Growing hopes of a Fed pivot

US equity markets closed modestly higher on Tuesday, driven by better-than-expected consumer confidence and mixed signals from Fed officials on monetary policy. Real estate, consumer discretionary, and utilities were top-performing sectors, with large-cap equities outperforming small-caps. Treasury yields dropped, influencing market gains, but investors remained cautious ahead of the upcoming Personal Consumption Expenditures report. In European markets, the Stoxx 50 eased slightly after comments by ECB officials tempered expectations of rate cuts, emphasising a focus on economic data for policy clues.

Summary for 29.11.2023

Asian markets were mixed this morning as the November rally lost momentum. Optimism from Wall Street, fuelled by Fed official Christopher Waller’s remarks on a possible rate cut in 2024, was tempered by caution ahead of key economic data from China, impacting Chinese equities. Australian markets rose on softer-than-expected inflation data, indicating potential stability in interest rates.

European shares are poised for a mixed opening as regional markets struggle for positive momentum, while US equity futures edged higher amid investor optimism that the Federal Reserve might pause interest rate hikes.

Oil prices remained stable as investors exercised caution ahead of a crucial OPEC+ meeting. Factos such as a Black Sea supply disruption, concerns over Kazakh oil output, and a weaker US dollar contributed to market uncertainty, influencing short-term price movements.

Federal Reserve policymakers, including influential hawkish member Christopher Waller, signalled comfort with maintaining US interest rates for the remainder of the year, expressing confidence in the current policy’s ability to slow the economy and bring inflation back to the target of 2%, with the possibility of rate cuts if inflation continues to decline. The shift in tone prompted market reactions, with bond yields falling and traders pricing in rate cuts starting in May and extending through 2024.

Australia’s October inflation eased more than expected, with an annual consumer price index increase of 4.9%, supporting the case for the Reserve Bank of Australia to keep interest rates unchanged. Analysts caution that the data, focused on goods, may not fully reflect service price changes, and the central bank remains watchful of persistent services inflation.

Bundesbank President Joachim Nagel warned against expecting early interest rate reductions in the eurozone, signalling the ECB may delay rate cuts despite easing inflation. Nagel emphasised the complex path to achieving the ECB’s inflation target and suggested a cautious approach amid economic challenges, including a recent decline in GDP and negative business sentiment.

Charlie Munger, Warren Buffett’s longtime partner and vice chairman at Berkshire Hathaway, died yesterday at 99 years. Business leaders and investors paid tribute to Munger’s significant influence on the investment world, noting his wisdom and blunt honesty, while expressing concerns about the void left at Berkshire Hathaway.

During the Thanksgiving weekend, US online consumer spending reached about $38 billion, surpassing initial expectations with a 7.8% increase, as deep discounts enticed shoppers to splurge on a variety of products from beauty items to electronics. While there were concerns about cautious consumer spending due to economic uncertainty, the strong performance during Cyber Week suggests a robust start to the holiday shopping season.

CrowdStrike reported Q3 results that surpassed Wall Street estimates, with adjusted EPS of $0.82 per share and revenue of $786 million. Following the strong performance, the company raised its annual guidance and provided a Q4 forecast, leading to a muted performance in after-hours trading.

Hewlett Packard Enterprise reported better-than-expected quarterly profit after the market close yesterday, with adjusted EPS at 52 cents, beating the estimated 50 cents, and Q4 expenses down nearly 17% to $6.84 billion. However, a cautious outlook for the current quarter due to unfavourable macroeconomic conditions, including reduced IT spending and sticky inflation and higher interest rates, led to a decline in the share price.

Intuit, the accounting software-maker, exceeded Wall Street expectations for Q1 with revenue of $2.98 billion and an adjusted profit of $2.47 per share, driven by strong demand for its AI-infused products like TurboTax and QuickBooks.

Workday reported Q3 results with EPS of $1.53, beating estimates, and revenue of $1.87 billion, exceeding expectations. The company’s shares rose over 7% in after-hours trading following the announcement.

Micron Technology anticipates higher-than-expected Q1 operating expenses of around $990 million, attributing it to the timing of R&D costs and asset sales, leading to a 1.8% drop in its shares. Despite the increased expenses, Micron projects revenue to reach approximately $4.7 billion, up from the prior estimate of $4.4 billion, with the company forecasting a near break-even adjusted gross margin due to improved inventory and industry pricing rebound.

Boeing received an upgrade from RBC Capital Markets to ‘Buy’ with a price target of $275, reflecting a 14% potential upside, driven by improved prospects for its MAX and 787 aircraft and anticipated positive free cash flow revisions. The upgrade following Boeing’s year-to-date share climb of over 10%, signalling increased market confidence in the aerospace giant’s financial outlook.

Wedbush reiterated an outperform rating on Tesla with a 12-month price target of $310 ahead of the much-anticipated Cybertruck delivery event at the company’s Austin gigafactory tomorrow. The analysts expect Tesla to unveil updated pricing for the Cybertruck, with estimates suggesting the electric automaker could produce between 2,000 to 3,000 units this quarter and 10,000 units in H1 2024.

After completing the acquisition of VMware, Broadcom saw an increase in price targets from analysts at BofA and UBS. BofA raised its target to $1,200, emphasising potential earnings accretion and highlighting Broadcom’s opportunities in genAI. UBS increased its target to $1,125, noting the deal’s accretive impact on earnings and anticipating a substantial rise in FCF for the combined entity in 2024 and 2025.

Shares of Farfetch surged 23.2% in the regular session on Tuesday amid reports that founder Jose’ Neves is considering taking the online luxury marketplace private, with potential backing from Alibaba and Richemont. The move follows Farfetch’s recent disappointing results, which led to downgrades by Wall Street analysts, and the share price is currently trading significantly below its 52-week high.

EasyJet reported 2023 earnings of £476 million, slightly exceeding analysts’ expectations, citing robust travel demand and forward bookings. The airline anticipates geopolitical instability to impact the current quarter but expressed optimism for summer 2024 bookings, highlighting supply constraints in Europe and a dividend proposal of 4.5 pence per share at its upcoming AGM.

Rolls-Royce has unveiled a transformative plan targeting an operating profit of £2.5 billion to £2.8 billion and FCF between £2.9 billon and £3.1 billion by 2027. The strategy includes divestments in divisions such as Civil Aerospace, Defense, and Power Systems, aiming for significant margin increases and overall financial growth.

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