Equities retreat as uncertainty surrounds US election

Global equities edged lower on Monday as investors held off on major moves ahead of the U.S. presidential election. Wall Street saw modest declines, with the S&P 500 down 0.28%, the Dow Jones 0.61%, and the Nasdaq 0.33%. European markets mirrored this cautious sentiment, with the Euro Stoxx 50 falling 0.6%. Technology shares lagged on both sides of the Atlantic, while banks and energy shares provided support amid rising oil prices following OPEC+'s delayed production hikes. Treasury yields dropped as bonds rallied, reflecting unwound election-related trades.

Summary for 05.11.2024

Asian markets were mostly down on Tuesday as caution prevailed ahead of the U.S. presidential election, though Chinese equities rose on strong services PMI data and hopes for more fiscal support. Australia's ASX 200 dipped after the Reserve Bank of Australia left interest rates unchanged, while Japan's Nikkei climbed. South Korea's KOSPI fell on weak inflation data, and Indian markets anticipated a muted open.

European equity markets are expected to open lower this morning, influenced by mixed performances in Asian markets and ongoing concerns about inflation and interest rates. This cautious sentiment comes ahead of key economic data releases and a closely contested US presidential election between Vice President Kamala Harris and former President Donald Trump. Meanwhile, US equity futures steadied as investors await further developments.

Oil prices steadied in Asian trade on Tuesday following a recent rise, with traders seeking cues from the U.S. presidential election and a key political meeting in China. OPEC+’s decision to delay production increases tightened market outlooks, but concerns over slowing demand, particularly from China, and heightened Middle East tensions continue to weigh on prices. Markets are also anticipating a Federal Reserve interest rate cut this week.

China's services sector expanded at its fastest rate in three months in October, with the Caixin/S&P Global services PMI rising to 52.0 from 50.3. This improvement reflects early signs of Beijing's stimulus measures boosting business conditions. While new business growth remained positive, concerns linger over deflationary pressures and weak export growth. Economists suggest that boosting household disposable income is crucial for sustainable recovery.

The Reserve Bank of Australia held interest rates steady at 4.35% on Tuesday, reinforcing its focus on reducing inflation, which remains above the 2-3% target. The RBA indicated that restrictive policy would continue until inflation shows sustainable movement towards target, with expectations to reach this by 2026. The Australian dollar rose slightly following the announcement.

Burberry shares surged 6% on Monday amid speculation that Moncler might bid for the British luxury brand, aiming to form a leading outdoor clothing group. Both companies declined to comment on the rumour, though analysts doubt the likelihood, citing Moncler's ongoing integration of Stone Island. Burberry has underperformed peers, facing challenges in reviving demand amid tighter global consumer spending.

Meta Platforms plans a €5 billion investment to acquire a 4-5% stake in EssilorLuxottica, with discussions reportedly ongoing over a possible Meta board seat. This move aims to deepen the partnership, building on the companies' collaboration since 2019 on Ray-Ban smart glasses, which have seen stronger sales with the latest model released in 2023.

Carrefour SA is exploring various options to enhance its valuation, including potential asset sales, partnerships, acquisitions, or operational restructuring, according to Bloomberg. The French grocer’s shares rose over 5% following the news. While the process is in its early stages, Carrefour may consider a full or partial sale if a suitable buyer emerges, or it could choose to remain independent and pursue strategic investments.

Schneider Electric shares fell after announcing Olivier Blum as the new CEO, replacing Peter Herweck due to differing views on the company's roadmap execution. Analysts at RBC Capital Markets voiced doubts over Schneider's ambitious 7-10% organic growth targets, while Stifel expects a smooth transition given Blum’s familiarity with the business, having previously led Energy Management.

Constellation Energy, the largest U.S. nuclear plant operator, plunged over 12% following regulatory concerns after the Federal Energy Regulatory Commission blocked a nuclear power agreement between Talen Energy and Amazon. Despite strong earnings, the decision has raised doubts about future nuclear partnerships with tech firms, overshadowing Constellation's positive results and amplifying investor caution around nuclear projects.

Ryanair's CEO, Michael O'Leary, reported that while ticket prices fell over the summer, the decline is easing, and fares may grow next summer due to capacity limits. The airline's six-month profit fell 18% as fares dropped 10%. Ryanair also cut its 2026 passenger target due to Boeing delivery delays, which could boost profitability despite fewer planes.

Berkshire Hathaway’s Q3 results missed analyst expectations, with EPS falling short due to challenges in its insurance segment, particularly BHPG’s adverse reserve development and Hurricane Helene-related losses. Although GEICO outperformed, Berkshire's non-insurance units, including BNSF railway and energy, also underperformed. Despite setbacks, Berkshire's cash reserves grew to $325.2 billion, though the equity performance may lag in the near term.

Marriott International cut its annual profit forecast, citing weak domestic travel demand in China due to subdued consumer sentiment, severe weather, and affluent travellers going abroad. Third-quarter system-wide revenue per available room (RevPAR) in Greater China dropped 7.9%. Despite strong group demand, quarterly earnings missed expectations, with Marriott now predicting 2024 EBITDA of $4.93–$4.96 billion and 6.5% net room growth.

Palantir Technologies raised its full-year guidance after reporting strong third-quarter earnings, benefiting from increased demand for AI solutions. For Q3, adjusted earnings were $0.10 per share on revenue of $725.5 million, surpassing analyst expectations. The customer count rose 39% year-over-year. For 2024, Palantir now forecasts revenue between $2.805 billion and $2.809 billion, with Q4 revenue expected at $767 million to $771 million.

Chemours exceeded third-quarter expectations with an EPS of $0.40 versus the expected $0.29 and revenue of $1.5 billion. The Thermal & Specialized Solutions segment achieved record sales of $460 million, up 6%, driven by 21% growth in Opteon refrigerants. However, EBITDA in Advanced Performance Materials fell 43%. Chemours forecasts a Q4 sales and EBITDA decline and plans $250 million in cost savings by 2027.

Abercrombie & Fitch shares rose over 4% yesterday as Citi analysts issued a 30-day positive outlook ahead of its 26th November earnings. Citi anticipates strong EPS driven by double-digit sales growth, with Hollister outperforming Abercrombie for the first time in years. Citi raised its EPS estimates for 2024 and 2025, maintaining a price target of $190, expecting solid growth despite minor margin pressures.

Bank of America upgraded Peloton to "Buy" with a target price of $9, citing strong EBITDA growth potential under incoming CEO Peter Stern. The bank highlighted Peloton's cost-cutting, improved profitability, and potential operating expense reductions. Despite subscriber challenges, Peloton's treadmill demand, Costco distribution, and increased cash flow guidance position it for reduced debt and sustained growth.

Morgan Stanley downgraded STMicroelectronics to "underweight," forecasting a challenging fiscal 2025 due to anticipated automotive sector declines and overall sales reductions. The downgrade reflects inventory buildup, under-utilisation pressures on automotive margins, and weaker-than-expected demand in electric vehicles. STMicroelectronics also faces flat performance in industrial and electronics segments and intense pricing competition in China, leading to a revised price target of €20.

Wedbush analysts suggest the U.S. election outcome could significantly impact Big Tech, especially regarding the U.S.-China tech conflict. They believe a Trump win could intensify tariffs and supply chain issues, negatively affecting firms like Nvidia and Apple. Conversely, a Harris win would likely be more favourable. Despite election uncertainties, Wedbush maintains a positive outlook on Big Tech, citing strong AI and cloud growth.

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