General market commentary

U.S. equity markets closed modestly lower on Thursday as investors weighed retail-sales data and corporate earnings. Retail sales for December rose by 0.4%, with control-group sales increasing by a robust 0.7%, signaling continued consumer spending momentum. Meanwhile, fourth-quarter earnings from financial institutions like Bank of America and Morgan Stanley exceeded expectations, following strong results from JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo earlier in the week. This bolstered the financials sector, driving a weekly gain of over 5% for the S&P 500's financials segment. Despite these gains, the S&P 500 and Dow Jones Industrial Average both declined 0.2%, while the Nasdaq Composite shed 0.9%, weighed down by weakness in the technology sector. Mid-cap equities outperformed, with the Russell Mid-cap Index climbing close to 1%. Bond yields ended the day lower, with the 10-year Treasury yield settling at 4.62%.

Corporate news was mixed, with UnitedHealth Group shares falling 6% after missing revenue expectations despite annual growth in results, while Morgan Stanley shares rose 4% on better-than-anticipated earnings driven by strong investment banking activity. Bank of America also posted solid results, though its shares slipped slightly. In commodities, West Texas Intermediate crude oil dropped 1.8% to $78.63 per barrel, while gold gained 1%, closing at $2,745.20 per troy ounce. Economic data reflected a complex picture, with U.S. homebuilder confidence climbing unexpectedly, manufacturing activity in the Mid-Atlantic reaching multiyear highs, and unemployment claims showing mixed signals. The Federal Reserve is expected to keep interest rates steady, with potential rate cuts in 2025 if inflation continues to moderate. Overall, the backdrop remains supportive for ongoing economic expansion and a sustained bull market.

Latest market and economic update

Most Asian markets rose on Friday, supported by strong Chinese economic data, though Japan's Nikkei 225 fell on expectations of an interest rate hike by the Bank of Japan. Regional equities saw mixed performance, with gains in the Philippines and Indonesia, while India's Nifty 50 and South Korea's KOSPI declined.

U.S. equity futures are expected to open modestly higher on Friday, with investor focus on key earnings reports and economic data. Market participants will also be closely watching the movement of bond yields, as further comments from Federal Reserve officials may influence expectations for future rate cuts.

European shares rose nearly 1% on Thursday, boosted by Richemont's strong earnings and gains in semiconductor equities following TSMC's record profit. Luxury shares outperformed, with Richemont, LVMH, and other high-end brands seeing significant gains, while the tech index climbed after positive chipmaker results and expectations of further European interest rate cuts.

The dollar index fell below 109 on Friday, marking its first weekly decline in seven weeks, as expectations for further Federal Reserve rate cuts grew. Against the euro, the dollar traded at 1.0298, reflecting broader weakness, particularly amid speculation that the Bank of Japan may raise rates next week.

The yield on the 10-year US Treasury note declined to around 4.61% on Friday, marking its largest weekly drop since late November, following weaker-than-expected US inflation data. Markets are now pricing in more Federal Reserve rate cuts, with expectations for a total of 41 basis points of easing this year, although the Fed is still expected to keep rates steady in the near term.

U.S. President-elect Donald Trump plans to make cryptocurrency a national policy priority, potentially creating a crypto advisory council and pausing litigation against crypto firms, Bloomberg reported. Bitcoin, currently priced at $100,285.5, has rallied significantly on optimism surrounding Trump's pro-crypto stance, with the move marking a sharp shift from prior regulatory crackdowns.

Oil prices rose slightly on Friday, with Brent at $81.63 and WTI at $78.24 per barrel, supported by strong Chinese economic data boosting demand optimism. Gains were tempered by easing Middle East tensions and expectations of a Houthi ceasefire, while U.S. sanctions on Russian oil exports added upward pressure.

China’s economy grew 5.4% year-on-year in Q4 2024, exceeding expectations, as aggressive stimulus measures supported manufacturing, reduced state debt, and boosted the property market. The economy achieved its 5% growth target for the second consecutive year, but growth is projected to slow to 4.5% in 2025 amid trade tensions with the U.S. and deflationary pressures.

The World Bank warned that U.S. tariffs could reduce global growth in 2025 by 0.3 percentage points if other countries retaliate, with developing economies facing their weakest long-term growth outlook since 2000. Global trade growth is expected to stay below pre-pandemic levels, with rising trade tensions, inflation, and uncertainty threatening economic stability.

U.S. retail sales rose 0.4% in December 2024, with strong gains in furniture, home, and sporting goods stores, while control-group sales exceeded expectations with a 0.7% rise. Robust consumer spending, supported by healthy household finances, moderating inflation, and a strong labour market, continues to drive U.S. economic growth.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Rio Tinto and Glencore have reportedly held talks about a potential merger, with the aim of combining their copper production to rival that of BHP. While the deal could create a major player in the copper market, it remains unclear whether the merger will proceed, as both companies are major forces in the mining sector and face market and regulatory challenges.

BP is cutting 4,700 jobs and 3,000 contractor positions as part of CEO Murray Auchincloss' plan to reduce costs and rebuild investor confidence. The company aims to save $2 billion by 2026 while refocusing on its oil and gas operations, moving away from the renewable energy push of its predecessor.

Bank of America reported fourth-quarter earnings of $0.82 per share, exceeding analysts' expectations, with revenue slightly surpassing estimates at $25.3 billion. The company highlighted growth in deposits and loans, and is on track to increase net interest income in the year ahead, though shares were down slightly after a 7% rally since the start of the year.

Morgan Stanley's fourth-quarter earnings per share of $2.22 significantly beat analysts' expectations, with revenue rising 25.9% year-over-year to $16.23 billion. The strong performance was driven by a 51% increase in equity trading revenue and continued improvement in investment banking.

UnitedHealth Group shares fell 6% yesterday after the company reported fourth-quarter revenue of $100.81 billion, slightly missing analysts' expectations. Although earnings per share exceeded forecasts, the rise in operating costs ended a 17-quarter streak of revenue beats.

Taiwan Semiconductor Manufacturing Co reported a record quarterly profit, with a 57% jump in net income, driven by strong demand for AI chips. Despite facing potential challenges from US export restrictions and political uncertainty, TSMC remains optimistic, forecasting robust revenue growth and increased capital spending in 2025.

Target raised its holiday-quarter sales forecast after strong demand for clothing, toys, and beauty products, but concerns over profit margins led to a nearly 1% drop in shares. Despite record sales on Black Friday and Cyber Monday, the retailer maintained its profit guidance, citing margin pressures from inventory buildup and increased discounting.

Richemont's sales surged 10% year-on-year, exceeding expectations, with strong performance during the holiday season, particularly in the Americas and Europe. The result boosted optimism for the luxury goods sector, though analysts remain cautious about the broader industry's recovery.

A SpaceX Starship rocket broke apart minutes after launch from Texas, disrupting air traffic over the Gulf of Mexico and delaying flights. Elon Musk attributed the failure to a liquid oxygen fuel leak, but SpaceX plans to continue tests, aiming to launch again next month despite potential FAA investigations.

BofA Global Research maintained a "Buy" rating and $140 target price for Walt Disney, despite uncertainties in fiscal 2025, citing potential headwinds from cruise costs, hurricanes, and weak NBA ratings. The firm remains optimistic about Disney's long-term prospects, with strengths in its premium IP, theme parks, ESPN, and upcoming film releases, alongside opportunities in streaming and sports broadcasting.

Bank of America upgraded LVMH to "Buy" and raised its price target to €735, citing signs of recovery in the luxury sector, particularly in Fashion & Leather. The firm also highlighted the potential for earnings growth driven by improved demand in the US and China, along with effective cost management strategies.

UBS Global Research upgraded Zalando to "buy," citing market share gains, improved profitability, and strong growth prospects, particularly through its B2C and B2B segments. The firm raised its price target to €40, noting the potential benefits of Zalando's operational improvements and its possible acquisition of About You.

Upcoming data and events

Today, the US will release key indicators including building permits, housing starts, and industrial production. These reports will offer insights into the housing market and overall industrial activity.

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