Markets flat on hawkish Fed and Trump tariffs

General market commentary

Equity markets saw a mixed performance on Wednesday, with large-cap equities outpacing their small- and mid-cap counterparts. Despite gains in health care and materials sectors, concerns over inflation and rising bond yields weighed on investor sentiment, particularly as China's yuan fell to a 16-month low against the U.S. dollar.

In the U.S., Wall Street closed with little direction, highlighted by a modest rise in the S&P 500 while the Nasdaq slipped slightly. The market's cautious stance was exacerbated by disappointing job creation figures from the ADP report, which fell short of expectations ahead of the upcoming non-farm payroll data. Investors remained hesitant to make significant moves, especially with economic uncertainties looming and a holiday commemorating former President Jimmy Carter approaching.

Latest market and economic update

Most Asian equities fell on Thursday due to expectations of a gradual decline in U.S. interest rates and weak Chinese inflation data. However, South Korea's KOSPI rose by 0.4%, defying the regional trend.

U.S. equity futures edged lower on Thursday as the Federal Reserve signalled a potential slowdown in the pace of policy easing amid renewed inflation concerns. This decline in futures follows Wednesday's mixed performance in regular trading, with investors remaining cautious ahead of Friday's jobs report.

European equities closed mostly lower, with Germany's DAX and France's CAC 40 both falling due to weak economic data, including a decline in German industrial orders. Notable movers included Shell, which dropped 1.4% after cutting its LNG production outlook, Roche, which gained 1.4% on its $1.5 billion acquisition, and Novo Nordisk, which rose 2.8% following a UBS upgrade.

The dollar index remained steady around 109 on Thursday as investors evaluated the Federal Reserve's monetary policy outlook, with minutes from the December meeting indicating concerns over persistent inflation. The euro declined to 1.0308, as the dollar received additional support from reports suggesting that President-elect Trump may declare a national economic emergency to implement broad tariffs.

U.S. bond yields paused their recent upward trend, with the 10-year Treasury yield currently at 4.68%, having briefly reached a high of 4.72%. Expectations for rate cuts have diminished due to slower disinflation, as core PCE inflation remains above the Federal Reserve's target, indicating that any future rate reductions are likely to occur at a slower pace.

Oil prices declined for a second consecutive day on Thursday, pressured by significant increases in U.S. fuel inventories despite ongoing expectations for rising winter demand. Brent crude futures fell to $76.08 a barrel, while West Texas Intermediate dropped to $73.21, as both benchmarks also faced downward pressure from a stronger dollar and larger-than-expected stockpile builds.

The Federal Reserve's December meeting minutes revealed concerns over stalled disinflation, leading to a slower pace of rate cuts in 2024. Despite this, Fed Governor Christopher Waller reassured markets that inflation would continue to slow, allowing for further rate reductions later in the year.

China's consumer price index inflation rose by a modest 0.1% year-on-year in December, reflecting weak consumer spending and ongoing deflationary pressures, despite government stimulus efforts. Meanwhile, the producer price index contracted by 2.3%, marking the 27th consecutive month of decline, as factories continued to face challenges from sluggish domestic demand and overcapacity.

The ADP employment survey revealed that private sector employment grew by 122,000 in December, falling short of expectations and the average monthly gain over the past year. Meanwhile, initial jobless claims dropped to 201,000, indicating a resilient labour market, although continuing claims rose slightly, suggesting that some individuals are remaining on unemployment benefits for longer.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Delta Air Lines is ending its partnership with Lyft and switching to Uber for its SkyMiles loyalty programme, a strategic win for Uber. This move highlights Uber's growing dominance in the rideshare market, as it continues to secure key partnerships that could bolster its competitive position.

eBay has partnered with Meta to feature eBay listings on Facebook Marketplace, starting with tests in Germany, France, and the United States. This collaboration aims to increase eBay's visibility by connecting its listings to Facebook's vast user base, enhancing the shopping experience for both platforms.

SoftBank and its subsidiary Arm are reportedly considering a takeover of Oracle-backed Ampere Computing, which is exploring strategic options including a potential sale. Ampere, known for its Arm-based processors aimed at data centers, has gained attention due to the increasing demand for chips amid the AI boom, despite facing significant competition in the semiconductor market.

Constellation Energy is negotiating the acquisition of Calpine Corp. in a deal valued at around $30 billion, including debt. This potential acquisition highlights ongoing consolidation in the power generation sector, with significant implications for both companies.

Vanguard Group has increased its stake in Talen Energy Corp to 10.4%, purchasing over 4 million shares amid rising demand for electricity driven by the AI boom. Talen Energy's shares have surged over threefold in 2024, reflecting the growing need for power to support data centers.

Volkswagen's management, including its board, will take pay cuts totalling over €300 million by 2030, as part of a cost-cutting deal with unions. The agreement aims to reduce staffing by 35,000 and cut production capacity by 734,000 units, saving €15 billion annually.

UBS analysts upgraded Novo Nordisk to "buy," citing strong near-term demand for its weight-loss drugs, particularly GLP-1 medications like Wegovy. Despite recent setbacks with its CagriSema trial, they believe the equity remains an attractive investment in the growing weight-loss and diabetes treatment market.

Needham & Company added Salesforce to its Conviction List and raised its price target to $400, driven by confidence in the company's AI-focused Agentforce strategy. The firm expects significant growth in second-half bookings, particularly through the adoption of AI and the "halo effect" benefiting products like Mulesoft.

Analysts have lowered their fourth-quarter earnings estimates for Exxon Mobil, citing reduced prices and margins that are expected to impact quarterly results. The company's refining and chemicals divisions are likely to see lower profits, following a global slowdown in demand for gasoline and diesel.

HSBC downgraded AMD to "Reduce" and lowered its price target to $110, citing concerns over weaker demand for its AI GPU and delays in competing with Nvidia's products. The analysts also revised AMD's 2025 revenue and earnings estimates downward, reflecting slower growth in both the AI GPU and data centre sectors.

Evercore ISI maintains an Outperform rating on Dell Technologies, citing strong expected growth in AI servers, storage, and PCs in 2025. Despite some revenue volatility linked to GPU allocations, Dell is poised for success, with increasing demand from both cloud and enterprise customers, and an anticipated PC upgrade cycle.

RBC Capital Markets cut its price target for Nike to $70, citing ongoing challenges in the company's turnaround efforts and slower growth prospects. While maintaining a "sector perform" rating, RBC favours Adidas in the sporting goods sector, expecting Nike to lose market share as it works to reposition its brand.

TD Cowen analysts upgraded Coca-Cola to "buy," calling the recent share price decline an overreaction to volume concerns and trade policy fears. They believe the company’s strong performance in the US and international markets presents a long-term growth opportunity.

Citi upgraded Carvana to "buy/high risk" and raised its price target to $277, citing strong retail unit sales growth and improvements in gross profit per unit. The brokerage expects Carvana to continue benefiting from efficient inventory management and a stabilising auto market, with potential for further margin expansion.

Jefferies upgraded GE HealthCare to "buy" and raised its price target to $103, citing strong growth prospects in diagnostic imaging and recurring revenues. The analysts believe the company is undervalued, with further upside potential driven by market share gains and strategic innovation.

Upcoming data and events

Today, economic data releases in Europe include the Eurozone retail sales figures for December, which are expected to show a month-on-month decline of 0.5% and a year-on-year increase of 1.9%. In the U.S., all scheduled economic releases have been postponed due to the national day of mourning for former President Jimmy Carter, with updates now expected on Friday.

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