsoft’s price target to $450 and $430, respectively, maintaining Buy ratings. Analysts anticipate strong F2Q24 results driven by Azure, Office 365, and generative AI tailwinds, with expectations of high revenue guidance and solid margins despite profitability headwinds. 
• Stifel raised AMD’s price target to $200 from $170, maintaining a Buy rating. They expect December quarter results in line with guidance and consensus but lowered March quarter estimates due to cautious views on the Embedded segment, anticipating recovery in the second half of 2024. Full-year 2025 estimates remain largely unchanged. 
• JP Morgan downgraded Tesla to Underweight, cutting the price target to $130 from $135, citing weak earnings. Meantime, Wedbush removed TSLA from their “Best Ideas List” due to investment discipline but maintains an Outperform rating with a $315.00 price target. Tesla shares settled 0.3% higher on Friday. 
• In the week ending January 24, emerging market equities experienced an unprecedented influx of $12.1 billion, as per Bank of America, citing EPFR data. Notably, China led this surge, with equity funds witnessing the largest inflow since July 2015, amounting to $11.9 billion – the second highest ever recorded. Analysts noted that the deflation of property shares in China has created an enticing opportunity, labelling it as “the world’s most enticing contrarian long ‘trade’.” 
• This week will bring a slew of market-moving events. The Fed’s policy-rate decision on Wednesday, upcoming jobs data on Friday, and mega-cap tech earnings are set to shape investor sentiment. Observers expect the Fed to maintain rates while hinting at future cuts, with tech giants like Microsoft, Alphabet, Meta, and Amazon providing insights into AI trends driving US equity-market performance.