Markets anxiously await crucial US jobs report

On Thursday, US markets saw their third straight loss as the S&P 500 dipped below its 50-day moving average and the Dow fell, though the Nasdaq gained slightly on a tech rebound. Treasury yields dropped amid labor market data, while small caps underperformed. In Europe, shares fell ahead of key US job data, with luxury giants like Hermes and LVMH leading declines, and tech shares such as ASML and SAP weighing on broader indices.

Summary for 06.09.2024

Most Asian markets fell on Friday as investors awaited a key US jobs report and absorbed Japan's weak household spending data. Japan’s Nikkei 225 dropped 0.6%, while South Korea’s Kospi fell 0.87%. In contrast, Australia's S&P/ASX 200 gained 0.46%. Hong Kong's markets were closed due to a typhoon, and China’s CSI 300 saw a slight decline of 0.27%.

European markets are poised for a muted open, while US futures are mixed with Nasdaq futures slipping 0.5%, as all eyes are on the critical August payrolls report which could influence the Federal Reserve’s rate decision and market sentiment.

Oil prices edged higher on Friday, driven by a significant drop in US crude inventories and OPEC+'s decision to delay planned production increases. Mixed US employment data weighed on the dollar, which supported oil prices by making it cheaper for international buyers. Investors are also awaiting key US payroll data for further economic insights.

For the week ending 31 August, US unemployment benefit claims fell by 5,000 to 227,000, a 7-week low but still high compared to earlier in the year. Outstanding claims decreased to 1,838,000, and the four-week moving average fell to 230,000. Meantime, private businesses added 99,000 jobs, the lowest since January 2021, with notable job growth in the service sector and modest increases in the goods-producing sector, while wage growth remained stable.

The US ISM Services PMI rose to 51.5 in August from 51.4, surpassing expectations of a drop. New orders increased, reflecting strong client demand, though production grew more slowly. Employment edged up slightly, avoiding a sixth monthly contraction. However, the price gauge accelerated to 57.3, indicating higher costs in various sectors, contrary to expectations of a slowdown.

Broadcom forecast fourth-quarter revenue slightly below Wall Street expectations, at around $14 billion, due to sluggish broadband spending. Despite a rise in AI chip orders, shares fell nearly 7% in extended trading. The company reported a significant net loss of $1.88 billion, mainly due to a $4.5 billion tax provision. However, it raised its annual AI revenue forecast to $12 billion and increased its full-year revenue forecast to $51.5 billion, reflecting strong performance in its custom chips and enterprise software sectors.

DocuSign reported stronger-than-expected Q2 earnings and revenue, with adjusted EPS of $0.97 and revenue of $736 million. Despite this, shares rose only marginally as the company's guidance for Q3 and fiscal year 2025 did not impress investors. The company highlighted improved business stability and efficiency, with positive growth in subscription revenue and cash flow.

Tesla shares surged over 4% on Thursday after announcing plans to launch its "full self-driving" software in China and Europe next year, pending regulatory approval. The rollout is expected in Q1 2025. The move is crucial for Tesla's expansion in the competitive Chinese market, where it faces strong competition from local EV manufacturers. Tesla sold 63,000 cars in China in August, its best month this year.

JetBlue Airways raised its Q3 revenue forecast due to strong summer travel and increased bookings following a global cyber outage that affected other carriers. The airline now expects September-quarter revenue in the range of a 2.5% decline to 1% growth year-on-year, an improvement from its earlier forecast of a 1.5% to 5.5% drop. Shares rose 7.2% as the company benefited from stronger bookings and cost-cutting measures, including deferring jet deliveries. Fuel costs are also expected to decrease.

Qualcomm is exploring the potential acquisition of parts of Intel's design business, particularly its client PC unit, as Intel struggles financially. While Qualcomm has not made formal offers, it's interested in enhancing its product portfolio. Intel, facing declining revenue and workforce reductions, is also considering shedding other assets to cut costs and improve cash flow.

Shares of ASML Holding NV fell 2.2% after Morgan Stanley removed it from its "Top Pick" list and lowered its price target to €925 from €1,000. The downgrade reflects concerns about potential slowdowns in sales and profits due to reduced spending by Intel, slower adoption of advanced systems, and geopolitical risks with China. Despite maintaining an "overweight" rating, Morgan Stanley cited these challenges as impacting ASML's near-term outlook.

Bank of America reaffirmed its Buy rating on Nvidia, maintaining a $165 price target, citing attractive valuation and growth potential despite short-term challenges like product delays and regulatory scrutiny. Analysts view these issues as buying opportunities, noting Nvidia’s strong AI chip demand and competitive edge. The shares trade at a low price-to-earnings ratio compared to its five-year range, enhancing its appeal. BofA remains optimistic about Nvidia's future AI prospects and market position.

Wolfe Research analysts view Google shares as having a favourable risk-reward profile despite recent underperformance and concerns over Department of Justice cases. They believe the potential remedies, like choice screens or a default search engine switch by Apple, are mostly priced in. Analysts anticipate up to a 10% upside in earnings and a 35% share price increase under positive scenarios, while downside risks are modest. Google shares have risen 12% this year but lagged the broader market.

Bank of America updated its "US 1" list of top equity picks on Thursday, adding 11 new names in August due to changing economic conditions, such as lower interest rates and expectations of a Federal Reserve rate cut. New additions include Uber Technologies, Eli Lilly, and Chipotle Mexican Grill, selected for their growth potential and strong market positions. Other additions are Northrop Grumman, Mid-America Apartment Communities, and several others.

JPMorgan downgraded its rating on China equities to "Neutral" from "Overweight" due to a challenging outlook. Analysts cited difficulties in modelling equity risk premiums amid geopolitical tensions and domestic issues. They anticipate heightened volatility and potential worsening trade tensions with the US. China faces growth headwinds from weak domestic demand, business sentiment, and deflation.

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