Fed in no rush to cut rates amid tariff uncertainty

General market commentary

Equity markets closed higher on Wednesday after the Federal Reserve held interest rates steady and maintained its outlook for potential policy easing in 2025. The S&P 500 gained 1.1% to 5,675.3, the Nasdaq Composite rose 1.4% to 17,750.8, and the Dow Jones Industrial Average advanced 0.9% to 41,964.6, with all sectors finishing in positive territory. Market sentiment was supported by Fed Chair Jerome Powell’s reassurance that there was no urgency to adjust policy, despite the central bank acknowledging rising economic uncertainties. Bond yields moved lower, with the 10-year Treasury yield settling at 4.25%, reflecting expectatfions of looser monetary policy in the future.

Investor optimism extended to corporate earnings, with Boeing shares rallying 6.8% after the company projected lower-than-expected cash burn for the first quarter. Tesla also surged 4.7% as it secured regulatory approval in California for its Robotaxi business, while General Mills slipped 2.1% following a weaker revenue outlook. Meanwhile, concerns over fiscal policy and trade uncertainties weighed on the outlook for mergers and acquisitions, leading Oppenheimer to downgrade Goldman Sachs, Jefferies Financial Group, and Carlyle Group. Despite lingering market volatility, historical data suggests such pullbacks are typical, and investors remain focused on long-term opportunities amid a resilient economic backdrop.

Latest market and economic update

Asian markets mostly rose this morning, with Australia’s ASX 200 up 1.1% on rising rate cut expectations, while South Korea’s KOSPI gained 0.5% and Singapore’s Straits Times Index added 0.7%. However, Hong Kong’s Hang Seng Index dropped 1.1% as investors took profits from tech shares like Tencent and Alibaba, while China’s CSI 300 and Shanghai Composite also edged lower.

US equity futures rose overnight, with the S&P 500, Nasdaq 100, and Dow Jones gaining modestly. However, market sentiment remained cautious amid concerns over economic uncertainty and trade tariffs.

European equities continued their positive momentum, with the Eurozone's STOXX 50 rising 0.5% to 5,510 and the STOXX 600 adding 0.3% to 556. Key drivers included gains in consumer discretionary stocks like Hermes and Inditex, along with strong performances from industrials such as Schneider and Safran, while defence equities saw a pause after a period of strong growth.

The dollar index remained near a five-month low at 103.4 on Thursday, reflecting the Federal Reserve's decision to keep rates steady while maintaining its outlook for two rate cuts this year. The euro traded at 1.0893 against the dollar, with markets anticipating the first rate cut to occur in June or July, influenced by the Fed’s updated growth and inflation forecasts.

Oil prices rose today, driven by a strong U.S. demand outlook after larger-than-expected fuel inventory drawdowns and a weaker dollar. Geopolitical tensions, including Israel’s renewed Gaza offensive and U.S. airstrikes on Houthi targets, added to market uncertainty, while potential ceasefire talks between Russia and Ukraine raised hopes for eased sanctions and increased supply.

Equities on the move

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

Amazon is exploring an expansion into the used-car market, potentially disrupting the industry with its logistics network and digital marketplace expertise. Its move could increase competition for major retailers like Carvana and CarMax, adding pressure to an already volatile sector.

Nvidia CEO Jensen Huang announced plans to invest hundreds of billions in U.S.-made chips and electronics over the next four years, amid shifting trade policies and growing competition from Huawei. He also believes humanoid robots will be widely used in manufacturing within five years, driven by AI and new software tools, with robots potentially costing around $100,000 to rent.

Prudential plc reported an 8% rise in adjusted operating profit to $3.13 billion for fiscal 2024, driven by strong performance in Asia and Africa, along with an increase in its agent count. The insurer also saw a 12% rise in bancassurance new business profit and declared a total dividend of 23.13 cents per share for the year.

General Mills has lowered its full-year sales and profit forecasts due to weaker demand for snacks and pet food in North America, citing competition from private-label brands. The company now expects organic sales to decline by 1.5% to 2% and adjusted profit to drop by 7% to 8%, amid challenges in consumer spending and inventory reductions.

HSBC Holdings is in advanced discussions to sell its German fund administration business, Inka, to private equity firm BlackFin Capital Partners, according to Bloomberg News. The deal, which involves assets under administration worth approximately €400 billion, could be finalised in the coming weeks.

Pfizer has sold its entire 7.3% stake in Haleon for approximately £2.5 billion, with the consumer healthcare firm agreeing to buy back 44 million shares. Following the sale, BlackRock will become Haleon's largest shareholder, holding over a 5% stake.

UniCredit CEO Andrea Orcel stated that he may wait until 2027 to decide on pursuing a full takeover of Commerzbank, as Germany's fiscal plans have inflated the bank’s share price. He also highlighted delays in European banking M&A, noting that the approval process and the new German government's opposition to the deal are complicating the timeline.

Siemens has noted hesitation among customers in the U.S. due to political uncertainties, which are impacting decision-making processes. However, the company remains optimistic about long-term demand and has a significant order backlog of €118 billion to work through.

Baird maintained a near-term bearish and long-term positive outlook on Tesla, citing production challenges and re-ramping issues with the Model Y, leading to lowered delivery estimates for the first half of 2025. However, the firm remains optimistic about Tesla's long-term growth, driven by advancements in AI, robotics, and energy, as well as new product launches like a more affordable vehicle and robotaxi service.

Boeing is expected to see a significant rise in aircraft deliveries by the end of March, with 737 deliveries potentially matching January's levels, according to Bank of America. While the 787 program has yet to see deliveries in March, the bank maintains a Neutral rating on Boeing with a $185 price target, noting minimal impact from the FAA's proposed inspection directive.

Guggenheim analyst Michael Morris maintained a buy rating on Roku, expressing optimism about its future growth driven by platform monetisation and strategic partnerships. He highlighted the company's strong streaming account penetration and the success of The Roku Channel as key factors for improved profitability.

Compass upgraded Affirm Holdings to Buy from Neutral, raising its price target to $64, arguing the selloff after losing Walmart's partnership is excessive. They believe Affirm remains well-positioned for growth, with strong direct-to-consumer potential and reduced renewal risks.

Morgan Stanley has raised its price target for Rheinmetall shares to €2,000, with a "blue-sky" scenario suggesting the stock could reach €3,000 if European defence spending increases to 3% of GDP. The firm expects Rheinmetall’s market share to continue growing, driven by rising demand for land-domain products and an increase in European defence budgets, with a robust backlog supporting long-term growth.

RBC Capital Markets has upgraded Schneider Electric to Outperform from Underperform, citing recent equity underperformance that has made the company’s valuation more attractive. The analysts expect continued above-peer organic growth, supported by the electrification and data centre sectors, and have raised their price target to €270 from €225.

Deutsche Bank has initiated coverage on Ferrovial with a "buy" rating and a price target of €48, citing the company's strong pricing power in its toll road business and its potential for earnings growth. The bank expects a compound annual growth rate of over 12% in net income between 2025 and 2027, supported by upcoming projects and favourable market conditions.

Upcoming data and events

Today's economic focus is on the release of weekly jobless claims data, which will provide further insight into the labour market. Investors are also watching earnings reports from Nike, FedEx, Micron Technology, and Darden Restaurants for indications of broader economic trends.

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