August started volatile and ended tame

August ended on a positive note for Wall Street, with the S&P 500, Dow Jones, and Nasdaq all closing higher on Friday, capping a fourth consecutive month of gains. The Dow hit multiple all-time highs last week, while the S&P rebounded from early August losses driven by recession fears. Economic data, including tame inflation figures, bolstered hopes for a September Fed rate cut, though concerns linger as September historically challenges markets.

Summary for 02.09.2024

Asian markets had a subdued start on Monday, with Japan's Nikkei rising 0.5%, extending last week's gains, while South Korean stocks edged up 0.1%. The MSCI Asia-Pacific index outside Japan was mostly flat. Chinese blue chips fell 0.6%, led by real estate losses, despite a slight improvement in manufacturing activity as shown by the Caixin PMI survey.

It’s a quiet start to the month this morning with European and Wall Street futures little changed amid a holiday in the US sapping liquidity ahead of a deluge of data culminating in US payrolls on Friday.

Oil prices fell at the start of the week as investors weighed increased OPEC+ production from October against reduced Libyan output and weak demand in China and the US. Brent dropped 0.7% to $76.36, while WTI fell 0.7% to $73.05. Concerns over China’s slowing economy and U.S. oil consumption added pressure, with analysts suggesting OPEC may delay production hikes to support prices.

The core PCE price index rose 2.6% annually in July, below estimates, with monthly increases staying below 0.2% for three consecutive months, aligning with the Federal Reserve's 2% target. Headline PCE remained steady at 2.5%, also below expectations. Consumption expenditures grew 0.5% in July, outpacing income growth of 0.3% and indicating consumer resilience, though a slowdown is anticipated. These trends support the Fed's plan to begin rate cuts starting in September.

China's manufacturing activity grew in August as new orders drove production, lifting employment and confidence, according to the Caixin/S&P Global PMI, which rose to 50.4. However, new export orders fell for the first time in eight months, raising concerns. Price pressures eased, and manufacturers became more optimistic, though challenges remain in meeting the government's growth targets.

In August, the Eurozone's annual inflation rate dropped to 2.2% from 2.6% in July, marking the lowest increase since July 2021, as falling energy costs played a key role. While inflation slowed for industrial goods, it increased for services and food. Core inflation, excluding energy and unprocessed food, remained steady at 2.8%. Monthly HICP rose by 0.2%.

The Dutch government has imposed new restrictions on ASML’s ability to service and provide spare parts for advanced deep ultraviolet (DUV) machines in China. JPMorgan estimates this will result in a 1% revenue reduction and a 1.25% decrease in gross margins for ASML in 2025. Wells Fargo also views the impact as minor, predicting a small effect on service revenue, given it constitutes only 2% of total revenue.

Sanofi's multiple sclerosis (MS) drug candidate tolebrutinib missed its primary goal in two Phase III trials for relapsing MS, showing no advantage over its existing drug Aubagio. However, it met the main goal in a separate trial for a less common progressive form of MS, slowing disability progression. Sanofi plans to seek regulatory approval by late 2024.

Rumours suggest Sony might launch a PS5 Pro, with Citi analysts noting it could enhance margins and earnings, depending on the cost structure. The timing aligns with a typical product cycle and could be influenced by recent industry challenges and competitor moves. However, risks include potential adoption slowdowns and minimal cost reductions. Analysts believe a PS5 Pro announcement could positively impact Sony's share price.

China's State Administration of Market Regulation announced that Alibaba has completed three years of "rectification" following a 2021 fine of $2.75 billion for monopolistic practices. The regulator noted positive results and will continue guiding Alibaba on compliance. Alibaba views this as a "new starting point" and aims to foster a healthy platform economy and societal value.

Intel CEO Pat Gelsinger will propose cost-cutting measures, including selling the Altera unit and reducing capital spending, to the board in mid-September. The plan may involve splitting core products from manufacturing. Amid a 60% share drop this year, Intel's exploration of strategic options, including potential mergers, boosted shares 9.5% Friday, as the company struggles against Nvidia's gains.

HSBC upgraded CrowdStrike Holdings Inc. to Buy from Hold, raising its target price to $339, citing confidence that the company’s challenges are behind it. Despite a July IT outage impacting multiple industries, CrowdStrike reported a 32% revenue increase and a 41% rise in non-GAAP EPS for Q2 FY25. The company’s long-term growth prospects remain strong, bolstered by its AI-driven advantages. Additionally, Adam Meyers from CrowdStrike will testify before a US House subcommittee on 24 September regarding the outage's global impact.

Evercore ISI analysts suggest Dell is well-positioned to benefit from challenges faced by Super Micro Computer in the AI server market. Dell's strong service offerings and dual-sourcing strategies with key customers could enhance its market share. Evercore projects Dell’s AI server revenues to exceed $8 billion this year and over $10 billion by 2025, supported by a growing market expected to reach $56 billion by 2027.

Barclays analysts maintain a positive outlook on the AI investment theme despite recent market volatility and high expectations surrounding Nvidia. While Nvidia's intense growth may moderate, Barclays sees this as beneficial for broader market returns. The bank highlights the AI sector's attractiveness and suggests adding to EU tech positions during market dips, despite risks from tech sector dominance and external factors like European elections.

The market's attention this week will centre on Friday’s August employment report, with expectations for a Federal Reserve rate cut. Key labour market updates include Wednesday’s Jolts report and Thursday’s ADP hiring data. Oil prices may stay under pressure from rising OPEC+ supply and economic uncertainties. Additionally, Europe will see a host of PMI data reported today with August numbers coming from Spain, Italy, France, Germany, the UK and the eurozone.

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