Equity markets face pivot earnings week

On Friday, U.S. equities struggled as rising 10-year Treasury yields dampened buying interest. The Nasdaq Composite gained 0.56%, while the S&P 500 and Dow Jones fell 0.03% and 0.61%, respectively. For the week, the S&P dropped 0.96% and the Dow 2.68%, while the Nasdaq edged up 0.16%. Meanwhile, the Eurozone’s Stoxx 50 rose 0.1%, capping a mixed week influenced by corporate earnings and economic data, with falling inflation expectations bolstering ECB rate cut bets.

Summary for 28.10.2024

Most Asian equities rose on Monday as easing concerns over the Israel-Iran conflict lifted sentiment, with Israel avoiding key Iranian oil and nuclear sites. Japanese shares led gains, buoyed by political uncertainty reducing chances of further Bank of Japan rate hikes. Elsewhere, markets were steady, with Australia and South Korea edging higher, while Chinese and Hong Kong stocks lagged, reflecting caution ahead of key economic data.

European markets are expected to open with a cautious tone today, while U.S. share futures rose on Monday as investors anticipated key earnings reports from major tech companies like Apple, Microsoft, and Amazon, along with crucial economic data including GDP and PCE figures. Market sentiment improved as geopolitical tensions eased after Israel’s strikes avoided key Iranian facilities. Additionally, a weaker yen and uncertainty over Japan’s rate hikes further supported equities ahead of the U.S. presidential election.

Oil prices fell sharply in early Asian trade on Monday, driven by easing fears of a Middle East conflict following Israel's recent strike on Iran, which avoided key oil and nuclear sites. This reduction in geopolitical risk allowed traders to focus on anticipated demand weakness in the coming months. As a result, crude prices neared their lowest levels since early October, with market participants awaiting crucial economic data for further insights into global oil demand.

The People's Bank of China (PBoC) announced it will begin monthly outright reverse repurchase operations starting October 28, aiming to maintain liquidity in the banking system. This move follows earlier measures to diversify monetary policy. Meanwhile, profits for China's industrial firms fell 3.5% year-on-year in the first nine months of 2024, reflecting weak demand, deflation risks, and a property downturn, with sectors like coal mining and machinery hit hardest, while non-ferrous metal smelting and textiles saw gains.

New orders for manufactured durable goods in the US fell by 0.8% to $284.8 billion in September, mainly due to a 3.1% drop in transportation equipment. In contrast, the University of Michigan's consumer sentiment rose to 70.5 in October, the highest in six months, bolstered by better buying conditions. Year-ahead inflation expectations held steady at 2.7%.

Delta Air Lines has sued CrowdStrike after a July outage caused over 7,000 flight cancellations, affecting 1.3 million passengers and costing Delta more than $500 million. Delta claims the incident stemmed from a "catastrophic" faulty software update that crashed millions of computers globally. CrowdStrike has refuted the claims, stating they reflect misinformation and a misunderstanding of cybersecurity.

McDonald's has ruled out beef patties as the source of an E. coli outbreak linked to its Quarter Pounder hamburgers, which has resulted in one death and nearly 75 illnesses. Testing by the Colorado Department of Agriculture confirmed no contamination in multiple beef lots. McDonald's plans to resume Quarter Pounder distribution, though affected restaurants will serve it without raw onions as a precaution.

Boeing plans to raise over $15 billion in capital to bolster its finances amid a crippling strike that has halted 737 MAX production. This funding will be sourced from equity sales and convertible preferred shares. Additionally, Boeing is considering selling parts of its space business, including the troubled Starliner spacecraft, as CEO Kelly Ortberg seeks to streamline operations and address significant losses.

Eli Lilly anticipates launching its weight-loss drug, tirzepatide (branded as Mounjaro), in Hong Kong by the end of this year, having received government approval for its Kwikpen device. This follows earlier approval from Chinese regulators in July, intensifying competition with Danish rival Novo Nordisk in the lucrative Asian weight-loss market, projected to exceed $100 billion globally by the decade's end.

Volkswagen is exploring cost-cutting measures for its core brand, including a 10% wage cut and a two-year wage freeze, aiming to save 4 billion euros amid economic pressures. Potential savings could also come from capping bonuses, reducing anniversary payments, and possibly closing some German production sites. Negotiations with the works council and IG Metall continue, with formal discussions on wage increases set for October 30.

Taiwan Semiconductor Manufacturing Company has suspended shipments to China-based chip designer Sophgo after a TSMC chip was found in Huawei's Ascend 910B AI processor. Sophgo, which denies any ties to Huawei, claims compliance with all laws and provided TSMC with an investigation report. TSMC has not supplied Huawei since mid-September 2020, following U.S. export restrictions on the company.

Google is developing an AI technology, code-named Project Jarvis, that aims to take over web browsing for tasks like research and shopping. Set to be demonstrated in December alongside its flagship Gemini language model, this initiative follows similar ambitions from Microsoft-backed OpenAI. Both companies are exploring software that directly interacts with users' computers and browsers to enhance online tasks.

Valeo's shares plummeted over 10% on Friday after the company cut its 2024 sales forecast to €21.3 billion from €22 billion, citing weak demand for high-voltage electric components and a 5% year-over-year decline in Q3 sales to €4.97 billion. While original equipment sales in Europe outperformed regional production, North America lagged by 1 percentage point, and China saw a sharp 9-point underperformance. CEO Christophe Périllat indicated that new 2025 guidance will be provided amid ongoing market uncertainties.

KeyBanc has downgraded Apple to "Underweight" from "Sector Weight," expressing concerns about iPhone sales. Analyst Brandon Nispel noted that demand for the lower-cost iPhone SE does not contribute positively to overall sales and may cannibalise iPhone 16 sales. With Apple shares trading at about 23 times forward earnings, Nispel argues the equity appears overvalued, especially amidst declining iPhone sales in China and rising competition from Huawei.

Raymond James downgraded T-Mobile to Market Perform from Outperform, citing that its investment thesis has played out as the shares have surged 101% since late 2021. While praising T-Mobile's successful Sprint merger and strong 5G position, analysts expressed concerns over its current premium valuation, noting slower buyback activity and decelerating growth compared to previous years.

BCA Research upgraded its rating on the Auto & Components sector to overweight, citing Tesla's strong Q3 performance as a catalyst for renewed investor confidence. Tesla's shares surged 22% post-results, reversing previous losses, with earnings rising 9% year-on-year. BCA anticipates continued growth, targeting 20-30% delivery increases by 2025, alongside improved margins and significant capital investment in AI technology.

UBS Global Wealth Management has upgraded its view on global equities to "attractive" from "neutral," citing strong U.S. economic growth, easing monetary policies from major central banks, and an AI boom. They noted a 16.3% rise in the MSCI global equity index this year, with further stimulus from China expected to bolster markets. Technology is projected to drive earnings growth, although U.S. elections pose short-term risks.

Wall Street is set for a bustling week, with key economic data on Q3 GDP, inflation, and the labour market alongside earnings reports from five Magnificent 7 members: Apple, Microsoft, Amazon, Alphabet, and Meta. Global markets will also watch for Eurozone inflation and GDP figures, China’s PMI data, and updates from the UK and Japan, all influencing market sentiment.

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