Equities shrug off cautious Fed

Shares in the US closed mixed on Wednesday as the Federal Reserve held its funds rate steady. The S&P 500 rose 0.8% and the Nasdaq Composite gained 1.5%, setting new records, while the Dow declined 35 points. Tech shares, including Apple, Nvidia, and Microsoft, led gains, while Oracle surged on new cloud deals. In Europe, major bourses rallied on lower-than-expected US inflation, with tech and industrial sectors up, while auto shares faced challenges amid emissions lawsuits.

Summary for 13.06.2024

Most Asian equities rose Thursday, led by tech shares following Wall Street's AI-driven rally and softer US inflation data. Gains were capped as the Fed signalled fewer rate cuts. Australia's ASX 200 gained on strong employment data, while Japanese shares lagged amid BOJ policy tightening fears, and Chinese shares fell on US trade scrutiny concerns.

European equity markets are poised to extend gains this morning while US equity futures indicate a higher market open following record highs in the S&P 500 and Nasdaq and strong earnings from Broadcom.

Oil prices fell this morning as the Fed delayed rate cuts and ample US crude stocks weighed on the market. Market sentiment was also influenced by Gaza ceasefire talks and a Houthi attack on a Greek coal carrier near Yemen. Higher borrowing costs could limit oil demand, while ongoing geopolitical tensions add uncertainty to supply stability.

The Federal Reserve maintained the fed funds target range at 5.25%-5.50% at its June meeting yesterday, signalling no imminent rate cuts until inflation shows sustained movement towards 2%. Policy projections included one rate cut this year and four in 2025, down from earlier forecasts. Economic growth remained steady, with modest upward revisions to inflation expectations for 2024 and 2025.

US annual inflation in May unexpectedly eased to 3.3%, down from April's 3.4%, defying forecasts of no change. Declines were noted in food, shelter, transportation, and apparel prices, while energy costs, including gasoline, rose. Monthly CPI remained flat, contrasting predictions of a slight rise, with core inflation also decreasing to 3.4% annually and 0.2% monthly, below expectations.

The Group of Seven leaders are set to agree on providing Ukraine with $50 billion in aid from frozen Russian assets at a summit in Italy. Meanwhile, the Biden administration is expanding secondary sanctions to limit semiconductor sales to Russia via third-party sellers, and is addressing foreign efforts, led by Russia, to influence the 2024 US presidential election using artificial intelligence and commercial firms.

Tesla shareholder resolutions on Elon Musk's pay package and relocating the legal headquarters to Texas are passing by wide margins, according to Musk's post on platform X. The vote to ratify Musk's 2018 incentive package, worth up to $56 billion, and other proposals will be finalised later today.

Broadcom surged 15% in extended trading after raising its AI chip revenue forecast to $11 billion for 2024, up from $10 billion, benefitting from increased demand in data-intensive applications. The company plans a 10-for-1 share split to enhance affordability and reported strong performance across its semiconductor and infrastructure software segments.

JPMorgan Chase raised its second-quarter investment banking revenue outlook by 25% to 30%, driven by strong capital markets. Trading revenue is expected to improve slightly, surpassing earlier estimates. Troy Rohrbaugh, a potential successor to CEO Jamie Dimon, emphasised stable leadership transitions and strategic decision-making within the bank.

Caterpillar expanded its share repurchase authorisation by $20 billion and raised its quarterly dividend by 8% on Wednesday. The heavy machinery maker plans to return nearly all free cash flow from its operations to shareholders through dividends and buybacks, maintaining a 30-year track record of increasing dividends annually.

Apple surged by another 3% yesterday to reach a new record high, surpassing Microsoft to become the world's most valuable company with a market cap of $3.331 trillion. The rally followed the announcement of its AI platform, Apple Intelligence, at WWDC. Analysts anticipate a competitive race towards a $4 trillion market cap among Apple, Nvidia, and Microsoft.

Shares of Umicore plunged over 7% after the Belgian metal recycling company cut its 2024 profit forecast due to a slowdown in demand for electric vehicles (EVs) impacting its battery materials business. The company cited a delay in expected orders from Chinese EV makers and challenges in adapting to new battery technologies without nickel and cobalt.

Edward Jones initiated coverage on Advanced Micro Devices with a Buy rating and added it to their Stock Focus List, citing catalysts like growing data-centre demand, the Xilinx acquisition, and AI-driven PC growth. Analysts anticipate AMD's potential for significant earnings growth despite current valuation levels.

Shares of major European automakers fell on Wednesday after the European Commission announced provisional duties up to 38.1% on Chinese EV imports, raising fears of Chinese retaliation. German manufacturers like Volkswagen and BMW were hit hardest due to heavy reliance on the Chinese market, while French automakers Renault and Stellantis saw gains amid the news.

Bank of America Securities analysts highlighted Taiwan Semiconductor Manufacturing Company as a key beneficiary of Apple's expanded AI capabilities, expecting increased demand for TSMC's semiconductors used in Apple's AI applications. This prompted analysts to reaffirm a "Buy" rating on TSMC's equity and raise earnings estimates for 2024-2026.

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