Oil ticks higher on rising geopolitical risk

US equities closed mixed on Friday, pausing a record-breaking rally spurred by expectations of Federal Reserve rate cuts. The Dow Jones fell 305 points near the 40,000 mark, while the S&P 500 dipped slightly. Conversely, the Nasdaq rose 0.2%, lifted by Nvidia. Nike, Tesla, and Lululemon saw declines, while FedEx surged 7.3% on robust earnings. Meanwhile, the Eurozone’s Stoxx 50 closed lower, led by Santander’s gains but marked by sharp losses for LVMH and Kering following the latter’s profit warning. 

Summary for 23.01.2024 

• Asian equity markets showed mixed performance this morning with no significant drivers. Investors await key inflation reports later in the week for insights into monetary policy direction. Australia will release inflation data on Wednesday, and Tokyo’s figures on Friday. Shares in Japan, South Korea, and China fell, while Australian and Hong Kong shares rose. 
• European equities are poised to rise as traders anticipate a busy week of economic data. Meanwhile, US equity futures remained stable, with investors assessing economic and monetary policy prospects following last week’s gains, and attention turning to the upcoming US PCE price index report. 
• Oil futures rose on Monday as disruptions in Russian oil refineries due to Ukrainian drone attacks affected 12% of capacity. The UN Security Council failed to pass a ceasefire resolution for Gaza, with Russia and China vetoing the US proposal, citing politicisation.  
• Fitch Ratings upgraded the UK’s sovereign credit outlook from negative to stable, maintaining its AA- rating. This follows the country’s economic rebound in January after a shallow recession in late 2023, driven by increased retail sales and housing activity. Fitch emphasized cautious projections balancing policy priorities with fiscal sustainability. 
• Apple is reportedly discussing with Baidu to integrate generative AI technology into devices sold in China, part of its effort to bolster AI capabilities. The move follows previous talks with Google and OpenAI. Partnering with a local AI provider could aid regulatory compliance and enhance competitiveness in China’s market.  Meantime, both Wedbush and Morgan Stanley maintained respective Outperform and Overweight rating on Apple, with a consistent price target of $250 and $220, respectively. 
• Tesla has reportedly reduced its EV production in China due to slower growth and increased competition. The company adjusted its Shanghai plant’s work schedule, affecting Model Y and Model 3 production. Despite rising sales in China’s auto market, Tesla’s shipments declined, facing challenges from local competitors and a broader global slowdown in electric car demand. 
• Wedbush analysts upgraded Alphabet to their ‘Best Ideas List’ and raised the target price to $175 from $160. They dismiss concerns about structural risks to Google Search, highlighting the potential gains from generative AI. Alphabet’s access to vast datasets, user engagement, advanced AI infrastructure, and successful monetisation strategies solidify its position as a digital advertising industry leader. 
• UBS analysts raised Nvidia‘s target price to $1,100 from $800, citing its unique ability to create markets. They anticipate strong growth in 2025, expecting revenues to reach $150 billion, driven by new demand from global enterprises and Sovereigns, alongside the introduction of new AI models and products. 
• Wells Fargo lowered Nike Inc‘s price target to $120 (from $125) while maintaining an Overweight rating, expressing concerns about economic conditions and strategic adjustments. Meanwhile, CFRA upgraded Nike from Sell to Hold, raising the target to $95.00 (from $91.00), citing strong Q3 earnings in North America and Asia Pacific but maintaining caution about future growth prospects. Additionally, RBC Capital downgraded Nike to Sector Perform with a $100 target, citing stagnant revenue growth and concerns over organisational restructuring and product transition. 
• Following FedEx Corp‘s Q3 earnings beat, Stifel raised its price target to $306 (from $290), maintaining a “Buy” rating. Despite execution risks, Stifel acknowledges FedEx’s progress in cost-cutting initiatives. Similarly, TD Cowen increased its target to $320 (from $293), maintaining an Outperform rating, citing effective cost controls and a $5.0 billion share repurchase program. 
• BMO Capital Markets raised Lululemon Athletica Inc.’s price target to $420 from $408, maintaining a Market Perform rating. Despite surpassing revenue and EPS expectations, cautious US market guidance led to a conservative outlook. KeyBanc revised the target to $515 from $570, affirming an Overweight rating, citing strong Q4 results and a positive 2024 outlook despite lower guidance. 
• CFRA upgraded Broadcom Limited‘s price target to $1,600 from $1,500, maintaining a Buy rating. This adjustment follows Broadcom’s robust EPS of $10.99 for the January quarter, with significant sales growth driven by strong performance in Infrastructure Software and Semiconductor Solutions segments. Analyst cites accelerating growth, expanding exposure to software and AI revenue for the raised target. 
• Mizuho raised ConocoPhillips‘ price target to $139 from $132, maintaining a Neutral rating. The adjustment follows the year-end reserve updates and 2024 guidance. While capital expenditures align with long-term plans, capital return targets were revised downward to $9 billion, with a focus on share buybacks. Mizuho views the current market valuation as already factoring in the company’s asset quality and depth. 
• BTIG maintains a Neutral stance on Booking Holdings, focusing on its quarter-to-date performance and adjustments for EU’s Digital Markets Act (DMA) compliance. Booking’s room nights show growth tracking in line with guidance, around 6%. Despite contract adjustments required by DMA, BTIG sees no significant threat to business, noting Booking’s commitment to regulatory compliance and steady performance. 
• Argus Research downgraded Pfizer from Buy to Hold, citing near-term revenue growth challenges. Pfizer forecasts a 3-5% revenue growth, excluding COVID-19 products and Seagen acquisition, down from 7% in 2023. Analysts noted lower margins due to reduced COVID-related revenue and the need to offset patent losses, leading to adjusted EPS estimates for 2024 and 2025. 
• Argus maintained a Buy rating on Palo Alto Networks and raised its price target to $336 from $290, following the company’s new go-to-market strategy announcement. Despite recent share value drops due to revised guidance, Argus remains optimistic, citing Palo Alto’s leading technology and innovation in the cybersecurity sector. 
• BTIG reiterated a Buy rating for TripAdvisor with a $35.00 price target, noting positive first-quarter trends. Increased traffic to TripAdvisor sites and Viator suggests strong performance, though heightened Search Engine Marketing (SEM) activity may elevate operational costs. Despite this, BTIG raised the revenue estimate for Q1 to $397 million, maintaining EBITDA projections. 
• Reddit, newly listed, faces pressure to invest heavily in content moderation, moving away from its volunteer-based model due to regulatory scrutiny as a public company. Despite revenue growth to $804 million in 2023, reliance on unpaid labour poses risks. Analysts foresee increased expenses, particularly for anti-misinformation efforts. 

• Meituan, the Chinese food delivery giant, surpassed expectations with a 22.6% revenue increase in Q4, reaching 73.7 billion yuan. Despite China’s slowing economy, Meituan reported a net profit of 2.2 billion yuan, compared to a loss the previous year. The company eyes international expansion and initiated a $1 billion share buyback program. 
• Global equity funds saw strong inflows of $15.7 billion in the week ending 20^th March, driven by upbeat data from China and expectations of US rate cuts. US funds led with $14.07 billion, while Asian funds added $3.29 billion, but European funds faced outflows of $1.91 billion. Bond funds extended their 13-week inflow streak. 
• The focus this week in the US revolves around PCE Prices, personal income/spending reports, and speeches by Fed officials, notably Chair Powell. Key data points include durable goods orders, final Q4 GDP, CB consumer confidence, corporate profits, and housing market indicators. Elsewhere, attention centres on inflation readings, interest rate decisions, and economic updates in Europe, Japan, and Canada.