Equities subdued ahead of US payrolls

General market commentary

US equity markets ended broadly higher on Wednesday, supported by easing trade tensions following a new agreement between the US and Vietnam. The deal reduces proposed tariffs on Vietnamese imports to 20%, down from an initial 46%, helping to calm investor concerns about an escalating trade war. Growth sectors, including technology and consumer discretionary, outperformed, with Tesla rallying 5% despite a sharp drop in Q2 deliveries, which were not as weak as feared. Nvidia, Apple, and Alphabet also advanced, boosting sentiment. Meanwhile, defensive sectors such as health care and utilities underperformed, and shares of Centene plunged over 40% after the insurer withdrew its 2025 forecast due to weaker revenue projections. The Nasdaq rose nearly 1%, the S&P 500 gained around 0.5%, and the Dow ended the session little changed. Bond yields moved higher, with the 10-year Treasury yield climbing to 4.3%.

On the macroeconomic front, the ADP employment report signalled softening labour market conditions, showing a contraction of 33,000 private payrolls in June—well below expectations and the first monthly decline since 2023. The weakness was concentrated in the services sector, though goods-producing industries saw modest gains. Despite this, job openings remain elevated, indicating underlying demand for labour. Trade policy also remains in sharp focus ahead of the 9 July deadline for finalising key agreements. While negotiations with several partners are progressing, uncertainty remains. With markets closed on Friday for the 4th of July holiday, investors will closely watch today’s non-farm payrolls report, arriving a day earlier than usual, for further insight into the health of the US labour market. Expectations are for a 115,000 rise in payrolls and a slight uptick in the unemployment rate to 4.3%.

Latest market and economic update

Asian markets were mixed on Thursday as investors awaited U.S. trade developments ahead of the July 9 deadline and assessed weak economic data from China and Australia. Japan and Hong Kong declined, with the Nikkei and Hang Seng down 0.2% and 1.2% respectively. Meanwhile, South Korea and the Philippines posted gains, while Australia’s ASX 200 slipped 0.6%.

US equity futures remained steady overnight as investors awaited the June jobs report for clues on future Federal Reserve policy. This followed modest gains in the previous session, driven by a tech rebound and optimism over a US-Vietnam trade deal. Cautious sentiment prevailed amid lingering concerns over labour market softness and potential rate cuts.

European shares rose yesterday as the STOXX 600 index gained 0.2%, boosted by renewable energy and luxury equities following a US budget bill favourable to wind power. French shares climbed 1%, led by LVMH which rose by over 4%. Mining firms ArcelorMittal and Thyssenkrupp, auto shares, and banks also advanced amid trade deal optimism ahead of the US July 9 tariff deadline.

The US dollar index held steady around 96.7 on Thursday, near a three-year low, as investors awaited the June jobs report for clues on future Fed policy. A softer reading could hasten rate cut expectations. The euro edged higher, with the EUR/USD exchange rate trading at 1.1788 amid broader dollar weakness and cautious market sentiment.

Oil prices fell in Asian trading this morning, reversing gains from the previous session as an unexpected build in U.S. crude and gasoline inventories raised demand concerns. Brent dipped 0.6% to $68.68 and WTI dropped 0.7% to $65.58. Markets also eyed upcoming U.S. jobs data and an OPEC+ meeting expected to announce another production increase.

The U.S. Commerce Department has lifted export restrictions on chip design technology to China, signalling progress in trade negotiations between Washington and Beijing. The move eases a key overhang for major chip design firms and is expected to have only a limited short-term revenue impact. Analysts view it as a positive step toward broader trade normalisation.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Activist investor Starboard Value has acquired over a 9% stake in Tripadvisor, valued at around $160 million. The news lifted Tripadvisor’s shares by 7% after hours. Starboard, known for pushing operational changes, is expected to file a 13D regulatory report soon, signalling potential activist involvement in Tripadvisor’s strategic direction.

Netflix has held talks with Spotify to collaborate on live music projects, including award shows and concerts, as part of its live TV expansion. The streamer aims to boost advertising revenue and subscribers through music shows, celebrity interviews, documentaries, and high-profile sports events like NFL games and the Jake Paul-Mike Tyson boxing match.

Datadog Inc will join the S&P 500 index, replacing Juniper Networks following its acquisition by Hewlett Packard Enterprise. The change takes effect before trading opens on 9 July. Datadog’s shares rose over 10% after the announcement, reflecting investor optimism about its inclusion in the prestigious benchmark index.

Microsoft will cut nearly 4% of its workforce to manage rising costs from heavy AI investments, including 200 layoffs in its King gaming division. The tech giant plans to streamline management and operations. Similar job cuts have occurred at Meta, Google, and Amazon amid economic uncertainty and escalating expenses across Corporate America.

Tesla’s Q2 deliveries fell 13.5% year-on-year to 384,122 vehicles, missing expectations amid aging models and CEO Elon Musk’s controversial politics. Despite this, shares rose 5% due to modest demand recovery in China and Europe. The company faces challenges from tariff uncertainty, delayed cheaper models, and potential cuts to EV incentives under U.S. tax reforms.

Nike’s shares rose 4.1% and Under Armour’s gained 1.8% after President Trump announced a trade deal with Vietnam, imposing a 20% tariff on Vietnamese goods and 40% on transshipping, while granting zero tariffs on U.S. exports to Vietnam. The agreement, Trump’s third ahead of a July 9 deadline, boosted U.S. retailers with Vietnamese manufacturing.

Santander will acquire TSB from Sabadell for £2.65bn in cash, boosting its UK retail presence. The deal, expected to complete in Q1 2026, creates the UK’s third-largest bank by current accounts. Santander aims for 20% returns and £400m in cost synergies, signalling renewed UK commitment amid Sabadell’s ongoing takeover battle with BBVA.

Circle Internet shares fell almost 8% after competitor Ripple applied for a federal banking licence with the OCC for its stablecoin RLUSD, intensifying competition in the regulated stablecoin market. Ripple also sought a Federal Reserve master account, signalling commitment to oversight. Circle recently applied for its own licence to enhance custody of crypto reserves.

Truist raised Amazon’s price target to $250 from $226, maintaining a Buy rating ahead of strong Q2 earnings expectations. They forecast $164.2 billion revenue, driven by resilient North American consumers, higher order frequency, and favourable FX. Truist expects a 10.6% operating margin and anticipates guidance slightly above consensus for Q3.

Jefferies upgraded Apple to Hold, raising its target to $188.32, citing likely June-quarter beats driven by strong China iPhone sales and tariff-driven demand. However, it flagged long-term risks including muted iPhone 17 demand, AI limitations, and tariff exposure. Regulatory pressures on App Store and Google revenues also pose downside for FY25–26 earnings.

Bernstein analysts remain bullish on Starbucks, raising their price target to $100 and maintaining an Outperform rating. They expect labour investments to boost productivity and traffic, with a sales rebound from 2026 and EBIT margins reaching 19% by 2028. The shares could double from post-Q2 lows, potentially gaining 35% more over two years.

Goldman Sachs began coverage of mid-cap U.S. athleisure shares with caution, issuing Sell ratings for Deckers and Crocs, citing competition and demand challenges. Under Armour received a Neutral rating. The firm noted market shifts, increased promotional activity, and Nike’s slowdown are reshaping market share, predicting mixed equity performance rather than broad sector gains.

Cantor Fitzgerald initiated coverage of Quantum Computing Inc with a Neutral rating and $15 target, citing promise in its photonic chips and quantum platforms but noting execution and timing risks. The firm, backed by $350 million cash, expects initial photonic chip revenue in 2025, with growth in 2026, and collaborates with NASA and other partners.

KeyBanc Capital Markets initiated coverage of Cava Group with an Overweight rating and $100 target, highlighting its leadership in Mediterranean fast-casual. With strong margins, efficient expansion, and 13.4% same-store sales growth, Cava shows long-term potential despite a high valuation, supported by rising brand awareness and opportunities for market share gains.

Bernstein downgraded Lufthansa to “market perform” from “outperform,” citing limited upside and weaker yield prospects. Despite better punctuality, operational inefficiencies and fleet complexity slow its turnaround. Forecasts show revenue and earnings below consensus, with a €7.50 target price. Bernstein prefers Air France-KLM, Ryanair, and IAG for stronger growth.

J.P. Morgan upgraded Munich Re to “overweight” and raised its 2026 price target to €650, citing improved ROE, rising capital returns, and diversified earnings. The broker forecasts higher buybacks, stronger EPS and dividend growth, and a shift away from P&C reinsurance. Despite softening rates, earnings visibility and valuation discount support a more positive outlook.

Jefferies initiated coverage on four European auto suppliers, rating Autoliv and Forvia as Buys, and Schaeffler and Valeo as Holds. The broker prefers Autoliv for innovation and lower EV risk, and Forvia for its transformation. Michelin is its top tyre pick, while Volkswagen, Stellantis, and Daimler Truck lead among OEMs amid restructuring and cyclical tailwinds.

Upcoming data and events

Today’s key U.S. data includes June’s nonfarm payrolls, unemployment rate, and average hourly earnings. Services sector indicators such as the Services PMI and ISM Non-Manufacturing PMI will also be released, providing important insights into the health of the largest segment of the U.S. economy and overall economic outlook.

This information is provided solely for educational and informational purposes and should not be construed as investment advice, advice on specific investments or investment decisions, tax advice, legal advice, or any other form of professional or regulatory advice. The information does not take into account your personal circumstances and is provided to you on the express understanding that it does not constitute advice and should not be relied upon in making any investment decision. Investing in financial instruments involves risk. You should conduct your own research before making any investment decisions and seek the assistance of a licensed financial advisor if you are unsure. No person should act on any opinion or information contained in this document without first obtaining appropriate professional advice. Calamatta Cuschieri Investment Services Limited does not accept liability for any actions, proceedings, costs, demands, expenses, damages, or losses suffered as a result of reliance on the information herein.