The Fed remains wary of cutting interest rates too soon

Equities closed higher on Friday as the US jobs report beat expectations, with 353,000 new jobs added in January. US Treasury yields surged, with the 10-year yield reaching 4.02%. Despite this, shares rallied, led by the Nasdaq, up 1.7%, buoyed by strong earnings from tech giants like Meta and Amazon. Year-to-date, both the S&P 500 and Nasdaq have gained approximately 4.0%. In Europe, the Stoxx 50 index rose 0.4% on Friday and for the week, buoyed by optimism from strong US tech earnings and robust job figures. 

Summary for 05.02.2024 

• Most Asian shares retreated as traders adjusted expectations of early interest rate cuts following strong US labour market data and comments from Fed Chair Jerome Powell. Weakness in China’s services sector and concerns over higher US interest rates weighed on sentiment, with some exceptions like Japan’s Nikkei 225, while Australian equities also experienced selling pressure after hitting a record high last week. 
• European equities are set for a muted open following comments from Fed Chair Jerome Powell, while US equity futures were down this morning amid anticipation of corporate earnings and ongoing Middle East tensions. 
• Oil prices in Asian trade rose slightly, recovering from steep losses the prior week amid fading hopes of US interest rate cuts and focus on Israel-Hamas ceasefire talks. Dollar strength and Powell’s comments weighed on oil prices, while concerns over global demand persisted. 
• During a “60 Minutes” interview aired Sunday in the US, Federal Reserve Chair Jerome Powell suggested that interest rate cuts might be delayed beyond March as officials await more economic data to confirm inflation’s decline. Powell highlighted the importance of caution, stating that patience is prudent given the ongoing economic progress. 
• The US nonfarm payrolls data for January showed robust job growth, with 353,000 new jobs added, surpassing expectations. The unemployment rate held steady at 3.7%, and wage gains were higher than expected at 4.5% year-over-year. This report suggests a resilient labour market, potentially impacting inflation and Fed policy decisions. 
• In January, the Caixin China General Service PMI slightly decreased to 52.7 from the previous month’s five-month high of 52.9, primarily due to softer growth in new orders. Despite this, the service sector continued its expansion for the 13^th consecutive month, supported by increased demand and rising employment. Input prices rose modestly, while output prices fell for the first time since April 2022, signalling increased competition. Business sentiment also declined to a three-month low, reflecting cautious optimism. 
• Alibaba Group plans to sell consumer sector assets, including Freshippo and RT-Mart, as it refocuses on core e-commerce business. Talks with investors are ongoing. The move aligns with a broader restructuring effort under new CEO Eddie Wu to prioritise profitable ventures amid regulatory scrutiny and market challenges. 
• Exxon Mobil surpassed expectations with a $36 billion profit for 2023, buoyed by fuels trading and increased oil and gas production. Despite a challenging market impacted by fluctuating energy prices, Exxon’s strategic investments and cost-cutting measures contributed to a strong financial performance, with optimism for the year ahead. 
• Chevron Corp beat earnings estimates with adjusted earnings of $3.45 per share in Q4. Despite a sharp drop in profits, Chevron increased dividends by 8%, returning a record $26.3 billion to shareholders. Higher oil and gas production targets for 2024 were announced. 
• TotalEnergies is considering selling a 50% stake in a renewable energy portfolio valued at around $2.5 billion, comprising wind and solar projects in the US and Europe. This move aligns with industry trends as companies seek to offset rising costs and fund new ventures through asset sales. 
• AbbVie reported Q4 adjusted earnings of $2.79 per share, surpassing analyst estimates by $0.02, with revenue reaching $14.3 billion, exceeding expectations. Despite a decline in adjusted EPS and revenue, attributed in part to factors like the impact of acquired IPR&D and Humira revenues decrease, AbbVie’s non-Humira growth platform performed strongly. CEO Richard Gonzalez expressed confidence in the company’s outlook for FY2024. Truist analysts maintained a Buy rating, anticipating 2024 as a trough year for AbbVie. 
• Bristol-Myers Squibb shares closed flat on Friday after reporting better-than-expected Q4 earnings and revenue. With EPS at $1.70 (vs. $1.60 estimated) and revenue of $11.48 billion (vs. $11.2 billion expected), boosted by strong performances from Eliquis, Opdivo, Revlimid, and Reblozyl. Full-year 2024 EPS guidance is $7.10-$7.40. 
• Regeneron Pharmaceuticals dropped over 1% on Friday after reporting Q4 earnings of $11.86 per share, surpassing estimates of $10.62, with revenue reaching $3.43 billion, beating expectations. Eylea sales fell short at $1.34 billion, while Dupixent sales exceeded estimates at $2.49 billion. Fiscal year R&D and SG&A expenses were forecasted. 
• Mercedes-Benz shares surged 2% on Friday after reporting preliminary free cash flow results for 2023 at €11.3 billion, exceeding consensus estimates by 14% and marking a significant 21% increase from 2022. Improved working capital and cash conversion drove the outperformance, with investors awaiting full-year guidance on 22^nd February. 
• Jefferies maintained a Buy rating on Meta Platforms Inc. and raised the price target to $550.00 from $455.00, citing Meta’s strong performance in digital advertising. The firm increased revenue estimates for 2024 by 5%, reflecting a 22% growth projection, leading to adjusted EPS estimates for 2024 and 2025. 
• Bank of America analysts raised NVIDIA’s price target to $800 from $700, maintaining a Buy rating. They anticipate a 3-5% upside to reported and guided earnings, emphasising the company’s compelling valuation and its potential for continued growth driven by AI demand and partnerships in the enterprise sector. 
• Jefferies raised Apple Inc’s price target to $205 from $195, maintaining a Buy rating. The decision reflects confidence in Apple’s resilience amid challenges, citing strong financial performance and promising guidance. Despite COVID-19 impacts and supply chain delays, Apple’s diversified offerings and global reach contribute to its positive trajectory. 
• Jefferies upgraded SAP SE to Buy from Hold, raising the price target to €190 from €135 per share. The move follows the company’s strong 4Q23 performance, addressing concerns about cloud backlog growth sustainability. Analysts highlighted upgrades to FY25 guidance and a €2 billion restructuring program to fund investments in AI. 
• Citi Research reiterated a Buy rating on Volkswagen and raised their 12-month price target to $158.00 from $146.00. They cited improved sales, earnings, and strategic decisions. Volkswagen’s Q4 2023 sales surpassed 2.5 million units, potentially indicating a 7%-8% increase in global volumes for FY24. Citi projects VW’s underlying EBIT at €23 billion. 
• In the week ahead, the focus in the United States will be on corporate earnings reports from McDonald’s, Caterpillar, Disney, Uber, and more. Investors will also track insights from Federal Reserve officials and key economic indicators. Elsewhere, attention turns to interest rate decisions in Australia and India, alongside inflation rates across several countries.