Equities lose steam after rally to all-time highs

On Thursday, the S&P 500 closed slightly down by 0.2% at 5,500 after hitting a peak earlier, while the Nasdaq retreated 0.8%, led by tech mega caps. In contrast, the Dow surged 300 points, lifted by Amazon (+1.8%) and Salesforce (+4.3%), though Nvidia dropped 3.5%, losing its top market cap spot to Microsoft. Economic indicators showed the US struggles with higher rates. Meanwhile, the Eurozone's Stoxx 50 soared 1.2% to 4,946, rebounding on improved credit conditions and strong performances from tech and luxury brands like ASML (+2.3%), Hermes, Kering, and Essilor Luxottica, all up over 2%.

Summary for 21.06.2024

Asian equity markets ended the week with mixed performances. Japan's Nikkei rose only marginally, while the yen weakened further. The Shanghai Composite remained flat, struggling to stay above 3,000 points, and Hong Kong's Hang Seng fell almost 1%. Overall, profit-taking and a strong US dollar influenced the declines.

European and US equity futures were steady on Friday following a mixed performance in the previous session, with investors shifting focus from mega-cap tech shares to more reasonably valued sectors. On today’s calendar, we have a slew of PMI data for the euro zone, the UK, Germany and other countries form the region, along with the US later on. UK retail sales and France manufacturing confidence are also due.

Oil prices remained steady on Friday, achieving a rise of over 3% for the week, marking the second consecutive weekly increase. Daily movements were minimal, maintaining the gains driven by significant declines in US crude inventories, unexpected drawdowns in gasoline and distillate stocks, and rising geopolitical tensions in the Middle East. Expectations of further interest rate cuts by major central banks also supported the positive trend.

Japan's annual inflation surged to 2.8% in May from 2.5% in April, driven by a sharp increase in electricity prices after the removal of subsidies. Core inflation also rose to 2.5%, suggesting potential future interest rate hikes by the Bank of Japan to maintain price stability.

In May, US housing starts dropped unexpectedly by 5.5% to an annual rate of 1.277 million, the lowest since July 2020 and below expectations of 1.37 million. Single-family starts fell 5.2% to 982K, while starts for units in buildings with five or more units plunged 10.3% to 278K.

The Bank of England held its Bank Rate steady at 5.25%, with two members advocating for a cut to 5%. Economic indicators indicated inflation returning to 2%, supported by lower energy prices, while GDP growth exceeded expectations, but surveys suggested a slower economic pace. The MPC remains cautious, monitoring inflation closely for future policy adjustments.

The GfK Consumer Confidence indicator in the United Kingdom climbed to -14 in June from -17 in May, reaching its highest level since November 2021 and exceeding forecasts of -16. This improvement reflects growing optimism about the economy and reduced worries about personal finances amid ongoing cost-of-living challenges.

The Swiss National Bank lowered its key policy rate to 1.25%, aligning with market expectations amid easing inflationary pressures and a strong Swiss franc. The SNB projects modest GDP growth, stable inflation rates, and anticipates economic conditions influenced by global political uncertainties driving safe-haven demand for the franc.

Boeing is nearing a deal to repurchase Spirit AeroSystems, its former subsidiary, after progress in negotiations where Airbus would take over some of Spirit's programs. Talks initially stalled over Airbus's concerns but have advanced with potential agreement expected soon, aiming to stabilise Boeing's supply chain following safety and quality issues.

Gilead Sciences' shares surged 8.5% after announcing Phase 3 trial results for lenacapavir, showing 100% efficacy in preventing HIV among women. The Data Monitoring Committee recommended stopping the trial early due to these findings. Analysts believe lenacapavir's effectiveness and twice-yearly dosing could transform HIV prevention if approved.

RBC Capital lowered Tesla's price target to $227 from $293 while maintaining an Outperform rating, citing adjustments to their robotaxi business assumptions. They reduced the revenue forecast per mile and revised the revenue-sharing model, expecting robotaxis to contribute 52% to Tesla's valuation, down from 68%, with FSD technology, Megapacks, and core car sales also factored in.

Piper Sandler analysts named AMD their top large-cap pick for the latter half of 2024, citing strong feedback from recent meetings with management in Europe. They highlighted AMD's strategic positioning in AI chips, upcoming product launches like the MI325 and MI350 with advanced features, and anticipated improvements in GPU supply and business segments, affirming a positive outlook for the company.

Bernstein analysts raised their price targets for TSMC's Taiwan and US-listed shares, setting NT$1,080 and $200 respectively. They expect TSMC to exceed 2024 revenue guidance due to strong demand in high-end phones and advanced technology nodes. EPS projections show continued growth, supported by CoWoS technology and strategic client partnerships like AMD and Apple.

KeyBank Capital Markets reiterated an Overweight rating on Meta Platforms, raising their price target to $540 from $475, indicating 8% potential upside. They increased EPS estimates for 2024 and 2025 by 5% and 6%, respectively, citing strong ad price upticks and favourable ROI from Meta's AI capabilities. Revenue estimates for 2024 and 2025 were also revised higher, with 2026 forecasts anticipating continued growth.

Bank of America maintained a Buy rating on Ryanair despite lowering its price target to €24 from €25 per share due to revised airfare trends. Ryanair aimed to stimulate demand by cutting fares, impacting FY25 net income estimates. Analysts noted positive responses to lower fares in May and expect flat to modestly higher fares for peak summer.

Morgan Stanley updated its US Model Portfolio by adding Cummins Inc for cyclical and AI-related growth opportunities while removing Qualcomm Inc due to valuation concerns. The portfolio also saw adjustments to manage risk, including increased weights in Apple and Tesla, and decreased weights in BlackRock and Visa.

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