Markets attempt a rebound

On Monday, global equities faced a severe sell-off amid heightened recession fears and concerns over high interest rates. In the US, major indices like the S&P 500, Dow Jones, and Nasdaq saw sharp declines, with tech giants such as Nvidia and Apple dropping significantly. The CBOE Volatility Index spiked to its highest level since October 2020. Meanwhile, the Eurozone's Stoxx 50 index fell 1.6%, continuing a downward trend, particularly affecting banks and automakers. However, Infineon rose 1.7% on strong earnings, and ASML rebounded to close in positive territory.

Summary for 06.08.2024

Asian shares rebounded sharply on Tuesday after significant losses, with Japan's Nikkei and TOPIX leading gains despite mixed economic data. The recovery was driven by bargain buying and easing interest rate concerns. Australian equities rose modestly following the Reserve Bank of Australia’s decision to keep its cash rate unchanged at 4.35%, as inflation remained above target and economic activity showed weakness. Meanwhile, Chinese markets lagged due to ongoing economic concerns.

European and US equity futures rose on Tuesday, indicating a potential market rebound following Monday's steep losses, as investors remained cautious yet hopeful for a recovery.

Oil prices rose sharply in Asian trade this morning, with Brent and WTI crude futures each gaining 1.3%. The rise was driven by concerns over potential supply disruptions from escalating Middle East tensions, despite ongoing worries about slowing global demand and a potential US recession.

The ISM Services PMI in the US rose to 51.4 in July 2024, up from 48.8 in June, surpassing market expectations of 51. This rebound indicated improved services activity, with new orders, business activity, and order backlogs increasing. Employment in the sector also rose, countering recent weak job reports, while the price gauge climbed to 57 from 56.3.

A US judge ruled that Google violated antitrust laws by paying billions to maintain a monopoly as the default search engine, marking a major victory for antitrust enforcers. The decision could lead to significant changes, including a potential breakup of Alphabet. Google plans to appeal the ruling, which also criticised its dominance and financial practices.

Palantir Technologies raised its annual revenue and profit forecasts for the second time this year, driven by strong demand for its AI-driven software services. Shares surged 12.1% in extended trading, bolstered by a record quarterly profit and robust third-quarter sales projections. The company is benefiting from increased AI-related demand and a growing commercial business.

Simon Property Group lowered its annual net income forecast and missed Q2 estimates for funds from operations (FFO) due to weak demand for REITs amid consumer spending concerns. The company reported FFO of $2.90 per share, below the $2.94 estimate, but increased its annual FFO forecast range and posted stronger-than-expected revenue of $1.46 billion.

GSK won a trial over claims that Zantac caused cancer, as a jury found the drug was not responsible for an Illinois woman's illness. The case is part of thousands of lawsuits against drugmakers related to the heartburn medication's potential carcinogenic contaminant, NDMA. Other trials and appeals are ongoing.

CrowdStrike faces a proposed class action lawsuit from air travellers affected by last month's global computer outage, alleging negligence in its software deployment. The plaintiffs seek compensatory and punitive damages for disruptions caused to flights, while CrowdStrike disputes the claims and plans to vigorously defend itself. The outage also impacted banks and hospitals.

Delta Air Lines' shares fell 4.8% in regular trading on Monday after BofA Securities revised its EPS estimates down due to a $500 million impact from a CrowdStrike technology outage. BofA lowered its Q3 and annual EPS forecasts but maintained a "Buy" rating and $55 price target, citing Delta's strong long-term prospects despite short-term challenges.

Boeing's shares were downgraded by Bernstein, which cut its target price to $207, citing concerns over the company’s cash flow issues, mounting defence program losses, and significant production delays. The downgrade also reflects apprehension about the incoming CEO, Kelly Ortberg, facing challenges in addressing Boeing’s complex financial and operational difficulties.

RBC Capital analysts recommend buying the S&P 500 when the VIX exceeds 35, based on historical trends showing strong forward returns under such conditions. They highlight current market turbulence and high VIX levels, noting that while the S&P 500 often struggles in the August-October period, the VIX crossing 35 historically signals a buying opportunity. Despite recent volatility and recession fears, RBC Capital expects significant price action around a 10% pullback from recent highs.

Wedbush analysts recommend staying calm amid the global market sell-off, viewing it as a buying opportunity for leading tech shares such as Apple, Microsoft, and Nvidia. They believe the current turmoil is a short-term setback in a long-term bull market, fuelled by the ongoing AI revolution and expected Federal Reserve rate cuts. The firm emphasises that historically, such market dips have provided the best chances for investing in tech leaders, and they remain optimistic about continued growth in the sector.

Jefferies analysts predict a potential Federal Reserve rate cut before the September meeting due to weakening US labour market data. July’s nonfarm payrolls showed minimal growth, with significant declines when adjusting for seasonality, and rising unemployment. With wage growth slowing and easing expectations increasing, an intra-meeting cut now seems likely, benefiting Asian and emerging markets.

UBS analysts are confident in a US economic soft landing despite weaker economic data. Following disappointing July labour market reports, UBS expects the Federal Reserve to cut rates by 100 basis points by year-end, including 50 basis points in September. The firm remains optimistic but notes risks if inflation surprises to the upside.

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