Markets await Jerome Powell`s testimony

On Monday, the S&P 500 and Nasdaq Composite achieved new record highs with gains of 0.1% and 0.3%, respectively, while the Dow Jones declined by 31 points. Market focus was on upcoming CPI and PPI data, the beginning of earnings season, and Federal Reserve Chair Powell's congressional testimony. Nvidia and Broadcom saw increases, while Meta faced a 2% drop. European markets closed mixed due to uncertainties following France's left-wing alliance victory in legislative elections, impacting Paris's CAC 40 (-0.63%), Germany's Dax (+0.07%), and London's FTSE 100 (-0.13%).

Summary for 09.07.2024

Asian equities rose on Tuesday, led by Japan's Nikkei 225 hitting a record high due to gains in tech shares and foreign buying amid expectations of corporate reforms. Meanwhile, Chinese markets lagged on trade war concerns and awaited economic data. Overall, optimism over potential US interest rate cuts drove market sentiment across the region.

European equity markets are heading for a mixed open as France’s uncertain political outlook weighs on sentiment. Meantime, US equity markets are expected to open higher, driven by increased expectations for a September rate cut and optimism ahead of Federal Reserve Chair Jerome Powell's testimony and upcoming inflation data.

Oil prices steadied this morning as markets assessed the impact of tropical storm Beryl on US oil production and ongoing Gaza ceasefire talks. The storm disrupted Texas oil operations, while potential ceasefire progress between Israel and Hamas pressured prices. Chinese economic data this week may also influence market outlook.

President Joe Biden reaffirmed his commitment to his presidential campaign, addressing Democratic infighting by challenging dissenters to stop discussing his removal from the ballot. In a letter to Democratic lawmakers, Biden emphasised his determination to run against and defeat Donald Trump, receiving support from progressives like Alexandria Ocasio-Cortez.

A United Airlines Boeing 757-200 lost a landing-gear wheel after take-off from Los Angeles but landed safely in Denver with no injuries. The nearly 30-year-old plane's wheel was recovered in Los Angeles. In March, a United Boeing 777-200 similarly lost a tire mid-air. Separately, the FAA has mandated inspections of 2,600 Boeing 737s due to potential oxygen mask failures from shifting straps, with Boeing advising updates to ensure proper positioning.

Eli Lilly has agreed to acquire Morphic Holding for $3.2 billion in cash, aiming to bolster its portfolio in inflammatory bowel disease (IBD) treatments. The deal includes Morphic's experimental oral therapy MORF-057, seen as a convenient alternative to injectables, amid a competitive landscape with other major pharmaceutical companies.

Mercedes-Benz is scaling back its planned battery cell capacity expansion due to lower-than-expected electric vehicle demand. Originally aiming for 200 GWh by 2030, the automaker now reassesses its needs based on updated sales projections. Despite this, Mercedes-Benz continues to invest in battery technology, focusing on higher energy density and advanced cell designs.

ASML shares reached a record high on Monday, briefly surpassing €1,000 for the first time, buoyed by positive research on key customer TSMC ahead of earnings. ASML, a leader in chipmaking equipment, benefits from strong demand for advanced chips as TSMC plans significant capital spending this year.

Wedbush raised Meta Platforms' price target to $570 from $480, amid strong advertiser demand revealed in their survey, particularly from US-based advertisers. They noted consistent revenue growth over five quarters and anticipate a 20% year-over-year increase in Q2 revenue, prompting increased revenue and operating income estimates for the full year.

Both Wolfe Research and UBS have raised NVIDIA's price target to $150 from $125 and $120, respectively. Wolfe Research highlights strong supply chain checks indicating potential 50%+ growth in GPU content by 2025 driven by Nvidia's Blackwell platform, predicting significant data centre expansion fuelled by cloud adoption. UBS maintains a Buy rating, citing robust demand for Blackwell systems and projecting EPS around $5 by 2025, well above consensus estimates.

Wedbush forecasts a significant iPhone 16 upgrade cycle driven by Apple's advancements in AI, expecting a robust demand surge upon its mid-September 2024 release. They predict substantial financial gains from AI integration, estimating it could add $30 to $40 per share to Apple's value, reinforcing their bullish outlook on the company.

Morgan Stanley raised Taiwan Semiconductor Manufacturing Company price target to NT$1,080.00 from NT$1,180.00, driven by strong demand for AI semiconductors. They expect TSMC to raise full-year revenue growth guidance to 25% year over year and third-quarter guidance to 13% quarter-on-quarter, citing effective pricing strategies and robust customer demand for advanced packaging technologies.

Guggenheim downgraded ServiceNow to Sell from Neutral, setting a $640 price target. Analysts anticipate satisfactory 2Q24 results but foresee risks in the latter half of 2024, particularly concerning Subscription expectations and delayed GenAI business uptake until 2025. They highlight high valuation risks and potential downward revision of 2024 subscription guidance due to fieldwork findings.

Wolfe Research downgraded several US bank shares ahead of the reporting season. Raymond James Financial was downgraded to Peer Perform from Outperform due to emerging risks, while JPMorgan's high valuation prompted a downgrade amid net interest income challenges. State Street received an Underperform rating with a $73 price target, reflecting scepticism over optimistic earnings forecasts.

Stifel has raised SAP SE's price target from €195 to €210, maintaining a "Buy" rating ahead of SAP's Q2 results. They highlight strong performance in the cloud business, expecting revenues to reach €4.16 billion, a 25% year-on-year increase. Stifel forecasts an operating profit of €1.76 billion and notes SAP's strategic shift towards recurring cloud revenues.

Mike Wilson from Morgan Stanley anticipates a likely 10% equity market correction before the US election, citing uncertainties around corporate earnings, Federal Reserve policy, and the presidential campaign. Despite a bullish stance on high-quality growth shares, he believes current valuations offer limited upside, suggesting potential buying opportunities post-correction.

Bank of America's technical strategists foresee a robust summer rally for US equities, projecting the S&P 500 to reach 6150. They highlight recent highs in major indices but emphasize the need for broader market participation from laggards like the Russell 2000 and S&P 500 equal weight for a sustained rally.

S&P Global cautioned that France's credit ratings could face pressure after a hung parliament, complicating policymaking amid economic challenges. Risks include prolonged economic slowdowns, failure to reduce deficits, and rising debt ratios. Effective fiscal policies and reforms are crucial for France's creditworthiness amid political uncertainty.

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