Dovish minutes and jobs data firm rate-cut hopes

US equities ended higher on Wednesday, with the S&P 500 up 0.4%, the Nasdaq 100 gaining 0.5%, and the Dow adding 55 points, driven by expectations of a September rate cut and strong earnings from Target, which surged 11.2%. Meanwhile, European shares also closed higher, with the Eurozone's Stoxx 50 rising 0.6% to a one-month high of 4,885. Gains were led by consumer cyclical names like Hermes and Ferrari, auto manufacturers such as Mercedes and BMW, and chip equities including ASML and Infineon.

Summary for 22.08.2024

Asian markets saw limited gains on Thursday, with Japanese equities leading due to positive services PMI data. However, broader regional performance was subdued as concerns over a potential US recession and revised payrolls data offset optimism from anticipated US rate cuts. China's indices lagged, and other markets showed modest changes amid mixed economic signals.

European markets are set for a higher open while US equity futures were fractionally lower this morning as investors await Fed Chair Jerome Powell’s speech for further hints on interest rate cuts.

Oil prices fell this morning as weak US labour data heightened recession fears, overshadowing optimism about interest rate cuts. Brent crude dropped to $75.95 a barrel and West Texas Intermediate to $71.16. Despite a surprising draw in US inventories indicating strong short-term demand, concerns over a potential economic slowdown and increasing production contributed to the decline.

The Fed's July minutes indicate strong support among officials for an interest rate cut in September, with some advocating for a reduction in July. Most policymakers viewed current rates as restrictive, and ongoing job market concerns and cooling inflation pressures suggest further cuts might be necessary. Consequently, investors priced in 100bps of rate cuts by the central bank this year.

The Bureau of Labour Statistics revised US job growth for the year ending March 2024, revealing 818,000 fewer jobs than initially reported. This adjustment indicates a faster cooling of the job market, averaging about 68,000 fewer jobs per month. In early August, the BLS reported a gain of 114,000 jobs for July, falling short of both the revised June total of 179,000 and the forecast of 175,000.

In early August, Japan's manufacturing PMI fell to 49.5, indicating contraction due to production issues in major automakers like Toyota. However, the services sector improved, with a PMI of 54, driven by stronger domestic demand and higher wages. Overall, while manufacturing struggled, the robust services sector kept Japanese business activity in expansion.

Deutsche Bank has settled with over half of the plaintiffs who accused it of underpaying for Postbank, resolving 60% of the claims, including the largest one. This settlement, using 45% of the bank's provisions for payouts, will allow Deutsche Bank to reduce its provisions by €430 million, positively impacting Q3 earnings. The litigation, which has been ongoing for years, now poses less risk and cost to the bank.

Brookfield is negotiating with banks, including Bank of America and UBS, to raise up to $10.6 billion for a potential takeover of Spanish drugmaker Grifols, which is considering a joint bid with the Grifols founding family to de-list the company. The move, aimed at refinancing Grifols' debt, boosted its shares by up to 6%. Grifols is currently dealing with significant debt and has faced scrutiny from short-sellers.

Ford has scrapped plans for a three-row electric SUV and delayed the new electric F-150 to focus on cost reduction and demand stimulation. The company will now invest more in hybrid vehicles and add a new mid-sized electric pickup and van to its lineup. Ford's shift includes reducing EV capital spending and relocating battery production to cut costs. The F-150 Lightning’s launch is postponed to late 2027, anFord will start producing electric commercial vans in 2026.

Stellantis CEO Carlos Tavares is on a three-day visit to Detroit to address the struggling North American operations, which are crucial for the company's financial health. The visit aims to develop a strategy to tackle high inventories, manufacturing issues, and declining sales. Despite recent cost-cutting measures, Stellantis faces investor unease and potential union strikes. Tavares's visit underscores his personal commitment to resolving these issues.

TD Bank Group will set aside an additional $2.6 billion for US penalties related to AML deficiencies, bringing its total provision to over $3 billion. To mitigate the financial impact, TD plans to sell 40.5 million Charles Schwab shares, reducing its stake to 10.1%. The bank's AML remediation efforts are ongoing, and its capital ratio remains strong despite a slight impact from the penalties and share sale.

Target raised its full-year profit forecast and reported a 2% rise in comparable sales for Q2, marking its first increase in over a year. The growth was driven by price cuts and higher store traffic. Shares surged 11.2%, reflecting improved consumer spending. Target's strategy contrasts with rivals like Macy’s, focusing on low-cost alternatives and expanding private-label products. The retailer anticipates a profit of $9.00 to $9.70 per share for 2024.

Snowflake raised its annual guidance after surpassing Wall Street estimates with its Q2 results, driven by strong AI demand. The company reported adjusted earnings of $0.19 per share on revenue of $868.8 million, exceeding forecasts. Despite the positive outlook, Snowflake’s shares fell 8% in after-hours trading. For Q3, Snowflake expects product revenue between $850-$855 million and projects 26% growth for fiscal 2025, reaching $3.36 billion.

Zoom Video Communications reported better-than-expected Q2 earnings with adjusted EPS of $1.39 and revenue of $1.16 billion, surpassing estimates. Shares rose 3% in after-hours trading. The Enterprise segment saw 3.5% revenue growth, and the Online business had its lowest churn rate. For Q3, Zoom expects adjusted EPS of $1.29-$1.31, and for the full year, $5.29-$5.32. CFO Kelly Steckelberg will resign.

Morgan Stanley remains bullish on Japanese and Indian equities, highlighting strong growth prospects and corporate reforms in Japan, and a favourable economic outlook in India with high GDP growth and improved retail spending. However, it has cut its targets for Chinese shares due to weaker growth and persistent deflation, adjusting expectations for lower earnings and valuations.

UBS expects Chinese shares to deliver high-single-digit returns by end-2024, driven by improved earnings prospects and property market support. They recommend a "barbell approach" with investments in both defensives and growth sectors, favouring auto, consumer, healthcare, technology, and online gaming equities. Despite recent gains in the MSCI China index, China's benchmark indices have struggled, and economic data has been weak.

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