Conservatives win German election

General market commentary

U.S. equities suffered a sharp decline on Friday, with the S&P 500 falling 1.7%, the Nasdaq 100 dropping 2.1%, and the Dow Jones plunging 748 points. Concerns over slowing economic growth, inflation, and weak consumer sentiment contributed to the downturn, alongside a disappointing outlook from Walmart and the ongoing investigation into UnitedHealth. Investors sought safer assets amid growing fears over the impact of economic policies, particularly President Trump’s tariff stance.

Market leadership is broadening in 2025, shifting away from the dominance of the "Magnificent 7" tech stocks that drove 2024’s S&P 500 gains. Financials, energy, and healthcare are now leading, indicating more balanced earnings growth. U.S. Treasury yields have stabilised at around 4.5%, while European equities are outperforming, supported by a weaker dollar and stronger economic data, though uncertainty remains about the sustainability of this trend.

In Germany, the conservative CDU/CSU victory has been met with relief, with the euro rising to a one-month high. Friedrich Merz is now working to form a coalition government, with a potential partnership with the SPD. Meanwhile, the EU is preparing for a summit to discuss further support for Ukraine and Europe’s growing defence needs, which could involve more debt issuance and changes to budget rules. Elsewhere, U.S. consumer inflation expectations have risen, likely worrying Federal Reserve policymakers ahead of the PCE inflation report.

Latest market and economic update

Most Asian equities declined on Monday, following steep losses on Wall Street due to concerns over a cooling U.S. economy and ongoing trade tensions under President Trump, with the tech sector in particular facing pressure ahead of Nvidia's earnings report. While some markets, like Japan and Singapore, saw modest gains, tech-heavy indices in South Korea and Hong Kong retreated, with Chinese stocks stabilising after recent rallies, and Australian shares remaining flat after a five-day losing streak.

European equity markets are set for a positive open, with DAX futures rising 1.1% and the euro strengthening on the back of Germany’s election results, while EUROSTOXX 50 and FTSE futures also showed gains. Meanwhile, U.S. equity futures firmed, with S&P 500 and Nasdaq futures up 0.5%, as investors eagerly await Nvidia's earnings report this week amid broader concerns over inflation and tariffs.

European equities closed slightly higher on Friday, with the STOXX 50 up 0.3% and the STOXX 600 gaining 0.5%, as markets assessed PMI data and corporate earnings while preparing for upcoming German elections. Air Liquide surged over 3% following strong fourth-quarter results, and outside the Eurozone, Novo Nordisk rose 5.5% after resolving drug shortages for Wegovy and Ozempic.

The US dollar weakened by 0.4% to around 106.2 on Monday, reaching an 11-week low, as the euro surged following Germany's general election and is now trading at 1.0518. The dollar’s decline is also linked to growing concerns over the US economy, which could prompt the Federal Reserve to cut interest rates, while traders await key economic data, including the PCE price index and the second estimate of Q4 GDP growth.

Oil prices have edged lower following weaker-than-expected U.S. economic data, raising concerns about reduced demand, while investors also weighed the potential impact of a Russia-Ukraine peace deal on global oil supply. Although recent supply disruptions and OPEC+ deliberations to delay production hikes have capped losses, the prospect of a peace agreement and its effect on Russian energy exports has added to market uncertainty.

Equities on the move

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

Nvidia has secured over 70% of TSMC's advanced chip packaging capacity for 2025, driven by strong demand for its next-generation Blackwell AI chips, according to reports. This partnership, coupled with continued capital spending on AI by major tech companies, is expected to boost both Nvidia and TSMC as AI infrastructure grows in demand, with Nvidia's earnings report this week set to be a key indicator for the industry.

Alibaba plans to invest the equivalent of $52.4 billion over the next three years to enhance its cloud computing and AI infrastructure, aiming to strengthen its global position in AI-driven growth. The move comes after strong quarterly results, with Alibaba Cloud posting an 11% revenue increase and AI-related products continuing to show robust growth, positioning AI as a key long-term focus for the company.

Berkshire Hathaway reported record operating earnings of $47.4 billion for 2024, a 27% increase from the previous year, driven by strong performance in its insurance businesses and a significant rise in investment income. The company's cash reserves reached a new high of $334.2 billion, while Warren Buffett indicated that Greg Abel is poised to succeed him as CEO, with Abel expected to write future annual letters to shareholders.

CrowdStrike Holdings' shares fell 6.8% Friday amid an investigation by the U.S. DOJ and SEC into a $32 million deal with Carahsoft Technology Corp, which involved selling cybersecurity tools to the IRS that were never purchased. The scrutiny focuses on the timing of the transaction and revenue recognition practices, raising concerns about the potential impact on CrowdStrike's financial reporting.

Shares of Hims & Hers Health Inc plummeted over 20% on Friday after the FDA announced the end of the supply shortage for Novo Nordisk's Ozempic and Wegovy, affecting Hims & Hers' ability to sell lower-priced versions. Analysts expressed concerns about the company's growth, with BofA maintaining an Underperform rating and a price target of $21, while Leerink Partners set a target of $24.

Barclays and JPMorgan have raised their price targets for Alibaba Group following strong quarterly results, with JPMorgan increasing its target to $170 and Barclays to $180, both maintaining an Overweight rating. The firms highlighted Alibaba's growth in e-commerce monetization and potential in cloud and AI as key drivers for the stock's positive outlook.

Mizuho raised its price target for Intel to $23 from $20, citing the potential growth of its foundry unit under a renewed push by the Trump administration to increase US chip production, particularly for AI chips. Despite ongoing challenges, including leadership changes and market share losses, Mizuho sees the company benefiting from government support, although Intel may face pressure from competitors like Broadcom and TSMC.

Bernstein raised its target price for Sony Corp to 4,600 yen, citing strong growth prospects across its gaming, music, entertainment, and chipmaking divisions, with particular optimism around PlayStation's performance and upcoming game releases. The brokerage also highlighted consistent growth in Sony’s image sensor business, a rebound in music streaming, and positive trends for Crunchyroll, forecasting a 17% increase in the company's operating income in fiscal 2025.

Mizuho believes concerns over a potential tax increase on cruise lines are overstated and already reflected in equity prices, seeing the recent selloff in Carnival, Royal Caribbean, and Norwegian Cruise Line as a buying opportunity. The firm noted that significant tax changes are unlikely and any tax would likely only affect portions of U.S. itineraries.

Upcoming data and events

This week, investors will focus on speeches from Federal Reserve officials and key economic data, including personal income, PCE price indices, and Q4 GDP growth estimates. Additionally, housing data and global inflation figures will be released, alongside Germany's Ifo Business Climate Index and consumer confidence metrics. On the earnings front, Nvidia’s quarterly results on Wednesday evening will dominate attention.

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