European carmakers issue profit warnings

On Monday, U.S. equities closed at record highs, with the S&P 500 rising 0.42% and the Dow Jones gaining 0.04%, buoyed by Federal Reserve Chair Jerome Powell's remarks that reassured investors about potential rate cuts. In contrast, the EURO STOXX 50 fell by 1.1%, primarily due to significant declines in the auto sector, highlighted by Stellantis' 14% drop after lowering its guidance. Despite these losses, the index gained 1.8% for September overall, as preliminary inflation figures raised expectations for possible ECB rate reductions.

Summary for 01.10.2024

Asian equities eased slightly on Tuesday, with MSCI's index for the Asia-Pacific region outside Japan down 0.13% at 620.05, just below its recent two-and-a-half-year high of 627.66. Japan's Nikkei rose 1.5% following a significant drop the previous day, supported by a weaker yen. Meanwhile, mainland China's markets remained closed, impacting overall trading volume and sentiment as investors awaited U.S. labour data for further direction.

European futures are showing positive momentum this morning while their US counterparts are drifting flat to slightly negative, as investors react to recent comments from the Federal Reserve. With the S&P 500 having reached a record close, market participants are now focused on upcoming economic data, including the September jobs report, which could influence expectations for future rate cuts. The market anticipates a 65% chance of a modest 25 basis point cut in November.

Oil prices remained steady this morning, as concerns over escalating Middle East tensions were balanced by expectations of increased supply amid lacklustre global demand growth. The market has faced pressure from weaker-than-expected demand, particularly in China, where manufacturing activity has contracted. Despite these challenges, OPEC+ plans to raise output by 180,000 barrels per day in December, contributing to a cautious outlook for prices.

Federal Reserve Chairman Powell signalled on Monday that interest rates will continue to be cut towards a more neutral stance but emphasised that future moves aren't on a preset course and will be decided meeting by meeting, based on economic data. Meantime, Atlanta Fed President Bostic hinted at supporting another 50 basis point cut in November if labour market conditions unexpectedly weaken.

European autos suffered significant losses on Monday after Stellantis, Volkswagen, and Aston Martin issued warnings about earnings due to weakening demand and rising competition from Chinese manufacturers. Stellantis saw a sharp decline following reduced forecasts, with Volkswagen and Aston Martin also lowering their outlooks. Analysts now expect a notable earnings decline for the sector in 2024 amidst valuation concerns.

Carnival Corporation reported record Q3 results, with adjusted EPS of $1.27 and revenue of $7.89 billion, both exceeding analyst expectations. Net income rose 60% to $1.7 billion, and the company raised its full-year 2024 adjusted EBITDA guidance to approximately $6.0 billion. Additionally, strong booking momentum for 2025 was reported, with cumulative advanced bookings surpassing the previous record for 2024. A miss on guidance appeared to sink the shares, which however manage to recover to nearly flat by end of day.

CVS Health is considering a potential break-up of the company to separate its retail and insurance divisions amid investor pressure. Discussions with financial advisers are ongoing, although no final decisions have been made. The move could reverse CVS's $70 billion acquisition of Aetna in 2017, as the company faces challenges like rising medical costs and a declining share price, which has dropped nearly 25% this year.

Bristol Myers Squibb secured the dismissal of a $6.4 billion lawsuit accusing it of delaying FDA approvals for Celgene-developed drugs, including Breyanzi, to avoid payouts to shareholders holding "contingent value rights" (CVR). A U.S. judge ruled UMB Bank, representing CVR holders, was improperly appointed trustee. A new trustee may refile the case, and CVR holders are appealing a separate dismissal.

Pfizer plans to sell around 540 million shares in Haleon, reducing its stake in the British consumer healthcare company to 16.2%. Additionally, Haleon will buy the equivalent of $308.18 million worth of shares from Pfizer. This follows Pfizer’s March sale of $3.5 billion worth of Haleon shares, part of its gradual reduction in ownership since Haleon’s 2022 listing.

BHP forecasts global copper demand will rise by 1 million metric tons annually until 2035, driven by the adoption of copper-intensive technologies, doubling past growth rates. The company anticipates a 70% increase in demand to 50 million tons by 2050, with energy transition and digital sectors significantly contributing. However, mining output growth is hindered by high costs and declining ore grades, necessitating $250 billion in capital expenditures for expansion from 2025 to 2034.

Morgan Stanley analysts report that lead times for Apple’s iPhone 16 Pro and Pro Max models are stabilising and extending, which is a positive sign. As of September 27, these lead times are now longer than for the previous iPhone cycles, suggesting stronger demand similar to the successful iPhone 12 and 13 models. Analysts do not see recent wafer order adjustments as indicative of weakening demand.

PepsiCo is in advanced talks to acquire Siete Foods, a Texas-based tortilla-chip maker, for over $1 billion, according to the Wall Street Journal. The deal could be announced soon, as Siete Foods has attracted significant interest from various bidders. This acquisition aligns with ongoing consolidation in the U.S. packaged food sector, driven by changing consumer preferences and increased competition from private-label brands.

Mizuho’s analysts have raised their 2025 forecast for Nvidia’s AI GPU shipments by 8-10%, expecting 6.5 to 7 million units, driven by enhanced production capacity and supply chain improvements, particularly in CoWoS technology. They anticipate continued supply tightness but gradual improvement as TSMC doubles its wafer capacity. Analysts believe concerns over potential delays in the Blackwell GPU rollout are exaggerated and won't affect AI server production in 2025.

Analysts at Piper Sandler expect Alphabet's shares to rise due to anticipated cost-cutting measures, including headcount reductions and lower operational expenses. They see new CFO Anat Ashkenazi as pivotal in streamlining costs, with potential savings leading to a 12% share price upside. Despite Google's higher-than-average expenses, Piper maintains an "Overweight" rating and a $200 price target for Alphabet.

Seaport Research upgraded Walt Disney to a Buy rating with a price target of $108, citing improved macroeconomic conditions and emerging profitability in its direct-to-consumer (DTC) business. The analysts acknowledged previously underestimating Disney’s potential and noted better park demand and revenue growth opportunities in DTC, driven by price increases and paid sharing. They believe these factors support a positive outlook for Disney's profitability.

Barclays downgraded Procter & Gamble from Overweight to Equal Weight due to concerns about its growth trajectory over the next 12 months. Despite strong U.S. performance, P&G's heavy exposure to slower-growing markets, especially China, is a concern. Barclays forecasts a 4% decline in Chinese sales for 2025 and estimates P&G's organic sales growth will fall to around 2.3%. The firm maintains a price target of $163, indicating over 5% downside.

Wedbush analysts predict a double-digit rally in tech shares by year-end, followed by a stronger bull run in 2025, driven by surging demand for AI technologies, led by Nvidia. They foresee a massive increase in enterprise AI spending, fuelling growth in semiconductors, software, and cybersecurity. Despite potential volatility, analysts expect strong Q3 tech earnings and long-term AI-driven growth.

Analysts at Stifel have downgraded Porsche Automobil Holding SE to "Hold" from "Buy," citing reduced dividend inflows from Volkswagen and limited deleveraging prospects. Concerns over Volkswagen’s financial outlook, governance issues within Porsche Automobil, and a complex investment portfolio were highlighted. The forecast indicates a potential €500 million annual decrease in dividends, complicating Porsche Automobil's financial health and deleveraging strategy.

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