Markets brace for US election in action-packed week

U.S. and European equities both saw a Friday rebound, though major indexes still closed the week in negative territory. The S&P 500 rose 0.41% Friday, ending down 1.37% for the week, while the Dow added 0.69%, trimming its weekly loss to 0.15%. Europe’s Euro STOXX 50 gained 1%, narrowing its weekly decline to 1.5%. Positive earnings from Amazon, Intel, and European banks like UniCredit and Santander buoyed market sentiment despite high volatility and elevated Treasury yields.

Summary for 04.11.2024

Most Asian equities rose on Monday as investors awaited further cues on fiscal stimulus from China’s National People’s Congress meeting. Gains were capped by caution ahead of U.S. elections, with low volumes due to a Japanese holiday. China’s main indices gained modestly, Australia’s ASX 200 advanced, and South Korea’s KOSPI outperformed on strong chip equities, while Indian shares were set for a flat open.

European markets are set for a soft start, with futures indicating a cautious outlook ahead of Monday's open. U.S. equity index futures also declined, with S&P 500 futures down 0.1% and Nasdaq 100 futures down 0.3%. Investor sentiment remains cautious due to uncertainty surrounding a closely contested presidential election and an anticipated 25 basis point rate cut from the Federal Reserve.

Oil prices climbed over $1 in early trading on Monday after OPEC+ announced a one-month delay to a planned December output increase due to weak demand and rising non-OPEC supply. Brent crude rose 1.61% to $74.28, while WTI increased 1.73% to $70.69. The delay reflects OPEC+'s willingness to support prices amid shifting market dynamics.

On Friday, U.S. nonfarm payrolls showed an unchanged unemployment rate at 4.1% and a 0.4% rise in hourly earnings, exceeding the 0.3% estimate, indicating a healthy labour market. However, the ISM Manufacturing PMI fell to 46.5%, below the 47.6% consensus, marking seven months of contraction. Overall, mixed data highlighted a complex economic outlook amid positive GDP and PCE figures.

Nvidia will replace Intel on the Dow Jones Industrial Average after 25 years, reflecting a significant shift in the semiconductor market as Intel's shares have plummeted 54% this year. Meanwhile, in response to strong demand for AI technology, Nvidia CEO Jensen Huang has urged SK Hynix to expedite the supply of HBM4 memory chips by six months, while Samsung progresses on its HBM3E products.

Warren Buffett and Berkshire Hathaway continued to retreat from equities in Q3, selling 25% of its Apple shares and boosting cash reserves to a record $325.2 billion. The firm reported a 6% decline in quarterly operating profit to $10.09 billion, impacted by underwriting losses and currency issues. Despite the challenges, Berkshire's Class A shares are up 25% this year, reflecting broader market trends.

Boeing shares rose 3.5% on Friday as optimism grew that striking workers would accept a new contract offering a 38% wage increase over four years and a $12,000 ratification bonus. Around 33,000 machinists will vote on the proposal, which does not restore a defined-benefit pension. The strike has halted production and caused a $6 billion loss in Q3.

U.S. oil producers Exxon Mobil and Chevron reported better-than-expected third-quarter profits, aided by record U.S. oil production despite lower fuel margins. Exxon’s output rose 24% to 4.6 million barrels of oil equivalent per day, while Chevron's increased 7% to 3.36 million boepd. Both companies faced challenges from weak global refining margins but outperformed European rivals like BP and TotalEnergies.

Amazon reported strong third-quarter earnings, with adjusted earnings per share of $1.43, surpassing estimates of $1.14, and revenue of $158.9 billion, up 11% year-on-year. CEO Andy Jassy noted significant growth in Amazon Web Services, driven by demand for AI, with sales rising 19% to $27.5 billion. Despite a cautious fourth-quarter revenue forecast, analysts remain optimistic about the company's performance.

Apple's current-quarter revenue outlook, projected in the low- to mid-single digits, fell short of Wall Street expectations, raising concerns ahead of the holiday season. While iPhone sales rose to $46.2 billion, demand in China remained flat. The services unit saw a 12% increase to $24.9 billion. Despite topping earnings estimates, Apple shares dipped on Friday amid mixed results from other tech giants.

Intel expressed optimism about its PC and server businesses, forecasting higher-than-expected revenue for the current quarter despite reporting a significant net loss of $16.6 billion due to impairment charges. Shares rose over 7% following the results. The company aims to enhance profitability and plans $12 billion to $14 billion in capital spending for 2025, while also facing competition from AMD and Nvidia in the AI chip market.

Volkswagen CEO Oliver Blume stated that the company’s cost-cutting programme is essential to address “decades of structural problems” exacerbated by weak demand in Europe and declining earnings in China. Plans reportedly include shutting at least three German factories and laying off thousands. Blume emphasised the need to significantly reduce operating costs in Germany to maintain competitiveness, with €900 million allocated for the restructuring efforts.

HSBC downgraded Lufthansa from Buy to Hold, reducing its price target from €8.00 to €7.00 due to limited visibility on earnings. The bank lowered its 2024 adjusted EBIT estimate to €1.49 billion, below consensus expectations, and expressed concerns over disappointing cargo results and vague guidance for 2025. HSBC's cautious outlook reflects broader uncertainties in the aviation sector.

This week, global markets are focused on the U.S. presidential election, with a close race between Kamala Harris and Donald Trump, followed by the Federal Reserve’s policy meeting, where a 25-basis-point rate cut is expected. The Bank of England will also announce its interest rate decision amid inflation concerns. Earnings season intensifies with reports from Palantir, Novo Nordisk, Toyota, and Shell, while key data, including China’s trade figures and Japan’s GDP, will shape regional economic insights.

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