Global rate cut cycle picking up pace

US and European equity markets extended gains on Thursday, with the S&P 500 posting its fourth consecutive rise, nearly erasing September losses. A rebound in the technology sector, driven by mega-cap shares and renewed optimism around AI, powered the rally, while communication services and consumer discretionary shares also outperformed. Despite mixed inflation data, market volatility eased, and Treasury yields edged up, with the 10-year note at 3.69%. Shares have shown resilience, with the S&P 500 up over 17% year-to-date.

Summary for 13.09.2024

Most Asian shares rose on Friday, led by Hong Kong's tech-heavy gains, as focus shifted to the Federal Reserve's potential rate cut. Japanese equities lagged amid soft inflation signals and hawkish Bank of Japan comments. Chinese markets remained flat, pressured by weak economic data and U.S. trade concerns. Broader Asian markets were mixed, with speculation over whether the Fed will cut rates by 25 or 50 basis points.

European equity markets are expected to open higher this morning while U.S. equity index futures steadied in Asian trade, with markets anticipating a potential Federal Reserve rate cut next week, while optimism over artificial intelligence and tech share gains helped buoy Wall Street sentiment.

Oil prices rose this morning, driven by supply concerns from Hurricane Francine disrupting Gulf of Mexico production. Despite this week's gains, crude remains near three-year lows due to ongoing demand concerns, particularly weak signals from China. Both OPEC and the IEA cut 2024 oil demand forecasts, while U.S. inventory data suggested slowing domestic fuel demand post-summer.

Former President Donald Trump claimed victory in a recent debate against Vice President Kamala Harris, though Harris was widely considered the winner. Trump criticised Harris and President Biden, announcing he would not partake in future debates. He also proposed eliminating taxes on overtime pay if elected, a move critics deem desperate and potentially deficit-increasing. Betting markets and Trump Media shares reflect declining support for Trump.

The ECB reduced the deposit facility rate by 25 basis points to 3.5% to ease monetary policy, while also lowering rates on main refinancing and marginal lending facilities. Inflation forecasts remain steady, with expectations of 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. Core inflation is projected to fall from 2.9% in 2023 to 2.0% by 2026.

US factory gate prices rose by 0.2% in August 2024, surpassing forecasts of 0.1% and following a flat reading in July. Service prices increased by 0.4%, driven by higher guestroom rental costs, while goods prices remained unchanged. Year-on-year, producer prices rose 1.7%, below expectations. Core CPI increased by 0.3%, with the annual core rate holding steady at 2.4%.

Hedge funds have reduced exposure to Big Tech, reallocating towards cyclicals and bond proxies, according to Jefferies. Amazon, Microsoft, and Netflix saw portfolio weight cuts, while Tesla remains a prominent short position. Apple saw a slight increase but remains underweight. Hedge funds are adopting a defensive stance, cutting overall equity exposure and favouring bond proxies amid concerns about valuations, regulatory pressures, and slowing growth.

Oracle Corporation shares surged 6.6% to a record high of $171.51 in aftermarket trading on Thursday, driven by strong revenue growth forecasts and robust demand for cloud computing driven by artificial intelligence. The company raised its fiscal 2026 revenue forecast to $66 billion, exceeding estimates, and projects annual revenue of at least $104 billion by fiscal 2029. Oracle has gained about 55% this year.

Adobe's shares dropped 9.1% in after-hours trading on Thursday after its fiscal Q3 results exceeded EPS and revenue forecasts but fell short with Q4 guidance. Adobe reported EPS of $4.65 and revenue of $5.41 billion, surpassing analyst expectations. However, its Q4 forecast of $4.63-$4.68 per share and $5.50-$5.55 billion revenue missed estimates, impacting investor sentiment.

Moderna delayed its break-even goal by two years and reduced its 2025 sales forecast to $2.5-$3.5 billion, below analyst expectations and its 2024 outlook. Shares plummeted 12.4% as the company faced regulatory delays for flu and cancer vaccines and slower-than-expected RSV vaccine adoption. Moderna now projects a break-even on an operating cash cost basis by 2028 and plans to submit FDA applications for expanded RSV and combination COVID-influenza vaccines.

Wells Fargo shares fell 4% on Thursday after a U.S. banking regulator criticised its anti-money laundering controls and restricted its ability to expand into high-risk areas. The bank, which has faced scrutiny since the 2016 fake accounts scandal, was not fined but must strengthen internal controls and seek approval before expanding. Despite ongoing challenges, some analysts believe this will not significantly affect the prospects for lifting the asset cap imposed by the Federal Reserve.

The U.S. Food and Drug Administration authorised the first over-the-counter hearing aid software for use with Apple AirPods Pro headphones on Thursday. This upcoming software update will enable AirPods Pro 2 to function as a hearing aid, amplifying sounds for users with mild-to-moderate hearing loss. The feature, available this fall, aims to enhance hearing accessibility for millions of Americans.

Novo Nordisk's experimental obesity pill, Amycretin, has shown promising early results, with a 13.1% weight loss in a Phase 1 trial compared to 1.1% with a placebo. If taken longer, the drug might achieve even greater weight reductions. The company plans further trials but is awaiting additional data from an injectable version. Amycretin builds on Novo Nordisk’s success with Wegovy and aims to enhance weight-loss and appetite control.

Shares of Commerzbank and UniCredit rose on Thursday following UniCredit CEO Andrea Orcel’s announcement that he is interested in acquiring the remaining 12% of Commerzbank owned by the German government, or even pursuing a full merger. Analysts expect increased M&A activity in the European banking sector, which could positively impact valuations. However, potential political and execution risks remain.

Micron Technology's shares fell almost 4% after Exane BNP Paribas downgraded the shares from Outperform to Underperform, slashing its price target from $140 to $67. The downgrade is due to concerns about excess High Bandwidth Memory (HBM) capacity impacting DRAM pricing and potential underperformance compared to AI peers. Exane warns of further downside risks despite Micron's shares already dropping 41% from their peak.

Nike is set to report fiscal Q1 earnings on 1 October, with UBS predicting weak results and guidance. The company is expected to meet the $0.52 EPS consensus for Q1 but provide disappointing Q2 guidance of $0.65-$0.75 per share, below the $0.83 forecast. UBS highlights sluggish sales and traffic declines but notes potential margin support from reduced promotions. Nike’s shares have fallen 26% year-to-date.

Stephens analysts have initiated coverage of Carvana with an Overweight rating and a $190 price target, highlighting its potential to disrupt the U.S. used vehicle market. Carvana's digital approach, scalability, and efficient operations are seen as key advantages. Despite holding just 1% market share, Carvana is noted as highly profitable per unit and expected to achieve positive EBITDA by year-end. The firm views Carvana as a potential "retail category killer," akin to retail giants like Walmart and Costco.

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