NVIDIA fuels S&P 500 to record high

On Monday, the U.S. markets saw two major indices, the S&P 500 and Dow Jones Industrial Average, reach new closing highs, rising 0.77% and 0.47%, respectively. Despite below-average trading volume due to the Indigenous Peoples Day holiday, the tech sector led gains, driven by semiconductor shares. In Europe, shares followed suit, with the STOXX 50 rising 0.8%, led by technology shares, while investors await a likely rate cut from the European Central Bank.

Summary for 15.10.2024

• Most Asian equities rose on Tuesday, tracking record highs on Wall Street ahead of the third-quarter earnings season. Japan's Nikkei surged 1.7%, crossing 40,000 points, while Australia's ASX 200 hit a record high. Chinese shares lagged due to weak economic data and limited details on new fiscal stimulus measures, causing the Shanghai indexes and Hong Kong's Hang Seng to trade lower.

• European and U.S. equity markets are expected to open steady, following a record rally in U.S. tech stocks led by gains in NVIDIA and other major tech firms. Investor focus will be on key upcoming Q3 earnings, particularly from major banks and tech companies, and economic data, including U.S. retail sales and Fed officials' addresses, as markets anticipate a possible interest rate cut in November.

• Oil prices fell sharply in Asian trade on Tuesday, extending losses due to demand concerns. Declining Chinese oil imports and OPEC’s reduced demand forecast, largely attributed to China, pressured prices. Brent and WTI futures dropped around 3%. Additionally, reports suggesting Israel will not attack Iranian oil facilities reduced fears of Middle East conflict escalation, further weighing on prices.

• UK Prime Minister Keir Starmer pledged to cut regulations hindering growth and secured over £60 billion in investments to boost infrastructure and public services. At a London summit, the government outlined plans to streamline planning, promote innovation, and ease regulations. Despite investor concerns about potential tax hikes, Starmer emphasised prudence in the upcoming budget, aiming to revitalise the economy.

• Federal Reserve Governor Christopher Waller urged caution on future interest rate cuts, citing stronger-than-expected U.S. economic and labour data and a recent rise in inflation. Despite advocating gradual rate reductions over the next year, he emphasised a deliberate pace, contingent on stable inflation and labour market conditions. Waller indicated flexibility, suggesting rate adjustments if inflation shifts or labour market dynamics change unexpectedly.

• The U.S. is considering country-specific limits on exporting advanced AI chips from companies like Nvidia, focusing on Persian Gulf nations for national security reasons, according to Bloomberg. The Commerce Department recently eased rules for Middle Eastern data centres, allowing them to apply for broader authorisation. Last year, the U.S. expanded chip export restrictions to over 40 countries, citing diversion risks to China.

• Global EV sales rose 30.5% in September, driven by record growth in China and a rebound in Europe, according to Rho Motion. China saw a 47.9% sales increase, while Europe grew 4.2%, with notable gains in the UK. U.S. growth remained modest. Despite challenges, Chinese automakers are pushing into the EU market. Rho Motion revised down European EV sales forecasts for 2025 and 2030.

• NVIDIA's new DGX B200 computing system is priced at $515,410, over 40% higher than its predecessor, reflecting increased demand ahead of the Blackwell platform cycle. Analysts see this as a positive sign for the company's growth, especially in terms of gross margins. NVIDIA's software monetisation, including AI Enterprise and Base Command subscriptions, is also set to boost annual revenue to $2 billion, doubling year-on-year.

• Shares of Trump Media & Technology Group surged over 19% on Monday, continuing recent gains as betting odds for Trump's potential 2024 election win increased. Trump's media firm, owning the Truth Social app, has seen fluctuating equity values, with a recent spike linked to increased betting odds and news of a Kamala Harris interview on Fox News. Trump's stake is now valued at $3.4 billion.

• Wells Fargo downgraded VF Corporation from "equal weight" to "underweight," causing shares to fall nearly 5%. The firm lowered its price target from $16 to $15, expressing concerns that optimism about the Vans brand's turnaround is overstated and warning of potential slowdowns at The North Face, while also noting unrealistic profit margin assumptions in the equity's valuation.

• Canaccord Genuity analysts remain optimistic about Tesla Inc's long-term prospects despite concerns following the recent Robotaxi event, which lacked technical details and featured an ambitious rollout timeline. While acknowledging scepticism, they emphasised Tesla's leadership in electric vehicles, AI, and energy storage. The firm encouraged investors to focus on long-term potential, reiterating a Buy rating on Tesla shares.

• Evercore ISI analysts have issued a Tactical Outperform rating for Apple Inc, anticipating earnings results that align with estimates, potentially boosting the shares. They argue that concerns about Apple's market position in China are overstated, citing strong upgrade demand in the US and growth in developing markets. They maintain a bullish outlook on Apple's Wearables and Services segments, setting a price target of $250.

• Morgan Stanley downgraded Caterpillar Inc to "underweight" from "equal-weight," citing concerns over potential destocking in its Construction Industries segment and revising the price target to $332 from $349. Analysts highlighted bloated inventories and declining revenue forecasts as factors that may pressure earnings, with their 2025 EPS estimate now 10% below consensus. They foresee challenges in offsetting CI segment issues with improvements in other areas.

• Bank of America strategists view the potential for a "no landing" scenario as bullish for shares, contingent on contained inflation. They note that strong economic data could shift the market narrative, with a positive relationship between rates and equities. Despite previously identifying downside risks, recent job reports and revisions have led them to a more optimistic outlook, suggesting balanced risks moving forward.

• JPMorgan analysts caution against buying into European equities despite their lagging performance compared to the US. They note a widening valuation gap and persistent underperformance in growth indicators. With projected EPS growth in the eurozone downgraded to flat from 5%, and ongoing negative revisions, JPMorgan maintains a defensive stance, favouring sectors like Utilities and Healthcare while advising caution amid trade uncertainties.

• Morgan Stanley strategists expect continued stabilisation in the US economic surprise index to support quality cyclicals, even amid rising yields. They have upgraded cyclicals over defensives, noting a positive correlation between cyclical performance and economic data. With light sentiment in cyclicals, particularly financials, the firm anticipates a favourable environment for earnings during the upcoming US elections, emphasising the business cycle's significance over election outcomes.

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