Investors buy the dip at start of new week

General market commentary

Equity markets rallied on Monday, recovering much of Friday’s losses as softer than expected jobs data and new tariff developments buoyed investor sentiment. The rebound was driven by renewed optimism over potential interest rate cuts, with the yield on the 10-year US Treasury falling to 4.20 percent, its lowest in three months. Small cap shares and large cap technology names led the advance, while energy was the only sector to close lower, dragged down by a 1.8 percent decline in oil prices following OPEC+’s announcement to fully reverse its 2023 voluntary production cuts. The Nasdaq Composite climbed nearly 2 percent to 21053.6, the S&P 500 rose 1.5 percent to 6329.9, and the Dow Jones Industrial Average added 1.3 percent to 44173.6.

The market remains focused on signs of labour market softening, with recent data showing the US added only 73000 jobs last month, well below forecasts, and downward revisions to prior months bringing the three month average to its slowest pace since 2020. While the unemployment rate edged up slightly to 4.2 percent, jobless claims have not shown a material rise, indicating a still resilient employment backdrop. Bond markets now price in a 90 percent probability of a September rate cut, with another likely by December. This week is expected to be quieter, with upcoming ISM services data, productivity figures and additional jobless claims in focus, alongside speeches from several Federal Reserve officials. With around two thirds of S&P 500 companies having reported, earnings are tracking at 8.2 percent growth year on year, stronger than expected, offering further support for equities heading into the second half of the year.

Latest market and economic update

Asian equities rose on Tuesday, with South Korea’s KOSPI jumping 1.6% and Australia’s ASX 200 gaining over 1%. Japan’s Nikkei and TOPIX posted modest increases, while China’s main indices edged higher. Singapore also advanced, but Hong Kong’s Hang Seng dipped 0.2%. Investor focus remained on regional central bank decisions and ongoing trade policy uncertainties.

U.S. equity futures edged higher overnight as investors assessed fresh corporate earnings. In after-hours trading, Palantir jumped over 4% after beating second-quarter earnings forecasts and raising its outlook on strong demand for its AI platform. Meanwhile, Hims & Hers Health dropped around 13% after missing revenue estimates.

European shares rebounded strongly on Monday, with the Eurozone’s STOXX 50 up 1.5% and the STOXX 600 rising 0.8%. Banks and insurers led gains, including UniCredit, Santander, and Allianz. Industrial firms Safran and Schneider Electric also recovered. Swiss shares fell amid US tariff concerns, while British banks surged after a legal reprieve.

The US dollar index steadied around 98.7 on Tuesday amid mixed trade developments and shifting monetary policy expectations. The euro traded near 1.1555, supported by easing US dollar demand following weaker US jobs data and growing market bets on Federal Reserve rate cuts. Investor caution remains high ahead of key economic releases.

Oil prices remained steady in Asian trade this morning after recent sharp declines, weighed down by concerns over rising supply following OPEC+’s production increase and weakening global demand amid economic headwinds. Despite US sanctions threats on Russian oil buyers, including China and India, the stronger dollar and demand fears kept crude prices under pressure.

China’s services activity grew at its fastest pace in 14 months in July, with the S&P Global Services PMI rising to 52.6, driven by stronger demand and a rebound in export orders. Employment picked up, confidence improved, and prices rose for the first time in six months. However, broader economic concerns persist amid weak exports and low confidence.

San Francisco Fed President Mary Daly signalled that interest rate cuts are likely soon as U.S. job market weakness grows. While not confirming a September cut, she said all upcoming meetings are “live” for policy changes. Daly indicated the Fed might need more than the two planned cuts if labour market weakness continues without inflation easing.

Brazil’s Supreme Court placed ex-President Jair Bolsonaro under house arrest for breaching restraining orders during his coup plot trial. Justice Alexandre de Moraes, recently sanctioned by the US, cited repeated violations. The move heightens tensions with Washington, where President Trump imposed tariffs and condemned the court’s actions as politically driven and undemocratic.

Equities on the move

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

MercadoLibre missed Q2 net profit estimates as increased free shipping in Brazil boosted sales but pressured margins. Net income fell 1.5% to $523 million, below forecasts, despite 34% revenue growth. EBIT hit a record $825 million but missed projections. The company’s fintech arm grew its credit portfolio by 91%, while default rates improved.

Palantir raised its annual revenue forecast again, boosted by strong demand for AI services from businesses and the U.S. government. Q2 revenue hit $1 billion, with government sales up 53%. The company expects higher expenses due to increased hiring amid AI talent competition but remains confident in recruitment and growth prospects.

Spotify’s shares rose 5.0% after announcing price hikes for its Premium subscription across multiple regions, including Europe, Asia, and Latin America. The company cited the increases, such as a €1 rise in Europe, as necessary to enhance user experience and innovation, aiming to boost revenue while balancing subscriber growth and profitability.

Broadcom launched its next-generation Jericho4 networking chip, designed to connect data centres up to 60 miles apart and accelerate AI computation. With high-bandwidth memory to reduce congestion and enhanced encryption for security, the chip supports large-scale deployment. Built using TSMC’s 3nm process, it meets demand from cloud giants like Microsoft and Amazon.

Berkshire Hathaway’s Class A shares fell over 3% following a $3.8 billion write-down on its Kraft Heinz stake and a 4% drop in operating income. Investors remain cautious amid succession concerns as Warren Buffett plans to step down this year. Shares lagged the S&P 500 despite broader market gains, reflecting uncertainty over the company’s future.

Tesla granted CEO Elon Musk shares worth $29 billion in an interim pay deal to retain him amid a shift towards robotaxis and robotics. The award replaces a voided 2018 package, requiring Musk to remain an executive for two years. Despite legal challenges and brand issues, the move reassures investors of Musk’s ongoing leadership.

BP shares rose 1.8% after announcing its largest oil and gas discovery in 25 years offshore Brazil’s Santos basin. The find supports BP’s goal to produce up to 2.5 million barrels per day by 2030. Ahead of Q2 earnings, BP faces pressure from activist Elliott Management to boost cost cuts beyond its $5 billion target.

French bank Credit Agricole has increased its stake in Italy’s third-largest lender, Banco BPM, to 20.1% via derivatives, following UniCredit’s abandoned takeover bid. The bank plans to keep its holding below the 25% takeover threshold and won’t seek control or board changes. It awaits ECB approval to convert derivatives into shares.

UBS initiated Buy ratings on Chinese autonomous driving firms Pony.ai and WeRide, viewing them as early leaders in robotaxi technology. Pony.ai, with advanced driverless services and cost-efficient vehicles, is projected to grow revenue by 96% annually to $2.3bn by 2030. WeRide, noted for international expansion, forecasts 71% revenue CAGR, despite regulatory and execution risks.

Wells Fargo cut Lululemon’s price target to $225 from $270 and maintained an Equal Weight rating, citing weak US demand, margin pressures in China, and rising markdowns and tariffs. The firm lowered EPS forecasts for 2025 and 2026, warning of limited near-term upside amid softening sales and cost challenges.

Barclays upgraded Air France-KLM, Lufthansa, and IAG to “equal weight” from “underweight” after better-than-expected Q2 results and supportive factors like falling fuel costs and a weaker US dollar. Despite challenges in economy demand, strong premium leisure travel and stable regional markets boost outlooks, with increased price targets reflecting improved EBIT forecasts.

RBC Capital Markets upgraded Lloyds Banking Group to “outperform,” raising its price target to 95p after a Supreme Court ruling limited bank liability in motor finance claims, reducing legal risk. Despite some redress costs, Lloyds’ strong capital position, improving earnings, and rising dividends support a positive outlook with 25% upside potential.

Citi raised its three-month gold price forecast to $3,500 per ounce, citing weaker U.S. growth, inflation concerns, a softer dollar, and elevated geopolitical risks. With tariffs and inflation pressures expected to persist, gold demand has surged over a third since mid-2022, supported by investment, central bank buying, and resilient jewellery demand.

Upcoming data and events

Markets today will focus on the ISM Services PMI and U.S. trade balance, offering key insights into economic health and global trade. Earnings from AMD, Pfizer, Caterpillar, BP, Diageo, Infineon, and DHL are also in focus, potentially moving sectors from tech to energy.

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