Inflation data dents hopes for big Fed rate cut

U.S. equity markets closed higher Wednesday, with the S&P 500 up 1%, the Dow gaining 0.3%, and the Nasdaq surging 2.2%, led by tech shares and semiconductors after positive AI comments from Nvidia’s CEO. Large-cap equities outperformed, while rate-sensitive sectors lagged. Technically, the S&P 500's close above its 50-day moving average of 5,500 signalled strength, following an earlier test of its 100-day moving average near 5,400. European markets were mixed, while globally, the U.S. dollar strengthened, oil rebounded, and gold fell.

Summary for 12.09.2024

Asian equity markets rose on Thursday, driven by technology shares, particularly chipmakers, following Nvidia’s positive AI outlook. Japan’s Nikkei 225 and TOPIX surged 2-3% due to softer producer inflation, which eased concerns over potential Bank of Japan rate hikes. South Korea’s KOSPI and Taiwan’s Weighted Index also gained, while Chinese indices lagged amid U.S. trade worries.

European markets are expected to open higher this morning with gains of over 1% for the Euro Stoxx 50, while U.S. equity index futures fell slightly as technology gains cooled and investors fretted over an upcoming Federal Reserve interest rate decision.

Oil prices were flat this morning as concerns about weaker demand overshadowed gains from the previous session, which were driven by Hurricane Francine’s disruption of U.S. production. The focus shifted to rising U.S. oil stockpiles and reduced gasoline and distillate fuel demand. Traders are awaiting the International Energy Agency’s report for further insights into demand trends.

In the U.S., the Consumer Price Index (CPI) rose 2.5% year-over-year in August, the lowest since February 2021, while core CPI remained steady at 3.2%, as expected. Shelter inflation persisted at 5.2%. Average hourly earnings increased 3.8%, outpacing inflation. The headline CPI confirms moderating inflation, supporting expectations that the Federal Reserve may begin its rate-cutting cycle soon.

Global sales of fully electric and plug-in hybrid vehicles rose 20% year-on-year in August, driven by record sales in China, despite a 33% drop in Europe. In China, sales surged 42%, reaching over one million vehicles, while Europe saw a 4% year-to-date decline, largely due to reduced subsidies in Germany. Increased Chinese subsidies and strong end-of-year sales are boosting demand.

Nvidia shares surged 8.1% on Wednesday after CEO Jensen Huang highlighted robust demand for its new AI chips and predicted broader use of generative AI beyond data centres. This rally in Nvidia bolstered the technology sector, despite recent declines. Goldman Sachs maintained a "Conviction Buy" rating with a $135 target, noting Nvidia's central role in the AI-driven valuation boom.

UniCredit has acquired a 9% stake in Commerzbank, purchasing half of it from the German government at a premium, outbidding other bidders. UniCredit CEO Andrea Orcel has initiated discussions with Commerzbank about potential merger talks and is seeking regulatory approval to increase its stake. Commerzbank’s share price has risen by around 15% in response, while UniCredit’s remains stable.

Samsung Electronics plans to cut up to 30% of its overseas staff, affecting sales, marketing, and administrative roles globally by year-end. This move, impacting jobs across the Americas, Europe, Asia, and Africa, aims to improve efficiency amid challenges in its chip and smartphone businesses. The job cuts come as Samsung faces a slow recovery in demand and increasing competition.

U.S. bank shares fell again on Wednesday, with Citigroup, Wells Fargo, and Morgan Stanley declining amid warnings of a slow recovery in investment banking. Morgan Stanley President Dan Simkowitz forecasted lower interest income and sluggish M&A and IPO activity. Concerns grew after Berkshire Hathaway reduced its stake in banks. However, a proposed Fed rule change offering regulatory relief partially offset the negative sentiment.

Zara owner Inditex saw a 4.6% rise in shares as it reported an 11% sales boost for its autumn/winter collection, recovering from a slow summer. The company’s first-half profit rose 10% to €2.8 billion. Inditex plans to expand its U.S. and Indian operations, invest in new logistics, and enhance its online services, maintaining a competitive edge over rivals like H&M and Shein.

Roche shares fell 5.4% on Wednesday following disappointing results from an early-stage trial of its weight-loss pill, CT-996. The 6.1% placebo-adjusted weight loss reported came from a small subgroup of six participants, raising concerns about the data's reliability. Meanwhile, competitors Novo Nordisk and Eli Lilly saw their shares rise, benefitting from their strong positions in the weight-loss market.

In a note to clients, Morgan Stanley identified a number of shares with "underappreciated upside potential" from the rapid expansion of generative AI (GenAI) infrastructure. Key beneficiaries include Constellation Energy, Vistra, and Bloom Energy for nuclear power, AES Corp., NextEra Energy, and First Solar for clean energy, and GE Vernova, Siemens Energy, and Mitsubishi Power for natural gas solutions.

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