Powell sparks optimism on rate cuts

On Tuesday, the S&P 500 and Nasdaq closed at record highs, gaining 0.6% and 0.8%, respectively, while the Dow rose 162 points, driven by megacap equities. Investors reacted to Federal Reserve Chair Jerome Powell's comments on inflation and the JOLTS job openings report. Consumer discretionary and financials led gains, with Tesla surging 10.2% on strong delivery numbers. Meanwhile, the Stoxx 50 fell 0.5% as ECB officials indicated no rush to cut rates, despite Eurozone inflation easing to 2.5%. Major equities like L'Oréal and Banco Santander declined, while Siemens Energy rose 3.8% on hiring plans.

Summary for 03.07.2024

Most Asian shares rose slightly this morning, led by Japan's Nikkei 225, which surged 0.9% due to dovish BOJ expectations. However, Chinese markets fell 0.4% on disappointing services PMI data, signalling economic slowdown. Hong Kong's Hang Seng rose 0.7%, while South Korea's KOSPI and Australia's ASX 200 saw modest gains.

European markets are poised for gains as they prepare to open higher today. This follows steady US equity index futures overnight, buoyed by Tesla's rally and optimistic comments from Federal Reserve Chair Jerome Powell. The US session will be shortened ahead of the Independence Day holiday, with markets also focusing on upcoming economic data releases and the Fed meeting minutes.

Oil prices edged higher on Wednesday after a larger-than-expected drop in US crude inventories, boosting demand hopes. Gains were tempered by profit-taking and rising gasoline inventories. US gasoline demand is expected to increase with the Independence Day holiday, while OPEC output rose due to higher production from Nigeria and Iran.

The Caixin China General Services PMI fell to 51.2 in June, the lowest since October, below forecasts of 53.4. Despite marking 18 months of expansion, growth slowed due to eased new and export orders. Employment contracted, increasing work backlogs, while higher input costs raised selling prices slightly. Business sentiment hit a low since March 2020.

Australia's retail sales rose by 0.6% in May, the fastest pace since January, driven by early financial year-end promotions. Household goods, clothing, footwear, and food retailing saw notable increases. However, other retailing and food service sales eased. Sales grew in most regions except New South Wales and South Australia.

In May, job openings in the US surged to 8.140 million, exceeding expectations and rebounding from April's three-year low of 7.919 million. Increases were notable in state and local government, durable goods manufacturing, and federal government sectors, while declines were seen in accommodation and food services, as well as private educational services.

The Euro Area's annual inflation rate eased to 2.5% in June 2024 from 2.6% in May, meeting market forecasts. This moderation was driven by slower increases in prices for food, alcohol, tobacco, and energy. Meanwhile, the region's unemployment rate held steady at an all-time low of 6.4% in May, with 11.078 million unemployed individuals. Youth unemployment remained unchanged at 14.2%, with notable disparities across major economies, including Spain at 11.7% and Germany at 3.3%.

Federal Reserve Chair Jerome Powell, speaking at a conference in Portugal, indicated the US economy is moving towards lower inflation levels but emphasised the need for more data before considering interest rate cuts. He noted a balanced approach between inflation and employment risks, suggesting cautious policy adjustments amidst signals of economic weakening.

Tesla reported a modest 5% decline in vehicle deliveries for Q2, surpassing Wall Street expectations and boosting its shares by over 10%. The performance eased concerns about weakening EV demand despite challenges like price cuts and competition in China. Tesla's upcoming robotaxi reveal also buoyed investor optimism.

Shares of Eli Lilly & Co. and Novo Nordisk declined on Monday after President Biden and Senator Sanders urged Novo Nordisk to lower prices for Ozempic and Wegovy, citing high prescription costs. Meanwhile, the FDA approved Eli Lilly's donanemab drug for early Alzheimer's treatment which targets beta amyloid with finite dosing, intensifying market competition against Biogen's Leqembi despite side effects.

Skydance Media, led by David Ellison, is reportedly finalising a deal to acquire National Amusements, including a merger with Paramount Global. This agreement, valued at $1.75 billion, marks a significant development following previous failed negotiations, causing Paramount's shares to surge by almost 8.0% after-hours.

Siemens Energy plans to invest €1.2 billion in its electricity grid unit over six years, aiming to recruit over 10,000 workers globally. This initiative, reported by Reuters and Financial Times, includes expanding manufacturing capacities in the US, Europe, and Asia amidst expectations of significant global spending on power grids in the coming years.

Rivian denied plans to produce vehicles with Volkswagen beyond their current software partnership, causing Rivian's shares to drop 1.5% in after-hours trading. Reports suggested a potential extension to manufacture R2 SUVs at VW's South Carolina plant, but Rivian reaffirmed its production plans in Illinois and Georgia.

Morgan Stanley analysts reported stronger-than-expected demand for Nvidia's H20 chips in China among major hyperscalers, despite regulatory constraints. They noted the H20's performance lags behind the H100 individually but improves significantly when clustered, potentially reaching half the performance of the H100 at potentially half the price.

Wedbush analysts have raised their price target for Tesla, projecting $300 and a bullish case of $400 by 2025. They highlighted strong Q2 deliveries as a significant turnaround for the company's demand story. Tesla is expected to pursue a 2 million unit annual trajectory, with upcoming events like Robotaxi Day and advancements in Full Self-Driving seen as pivotal for its growth towards a potential $1 trillion valuation in the autonomous sector.

Mizuho raised ASML Holdings' price target to €1,110, citing strong investor sentiment and optimism ahead of the company's analyst day in November. The new CEO's reaffirmation of mid-20% revenue growth for 2025 and TSM's interest in ASML's EUV technology bolster expectations, with focus on substantial EUV orders crucial for Q2 results and future growth outlook.

Piper Sandler downgraded CrowdStrike Holdings Inc. to Neutral from Overweight due to high valuation concerns, despite acknowledging the company's strong future prospects. They believe CrowdStrike's current share price already reflects anticipated growth, citing challenges in sustaining high growth rates as the company scales, which could impact returns compared to peers in cybersecurity.

Mizuho analysts are optimistic about Amazon, foreseeing accelerated growth for Amazon Web Services (AWS) driven by increased demand from enterprises exiting data centers and adopting higher-value services like app monitoring and chatbot deployments. They anticipate a 20% year-over-year revenue growth for AWS and maintain a Top Pick rating with a $240 price target for Amazon.

UBS analysts maintained an overweight stance on Chinese equities despite recent declines, emphasising potential for outperformance with continued policy support. They caution on the sustainability of emerging market equity rally driven by AI/internet sectors, foreseeing challenges from US elections and Fed policies. UBS upgrades South Africa, citing improved political stability, but remains bearish on Latin America.

S&P Global cautioned that the United States, Italy, and France are unlikely to halt the rise in their debt levels over the next few years. Despite upcoming elections promising economic improvements and social services, achieving a primary balance improvement of more than 2% of GDP needed to stabilize debt is deemed improbable by S&P.

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