Safe heaven assets rally after Iran strikes Israel

On Tuesday, Wall Street faced a tech-led sell-off, influenced by Iran's missile attack on Israel and a strike by U.S. port workers. While shares linked to military spending and energy rose, those in shipping and retail struggled due to port closures, prompting a flight to safety towards the U.S. dollar, gold, and Treasuries, which saw volatility hit a one-month high. Meanwhile, European equities, including the Euro Stoxx 50 and Stoxx 600, also fell around 0.4%, led by banks amid escalating geopolitical concerns.

Summary for 02.10.2024

Asian shares dropped on Wednesday, mirroring Wall Street's sell-off following Iran's missile strike on Israel, heightening fears of broader conflict. Japan's Nikkei fell 1.5%, South Korea's KOSPI declined 1.3%, and Australia's index dipped 0.3%. MSCI's Asia-Pacific index slipped 0.5%, while Hong Kong remained closed for a holiday, and Taiwan's trading was suspended due to a typhoon.

European equity markets are expected to open cautiously today as escalating tensions in the Middle East weigh on investor sentiment. Concerns over geopolitical instability could overshadow upcoming economic indicators. Meanwhile, US equity futures are also pointing lower, with investors awaiting labour market data that may influence monetary policy decisions.

Oil prices rose this morning amid fears that escalating conflict in the Middle East, following Iran's missile attack on Israel, could disrupt oil supplies from the key producing region. Iran's involvement, as a major OPEC member, heightened concerns. Markets are watching OPEC+’s review for potential output hikes to offset supply risks. U.S. stockpile data showed mixed results.

Dockworkers on the U.S. East and Gulf Coasts began their first large-scale strike in nearly 50 years, halting operations at 36 ports and affecting half of the country's ocean shipping. The strike, driven by wage and job protection disputes, is expected to cost the U.S. economy $5 billion daily, with concerns over inflation, job losses, and supply chain disruptions.

Democrat Tim Walz and Republican J.D. Vance debated key issues like immigration, the Middle East, and the economy in a policy-focused vice-presidential debate. Walz criticised Trump's record on immigration and abortion, while Vance defended Trump’s accomplishments. Both avoided personal attacks, saving criticism for Kamala Harris and Trump. The debate, though civil, is unlikely to significantly shift the tight election race.

September's ISM Manufacturing PMI in the US remained in contraction territory, registering at 47.2%, slightly below the consensus of 47.4% but up from 46.8% in July. This marks the sixth consecutive month below the neutral line of 50. However, the prices index fell below 50 for the first time this year, indicating easing inflation pressures. Meanwhile, the ISM Services PMI, set for release on Thursday, is expected to show a slight improvement to 51.6%.

Inflation in the Eurozone fell to 1.8% in September, the lowest since April 2021, down from 2.2% in August and below the ECB's target of 2%. Energy prices decreased by 6%, while services inflation slowed to 4%. Core inflation also eased to 2.7%. Among major economies, Germany recorded 1.8%, France 1.5%, Italy 0.8%, and Spain 1.7%. The ECB expects inflation to rise again later in 2024.

Nike withdrew its annual revenue forecast as new CEO Elliott Hill prepares to take charge, amid declining sales and weak online traffic. Shares fell 6% in after-hours trading following disappointing quarterly results. The company faces inventory backlogs and growing competition from brands like On and Hoka. Nike expects an 8-10% sales decline next quarter and plans to rebuild wholesale partnerships under Hill’s leadership.

Boeing is considering raising at least $10 billion by selling new shares, according to Bloomberg, though any equity raise is unlikely for at least a month. The company faces financial pressure from slumping 737 MAX production, a worker strike, and a heavy debt load of $60 billion. Analysts expect Boeing to raise $10-12 billion by the end of 2024.

Barclays analysts reported that Apple may have cut iPhone 16 production orders by about 3 million units, indicating weak demand. They observed a 15% year-on-year decline in global sales during the first week and shorter wait times compared to last year. Citi also lowered its iPhone unit forecasts for 2024 and 2025, citing consumer hesitance amid upcoming features like Apple Intelligence.

The Chinese electric vehicle market remains robust, with Li Auto, XPeng, and NIO reporting strong delivery growth in September and Q3 2024. Li Auto led with 53,709 deliveries in September, a 48.9% increase year-on-year. XPeng delivered 21,352 vehicles, marking a 39% rise, while NIO saw 21,181 deliveries, up 35.4%. Each company is capitalising on strong demand and expanding their product offerings.

Goldman Sachs and RBC Capital have given upbeat endorsements for Pinterest, highlighting significant growth potential. Goldman added Pinterest to its Conviction List, predicting mid-to-high teens revenue growth and a 12-month price target of $46, citing increased ARPU and better user engagement. RBC Capital emphasised Pinterest's under-monetisation and strategic partnerships, maintaining an Outperform rating with a price target of $48.

Raymond James downgraded Disney from Outperform to Market Perform, citing several challenges, particularly within its Parks division, which are expected to keep the shares range-bound for the next 12-18 months. Analysts noted slowing park attendance and pricing power, increased competition from Universal's upcoming Epic Universe, and external factors impacting attendance. They foresee only low-single-digit growth in earnings per share and free cash flow.

Loop Capital reiterated its bullish outlook on Super Micro Computer, maintaining a Buy rating and targeting a price of $100 (post-split), despite a reported U.S. Department of Justice inquiry. Analysts downplayed the investigation's potential impact on operations, suggesting the company might have been aware of it. They project normalised revenues of $40 billion and a return to 14% gross margins, reinforcing confidence in long-term growth potential.

Barclays strategists have warned that rising capital expenditures among Big Tech firms could indicate a potential downturn in earnings growth. The industry is experiencing its highest capex-to-sales ratio in a decade, driven by AI investments. This expanded cost base may challenge established business segments, leading to downside risks for valuations, while sectors like Consumer Services may benefit from the current market cyclicality.

Citi upgraded AB-InBev to "buy" from "neutral," citing strong cost control and improving margins as catalysts for its earnings outlook ahead of Q3 results. Analysts expect the company to exceed its 2024 organic EBITDA growth guidance, despite challenges in the U.S. and Mexico. They anticipate margin expansion driven by pricing strategies, cost reductions, and a potential $1 billion share buyback.

Kering faced a downgrade from Goldman Sachs to "sell," reflecting concerns about Gucci's stagnant growth and weak demand in China, a crucial market for luxury goods. The firm anticipates ongoing challenges for Gucci, projecting declining EBIT margins and highlighting Kering's high valuation. Goldman Sachs also noted the potential for a 10% drop in Chinese luxury demand for FY25, increasing risks for the brand.

S&P Global downgraded Israel's long-term rating from 'A+' to 'A', citing economic risks from escalating conflict with Hezbollah. The agency warned that ongoing military activity, including a potential ground incursion into Lebanon, could extend into 2025, worsening the economic impact. Despite this, S&P kept Israel's outlook as "negative", following a similar downgrade by Moody's last week.

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