Investors brace for Fed`s preferred inflation reading

General market commentary

The S&P 500 ended lower on Thursday as investors reacted to President Donald Trump’s latest tariff announcement, which weighed on auto shares. Trump unveiled a 25% tariff on imported cars and light trucks, set to take effect on April 3, with auto parts facing duties from May 3. This sent shares of General Motors tumbling over 7%, while Ford slid 3.9%, and parts manufacturers Aptiv and BorgWarner each lost around 5%. Tesla edged up 0.4%, benefiting from its predominantly domestic production. Broader markets remained under pressure, with the S&P 500 declining 0.33% to 5,693.31, the Nasdaq slipping 0.53% to 17,804.03, and the Dow Jones dropping 0.37% to 42,299.70. Defensive sectors, including consumer staples and health care, outperformed, helping to limit losses. Meanwhile, the number of Americans filing new jobless claims remained stable at 224,000, reinforcing a picture of a resilient labour market. Fourth-quarter GDP growth was revised up to 2.4% from 2.3%, suggesting the U.S. economy maintained solid momentum into 2025.

Despite persistent policy uncertainty, the broader economic backdrop remains supportive, with the labour market holding firm and other developed markets posting nearly 10% gains this year. However, Trump's unpredictable trade policies continue to inject volatility into markets, with investors wary of potential supply chain disruptions and inflationary pressures. The upcoming reciprocal tariff announcement on April 2nd adds to the uncertainty, though signals from the administration suggest some flexibility in implementation. Bond yields edged higher, with the 10-year Treasury yield rising to 4.36%, while European equities traded lower as auto tariffs weighed on sentiment. As markets digest these developments, portfolio diversification remains key, and pullbacks could present opportunities to add exposure to quality investments aligned with long-term objectives.

Latest market and economic update

• Asian equities mostly declined on Friday, led by steep losses in Japanese markets as stronger-than-expected inflation data fuelled bets on an early Bank of Japan rate hike, while auto and tech shares slumped following Trump’s tariff announcement and concerns over a chip supply glut. However, Chinese equities outperformed amid optimism over AI and stimulus measures, while Australia’s ASX 200 posted modest gains ahead of key economic events next week.

• U.S. equity futures dipped overnight as investors awaited the PCE price index report, with concerns over tariffs and inflation clouding the outlook for interest rate cuts. Thursday's session saw broad losses across major indices, with the Dow, S&P 500, and Nasdaq all declining, as fears of retaliatory tariffs and weaker earnings forecasts weighed on market sentiment.

• European equity markets fell on Thursday, with the DAX, CAC 40, and FTSE 100 all slipping due to concerns over new U.S. auto tariffs, particularly affecting European carmakers like Volkswagen and Mercedes-Benz. In corporate earnings, H&M reported weaker-than-expected sales, while Next saw a positive performance, and oil prices reclaimed some losses following a drop in U.S. crude inventories.

• The U.S. dollar stabilised around 104.3 on Friday as investors awaited the PCE price index report, with concerns over tariffs and inflation impacting the outlook for future interest rate cuts. The euro traded at 1.0790 against the dollar, while the GBP/USD was seen at 1.2944, reflecting relatively stable performance amidst ongoing economic uncertainty.

• Oil prices held steady in Asian trading this morning, remaining close a one-month high, and set for a third weekly gain amid U.S. threats of tariffs on Venezuelan oil buyers and a larger-than-expected drop in U.S. crude stockpiles. Meanwhile, Trump’s plan to impose 25% tariffs on imported automobiles from April 2 sparked Canadian threats of retaliation, adding to market uncertainty over global supply chains.

Equities on the move

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

• Lululemon warned that economic uncertainty and U.S. tariffs on China and Mexico were weighing on demand, leading to a weaker-than-expected annual revenue and profit outlook. While strong holiday sales helped quarterly revenue surpass estimates, slowing demand in the Americas and rising competition have made future growth more challenging.

• Rocket Lab and Stoke Space Technologies have secured a significant contract for the National Security Space Launch Phase Three Lane One fiscal 2025 on-ramp, with a maximum value of $5.6 billion. Following the announcement, Rocket Lab’s shares rose 9.3% in after-hours trading, as the contract tasks the companies with delivering NSS payloads into orbit over a four-year period, with an option for a five-year extension.

• Shares in Hertz and Avis Budget surged by over 20% each as U.S. President Trump's proposed 25% tariff on imported vehicles raised expectations that consumers might turn to car rentals instead of buying more expensive new cars. The tariff also boosted auto parts retailers like O’Reilly, AutoZone, and Advance Auto Parts, while global car manufacturers declined.

• Lyft has reportedly made a bid to acquire FreeNow, a taxi app owned by BMW and Mercedes, with negotiations said to be close to completion. While the deal is expected to be finalised soon, the purchase price and other details have not been disclosed.

• AppLovin’s shares fell 20% after Muddy Waters Research accused the company of deplatforming risks, citing questionable e-commerce conversions and possible violations of platform terms. The report raised concerns over AppLovin’s ad targeting methods, alleging the use of proprietary data from major platforms without consent.

• Novo Nordisk shares have fallen 25% in March, with investor concerns mounting over its obesity drug Wegovy losing ground to rival Eli Lilly’s Zepbound. Despite strong sales in Q4 2024, the company faces growing pressure from disappointing prescription data, concerns over the effectiveness of its next-gen drug CagriSema, and the looming threat of US tariffs on the pharmaceutical industry.

• Shares of GameStop fell over 22% on Thursday after the company announced a $1.3 billion convertible bond offering to finance its bitcoin pivot, raising concerns about its strategy and struggling retail business. Despite the initial excitement over its crypto move, the company's decision to buy bitcoin and close additional stores left investors uncertain, with shares down almost 30% for the year.

• Shares in ProSiebenSat.1 dropped sharply after its controlling investor, MFE-MediaforEurope, made a low offer to other shareholders as part of a strategy to gradually increase its stake and gain control. Analysts noted that while the bid may be unattractive to many investors, MFE’s stake above 30% would allow it to buy more shares without making another mandatory offer, signalling a "creeping control" strategy.

• CoreWeave cut its U.S. IPO size by 23.5% and priced shares at $40 ahead of its listing later today, raising $1.5 billion and valuing the Nvidia-backed firm at $23 billion amid weak investor demand. Concerns over its reliance on Microsoft, capital-intensive model, and AI spending pressures contributed to the lukewarm reception despite major partnerships like an $11.9 billion deal with OpenAI.

• Ferrari has confirmed it will maintain its financial targets for the year, despite the 25% U.S. tariff on auto imports, reflecting its confidence in navigating the challenges posed by the new measures. Bernstein analysts believe the tariff may have some impact, but Ferrari's strong market position, its affluent U.S. customer base, and continued demand from collectors will likely minimise the effect on earnings and maintain the brand's allure.

• Mizuho raised Alibaba’s price target to $170 and added it to its top Asian internet picks, citing strong AI potential and a clear product roadmap. The investment bank expects Alibaba’s AI efforts to enhance internal productivity, boost cloud revenues, and drive e-commerce growth, supported by China’s AI advancements and a recovery in consumer demand.

• HSBC has reduced its price target for Tesla from $165 to $130, citing weak fundamentals, increased competition, and challenges such as price cuts impacting European fleet buyers and aging models in China. The bank expects Q1 2025 to be particularly weak due to production issues with the new Model Y, and raised concerns about the long-term timeline for autonomous driving, which could delay value creation.

• Bank of America has maintained a Buy rating on Nvidia, citing its compelling valuation despite geopolitical risks from U.S. AI chip export restrictions, which could affect earnings and lead to share price volatility. The bank expects Nvidia to recover once these concerns are priced in, supported by strong growth in AI demand and an anticipated recovery in gross margins.

• Jefferies downgraded Advanced Micro Devices due to concerns over its limited progress in the artificial intelligence market and the widening performance gap with competitors Nvidia and Intel. The downgrade was based on AMD’s MI300x GPU lagging behind Nvidia’s H200, with a benchmarking report suggesting AMD has significant ground to cover before effectively competing in the AI space.

• Bank of America reinstated Roku with a Buy rating and a $100 price target, highlighting its potential to monetise its large user base and benefit from growth in connected TV advertising. The analysts expect strong revenue and profitability growth over the next few years, though they cautioned about risks from macroeconomic pressures and competition.

• Goldman Sachs maintains a positive outlook on European banks, particularly ING, UniCredit, and UBS, highlighting ING's recovery in net interest income, UniCredit's strong fee income and cost control, and UBS's solid position despite adjustments to earnings forecasts due to potential changes in Swiss capital requirements. The firm remains optimistic about the sector's growth potential, with banks continuing to deliver strong returns and exceeding earnings expectations.

• BNP Paribas Exane has initiated coverage of the major U.S. cruise operators, giving Outperform ratings to Carnival, Royal Caribbean, and Viking, while placing Norwegian Cruise Line at Neutral. The firm highlighted demographic trends, private island strategies, and strong growth prospects as key drivers for the sector, with Royal Caribbean and Viking seen as standout performers.

• Deutsche Bank downgraded Air France KLM and EasyJet due to increased market and geopolitical uncertainty, while upgrading Ryanair with a higher price target, citing a negative GDP outlook for the U.S. and Europe. Air France KLM's downgrade follows operational disruptions and high costs, though some analysts remain optimistic about its transformation despite short-term challenges.

Upcoming data and events

Today’s main economic data release in the US is the Core PCE Price Index, a key inflation indicator for the Federal Reserve. A higher-than-expected reading could dampen rate-cut hopes, while lower inflation may increase the likelihood of rate cuts, potentially boosting shares and weakening the dollar.

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