Equities tiptoe towards data intensive week

The Eurozone's Euro Stoxx 50 index gained 0.3% on Monday, closing at 4,972, its highest level since mid-July. This rise extended August's strong performance, with tech equities leading the way as investors were optimistic about upcoming US economic data. Notable contributions came from ASML and SAP, which both added nearly 1%. The US market remained closed yesterday for the Labour Day holiday.

Summary for 03.09.2024

Asian equity markets mostly declined on Tuesday as investors awaited key US economic data that could impact the Federal Reserve's interest rate decisions. Japan's Nikkei fell 0.1%, China's Shanghai Composite dropped 0.52%, and the Hang Seng Index slid 0.51%. Negative sentiment followed strong US spending figures, reducing the likelihood of a significant Fed rate cut.

European equity markets head for a positive open while US equity futures dipped this morning, with S&P 500 futures down 0.17% and Nasdaq 100 futures falling 0.32%. The Dow Jones dropped 0.20%, while the US Dollar Index edged up 0.1%. Investors are awaiting labour market data to gauge its impact on Federal Reserve rate decisions.

Global oil markets fell Tuesday amid ongoing concerns about reduced demand from China and potential increased supply. Disruptions in Libyan oil exports and production, due to political disputes, added to market pressures. Despite this, Libya's Arabian Gulf Oil Company resumed production, and OPEC+ plans to continue output increases in October.

Eurozone manufacturing activity remained in contraction in August, with the PMI at 45.8, slightly above the preliminary 45.6 but well below the 50 threshold for growth. Germany's manufacturing downturn worsened, with its PMI dropping to 42.4. The European Central Bank, having cut interest rates in June, may do so again this month as inflation fell to a three-year low of 2.2% in August.

Elliott Investment Management has acquired 10% of Southwest Airlines' common shares, giving the hedge fund the power to call a special meeting. Elliott, which previously held an 11% economic interest via derivatives, now seeks to replace Southwest's CEO and executive chairman, proposing 10 board candidates. This move intensifies a dispute over Southwest's declining equity value and leadership.

Tesla will launch a six-seat Model Y in China by late 2025 to enhance its market position amid growing local competition. The company has notified suppliers of a planned production increase at its Shanghai factory, which is also seeking expansion approval. This follows a 3% year-on-year rise in August EV sales and a 17% increase in Model 3 and Model Y deliveries from July. Analysts project Tesla could hit 65,000 units in August, potentially marking its highest quarterly sales in China for Q3 2024.

Sanofi's shares surged 4.5% after its MS drug tolebrutinib succeeded in a trial for progressive MS, despite failing in relapsing forms. The positive results for the rare progressive MS type, coupled with a perceived de-risking of the drug's potential, fuelled investor optimism. Analysts estimate it could become a $1-2 billion opportunity, and Sanofi aims to file for approval by late 2024.

Volkswagen faces potential factory closures in Germany for the first time due to pressure from Asian rivals and a tough economic environment. The company's works council, opposing the closures, is set for a tense meeting with management. VW's market share in China has declined, contributing to a significant drop in its share value over the past five years. The situation is politically sensitive, involving German unions and the government.

Cathay Pacific cancelled nearly all flights from Hong Kong to Singapore and other Asian routes on Tuesday after discovering a faulty engine component on its Airbus A350 fleet. The issue, found on a plane returning from Zurich, necessitated widespread replacement of the same parts. Rolls-Royce, the engine manufacturer, saw its shares drop 8.2% on Monday following the announcement.

Yardeni Research predicts a positive outlook for the S&P 500, expecting continued gains despite September's historically challenging trend. The firm anticipates the Federal Reserve will begin easing monetary policy with a 25-basis-point rate cut on September 18, supporting market momentum. Yardeni also forecasts a year-end rally to 5800 for the S&P 500, with rising 10-year Treasury yields to follow.

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