Shares retreat after Fed officials cool rate cut outlook

On Thursday, US equities took a significant hit, with the Dow Jones plummeting 539 points, marking its largest drop since March 2023. The S&P 500 and Nasdaq also experienced declines of 1.2% and 1.4%, respectively. Investor concerns regarding potential Federal Reserve interest rate cuts amid inflation and disappointing job data sparked widespread losses, notably in the technology and healthcare sectors. Meanwhile, European shares closed slightly higher, with the Stoxx 50 edging up 0.1% to 5,074. This modest uptick was fuelled by a positive open on Wall Street and the ECB’s optimistic outlook on inflation. German automotive giants Mercedes, BMW, and Volkswagen led gains following Volvo’s strong earnings report while banking equities such as Santander and BBVA also experienced upticks. 

Summary for 05.04.2024 

• Asian equities declined, following Wall Street’s downtrend amid the Federal Reserve’s hawkish signals and Middle East tensions. Japan’s Nikkei 225 plummeted 2.5%, driven by profit-taking and a stronger yen. South Korea’s KOSPI dropped over 1%, while Hong Kong’s Hang Seng and Australia’s ASX 200 also recorded losses. Indian indices hit record highs ahead of the RBI meeting. 
• European equities are poised for a rocky start on Friday, with futures indicating the sharpest daily percentage drop in months due to escalating tensions in the Middle East. Meanwhile, US equity futures are stabilising after a volatile Thursday, amid inflation concerns and uncertainty surrounding Fed comments, ahead of key jobs data. 
• Oil prices surged to over five-month highs in Asian trading, fuelled by escalating tensions between Israel and Iran, raising concerns of supply disruptions in the Middle East. Brent and WTI futures climbed, with Brent hitting $91.02 and WTI reaching $86.08 a barrel. Geopolitical risks, OPEC+ cuts, and rising demand outlook contributed to the surge. 
• In the US, initial jobless claims unexpectedly rose by 11,000 to 221,000 on March 30th, indicating a potential labour market adjustment to elevated interest rates despite robust economic reports. Meanwhile, the trade deficit widened to $68.9 billion in February, driven by increased imports, notably in cell phones and household goods, partially offset by record-high exports. 
• The latest ECB minutes revealed a growing consideration for interest rate cuts as inflation is anticipated to decline further. Despite optimism from updated projections showing inflation nearing the 2% target sooner, officials remain cautious due to concerns about domestic price pressures, including robust wage growth and declining productivity. They await more data before making decisions by the June meeting. 
• Euro Area industrial producer prices dropped by 1.0% in February, marking the steepest decline since May 2023, driven by a 3.5% plunge in energy costs. However, prices for durables, non-durables, and capital goods experienced slight increases. Excluding energy, producer prices rose by 0.1%. Yearly, prices fell by 8.3%, slightly better than expected. 
• Samsung Electronics estimates a more than 10-fold increase in first-quarter operating profit, driven by a chip price rebound due to AI demand. However, its shares dropped as investors await updates on its memory chip business. The company expects strong performance from its mobile division, particularly with the launch of the Galaxy S24 smartphones. 
• Disney CEO Bob Iger announced plans to crack down on password-sharing for its streaming service starting in June, aiming to boost subscriber growth and profitability. Following a decisive proxy vote victory, Iger focuses on reinvigorating franchises, making streaming profitable, and addressing concerns from activist investors like Nelson Peltz and Elon Musk. Talks for ESPN’s strategic partner are underway. 
• Volvo Cars achieved record sales in March, with a 25% increase from the previous year, driven by strong demand for its fully electric small SUV. The company aims for at least 15% annual growth and emphasises its commitment to EVs, targeting half of sales from EVs by 2030. Total first-quarter sales rose 12%, outperforming rival Tesla. 
• Meta Platforms shares reached a new intraday all-time high of $523.80 on Thursday as analysts, including Jefferies, raised their targets. Jefferies upped its target to $585, citing accelerating market share gains and predicting Meta to capture 50% of incremental industry ad dollars in 2024. They expect Meta’s ad business to outgrow Amazon’s in 2024, forecasting 22% revenue growth for the year. 
• Super Micro Computer‘s equity recently experienced a slight dip despite prior gains. Goldman Sachs expressed mixed to negative sentiment overvaluation, while JPMorgan and Argus initiated coverage, highlighting SMCI’s leadership in AI computing and accelerating growth, respectively, justifying investment prospects at current levels. 
• Mizuho Securities analysts reaffirmed Amazon as their top pick, noting accelerated sales cycles in AWS and increased executive meetings. AWS budget signals heightened infrastructure spending, implying a potential 20% YoY growth. Meanwhile, Jefferies raised Amazon’s price target to $225, citing positive insights from Amazon Day discussions on core marketplace, Prime, and cloud segments. 
• Wells Fargo analysts raised their long-term oil price forecasts for Brent and WTI crude oil to $80 and $75 per barrel, respectively, attributing the upward revision to factors like economic activity, OPEC+ discipline, and easing US production growth. They anticipate a return to pre-pandemic demand growth rates by 2024-2025 amidst ongoing energy transition challenges. 
• BofA EEMEA equity strategists advocate “buy in May, don’t go away,” expecting a broadening global recovery. They foresee positive prospects for emerging market assets, including equities, despite potential tactical USD strength into May amid uncertainty over a June Fed cut. EEMEA equities, particularly in South Africa, are anticipated to benefit from USD weakness.