Shares flattened by stubborn inflation and slow China growth

European equity markets remained stable on Monday with limited clues from US markets which remained closed for Presidents’ Day. The Stoxx 50 index closed at a new 23-year high with investors anticipating significant data releases, including Eurozone flash PMI and final inflation figures, along with meeting minutes from the Fed and ECB. Nvidia Corp’s earnings report is also eagerly awaited. 

Summary for 20.02.2024 

• Most Asian equities retreated due to concerns over slowing economic growth and high US interest rates, despite China’s larger-than-expected cut in its benchmark lending rate. Chinese markets fell slightly, dragging down Hong Kong’s Hang Seng. Concerns over China’s economic recovery affected sentiment across Asia, while tech shares faced pressure. 
• European shares are poised to decline as traders hone in on corporate results, while US equity index futures slipped amid persistent uncertainty over interest rates, with traders on edge ahead of key earnings reports, notably from Nvidia Corporation. 
• Oil prices remained relatively unchanged in Asian trading, as concerns about weakening demand countered geopolitical tensions in Russia and the Middle East, which could disrupt supplies. Despite recent gains, prices stalled amid pessimism about demand outlook, reinforced by strong US inflation data and forecasts of slowing global crude demand. 
• The People’s Bank of China unexpectedly cut its five-year benchmark loan prime rate to 3.95% from 4.20%, aiming to bolster the slowing economic recovery. Analysts anticipated a smaller reduction. The move, the first since August 2023, reflects worsening economic conditions, particularly in the property market, prompting calls for additional fiscal stimulus. 
• China’s securities regulator, led by newly-appointed chairman Wu Qing, held seminars with market participants to address concerns and stabilise the market after recent declines. Proposals included stricter scrutiny of listings and trading, fairer mechanisms, and harsher penalties for violations. The regulator vowed to take proposals seriously and maintain market stability. 
• Warren Buffett-backed Capital One plans to acquire Discover Financial Services in a $35.3 billion all-stock deal, forming the sixth-largest US bank and a credit card giant. The move faces intense antitrust scrutiny amid concerns over competition, with regulators expected to review the deal in late 2024 or early 2025. 
• BHP Group reported a first-half underlying profit slightly above expectations, supported by strong iron ore prices. It expressed cautious optimism about a demand recovery in developed economies and noted positive momentum in India. BHP anticipates a more balanced global economy in 2024 but expects challenges in the nickel industry due to oversupply. 
• Bayer AG plans to slash its dividend by 95% in an effort to dig itself out of a hole created by the acquisition of Monsanto Co. that saddled the German company with massive debt and waves of litigation. While a dividend cut was expected, the reduction highlights the challenges facing the drug and crop sciences company as it tries to stem its cash drain, rebuild its pharmaceutical pipeline and recover from the $63 billion takeover of the owner of Roundup herbicide in 2018. 
• Russian President Putin approved HSBC’s sale of its Russian unit to Expobank, allowing HSBC to exit the market amid tightening restrictions. Expobank, though sanctioned by the US, received approval. Putin’s consent doesn’t ensure success, evidenced by delays in Intesa Sanpaolo’s asset sale approval in 2023. 
• Banco Santander announced a €1.5 billion share buyback plan and a 50% increase in its annual cash dividend per share. Regulatory approval is secured for repurchases, targeting completion by June. Executive Chair Ana Botín highlighted the focus on future growth and increasing shareholder returns amidst positive progress in 2024. 
• Volkswagen, Renault, and Stellantis are considering unexpected partnerships with traditional rivals to produce more affordable electric vehicles, aiming to combat competitive pressures from Chinese manufacturers and Tesla. The urgency to address weaknesses in the European car market demands unconventional strategies, signalling a shift away from traditional business 
• HSBC raised Nvidia’s price target to $835 from $800, maintaining a Buy rating, citing long-term confidence in its AI leadership. Despite high expectations, fuelled by earnings momentum, the Bank anticipates sustained growth driven by new Total Addressable Markets. HSBC expects NVIDIA’s strategic dominance to support strong market performance. 
• Morgan Stanley reiterates an Overweight rating on Taiwan Semiconductor Manufacturing Co. Ltd., citing its exclusive supplier status for Nvidia’s AI GPUs. They anticipate Nvidia’s upcoming revenue guidance tomorrow to significantly impact TSMC’s shares, reflecting confidence in TSMC’s prospects. 
• Bank of America Securities upgraded Vinci by raising its price target to €129.00 from €121.00, maintaining a Buy rating. They anticipate potential conservative management guidance for 2024 and foresee opportunities for reinvestment and increased dividends. The valuation incorporates lower interest rate assumptions, supporting a compelling investment case. 
• Goldman Sachs upgraded its rating on global equities to “overweight,” citing prospects of economic growth and manufacturing recovery. They expect growth to drive risk appetite and anticipate negative equity/bond correlations. However, they caution that pre-traded rate relief may limit the impact of monetary policy easing. Global credit assets were downgraded to “underweight.”