End of strike at US ports

US equities declined on Thursday amid growing concerns over the Middle East conflict and a domestic dock workers' strike. The S&P 500 fell 0.17%, the Dow Jones dropped 0.44%, and the Nasdaq edged down 0.04%. Similarly, European equities closed sharply lower, with the Eurozone’s Stoxx 50 dropping 1% to 4,916, as worries over the potential impact of Chinese stimulus on corporate performance emerged. All sectors declined except energy producers, which benefited from rising oil prices.

Summary for 04.10.2024

Asian equities retreated on Friday, with MSCI's Asia-Pacific index down 0.32% and Australian shares falling 1%. Japan's Nikkei reversed early gains, losing 0.08%, and was set for a weekly decline of over 3%, driven by rising geopolitical tensions and uncertainty over domestic rate hikes. The yen weakened significantly during the week, experiencing its sharpest decline since 2016. Overall, Asian markets remained cautious, with a focus on the upcoming U.S. jobs report.

European markets are poised to open lower later today, reflecting cautious sentiment from Asia amid escalating geopolitical tensions and mixed economic signals. Meanwhile, US equity futures remained largely unchanged as investors await the September jobs report for insights into the labour market.

Oil prices edged higher in early Asian trading this morning, set for strong weekly gains of around 8%. The rise reflects concerns over potential supply disruptions from the Middle East conflict, following U.S. discussions on strikes against Iran. However, fears have been tempered by OPEC's spare capacity and Libya's resumed oil production, which has eased concerns about global crude supplies.

U.S. dock workers and port operators reached a tentative deal, ending a three-day strike that disrupted shipping along the East and Gulf coasts. The agreement includes a 62% wage hike over six years, raising wages to $63 per hour. The strike had caused major shipping delays, but operations will resume while negotiations on unresolved issues, including automation, continue.

The ISM Services PMI in the US surged to 54.9 in September, up from 51.5 in August and exceeding expectations of 51.7. This marked the strongest growth in the services sector since February, driven by increases in business activity, new orders, and inventories. However, employment declined, price pressures rose, and concerns about political uncertainty and labour costs persisted, with some respondents citing potential port labour issues.

The IMF warned that escalating conflict in the Middle East could have significant economic impacts globally, though commodity prices remain below last year's peaks. The IMF expressed concern for the region, particularly Gaza and Lebanon, where economies have severely deteriorated. The global lender is closely monitoring the situation, with economic projections to be updated later in October during its fall meetings.

Germany will vote against EU tariffs on Chinese electric vehicles, following pressure from its automotive industry. German carmakers, heavily reliant on Chinese sales, fear retaliation and trade conflicts. The European Commission supports the tariffs to counter Chinese subsidies and ensure fair competition. However, German unions and carmakers argue that tariffs won't improve Europe's automotive competitiveness.

Stellantis CEO Carlos Tavares hinted at possible cuts to dividends and share buybacks following a U.S. profit warning. Shares dropped to their lowest level in over two years, amid concerns over soaring costs and operational issues in the U.S. market. Barclays downgraded Stellantis, citing inventory problems and reduced free cash flow, which may impact future payouts. Investors are worried about the automaker’s transition to electric vehicles and rising competition.

Air France-KLM announced cost-saving measures to restore its EBIT margin to 8% by 2028, aligning with pre-pandemic levels. The airline plans to increase staff productivity by 5% by 2025 and will outsource maintenance operations from Schiphol to achieve savings. Citi Research views the margin target as incremental, while the airline also seeks new revenue opportunities in on-board catering.

Tesco's latest results elicited mixed reactions from analysts, particularly at Jefferies, who expected a more significant upgrade in guidance after a strong 7% EBIT beat. The conservative full-year EBIT forecast of "around £2.9 billion" disappointed some investors. However, Jefferies highlighted Tesco's robust free cash flow generation and strong performance in UK grocery sales, leading to a 1.8% rise in shares on Thursday.

Spirit Airlines is in discussions with bondholders about a possible Chapter 11 bankruptcy following its failed merger with JetBlue. The airline is exploring options to restructure its balance sheet amid ongoing financial challenges, including debt maturities in 2025 and 2026. Spirit has struggled with losses, competitive pressure, and an oversupply of seats, casting doubts on its ability to manage debt effectively.

Shares of EVgo surged 60% after a JPMorgan upgrade and news of a $1 billion loan guarantee from the U.S. Department of Energy. The DOE’s conditional commitment will help EVgo expand its fast-charging network, aiming to deploy 7,500 new stalls by 2030, with a focus on underserved areas. JPMorgan cited EVgo's growth potential, reinstating a $7 price target for 2025.

Bank of America reiterated a Buy rating for AMD ahead of its “Advancing AI” event on October 10. Analysts highlighted potential share gains, similar to those following a previous AI event, but noted challenges in growing market share against NVIDIA. AMD's AI sales are expected to rise, with the possibility of reaching $10 billion by 2025, but competition and market dynamics remain significant hurdles.

JPMorgan maintained its Underweight rating on Tesla, raising the price target to $130 from $115, despite shares trading well above $200. The bank cited Tesla's Q3 deliveries falling short of investor expectations, potentially marking its first-ever full-year decline in unit volumes. JPMorgan warned this could undermine Tesla’s growth equity status, highlighting deteriorating performance metrics and a 74% projected EBIT decline for 2024.

Barclays has downgraded ratings for Porsche, Mercedes-Benz, and Stellantis as the European auto sector faces escalating challenges. Porsche was lowered to Underweight with a €35 price target, while Mercedes-Benz and Stellantis received Equal Weight ratings, with price targets of €65 and €12.5, respectively. Analysts expressed concerns over margin pressures and competition, despite recognising potential for future cash flow and shareholder returns.

Morgan Stanley named Baker Hughes its top pick in the oilfield services sector, raising the price target to $45. The firm cited Baker Hughes' strong exposure to liquefied natural gas (LNG), a diversified portfolio, and robust prospects in new energy and digital businesses. With a dominant market position and long-term LNG contracts, the company offers both stability and growth potential.

Citi analysts maintained a Neutral/High-Risk rating for Carvana Co while raising the price target to $195 from $125. Their analysis indicates third-quarter 2024 sales are tracking 2% above consensus estimates, with projected sales of 107.8 thousand units, a 33% year-over-year increase. Despite increasing demand and expanding margins, Citi remains cautious, preferring to wait for potential pullbacks in the shares.

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