Shares hammered by renewed growth concerns

US equities began September with losses after a strong August, with the S&P 500 down 2.1% and the Dow dropping 626 points, led by a 3.3% decline in Nasdaq technology shares and struggling energy equities due to falling oil prices. In Europe, the Eurozone’s Stoxx 50 fell 1.2% amid broad-based losses in sectors including chip producers, banks, and energy shares. Both markets reflect investor caution amid weak economic data and concerns about the AI rally’s sustainability.

Summary for 04.09.2024

Asian equity markets dropped sharply on Wednesday, following Wall Street's losses due to a tech sell-off and weak US manufacturing data raising recession concerns. Japan, South Korea, and Taiwan's tech-heavy indices fell about 3%, with shares in companies like Tokyo Electron, Advantest, SK Hynix, Samsung Electronics, and Taiwan Semiconductor seeing significant declines. Shares in Australia, Hong Kong, and China also fell.

Equities in Europe are set for a rocky start on Wednesday while US equity futures indicate a slightly lower opening, with S&P 500 and Nasdaq 100 futures down 0.1%, while the Dow remains unchanged as markets remain cautious ahead of the upcoming US jobs report.

US oil futures opened slightly higher this morning after a sharp decline on Tuesday, driven by hopes of resolving a dispute in Libya that had severely disrupted the country's crude production and exports. Libya's oil output had significantly decreased due to the political standoff, but with the potential resolution, recovery is anticipated, contributing to the slight rebound in oil futures.

China's services sector growth slowed in August, with the Caixin/S&P Global services PMI slipping to 51.6 from July's 52.1. Despite continued business expansion and increased export demand, job shedding occurred due to rising costs. Input prices rose, but selling prices fell amid growing competition. The economy faces challenges from weak demand, weather disruptions, and geopolitical uncertainties, potentially jeopardising the 2024 growth target.

The ISM Manufacturing PMI edged up to 47.2 in August 2024 from 46.8 in July, falling short of the 47.5 forecast and marking the 21st contraction in 22 months. The increase highlights ongoing weakness in US manufacturing due to high Federal Reserve interest rates. New orders and production declined further, employment decreased for the third consecutive month, and price pressures intensified, challenging disinflation efforts.

Australia’s economy grew by just 0.2% in the June quarter, remaining flat for three quarters, with annual growth slowing to 1.0%. Stubborn inflation and high borrowing costs have dampened consumer spending, which fell 0.2%. The Reserve Bank's high interest rates aim to curb demand but haven't fully tamed inflation, complicating prospects for a December rate cut.

Nvidia’s shares plummeted 9% on Tuesday, losing about $279 billion in value due to a major selloff. This decline was triggered by news that the US Justice Department subpoenaed Nvidia, intensifying its antitrust investigation into the company’s AI chip market dominance. The selloff also impacted other chipmakers, including AMD, Intel, and Broadcom.

Super Micro Computer denied claims from short-seller Hindenburg Research, which alleged accounting manipulation and other issues. The company called the report "false or inaccurate" and said it would address the allegations later. Despite the controversy, Super Micro’s shares rose almost 1% on Tuesday, and the company assured that its financial results and production capabilities remain unaffected.

The German government plans to reduce its 16.5% stake in Commerzbank, leveraging a recent share surge to begin its exit from the bank it bailed out over a decade ago. Announced after Tuesday’s market close, the government did not specify the amount or timing of the sale. The stake, valued at around €2.5 billion, has benefited from rising ECB interest rates.

Snap plans to focus on expanding and diversifying its underperforming advertising business, with an emphasis on augmented reality, amid stiff competition from Meta and TikTok. CEO Evan Spiegel acknowledged slower ad revenue growth compared to competitors and announced new ad placements powered by machine learning. Snap is also investing in augmented reality and smart glasses, while its shares have fallen 48% this year.

Boeing's annual free cash flow target of $10 billion may be delayed to 2027-28 and the company might need to raise $30 billion before developing a new aircraft, according to Wells Fargo, which downgraded Boeing’s shares. Shares fell over 7% after the report, reflecting concerns over high net debt and the impact of ongoing production issues and regulatory pressures.

Barclays upgraded Deutsche Bank to “overweight,” citing its diversified revenue base and strong earnings potential amid expected rate cuts. Deutsche Bank's business mix, including significant contributions from market activities and investment banking, positions it well for growth. Barclays forecasts higher EPS and substantial capital returns, including dividends and share buybacks, enhancing investor confidence despite manageable risks.

Citi analysts remain positive about the S&P 500's outlook for the second half of 2024 despite recession concerns. They expect market gains to slow compared to the first half but see continued opportunities, driven by strong performances from Nvidia and other "Mag 7" shares. Generative AI investments are seen as a key offset to macroeconomic worries. Citi advises caution for 2025, suggesting market expectations might need adjustment.

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