Market spooked by growth concerns

US equities fell sharply on Thursday, with the S&P 500 down 1.4%, the Nasdaq dropping 2.3%, and the Dow Jones losing 500 points. This decline followed weak economic data, including a contraction in the ISM Manufacturing PMI, rising jobless claims, and lower-than-expected labour costs. Disappointing earnings reports also weighed on the market, with Meta shares gaining 4.8% despite strong earnings, while Qualcomm plunged 9.4% due to trade concerns and Nvidia fell 6.7%. European shares also declined, with the Eurozone’s Stoxx 50 down 2.2%, driven by poor results from DHL and Safran and losses in the auto and banking sectors.

Summary for 02.08.2024

Asian shares tumbled on Friday, following a sharp decline on Wall Street due to concerns over slowing economic growth. Japan's Nikkei 225 fell nearly 5%, while broader Asian markets, including South Korea and Hong Kong, also saw significant losses. Weak US data and mixed tech earnings fuelled the decline.

European equity markets are set to follow US and Asian markets lower, weighed down by disappointing tech earnings and market concerns ahead of the July payrolls report which could confirm concerns about a weakening US economy.

Oil prices rose slightly in Asian trade on Friday but were on track for a fourth consecutive week of losses. Concerns over slowing economic growth and weak demand, highlighted by poor PMI data from the U.S. and China, overshadowed tensions in the Middle East. Brent and WTI prices are set for weekly declines of 0.4% to 0.9%.

The ISM Manufacturing PMI fell to 46.6 in July 2024, below expectations and marking the sharpest contraction since November 2023. The decline reflects reduced factory activity, lower new orders, and persistent job cuts, amid rising production costs driven by metal prices and component shortages.

US jobless claims rose by 14,000 to 249,000, nearing a yearly high and indicating a weakening labour market, while the number of outstanding claims increased to 1,877,000. Concurrently, nonfarm productivity surged by 2.3% in Q2, exceeding expectations, and unit labour costs rose only 0.9%, below forecasts, reflecting moderated wage pressures amid rising productivity.

The Bank of England cut its Bank Rate by 25bps to 5% in August, ending a year at 16-year highs. Despite this, the decision was “finely balanced,” with some members preferring to keep rates unchanged due to inflation concerns. The Bank expects inflation to fall and is moving cautiously to avoid undermining its progress.

Amazon's shares fell nearly 7% after reporting slowing online sales growth and cautious consumer spending in Q2, despite beating profit and cloud sales estimates. The company faced increased competition and consumer shift to cheaper options. AWS growth continued, but the retail sector's slowdown weighed heavily on investor sentiment.

Apple's Q3 results exceeded Wall Street expectations, reporting earnings of $1.40 per share and revenue of $85.8 billion, driven by a 14% rise in services revenue. iPhone sales slightly declined to $39.3 billion, while sales in China fell 6.5%. The shares remained flat after the report, with attention shifting to guidance and commentary on Apple Intelligence.

MercadoLibre's net profit more than doubled to $531 million in Q2, surpassing expectations, driven by a 36% revenue surge in Brazil. Total revenues rose 42% to $5.1 billion. Despite a decline in EBIT margin due to accounting changes and credit provisions, the company continues to gain market share and expand its credit portfolio. Shares rallied by 12.1% in after-hours trading.

Intel announced it will cut 15% of its workforce and suspend its dividend to refocus on its struggling manufacturing sector. The company forecast third-quarter revenue below estimates and plans to reduce capital expenditure by over $10 billion in 2025. Shares fell 18.9% after the announcement, reflecting ongoing challenges in the AI chip market.

Booking Holdings' shares dropped 71% after forecasting slower room night growth for Q3, despite surpassing Q2 revenue and profit expectations. The company reported a 7% rise in revenue to $5.86 billion and an adjusted profit of $41.90 per share, exceeding analyst estimates. The booking window’s contraction raised investor concerns.

DoorDash’s shares surged 11.8% after reporting stronger-than-expected Q2 results, with revenue up 23% to $2.63 billion and a 19% increase in total orders. The company forecasted Q3 adjusted EBITDA between $470 million and $540 million, exceeding estimates. Despite an adjusted loss of 18 cents per share, DoorDash's expanded services and cost management boosted investor confidence.

ConocoPhillips' Q2 profit exceeded expectations, driven by increased output and higher commodity prices. The company reported adjusted earnings of $1.98 per share and a 4% rise in production to 1.95 million boepd. It remains on track for a $22.5 billion Marathon Oil acquisition and plans a $9 billion shareholder return for 2024.

Shell's Q2 profit dropped 19% to $6.3 billion due to weaker refining margins and trading, though it exceeded forecasts. The decline follows record high profits in 2022 and reflects lower prices and volumes. Despite this, Shell achieved significant cost reductions and plans a $3.5 billion share buyback.

Ferrari's shares rose over 2% on Thursday after reporting stronger-than-expected Q2 earnings. The company posted EPS of EUR 2.29 and adjusted EBITDA of EUR 669 million, exceeding forecasts. Ferrari raised its full-year 2024 guidance, expecting adjusted diluted EPS of at least EUR 7.90 and revenue above EUR 6.55 billion.

Cloudflare's shares surged 10.2% after reporting Q2 earnings of $0.20 per share, surpassing estimates. Revenue rose 30% year-over-year to $401 million, beating forecasts. The company projected Q3 revenue slightly below expectations but raised its full-year outlook. Non-GAAP gross margin improved to 79%, and free cash flow increased to $38.3 million.

Snap's shares dropped 16.2% after Q2 results showed adjusted earnings per share of $0.02, beating expectations of a loss but revenue of $1.24 billion fell short of forecasts. Guidance for Q3 revenue and EBITDA disappointed, despite a 9% YoY increase in daily active users and growth in advertisers.

Block raised its annual adjusted core earnings forecast to at least $2.90 billion and announced a $3 billion buyback plan, boosting shares by 5.0%. The company is focusing on cost-cutting and profitable growth amid strong consumer spending. Despite this, Block's shares have fallen 22.6% this year.

The US Department of Justice is investigating Nvidia for potential antitrust violations, following complaints that it may have leveraged its market dominance in AI chips to pressure cloud providers and unfairly bundle products. The probe includes allegations of price discrimination against customers using rival chips.

Eli Lilly's shares rose 3.5% in regular trading yesterday after Zepbound's trial showed a 38% reduction in death and hospitalisation risk for obesity-related heart failure patients. The drug, already known for weight loss, significantly improved heart failure symptoms and may bolster insurance coverage. Lilly plans to submit results for regulatory approval later this year.

Berkshire Hathaway has sold over $3.8 billion worth of Bank of America shares since mid-July, including 19.2 million shares between 30 July and 1 August. Despite these sales, Berkshire remains the largest shareholder with a 12.1% stake. The divestment followed a significant rise in the bank's share price.

BNP Paribas is in exclusive talks to acquire AXA Investment Managers for €5.1 billion, enhancing its asset management scale. AXA aims to refocus on core insurance businesses. The deal, expected to close by mid-2025, will also include a 15-year investment management services agreement. AXA reported stronger-than-expected revenue and announced a separate €423 million acquisition of Gruppo Nobis.

HSBC raised its price target for Microsoft to $533, citing confidence in revenue acceleration despite a slightly below-expectation 1QFY25 guidance. Microsoft's Q4FY24 revenue was $64.727 billion, up 15.2% YoY. Azure's growth slowed to 29%, but is expected to accelerate with increased AI capacity in FY2025. HSBC maintains a Buy rating.

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