S&P 500 notches first 3-day losing streak since October

In the US, major equity indices experienced modest declines as the ADP private payrolls report for November fell short of expectations, suggesting a potential slowdown in the labour market. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite were all lower, with investors awaiting the Nonfarm Payrolls Report on Friday for further insights. Meanwhile, U.S. Treasury yields continued to decrease, and WTI crude oil dropped below $70 for the first time since June. In Europe, shares extended gains, with the Stoxx 50 reaching a 16-year high, driven by increases in auto and mining stocks. However, concerns over oversupply led to a drop in oil and gas stocks, while Germany’s DAX index achieved a record level above 16,656. 

Summary for 07.12.2023 

• Asian equities declined on Thursday, with Chinese blue chips reaching nearly a five-year low and Japanese shares falling sharply, driven by concerns about a Chinese economic slowdown and discussions on a potential shift from negative interest rates by the Bank of Japan. Weak trade data from China, the threat of a credit rating downgrade by Moody’s, and cautious anticipation of key U.S. labour market readings further impacted market sentiment in Asia. 
• European stocks are poised to retreat from a four-month high, mirroring weak sentiment in the US markets, as concerns over a cooling labour market and subdued economic outlook weigh on global rates and contribute to a cautious opening. 
• Oil rebounded from over five-month lows in Asian trade this morning after discussions between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman on further cooperation in managing oil production. Despite recent underwhelming OPEC+ production cut announcements and concerns about weakening global crude demand, Brent oil futures rose 0.5%, and West Texas Intermediate crude futures also increased 0.5%, providing a partial recovery. 
• China’s trade surplus expanded to $68.39 billion in November, surpassing expectations of $58 billion, primarily due to a surprise rise in exports, marking the first growth since April. However, the unexpected 0.6% drop in imports signalled ongoing weakness in local demand, reflecting broader economic challenges for China despite recent efforts to stimulate the economy, prompting concerns raised by Moody’s about a potential credit rating downgrade. 
• In November, the ADP National Employment Report revealed a significant slowdown in US job growth, with only 103,000 jobs added, falling short of the estimated 130,000. The decline, particularly in the manufacturing sector, suggests a shift in hiring trends, and the moderation in wage growth could influence the Federal Reserve’s monetary policy decisions. 
• The European Union is close to finalizing a landmark regulation that would impose comprehensive controls on artificial intelligence (AI), particularly focusing on generative AI tools like OpenAI’s ChatGPT and Google’s Bard. This move positions the EU as the first non-Asian government to establish clear regulations and safeguards for AI technology, signalling a significant step in shaping responsible AI use in the Western world. 
• Italy has formally left China’s Belt and Road Initiative (BRI), citing a lack of expected economic benefits from the 2019 agreement. The move signals a shift in Italy’s foreign policy, emphasizing concerns about strategic autonomy, but the country aims to maintain friendly relations with China through high-level visits and engagements despite exiting the BRI framework. 
• AbbVie, facing challenges to its arthritis drug Humira, has announced an $8.7 billion acquisition of Cerevel Therapeutics, a neurological drug developer. This move follows AbbVie’s recent $10.1 billion deal for cancer drug developer ImmunoGen, as the company aims to diversify and replace revenue impacted by the competition facing its flagship drug, Humira. 
• Apple aims to counter declining sales by launching new models, including a faster MacBook Air with an in-house M3 processor and updated iPads, including a two-sized iPad Air and a Pro model with OLED screens. The release, expected around March, seeks to address recent sales challenges, particularly in the Mac and iPad segments, which together contribute nearly 15% of Apple’s revenue. 
• AMD has increased its projection for the data centre AI processor market to $45 billion this year, up from its previous estimate of $30 billion in June, and launched new MI300 series chips to compete with Nvidia. The company plans to supply well above $2 billion worth of AI chips in 2024, aiming to capture a share of the anticipated $400 billion data centre AI chip market by 2027. 
• SpaceX, led by Elon Musk, is reportedly seeking another tender offer from investors that could value the company at over $175 billion, potentially even higher as details are not finalized yet. The current valuation of around $150 billion already places SpaceX among the world’s most valuable private companies, with billionaire investor Ron Baron predicting it could reach about $500 billion by 2030. 
• The International Air Transport Association (IATA) predicts airline profits will stabilize in 2024, reaching $25.7 billion with a 2.7% margin, despite challenges such as high capital costs and capacity constraints. While the industry has largely recovered from the pandemic, rising interest rates contribute to concerns, with IATA highlighting that airlines, on average, will retain only about $5.45 per passenger. 
• McDonald’s plans to open approximately 10,000 new restaurants globally by 2027, marking what could be its fastest period of growth in history. The expansion, with a focus on international markets like China, is part of the company’s strategy to increase its sales from the loyalty program to $45 billion and grow the user base to 250 million customers by 2027. 
• Citigroup’s CFO, Mark Mason stated that the bank’s largest reorganization in decades will cost about $1 billion for charges related to restructuring and severance. The overhaul, set to be completed by the end of the first quarter of next year, includes streamlining management and potential layoffs, aiming to reduce annual expenses and approach profit targets, leading to a nearly 4% increase in the bank’s shares. 
• Orpea, a French care home operator, is conducting a significant share capital increase of approximately €1.2 billion as part of a broader strategic plan to restore financial stability by the end of 2026. The move follows recent financial manoeuvres, including a successful €3.9 billion capital raise, aimed at addressing restructuring needs and debt reimbursement, with unsecured creditors playing a significant role in the ownership structure post-increase. 
• British American Tobacco (BAT) is under pressure to prove its competitiveness in alternatives like vapes after admitting that its U.S. cigarette brands could be worthless within decades, leading to a $31.5 billion noncash impairment. While BAT is investing in alternative products, it faces challenges such as regulatory rejections in the U.S. vape market and increased competition, particularly from rival Philip Morris International. 
• Raymond James has upgraded AutoZone shares to Strong Buy from Outperform, with a revised price target of $3,100, citing compelling valuation and positive fundamentals following the company’s F1Q24 results. The analysts expect AutoZone’s long-term growth, driven by market share gains and improvements in parts coverage and availability, to continue, especially with more mega hub openings and enhanced delivery times. 
• CVS Health (CVS) stock has experienced a two-day rally, surging up to 8.6%, driven by positive 2024 revenue guidance and the introduction of a new reimbursement model aimed at simplifying drug pricing. Analysts at Bank of America maintain a Buy rating with a price target of $86, expressing confidence in CVS’s adjusted earnings growth expectations for the intermediate term and foreseeing a significant impact from the new reimbursement model on the prescription ecosystem. 
• Volkswagen plans to reduce administrative staff costs at its VW brand by 20%, aiming to achieve this through partial and early retirements rather than layoffs. The move is part of Volkswagen’s broader strategy to cut costs by €10 billion by 2026, addressing challenges such as high costs, low productivity, and increased competition, as the automotive industry faces pressures from inflation and global competition, including from companies like Tesla. 
• Investors responded positively to TUI’s announcement of a doubling of profit and a projected 25% growth in operating profit, with the share price rallying by over 15% in Wednesday’s session. However, concerns over geopolitical tensions and TUI’s consideration of delisting from the London Stock Exchange led to cautious market sentiment, introducing uncertainty about the company’s future presence in the UK market.