Rates frustration spoils AI-driven rally

On Thursday, Wall Street saw a downturn as the Dow Jones plunged 605 points, marking its worst day of the year, with the S&P 500 and Nasdaq Composite also sliding due to concerns over prolonged higher interest rates, exacerbated by a hotter-than-expected PMI survey. Nvidia surged 9.3%, contrasting with Boeing’s 7.5% decline, attributed to production challenges. In contrast, European equities edged slightly higher, boosted by Nvidia’s strong earnings and upbeat Eurozone economic data, with ASML and Infineon leading gains, supported by industrial giants like Siemens and Schneider. 

Summary for 24.05.2024 

• Asian equity markets declined on Friday, mirroring Wall Street’s losses amid fears that robust US economic data might deter Federal Reserve rate cuts. Japan’s core inflation eased to 2.2%, meeting expectations but maintaining pressure on the Bank of Japan to tighten policy. Shares in Australia, Japan, South Korea, Hong Kong, and China all saw declines. 
• Traders expect a weak open for European equities while in the US equity index futures are seen steady after the steep losses experience yesterday. 
• Oil prices steadied on Friday but were poised for significant weekly declines due to concerns over persistent inflation and high interest rates, diminishing confidence in demand. Both Brent and WTI crude futures were set to drop over 4%, pressured by fears of prolonged rate hikes to combat inflation. All eyes are on the upcoming OPEC+ meeting for potential supply cues amid uncertainties surrounding market tightness and elevated US crude production. 
• The S&P Global US Composite PMI for May soared to 54.4, exceeding expectations of 51.1, led by robust growth in the service sector (54.8) and solid performance in manufacturing (50.9). Despite job cuts, businesses displayed optimism, driving higher input and output prices, while future output expectations improved from April’s low. 
• Samsung Electronics shares dipped 2.3% to a one-month low this morning following reports that its newest high bandwidth memory (HBM) chips did not meet Nvidia’s standards for AI processors due to heating and power consumption issues. This could delay Samsung’s ambitions in the AI market, potentially benefiting rivals like SK Hynix and Micron. 
• Boeing anticipates negative cash flow in 2024, contrary to earlier projections of positive cash generation. CFO Brian West attributes this to delayed deliveries and production challenges, causing a 7.6% drop in Boeing’s shares. Production slowdowns, regulatory scrutiny, and delivery delays to China exacerbate Boeing’s ongoing crisis. 
• Deckers Brands impressively surpassed expectations in its fourth fiscal quarter with adjusted EPS of $4.95 and revenue of $959.8 million, driven by a 21.2% increase in net sales, particularly propelled by HOKA and UGG brands. CEO Dave Powers attributed the success to brand strength. Deckers projects revenue growth of 10% for fiscal year 2025. 
• Intuit revised its full-year outlook, expecting adjusted earnings to grow around 17% and revenue to rise approximately 13%. While Q4 results surpassed expectations with earnings per share of $9.88 on revenue of $6.74 billion, the current quarter’s earnings guidance fell short, leading to a more than 6% decline in Intuit’s shares in afterhours trading. 
• TSMC, a key chip supplier for Apple and Nvidia, projects a 10% annual revenue growth in the semiconductor industry, excluding memory chips, citing the AI-driven “golden age of opportunity.” Despite previous lowered forecasts, TSMC anticipates a strong second-quarter sales surge, aligning with optimistic industry growth projections. 
• Pfizer launched a new program to cut expenses by $1.5 billion by 2027, building upon a $4 billion cost-cutting plan from last year. This move follows a decline in investor confidence post-pandemic and aims to enhance operational efficiencies and product portfolio while expecting one-time charges and job cuts. 
• Burger King plans to launch a $5 meal deal, coinciding with McDonald’s similar offer, aiming to attract customers amid a cost-of-living crisis. The deal includes a sandwich, nuggets, fries, and a drink. Burger King intends to run the promotion for several months, while also testing other value platforms. Wendy’s and McDonald’s also focus on value promotions. 
• Bernstein initiated Ford Motor with an Outperform rating and $16 price target. Strong profits from core markets and potential in the electric vehicle unit are highlighted. Ford is expected to meet upper range adjusted EBIT guidance for 2024. Next-gen EV platforms offer upside, with management updates as potential catalysts.  
• Bernstein also initiated coverage on SAP, citing its potential for revenue growth and margin improvement. They anticipate a significant increase in revenue, driven by the ERP market and SAP’s transition to the Cloud. Margin improvement is expected from operating leverage and operational efficiency.  
• JPMorgan has upgraded Unilever to ‘overweight’, citing positive changes including cultural shifts and portfolio transformations, with raised EPS estimates and a price target of £51. Conversely, Nestle‘s stance is downgraded to ‘neutral’ due to cautious organic growth prospects, leading to a lowered price target of CHF 105. 
• International investors are increasingly drawn to Turkey, favouring local bonds and Credit Default Swaps due to a deep-rooted monetary policy normalization. The shift in policy, marked by significant interest rate hikes, has stimulated interest across Turkish assets, with positive returns observed in shares and bonds.