China stimulus back in focus

On Thursday, US and European equities rose modestly, with markets responding positively to the Federal Reserve’s expected 25-basis-point rate cut, which lowered the fed funds range to 4.5%-4.75%. The S&P 500 gained 0.74% to 5,973.10, the Nasdaq climbed 1.51% to 19,269.46, and the Dow remained nearly flat. In Europe, the Stoxx 50 advanced 1.1% to 4,851, led by gains in luxury and tech shares as investors anticipated favourable impacts from President Trump’s second-term policies. LVMH, Hermes, SAP, and Spain’s BBVA saw notable gains amid improved economic sentiment.

Summary for 08.11.2024

Most Asian equities rose on Friday, tracking Wall Street gains after the Fed’s rate cut and in anticipation of new Chinese fiscal stimulus. China’s CSI 300 and Shanghai Composite led regional gains, while Japan’s Nikkei and Australia’s ASX 200 also advanced. Optimism was bolstered by Trump’s re-election, which cleared market uncertainty despite potential trade risks for Asia.

European and US markets are expected to open relatively steady on Friday, as investors absorb the Federal Reserve’s recent 25 basis point rate cut amid easing inflation and labour market conditions. Thursday’s US market gains, driven by tech shares and optimism around deregulation under President-elect Trump, suggest continued cautious optimism, although tariff and deficit concerns remain.

Oil prices dipped slightly on Friday but were on track for weekly gains, driven by OPEC+ delaying planned production increases and the potential for U.S. supply disruptions due to Hurricane Rafael. Markets also remained cautious amid the ongoing Middle East conflict and anticipated fiscal stimulus measures from China, which could boost demand in the world’s largest oil-importing country.

At its November meeting, the Fed cut the federal funds target range by 25 basis points to 4.5%-4.75%, following September’s 50 basis point reduction. Chair Powell emphasised a data-driven, meeting-by-meeting approach, leaving open the possibility of a December pause but making no commitment. He stated that President-elect Trump’s win would not affect near-term policy decisions.

The Bank of England cut its Bank Rate by 25 basis points to 4.75% yesterday, with 8 out of 9 MPC members voting in favour, citing slowing price growth. September’s inflation fell to a three-year low of 1.7%, while services inflation eased to 4.9%. The Labour Party’s budget is expected to raise inflation by 0.5% and GDP by 0.75% at peak impact.

Taiwan Semiconductor Manufacturing Co reported October sales growth of 29.2% year-on-year, down from nearly 40% in the previous month. Year-to-date revenue growth also slowed slightly to 31.5%. Despite robust AI-related chip demand, TSMC cautioned that demand from other sectors like PCs, smartphones, and consumer electronics remains weak, impacting overall growth expectations for the coming year.

Amazon is reportedly in discussions for a second multi-billion-dollar investment in AI startup Anthropic, following a $4 billion investment last September. Anthropic, which uses Amazon’s cloud services and Nvidia-designed AI chips for its AI model training, previously received $500 million from Alphabet, with a further $1.5 billion pledged.

Elf Beauty is expanding through a partnership with Dollar General, aiming to tap into rural markets and lower-income customers. The affordable cosmetics brand raised its annual sales and profit forecasts, in contrast to struggling rivals like Estee Lauder and L’Oréal. Elf’s products, priced as low as $2, will be available in Dollar General stores, enhancing its reach in underserved areas.

CRH Plc shares rose after strong Q3 results, with a 12% rise in EBITDA to $2.454 billion, driven by asset gains and cost management despite challenging market conditions. CRH projects 10% organic EBITDA growth for the year, bolstered by U.S. and European materials sales. UBS praised CRH’s steady dividend, share buybacks, and strategic acquisitions supporting long-term growth.

Airbnb’s Q3 revenue slightly surpassed expectations at $3.73 billion, up 10%, though profit missed at $2.13 per share due to increased marketing costs in international markets like Brazil and Japan. Booking volumes and revenue growth were driven by strong gains in Asia-Pacific and Latin America, despite early-quarter softness. Airbnb expects Q4 revenue to rise 8-10% year-over-year.

Novo Nordisk’s shares fell to a nine-month low, down over 1%, as disappointing 2025 growth guidance overshadowed strong Wegovy sales. Barclays highlighted that expected sales growth in the high teens for 2025 might fall slightly below current forecasts, while analysts noted that the equity’s high valuation and broad ownership have made it more vulnerable to hedge fund action and market correction.

Fortinet beat third-quarter earnings expectations, with revenue up 13% year-over-year, driven by a 19% rise in service revenue. Despite raising its 2024 forecast, shares fell 4.2% in after-hours trading as billings growth slowed to 6%. Fortinet also boosted its share buyback program by $1 billion, bringing total authorisation to $2 billion.

Under Armour shares surged 20% after raising its annual profit forecast, driven by lower costs and reduced discounting. Founder Kevin Plank’s return as CEO has seen a focus on profitability, with fewer discounts and a higher share of full-price sales boosting margins. Despite a 10.7% drop in Q2 sales, adjusted profit exceeded expectations, signalling potential recovery.

Block’s third-quarter revenue missed expectations at $5.98 billion, reflecting softer consumer spending, though disciplined cost-cutting helped it exceed profit estimates with adjusted earnings of 88 cents per share. Shares dropped over 10% before paring losses. Concerns over Cash App’s compliance, amid regulatory scrutiny, added pressure. Block’s performance lags behind PayPal, whose shares rose 32.5% in 2024.

Motorola Solutions raised its 2024 revenue and profit forecasts, now expecting 8.25% revenue growth and adjusted EPS between $13.63 and $13.68, as demand rises for its security and communication solutions. Q3 revenue reached $2.79 billion, with an adjusted profit of $3.74 per share, both exceeding expectations, driven by increased security investments from major clients like the U.S. and U.K. governments.

Pinterest shares fell over 12% in after-hours trading after its fourth-quarter revenue forecast disappointed, despite strong ad spending seen by larger competitors like Meta and Alphabet. Pinterest announced a $2 billion share buyback and highlighted investments in AI and product initiatives, with expenses set to rise. Third-quarter revenue grew 18%, with global users reaching 537 million, slightly above expectations.

Datadog raised its annual revenue and profit forecasts, citing strong demand for its AI-enhanced cybersecurity products as more customers deploy AI apps in the cloud. Third-quarter revenue reached $690 million, surpassing expectations, with adjusted profit at 46 cents per share. Despite recent gains and high investor expectations, shares showed volatility after the announcement.

Air France-KLM reported a larger-than-expected drop in its quarterly operating profit, with shares falling 11%. The airline group raised its 2024 cost forecast, expecting a 3% rise in unit costs, driven by higher staff, maintenance, and airport fees. Additionally, the proposed French tax hike and higher Schiphol airport fees could further impact profitability, with potential cost increases for passengers.

Rolls-Royce shares dropped over 3% amid aerospace sector challenges. Engine flying hours remain low, impacted by slow Airbus deliveries and supply chain constraints, while delays in certifying Trent 1000 TEN turbine blades may add £10 million in costs. Despite these setbacks, the defense and power systems divisions show strong demand and steady revenue growth, supporting overall performance.

Bank of America raised its Tesla price target from $265 to $350, retaining a “Buy” rating due to potential regulatory benefits under a Trump administration. Analysts suggest federal regulation of self-driving vehicles could accelerate Tesla’s Robotaxi rollout, strengthening its market position. The relaxed environmental policies may also favour Tesla’s growth over competitors in the U.S. EV market.

Baird downgraded JPMorgan to “sell,” urging investors to take profits after a 43% share rise this year. Despite strong fundamentals, analysts view the bank as overvalued, noting it’s “over-earning” on net interest margins and loan provisions. They also question management’s restrained approach to buybacks at current prices, seeing limited benefit to earnings per share.

Jefferies downgraded Palantir from Hold to Underperform due to valuation concerns after recent equity rally, setting a $28 price target. Despite strong fundamentals and impressive growth, Jefferies doubts PLTR can sustain its high valuation. Insider selling and high retail ownership raise concerns of potential volatility if sentiment shifts. Jefferies sees limited upside unless Palantir accelerates growth significantly, which appears unlikely.

Wells Fargo expects Donald Trump’s victory to boost capital markets recovery by reducing regulatory pressures on transactions, benefiting M&A and private equity. The bank anticipates increased activity favouring large caps, alternative asset managers, and wealth managers, while flagging Carlyle, KKR, and Evercore as potential winners. Lazard may underperform due to tariff-related uncertainties, and market rallying could limit organic growth and liquidity.

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