Markets face pivotal day with first Fed cut

On Tuesday, U.S. equities were mostly flat ahead of the Fed’s anticipated rate cut, with the S&P 500 hitting a record high of 5,670 before closing nearly unchanged. The Dow dipped 0.04%, while the Nasdaq gained 0.2%. Microsoft’s $60 billion buyback and strong retail sales bolstered sentiment. Energy led sectors with a 2% rise in oil prices, and small caps outperformed. Bond yields rose slightly, with the 10-year yield at 3.65%. European equities remained subdued, awaiting the Fed's decision.

Summary for 18.09.2024

Asian equities were mostly flat on Wednesday as investors awaited the Federal Reserve's interest rate decision. Trading volumes were low due to holidays in Hong Kong and South Korea, while Chinese markets remained muted after weak economic data. Japan's Nikkei 225 outperformed, rising 0.7% on a stronger yen. Broader markets, including Australia’s ASX 200, showed little movement, reflecting cautious sentiment ahead of the Fed's announcement.

U.S. and European markets are expected to open cautiously later in the day, with U.S. futures showing mild gains as investors await the Federal Reserve’s interest rate decision, while economic resilience complicates expectations for potential rate cuts.

Oil prices steadied this morning after two days of gains, with supply disruptions from Hurricane Francine and expectations of increased demand following rate cuts driving earlier rises. Ongoing Middle East tensions and anticipated U.S. oil purchases for the Strategic Petroleum Reserve supported prices, despite rising U.S. oil stockpiles.

Japan's export growth slowed sharply in August, with shipments to the U.S. dropping for the first time in three years. Exports rose 5.6%, below expectations, while machinery orders unexpectedly fell in July. Weaker global demand, especially from the U.S. and China, threatens Japan's economic recovery. Despite a rebound in Q2, economists expect weak export momentum and fragile growth ahead, with consumption as the main support.

US retail sales rose by 0.1% in August, surpassing forecasts of a 0.2% decline and following a revised 1.1% increase in July. Core sales, excluding food services, auto dealers, building materials, and gasoline, climbed 0.3%, down from 0.4% in July. Notable gains were seen in miscellaneous stores, nonstore retailers, and health and personal care stores, while declines occurred at gasoline stations, electronics stores, and clothing retailers.

U.S. home builder confidence increased to 41 in September from 39 in August, breaking a four-month decline, as falling mortgage rates improved sentiment. Despite this, confidence remains low due to ongoing construction cost challenges. The average 30-year mortgage rate recently dropped to 6.20%, and builders are now less frequently cutting home prices, with the average concession falling below 6% for the first time since July 2022.

Battery-electric vehicles in the EU are projected to capture 20% to 24% of the market by 2025, driven by lower prices, according to Transport & Environment (T&E). Despite a recent slowdown in EV sales and varying green policies across the bloc, the introduction of affordable electric models is expected to boost sales. T&E urges against delaying emissions targets and stresses that robust national policies are needed.

Ryanair’s CEO, Michael O’Leary, noted a rise in booking momentum and a reduced need for discounts, although annual profits may be slightly down compared to last year. Ticket prices are anticipated to fall by 5-9% for the quarter ending September. Despite recent challenges and concerns about Boeing deliveries, Ryanair remains optimistic. Other European airlines are also seeing price stabilisation as demand normalises.

UniCredit plans to seek ECB approval to potentially increase its stake in Commerzbank to up to 30%, allowing for flexibility in future moves. The Italian bank, currently holding 9% of Commerzbank, aims for broader manoeuvrability, which could lead to a full takeover if supported. The request will be submitted to Germany's BaFin before being forwarded to the ECB for review.

Shopify's shares rose yesterday following an upgrade to 'buy' by Redburn Atlantic, which forecasts significant growth for the company. The upgrade reflects Shopify’s strong position in the social e-commerce sector and expected financial performance, including a 29% CAGR in net revenue and a 40% EBIT margin by 2026. The firm highlights Shopify’s deep integrations with major social platforms and innovative tools as key growth drivers.

Palantir has been added to Bank of America's US 1 List of top investment ideas, reflecting strong confidence in its long-term growth potential. BofA highlighted Palantir's recent S&P 500 inclusion and CEO Alexander Karp’s emphasis on the company's powerful products and partnerships. The firm's "Warp-Speed" product, designed to enhance product lifecycle management and enterprise resource planning, is noted for its potential to transform the industrial base.

Bank of America has reinstated coverage of Carvana with a Buy rating and a $185 price target, suggesting a 21% upside. BofA cites Carvana's growth potential in the recovering $800 billion used car market, efficiency gains, and improving unit economics. While optimistic about revenue and EBITDA forecasts, BofA warns of risks related to Carvana’s debt and macroeconomic conditions.

Mizuho Securities has initiated coverage on Dell Technologies and Super Micro Computer, Inc. in the AI server market. Dell, rated "outperform" with a $135 target, is projected to grow AI server revenues significantly and leverage its broad portfolio and strong cash flow. SMCI, rated "neutral" with a $450 target, faces challenges including declining market share, margin pressure, and negative cash flow amid increasing competition.

Wells Fargo analysts warned that the S&P 500 may face volatility and struggle to reach new highs due to seasonal patterns, economic concerns, and the approaching U.S. election. They noted historical late-summer declines and potential spikes in volatility around the election. Despite this, Wells Fargo sees opportunities in U.S. Large Cap Equities and suggests preparing a shopping list for potential market dips. They are optimistic for a recovery in 2025.

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