Profit taking in tech overshadows rate cut cheers

On Thursday, US equities closed lower as megacap shares led losses amid expectations of Federal Reserve rate cuts. The S&P 500 dropped 0.8% to briefly touch 5,650, while the Nasdaq 100 fell 1.9% from its intraday high. However, the Dow Jones managed a modest gain of 32 points. Meanwhile, in the Eurozone, the Stoxx 50 index advanced 0.4% to close at 4,980, driven by optimism surrounding potential Fed rate cuts. Consumer discretionary giants like LVMH, Hermes, Kering, Adidas, and Inditex saw gains of 2.1% to 1.5%, while utilities such as Iberdrola and Enel each rose close to 1%.

Summary for 12.07.2024

Most Asian equitiess retreated on Friday, led by steep losses in tech-heavy indices due to profit-taking, particularly in chipmakers. Japan’s Nikkei 225 dropped 2.2%, while South Korea’s KOSPI slid 1.4%. However, Hong Kong's Hang Seng rose 2% on bargain buying, and Australia’s ASX 200 hit a record high, boosted by economically sensitive sectors.

European and US equity markets are expected to open steady, with attention shifting to the second-quarter earnings season as key banks including JPMorgan Chase, Wells Fargo, and Citigroup report their earnings on Friday.

Oil prices rose on Friday amid strong summer demand and easing US inflation. Robust US fuel demand, with gasoline and jet fuel at multi-year highs, along with expectations of a Federal Reserve rate cut, boosted investor confidence and supported prices. The weaker US dollar also increased investor appetite.

The yen experienced significant volatility early Friday morning amid speculation of official intervention by the Bank of Japan. Reports indicated the central bank conducted rate checks in the currency market, prompting uncertainty among traders. Japan's top currency official, Masato Kanda, suggested speculation driven by yield differentials between the US and Japan likely influenced the yen's erratic movements.

China's trade balance surged to a $99.05 billion surplus in June, driven by an 8.6% rise in exports despite weak local demand. Imports shrank 2.3%, indicating subdued domestic consumption. While exports were strong, future challenges include potential import tariffs from the European Union and anti-dumping laws from other countries.

US annual inflation fell to 3% in June from 3.3% in May, below expectations of 3.1%. Energy costs rose slower, driven by declines in gasoline and fuel oil prices, while utility gas service accelerated. Monthly, the CPI unexpectedly declined by 0.1%, the first drop since May 2020, with core inflation also easing to 3.3%. Chicago Fed President Austan Goolsbee said the latest CPI data was “excellent” and provides the evidence he’s been waiting for to be confident the central bank is on a path to its 2% goal.

President Joe Biden faced scrutiny over his mental acuity after two significant errors within hours. He mistakenly referred to Ukrainian President Volodymyr Zelenskiy as Russian President Vladimir Putin, drawing ridicule online. Additionally, he stumbled over remarks about Vice President Kamala Harris during a press conference, stating he wouldn't have chosen "Vice President Trump" if he lacked confidence in her, further raising concerns about his campaign viability.

Global sales of electric and plug-in hybrid vehicles rose 13% in June, driven by China, which accounted for over 60% of the total. Sales dropped 7% in Europe but rose 6% in the US and Canada. BYD's strong performance in Brasil and China's PHEV market contributed significantly to these figures.

Tesla has postponed the launch of its robotaxi to October due to design adjustments, prompting an 8% share price decline. Elon Musk's sparse details on the robotaxi, coupled with engineering and regulatory hurdles, underscore the complexity of autonomous vehicle development. Despite the setback, some investors view the delay as a prudent step towards a well-executed launch strategy.

PepsiCo missed second-quarter revenue expectations mainly due to slowed sales of snacks and soda in its largest market, the US. Price hikes and competition from private-label brands were cited as factors. Despite revenue rising 0.8% to $22.50 billion, organic volume declined 3%, prompting a lowered fiscal 2024 revenue forecast. Profit beat estimates at $2.28 per share.

Delta Air Lines expects improved pricing power starting August as US carriers curb domestic seat capacity growth to mitigate discounting pressure. Despite forecasting a lower-than-expected third-quarter profit, Delta aims for positive unit revenue by September. Summer travel demand surged, but overcapacity has kept ticket prices down industry-wide.

Volkswagen has finalised a deal with QuantumScape to produce solid-state batteries through its battery unit, PowerCo. The agreement grants PowerCo a license to mass-produce batteries based on QuantumScape's technology, potentially reaching 40 GWh annually with the option to expand. This move aims to enhance electric vehicle capabilities amid rising consumer demand for improved battery performance.

Pfizer shares rose approximately 1% in regular trading Thursday following the announcement that it is advancing its once-daily weight-loss pill Danuglipron. The drugmaker plans dose optimisation studies in the second half of 2024 for its modified release formulation, aiming to guide registration-enabling trials. Pfizer’s Chief Scientific Officer highlighted Danuglipron's potential in the oral GLP-1 space, based on positive Phase 2b data and safety profiles.

Rheinmetall's CEO Armin Papperger forecasts that the company's order backlog will reach between €60 billion and €70 billion by the end of the year, as reported in an interview with Frankfurter Allgemeine Zeitung. He also expects the group's sales to grow significantly by more than 20% annually after 2024.

MicroStrategy shares surged on Thursday after the company announced a 10-for-1 share split to make its equities more accessible to investors and employees. Analysts note that MicroStrategy's investment in bitcoin has boosted its appeal, with shares up 107% in 2024, paralleling bitcoin's 40% gain over the same period.

Bank of America raised Apple's price target to $256, up from $230, citing confidence in a multi-year iPhone upgrade cycle driven by an aging installed base and GenAI features. A global smartphone survey highlighted significant potential for upgrades, supported by robust customer loyalty and strong services growth.

JPMorgan analysts reiterated their Overweight rating and $240 price target on Amazon this week, emphasising its strides in generative AI. AWS's GenAI segment, potentially generating $2-3 billion annually, is poised for substantial growth amid strong customer demand and ongoing product enhancements, bolstering projections for AWS revenue growth through 2025.

Rosenblatt raised Broadcom's price target to $2,400, anticipating robust growth driven by AI infrastructure networking and ASIC momentum. They expect FY26 to see high-teens sales growth and $75 Non-GAAP EPS, buoyed by strong demand for AI semiconductors and improved VMware integration. Rosenblatt praised Broadcom's execution and competitive edge in AI compared to Nvidia.

Roth MKM reiterated a Buy rating on AMD shares and raised its price target to $200, citing the acquisition of Silo AI as bolstering AMD's AI software capabilities. The move is expected to enhance adoption of AMD's Instinct AI processors and close the gap with proprietary AI frameworks. Wells Fargo also increased its AMD price target to $205, highlighting AMD's strategic investments in AI technology.

Wells Fargo analysts caution that historically, companies often beat earnings estimates due to conservative guidance strategies. They note an elevated beat rate since the pandemic and suggest that economic uncertainties could impact earnings surprises. Despite an optimistic consensus for S&P 500 earnings growth, they advise a cautious approach and anticipate increased market volatility, foreseeing investment opportunities ahead.

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