Shares gain after mild US inflation

General market commentary

After a challenging start to the week, equities regained some ground, buoyed by a softer-than-expected inflation reading and a rally in the technology sector. The core Consumer Price Index (CPI) saw its slowest increase since April 2021, offering reassurance that inflation remains on a downward trajectory. This provided markets with some relief, particularly as investors await further clarity on potential tariff measures from the administration. Growth and cyclical sectors outperformed defensives in line with the risk-on sentiment, while government bond yields edged higher. The Federal Reserve’s next steps remain a key focus, with the latest inflation data keeping hopes alive for a rate cut later this year. However, uncertainty lingers, particularly ahead of the Producer Price Index (PPI) release tomorrow, which will offer further insights into pricing pressures at the producer level. Investors are also keeping a close eye on government funding discussions, with the U.S. House approving a stopgap spending measure to prevent a shutdown beyond the 14 March deadline.

Market sentiment improved, with Wall Street posting gains— the S&P 500 climbed 0.5% and the Nasdaq added over 1.2%, while the Dow edged lower by 0.2%. European equities also ended higher, supported by easing inflation concerns and optimism around central bank policy. However, renewed trade tensions weighed on broader sentiment, as fresh tariffs on steel and aluminium imports prompted swift retaliatory measures from the European Union. While this has introduced fresh volatility, equities remain around 10% higher year-on-year, and a well-diversified portfolio has offered some resilience. Despite ongoing uncertainties, historical data suggests that market corrections—like the one currently unfolding—can present opportunities. Since 1971, equities have typically rebounded strongly following corrections that did not escalate into bear markets. As such, a balanced and diversified approach remains key to navigating short-term market fluctuations.

Latest market and economic update

Asian equities mostly rose on Thursday, with Japan’s Nikkei 225 up 1% and South Korea’s KOSPI gaining 0.5%, as tech shares tracked Wall Street’s rebound after softer U.S. inflation data. However, China’s Shanghai Composite fell 0.4%, Hong Kong’s Hang Seng slipped 0.3%, and Australia’s ASX 200 edged 0.1% lower, pressured by renewed trade tensions after President Trump threatened further tariffs on EU goods.

US equity futures edged higher, with S&P 500 Futures up 0.3%, Nasdaq 100 Futures rising 0.4%, and Dow Jones Futures gaining 0.2%, as investors balanced cooling inflation data against ongoing trade tensions. While softer-than-expected CPI figures kept hopes for rate cuts alive, concerns over fresh tariffs from President Trump and potential retaliatory measures from the EU added uncertainty to the market outlook.

European shares closed higher on Wednesday, with the STOXX 600 gaining 0.8%, snapping a four-session losing streak, as investors reacted to a softer U.S. inflation report and optimism surrounding a potential Ukraine ceasefire. The French CAC 40 rose 1%, while Germany’s DAX added 0.6%, and Italy’s FTSE MIB climbed 1.2%, with strong performances from defense and banking shares, despite a 7.5% drop in Inditex.

The US dollar index remained steady at around 103.5 on Thursday, holding onto gains from the previous session as investors assessed the impact of rising global trade tensions. Against the euro, the dollar traded at 1.0892, reflecting ongoing market uncertainty amid tariff concerns and softer-than-expected US inflation data.

Oil prices edged lower this morning, cooling after a recent rebound, as concerns over a U.S. recession and rising global production weighed on sentiment. Despite OPEC+ increasing output and maintaining its demand growth outlook, fears of oversupply and uncertainty over President Trump’s trade policies kept oil markets under pressure.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Adobe forecasted second-quarter revenue in line with expectations as it faces slower AI monetisation and rising competition from startups, causing its shares to drop by 4% in extended trading. While first-quarter revenue and earnings surpassed estimates, analysts remain cautious about the speed of AI-driven growth, though Adobe expects to double AI-related recurring revenue by the end of fiscal 2025.

Inditex reported a slower-than-expected start to its first quarter, with sales growing just 4% in currency-neutral terms, causing its shares to fall 8%. Despite concerns over weaker demand, particularly in the US, CEO Oscar Garcia Maceiras remained optimistic about the company’s future, highlighting ongoing investments in logistics, store refurbishments, and new markets for growth.

Rheinmetall expects significant sales growth in 2025, forecasting a 25-30% increase, driven by Europe's heightened defence spending, particularly in response to the Ukraine conflict. The company also plans to update its outlook, with CEO Armin Papperger stating that Europe's rearmament era presents unprecedented growth prospects for the firm.

Porsche announced it will maintain its 2024 dividend despite a 30.4% drop in earnings per share, as it faces high costs and weak demand in China, and reduced its medium-term margin target to 15-17%. The luxury carmaker, grappling with a 28% sales decline in China, plans to cut 2,000 jobs and continue efforts to boost profitability toward a long-term target of 20%.

Puma announced job cuts and a weaker-than-expected forecast, with shares dropping 20% following disappointing quarterly and annual results amid concerns over U.S. consumer demand and competition from bigger rivals. The company plans to cut 500 jobs, close unprofitable stores, and diversify production away from China, as it lowers its sales and profit growth expectations for 2025.

Intel appointed chip industry veteran Lip-Bu Tan as its new CEO, aiming to stabilise the struggling company and reinforce its chip-design and manufacturing operations. Tan’s leadership comes as Intel navigates heavy investment in contract manufacturing, rising competition from Nvidia and TSMC, and political pressures from President Trump’s push for domestic chip production.

JPMorgan and Citi view the recent pullback in Nvidia and AMD as a buying opportunity, citing strong AI-driven growth, with Citi highlighting Nvidia’s upcoming GTC conference and JPMorgan expressing confidence in AMD’s AI GPU sales. Nvidia is expected to reveal details on its Rubin chip, while AMD anticipates over 60% growth in AI GPUs and has secured a multi-billion-dollar order from Oracle.

Mizuho initiated coverage on S&P Global with an "Outperform" rating and a $599 price target, favouring it over Moody’s, which received a "Neutral" rating with a $504 target, due to valuation differences and growth potential in non-ratings businesses. The firm expects S&P’s valuation gap with Moody’s to narrow as its Market Intelligence division stabilises, while both companies stand to benefit from AI-driven efficiencies and long-term issuance tailwinds.

Wolfe Research lowered its price target for Micron Technology to $150 from $175, citing near-term challenges such as pricing pressure and a decline in gross margins, though a recovery is expected in the second half of the year. Despite these concerns, analysts remain optimistic about Micron's long-term prospects, particularly in the high bandwidth memory market, and view the equity as undervalued relative to its typical earnings multiple.

Wolfe Research downgraded Verizon to “Peer Perform”, citing weak subscriber growth, rising costs, and limited capital flexibility due to its focus on acquiring Frontier Communications rather than share buybacks or fiber expansion. Despite an 8.6% year-to-date gain, Verizon lags behind AT&T and T-Mobile, offering only "discount rate" returns with the slowest near-term growth among the major telecom players.

Jefferies downgraded PepsiCo to "Hold" from "Buy" and set a price target of $170, citing limited upside potential due to ongoing struggles in its Frito-Lay division and weak performance in the U.S. beverage segment. While international operations remain strong, Jefferies lowered its earnings estimates for both the first quarter and the full year, expecting the shares to face challenges until Frito-Lay shows signs of recovery.

Shares of AppLovin Corp rose 6% after Bank of America maintained a "Buy" rating with a price target of $580, highlighting the company's long-term growth potential in digital advertising. Analyst Omar Dessouky viewed the recent market volatility and short-seller interest as presenting an attractive entry point, projecting over 50% EBITDA growth over the next two years.

DHL has received a "buy" rating from Jefferies, with a price target of €60, driven by its significant exposure to air freight, which is expected to benefit from improved market conditions in 2025. Although the company is currently trading at a discount due to its capital expenditure cycle, Jefferies sees potential for upside as this cycle concludes and air freight conditions improve.

Novo Nordisk shares fell after Roche announced a $5.3 billion deal to acquire rights to Zealand Pharma’s obesity drug, signalling increased competition in the weight-loss market. Jefferies cut Novo’s price target following disappointing CagriSema trial results, though analysts see potential upside from upcoming oral semaglutide trials.

Morgan Stanley has named Siemens Energy its top European capital goods pick, citing strong pricing power in gas turbines and grid equipment, alongside potential benefits from increased German infrastructure spending. The bank raised its price target to €65, forecasting EBITA growth ahead of consensus, while highlighting upcoming catalysts like first-half 2025 results and Capital Markets Day in November.

US airlines are facing a tough start to 2025, with Bernstein downgrading estimates due to policy uncertainty and weaker-than-expected first-quarter guidance from carriers like Delta and American Airlines. Despite this, Bernstein remains optimistic, expecting improved capacity management and lower fuel costs later in the year to drive a recovery in airline shares, particularly for legacy carriers.

Barclays warns that European defence shares may face profit-taking if a Ukraine ceasefire occurs but sees any pullback as a buying opportunity amid strong structural growth. The bank highlights firms like Hensoldt, Rheinmetall, and SAAB as well-positioned for rising defence spending, with potential ESG investment shifts further supporting the sector.

S&P Global Ratings downgraded PostNL's credit ratings to 'BBB-/A-3' from 'BBB/A-2' due to underperformance, subdued profitability, and operational challenges in its mail and parcel segments, while maintaining a stable outlook. Despite this, PostNL is expected to gradually improve profitability with cost-saving measures, controlled capital spending, and parcel volume growth, although the company faces ongoing risks from declining mail volumes and cost pressures.

Upcoming data and events

The economic focus today will be on US Producer Price Index (PPI) and Initial Jobless Claims, which could offer important insights into inflation and the labour market. Additionally, earnings reports from companies like Silver Wheaton Corp, DocuSign Inc, and Ulta Beauty will be closely watched for any signs of market impact.

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