Softening US labour market reignites rate-cutting hopes

Shares in the US finished slightly higher on Tuesday, with the S&P 500 and Nasdaq each up 0.1% and the Dow rising 140 points, as investors assessed economic data indicating a cooling labor market and mixed signals from factory orders and the ISM PMI. Real estate and consumer staples gained, while energy and materials lagged. Megacaps like Microsoft and Nvidia advanced, while Meta declined slightly. In Europe, the Stoxx 50 index dropped 1% to a one-month low of 4952, driven by declines in major companies like LVMH, ASML Holding, Linde, and Siemens, although L’Oréal and SAP posted modest gains. 

Summary for 04.06.2024 

• Asian equity markets mostly rose on Wednesday as signs of a cooling US labour market fuelled hopes for Federal Reserve interest rate cuts. Investors considered Australia’s slower-than-expected economic growth in Q1 and China’s strongest services activity expansion in ten months. Shares advanced in Australia, South Korea, Hong Kong, and China, while Japan’s stocks declined due to a stronger yen. 
• European equity markets are set for a higher open while US equity futures also rose on Wednesday, buoyed by strong tech earnings, with CrowdStrike and Hewlett Packard Enterprise posting significant gains in extended trading. 
• Oil futures remained at four-month lows on Wednesday after falling for five consecutive sessions, pressured by signs of rising global supplies and an uncertain demand outlook. US crude inventories increased by 4.052 million barrels last week, defying expectations of a draw, while gasoline stocks also rose significantly. OPEC+ agreed to extend supply cuts into 2025, with gradual unwinding starting in October, bringing 1.8 million barrels per day back by June 2025. 
• The Caixin China General Services PMI rose to 54.0 in May 2024, marking the fastest growth since last July, driven by increased new business and export orders. Employment saw its fastest rise since September 2023, while input and output cost inflation surged. Business sentiment weakened due to concerns over the global economic outlook and inflation. 
• Australia’s economy grew 0.1% in Q1 2024, the slowest in six quarters, missing forecasts. Growth was hampered by subdued domestic demand, declining fixed investment, and weak net trade. Household and government spending rose, while private investment fell. Imports surged, exports grew slowly, and the household savings ratio declined. Annual GDP growth was 1.1%. 
• Job openings in the US decreased by 296,000 in April 2024 to 8.059 million, marking the lowest level since February 2021 and missing the market consensus of 8.34 million. 
• CrowdStrike raised its fiscal 2025 guidance, with adjusted EPS and revenue forecasts exceeding expectations. Q1 results beat estimates with $0.93 EPS on $921 million revenue, attributed to strong platform adoption. Annual recurring revenue rose by 33%. In afterhours trading, CrowdStrike’s shares surged 6.7%. Q2 expectations also surpassed Wall Street estimates. 
• Hewlett Packard Enterprise expects third-quarter revenue to surpass Wall Street forecasts, driven by strong demand for its AI servers and hybrid cloud solutions. CEO Antonio Neri cited doubling AI systems revenue and improved supply chain conversion. HPE’s second-quarter revenue exceeded estimates, prompting an increase in full-year adjusted earnings per share forecast. 
• Elon Musk revealed Tesla’s projected spending of $3-4 billion on Nvidia hardware this year, primarily for AI training. However, he redirected thousands of AI chips to his social media company, X, potentially delaying Tesla’s acquisition. Musk’s AI startup, xAI, competes in developing practical AI applications, recently securing a $6 billion funding round. 
• A Pennsylvania judge reduced Bayer‘s $2.25 billion verdict to $400 million in a Roundup cancer case. Bayer plans to appeal, citing errors in the trial. Despite prevailing in most Roundup trials, Bayer faces ongoing litigation, with over 165,000 claims alleging Roundup caused cancer, following its acquisition of Monsanto. 
• Intel is selling a 49% stake in an Irish venture to Apollo Global Management for $11 billion, aiming to garner external funding for its factory expansion plans. This move, the second of its kind, is part of CEO Pat Gelsinger’s effort to revive Intel’s position in the semiconductor industry. 
• AP Moeller – Maersk raised its full-year profit outlook for the second time in a month, attributing it to strong container market demand and disruptions in the Red Sea shipping region. They now expect annual underlying EBITDA of $7-9 billion, up from $4-6 billion, citing further port congestions and rising freight rates. 
• Novelis, an aluminium products maker owned by Hindalco Industries, postponed its initial public offering due to market conditions. The company, aiming for a valuation of up to $12.6 billion, planned to raise $945 million through the sale of 45 million shares. Novelis, acquired by Hindalco in 2007, serves major clients like Coca-Cola and Ford. 
• Evercore ISI predicts a new upcycle in the PC market, potentially benefiting major tech firms like HP and Dell. With HP deriving 65% and Dell over 50% of sales from PCs, the firm anticipates substantial upside. Analysts cite positive momentum in Q1 and Q2, expecting further acceleration in H2:24. 
• UBS analysts favour European equities over US shares, citing potential “goldilocks” conditions in Europe with improving economic growth and ECB rate cuts. They highlight investment opportunities in UK small and mid-cap stocks, European utilities, defence sector, media companies, and gold miners amid various macroeconomic factors and sector-specific prospects. 
• Citi analysts anticipate the pan-European Stoxx 600 index to experience further upside until the end of 2024, driven partly by anticipated interest rate reductions by the ECB. With signs of moderating inflation, the ECB is expected to lower borrowing costs, potentially boosting equities and improving European fundamentals in the long term. 
• Mizuho’s updated Top Picks list features PayPal Holdings, Oracle Corp, NEXTracker, Intra-Cellular Therapies, Cigna Group, DuPont de Nemours, and Ventas. Mizuho analysts highlight PayPal’s Fastlane potential to boost transaction margin dollars and Oracle’s underappreciated OCI offering, expecting operating margin expansion and strategic advantages to drive growth.