Power triggers count down to rate cuts

US and European equities rallied on Friday after Fed Chair Jerome Powell signalled imminent rate cuts, boosting expectations for policy easing in September. The S&P 500 rose 1.1%, the Dow gained 462 points, and the Nasdaq advanced 1.4%, driven by strong gains in software and semiconductor shares, including Workday and Nvidia. In Europe, the Eurozone’s Stoxx 50 climbed 0.4%, led by banks like Santander and industrials like Siemens, marking a 1.3% weekly gain for both markets.

Summary for 26.08.2024

Asian equities were mixed on Monday, with Japanese shares retreating due to yen strength and rate hike expectations. The Nikkei 225 and TOPIX fell 1% each as a stronger yen pressured exporters. Most other Asian markets gained, supported by hopes of lower US rates. However, China’s shares lagged, weighed by concerns over its slowing economic recovery and PBOC liquidity withdrawal.

European equities are seen opening with a negative bias this morning while US equity index also fell slightly, with caution ahead of Nvidia’s earnings and PCE inflation data later this week, as traders anticipate a potential September interest rate cut.

Oil prices rose in Asian trade on Monday due to continued hostilities between Israel and Hamas, as ceasefire talks in Cairo showed no progress. Optimism over potential US rate cuts also supported prices, with Brent rising to $79.59 a barrel and WTI to $75.45. However, concerns over China’s economic slowdown limited overall gains in crude.

Federal Reserve Chair Jerome Powell signalled an imminent rate cut in September during the Jackson Hole Symposium on Friday, citing a cooling labour market and slowing inflation towards the 2% target. His comments, alongside recent Fed meeting minutes, reinforced confidence that it’s time to shift to less restrictive policy, following softer jobs data and payroll revisions.

Apple is gearing up for its biggest product launch of the year on 10th September, debuting new iPhones, watches, and AirPods with sales starting on 20th September. The iPhone 16 series will feature major AI enhancements, aiming to boost appeal despite a 6.5% sales drop in China. Meantime, Billionaire hedge fund manager Daniel Loeb sees significant upside potential in Apple’s shares, driven by AI advancements that could enhance iPhone demand and app growth.

Meta has cancelled its high-end mixed-reality headset project, codenamed "La Jolla," which was set to compete with Apple's Vision Pro due to challenges in keeping costs below $1,000. The decision follows a strategic shift towards licensing its XR software, Horizon OS. Despite this, Meta continues to develop lower-range headsets like the Quest 4 and focuses on AI and Ray-Ban smart glasses.

Britain’s NHS is expected to block Eli Lilly's Alzheimer's treatment, donanemab, according to the Telegraph. The National Institute for Health and Care Excellence (NICE) is likely to reject it, similar to its decision on lecanemab, due to high costs and monitoring requirements. Despite donanemab being hailed as a significant advancement, its approval in the UK is uncertain, and a decision has been delayed.

Workday's shares rallied 12.5% in regular trading on Friday after the company reported better-than-expected second-quarter results. Adjusted EPS reached $1.75, beating estimates, and revenue was $2.09 billion, up 16.7% YoY. Workday raised its fiscal 2025 subscription revenue forecast to $7.7–$7.725 billion and expects non-GAAP operating margins to hit 30% by 2027. The company also announced a $1 billion share repurchase programme.

Intuit reported fourth-quarter earnings surpassing expectations, with adjusted EPS of $1.99 and revenue up 17% YoY to $3.18 billion. Despite this, shares fell nearly 7% in regular trading on Friday due to mixed long-term growth forecasts, particularly for Consumer and Credit Karma. JPMorgan raised its target price from $585 to $600, reflecting confidence in Intuit's performance.

Shares of Mediterranean chain Cava Group surged over 23% to a record $125.38 on Friday, driven by strong demand and an upbeat earnings forecast. The company exceeded Q2 expectations and reported increased sales from its grilled steak rollout. Despite rising fast-food prices leading others to offer discounts, Cava's 3% January price hike and menu innovations have enhanced its appeal. Full-year sales growth is now forecasted at 8.5% to 9.5%.

Shares of Peloton rose more than 6% on Friday after initially dipping due to JPMorgan’s downgrade to Neutral, which highlighted a challenging growth outlook and limited visibility. Despite concerns about declining hardware sales and increased churn, Peloton's improved adjusted EBITDA, free cash flow, and cost-saving measures, along with a strong subscriber base, helped drive the shares’ rebound. JPMorgan also reduced its FY25 revenue forecast but raised its adjusted EBITDA estimate.

Evercore ISI has advised buying Nvidia stock ahead of its July quarter earnings, dismissing concerns about delays with the Blackwell AI system as overstated. They highlight strong demand and a 20% surge in hyperscale CapEx in Q2 2024, with expected growth in subsequent quarters. Despite potential short-term drops, Evercore expects Nvidia to thrive and has raised its target price from $145 to $150.

Evercore ISI is optimistic about Dell Technologies ahead of its earnings report, expecting the company to meet or exceed revenue and EPS estimates of $24.14 billion and $1.68, respectively. This positive outlook is supported by strong demand in Dell’s core areas, including servers, PCs, and storage, with potential upside from AI server shipments. Concerns about AI server margins and recent layoffs are noted, but Evercore remains confident in Dell's improved demand and margin expansion prospects.

Morgan Stanley is reducing its stake in Tesla, citing a slowdown in the auto industry, heightened competition, and decreased consumer demand for EVs. Despite Tesla's leadership in the EV market and potential in robotics and AI, the firm plans to reallocate funds to less volatile shares like Spotify. Recent EU tariff reductions on Chinese EV imports also influenced this decision.

Analysts at Guggenheim upgraded Roku from Neutral to Buy, setting a 12-month price target of $75, reflecting a 21% potential upside. The upgrade is driven by expected revenue acceleration through strategic initiatives like expanding video inventory sales and improved home screen monetisation. Despite concerns about competition and execution, Guggenheim anticipates Roku will achieve significant progress and outperformance, boosting investor confidence.

Telsey Advisory Group (TAG) has raised its price target for Birkenstock to $70 from $63, citing strong brand performance and effective distribution. Despite macroeconomic challenges, Birkenstock's growth is driven by high demand, particularly in Asia-Pacific, Europe, and the Americas. TAG forecasts a 19.4% revenue increase to €565 million for Q3 and a 20% annual growth for fiscal 2024, with improved EBITDA margins.

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