China proxies lead market higher

On Tuesday, U.S. and European equities fluctuated amid mixed economic signals. Wall Street ended at record highs despite weak U.S. consumer confidence data, driven by optimism over China's economic measures. Chinese equities rallied over 4%, lifting U.S. materials and industrials. Tech shares, particularly Nvidia, also gained. Meanwhile, U.S. Treasury yields dipped, reflecting growth concerns, while expectations rose for a November Fed rate cut. European markets were buoyed by stronger economic prospects, with attention shifting to upcoming earnings from consumer-focused companies.

Summary for 25.09.2024

• Most Asian stocks rose on Wednesday, led by significant gains in Chinese markets following new stimulus measures from Beijing aimed at boosting economic growth. The Shanghai Shenzhen CSI 300 and Shanghai Composite indices surged around 3%, while Hong Kong's Hang Seng climbed 2.5%. Despite this, analysts caution that the stimulus may not be enough for a complete economic turnaround. South Korea's KOSPI and Japan's Nikkei also posted modest gains, while Australia's ASX 200 remained flat due to mixed inflation signals and a hawkish Reserve Bank of Australia.

• U.S. and European markets are expected to open steady following Tuesday's record highs, driven by Nvidia's strength. Investors are now focusing on key events, including Federal Reserve Chair Jerome Powell's upcoming address and the release of PCE inflation data, which could provide more clarity on future interest rate cuts. Cautious sentiment may prevail as markets await further cues on monetary policy direction.

• Oil prices steadied on Wednesday after Tuesday’s 1.7% rise, driven by China's economic stimulus. However, fading optimism for China's recovery tempered gains, while falling U.S. crude and fuel inventories provided support. Rising tensions between Hezbollah and Israel, along with declining U.S. oil stockpiles, also influenced the market. A hurricane shifting away from key U.S. oil-producing regions further eased supply concerns.

• The Asian Development Bank maintained its 2024 growth forecast for developing Asia at 5.0%, driven by strong consumption and tech exports. Inflation projections were revised down to 2.8% for this year. Risks include rising protectionism, geopolitical tensions, and China's weak property market. Despite China’s recent economic stimulus, more government intervention is expected to boost growth, with China's 2024 forecast unchanged at 4.8%.

• Nvidia rallied nearly 4% yesterday after CEO Jensen Huang completed the sale of six million shares to wrap up a trading plan he adopted earlier this year, according to Barron's. This could mean less near-term pressure on the shares from the CEO's sales, through which he grossed more than $713 million at an average price of $118.83 each.

• Visa shares dropped 5.5% on Tuesday following reports that the U.S. Department of Justice plans to file an antitrust lawsuit against the company, alleging it monopolised the debit-card market. This scrutiny adds to ongoing regulatory challenges faced by Visa and Mastercard. Analysts suggest that while the lawsuit may not have immediate long-term impacts, it could create significant uncertainty for the company.

• KB Home missed Q3 earnings expectations, causing shares to drop 6% in after-hours trading. The company reported earnings per share of $2.04, slightly below the $2.06 estimate, with revenue of $1.75 billion. Despite an 8% rise in home deliveries, KB Home’s weaker full-year revenue and operating margin forecasts disappointed investors, alongside a reduced backlog of homes under contract.

• AutoZone reported a lower-than-expected fourth-quarter profit, initially causing shares to drop nearly 5% before closing flat. Despite increased demand for DIY auto parts, inflation and supply chain challenges affected performance. The company’s net income rose to $902.2 million, or $51.58 per share, missing analysts' expectations of $53.53. Overall revenue grew about 9% to $6.2 billion, in line with forecasts.

• The number of personal injury lawsuits against Novo Nordisk and Eli Lilly regarding weight-loss drugs has increased in a Pennsylvania court, with 1,025 cases now filed. Plaintiffs allege that the companies failed to adequately warn about gastrointestinal side effects of GLP-1 receptor agonists like Ozempic and Mounjaro. Both companies maintain that they stand by their products' safety and efficacy and intend to vigorously defend against the claims.

• Country Garden Services, the property services arm of Country Garden, announced Wednesday the sale of its 1.49% stake in Zhuhai Wanda Commercial Management for 3.14 billion yuan ($446.54 million). The sale is part of its strategy to streamline investments, recover capital, and refocus on core operations. The company, currently undergoing offshore debt restructuring, reported a 38% drop in first-half 2024 profit.

• Raymond James has resumed coverage of Uber with a "strong buy" rating, highlighting its growth potential from autonomous vehicles and projected revenues of $43.42 billion in 2024. DoorDash is rated "outperform," expecting revenue growth to $10.59 billion in 2024, while Lyft received a "market perform" rating due to competitive challenges. Instacart was initiated with a "market perform" rating, reflecting concerns over advertising demand despite its strong grocery logistics positioning.

• Piper Sandler upgraded Salesforce to "overweight" from "neutral," citing an attractive risk-reward profile. The firm expects free cash flow per share to double to $20 by 2029, even with subdued growth of 8-9%. Analysts noted Salesforce's low valuation compared to peers and highlighted potential for broader multi-cloud adoption. The price target was raised to $325 from $268, following discussions with the company’s leadership.

• Oppenheimer analysts have initiated coverage of Pinterest with an "Outperform" rating and a $45 price target, highlighting the company's potential for growth in engagement and advertising. This comes just a day after Deutsche Bank upgraded Pinterest to "Buy" with a $43 price target, marking the second upgrade in two days. Despite having the smallest daily active user base among social media firms, Pinterest reported 522 million monthly active users in Q2, exceeding expectations.

• Redburn Atlantic downgraded BP and ExxonMobil due to a cautious outlook for the oil market, lowering its Brent crude price forecast for 2025+ from $80 to $75 per barrel. BP was downgraded from Buy to Neutral with a target price cut to 500p, reflecting concerns over reduced buybacks and financial vulnerability. Exxon was also downgraded to Neutral, facing valuation concerns despite a strong balance sheet. Redburn remains optimistic about Shell and Eni.

• Starbucks shares fell 1.1% yesterday following a downgrade by Jefferies from "hold" to "underperform," citing concerns over the sustainability of the recent rally under new CEO Brian Niccol. Jefferies warned of persistent operational and cultural challenges, projecting low single-digit EPS growth for fiscal 2025, and lowered its price target to $76, implying about 20% downside.

• Needham & Company maintains a Buy rating on Apple with a $260 target price, citing three reasons for bullishness. First, Apple is seen as a stable investment amid market volatility, unlike competitors heavily focused on generative AI. Second, its significant share repurchase program is expected to drive EPS growth of 11% in 2025. Lastly, Apple's strong cash position supports accelerated buybacks, enhancing shareholder returns despite concerns about its reliance on the iPhone.

• Macquarie strategists warn of a rising recession risk in Europe during H2 2024, citing weak economic data and structural issues, particularly in Germany. Flash PMIs indicate a deepening slowdown, with Germany's services PMI falling to 50.6. The firm highlights Germany's failure to adapt post-Russian energy reliance and the rise of political polarisation as factors that could exacerbate economic instability and lead to euro depreciation.

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