BOJ rules out rate hikes in volatile markets

US equities rebounded on Tuesday, with the S&P 500 and Nasdaq each up 1% and the Dow Jones adding 293 points, as investors eased recession concerns. Gains in real estate and tech shares, along with strong earnings from Palantir, Uber, and Caterpillar, supported the rise. Meanwhile, the Euro STOXX 50 fell 0.1% despite a 3.9% rise in German factory orders. Weak Euro Area retail sales and declines in financial equities, including BNP Paribas and Deutsche Boerse, weighed on the index, while Bayer fell nearly 6% due to disappointing earnings, and ASML, Airbus, and SAP posted gains.

Summary for 07.08.2024

Most Asian shares rose on Wednesday, led by more gains in Japanese markets after the Bank of Japan's said interest rates will not be hiked when markets are so volatile. While Japan and South Korea saw good performances, gains elsewhere were modest due to ongoing concerns about a global economic slowdown. Chinese equities lagged amid weak economic sentiment and limited stimulus details.

European equity markets are set to open strongly while US markets also turned higher after edging lower earlier amid renewed weakness in technology shares following disappointing earnings from Super Micro Computer Inc.

Oil prices fell this morning, pressured by concerns over slowing economic growth and weak demand, despite a smaller-than-expected increase in US inventories. Traders remain cautious about potential escalations in the Israel-Hamas conflict. The American Petroleum Institute reported a 180,000-barrel increase in US oil inventories, below expectations, while gasoline and distillate stockpiles rose, indicating cooling demand as the summer travel season ends.

The Bank of Japan's deputy governor assured that interest rates won’t be raised if market conditions remain unstable. This reassurance aimed to calm investors concerned about the yen's recent surge and the unwinding of yen carry trades, ensuring that monetary policy remains supportive amid market turbulence.

China’s trade surplus fell to $84.65 billion in July, below expectations of $97.5 billion and down from $99.05 billion in June. Exports grew 7%, less than the anticipated 9.7%, partly due to new EU tariffs on electric vehicles. Meanwhile, imports surged 7.2%, surpassing forecasts and indicating resilient domestic demand despite cooling global growth.

Airbnb's forecast for third-quarter revenue fell short of estimates, with projected earnings between $3.67 billion and $3.73 billion, below the $3.84 billion forecast. The company reported a profit of 86 cents per share, missing the 92-cent estimate. Shares dropped 16.6% as shorter booking windows and economic uncertainty weighed on expectations.

Tripadvisor’s Q2 earnings exceeded expectations with adjusted EPS of $0.39 but fell short on revenue, which was $497 million versus the $505 million forecast. Despite a 12.2% after-hours drop in shares, the company reported net income of $24 million and adjusted EBITDA of $97 million, highlighting strong segment contributions.

Super Micro’s Q1 earnings missed estimates but the company issued optimistic revenue guidance for the current quarter and announced a 10-for-1 share split starting October 1. Adjusted Q1 earnings were $6.25 per share on $5.31 billion in sales, below expectations. The company projects 2025 sales of $26-$30 billion, less than estimates. Shares fell 13.3% in after-hours trading.

Fortinet's shares surged 16.5% after hours on Tuesday following a strong Q2 earnings report, with adjusted EPS of $0.57 surpassing estimates. Revenue of $1.43 billion exceeded forecasts, driven by a 19.8% increase in service revenue. The company raised its 2024 guidance for revenue and EPS, reflecting continued growth and profitability.

Uber's Q2 earnings exceeded expectations, with revenue up 16% to $10.70 billion and gross bookings rising 19% to $39.95 billion. The company reported a profit of 47 cents per share, surpassing estimates. Shares rallied nearly 11% in regular trading on Tuesday, driven by strong demand for ride-sharing and delivery services.

Caterpillar surpassed Q2 profit expectations with a $5.99 per-share profit, driven by higher prices and reduced manufacturing costs. Despite this, moderating demand and weaker sales in Asia-Pacific and EAME regions pressured results. The company projected a higher annual profit but warned of potential price moderation and lower volumes in the second half.

Amgen's second-quarter profit slipped 1% despite a 20% revenue increase to $8.39 billion, driven by its Horizon Therapeutics acquisition. The adjusted EPS of $4.97 missed estimates. Sales of Repatha and Tepezza rose, while Enbrel declined. Amgen plans significant investment in its experimental obesity drug, MariTide, and raised its 2024 revenue and earnings forecasts.

Reddit forecasted third-quarter revenue between $290 million and $310 million, surpassing Wall Street's $278.7 million estimate, as digital ad spending recovers. Despite a 4.5% drop in extended trading, Reddit's second-quarter revenue rose 54% to $281.2 million, with a narrower-than-expected loss. Analysts cited low ARPU growth and the upcoming end of the pre-IPO lockup as concerns.

Rivian reported a wider Q2 loss of $1.46 per share on $1.14 billion in revenue, missing estimates. The company produced 9,612 vehicles and delivered 13,790, fewer than in Q1. Shares fell 7% after hours. Rivian introduced second-generation R1 vehicles and announced a $5 billion tech joint venture with Volkswagen.

Microsoft attributed Delta Air Lines' extended flight disruptions to the airline's outdated IT infrastructure, following a software update from CrowdStrike. Delta, which has invested heavily in IT, disputes this and is seeking damages from Microsoft and CrowdStrike. Delta's CEO criticised Microsoft's platform, while Microsoft and CrowdStrike deny responsibility and claim their offers of assistance were ignored.

Morgan Stanley upgraded Taiwan Semiconductor Manufacturing Company to its top pick, citing the company's defensive qualities and robust AI-driven capital expenditure, with projections of over 55% gross margin by 2025. Despite recent share declines linked to Nvidia's AI chip delays, Citi analysts view this dip as overstated. They highlight TSMC’s continued strong earnings growth and positive chip demand from AI, CPUs, and smartphones, reinforcing the company's robust outlook for the year.

New Street Research upgraded Nvidia to a Buy with a $120 target price, citing the recent 26% share decline as an opportunity. Despite a delay in Nvidia's Blackwell chip, the firm remains positive on Nvidia’s AI market dominance and believes the equity offers value amid expected growth in AI semiconductor spending.

Piper Sandler upgraded CrowdStrike to Overweight, citing a compelling risk/reward ratio despite a 42% drop in its shares. Analysts expect the impact of the recent outage to be short-lived, noting CrowdStrike’s strong cash flow and insurance coverage. They trimmed the price target from $310 to $290 but see investment opportunities.

BofA notes that despite a 6.9% drop in airline shares in July, some profitable airlines are now trading at significant discounts due to weaker guidance and negative EBITDAR revisions. United Airlines and Alaska Air offer the steepest discounts, while JetBlue and Spirit are trading at elevated premiums. BofA sees the current low valuations of profitable airlines as a potential investment opportunity.

Citi strategists expect further Fed rate cuts in September and November due to disappointing economic data, leading to a market reevaluation. They highlight that markets have adjusted to more realistic EPS outcomes but recommend waiting for clearer signs of stabilisation before increasing equity exposure. Citi has upgraded US equities to Overweight and global Communication Services to Overweight, emphasising a shift towards defensive strategies.

Goldman Sachs strategists also believe the recent market correction could continue but a bear market remains unlikely. They cite high valuations, economic slowdown, and rising unemployment as factors behind the correction, but note that a recession is not imminent. Elevated cash reserves and strong balance sheets help mitigate systemic risks.

Bridgewater Associates believes Japan's recent equity sell-off was exaggerated and considers Japanese shares still somewhat attractive. The hedge fund cited an overreaction to economic conditions and noted that the rebound and unwind of yen-funded trades had exacerbated the market moves. Global macro funds have faced losses due to unexpected yen strength.

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