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On Thursday, U.S. markets surged to record highs following the Federal Reserve's 50-basis-point rate cut, its first in over four years. The S&P 500 hit a milestone above 5,700, while the Dow Jones jumped over 500 points. Tech, automakers, and homebuilders led the rally, benefiting from lower borrowing costs. In Europe, major indices also saw gains as easing monetary policies bolstered investor sentiment, particularly favouring growth sectors. Treasury yields rose modestly, while volatility declined.
Summary for 20.09.2024
Asian shares extended their rally on Friday, driven by the U.S. interest rate cut. Japan's Nikkei 225 led the region with a 1.8% increase. However, Chinese shares lagged as the People’s Bank of China kept rates unchanged. Hong Kong’s Hang Seng rose 1.3%, supported by technology shares, while South Korea’s KOSPI gained 0.8%.
Early morning, European and U.S. equity markets were seen opening with mixed sentiment, as investors weigh record highs spurred by a Fed rate cut against concerns over weaker corporate earnings and global economic uncertainties.
Oil prices saw a slight dip in Asian trade on Friday as traders took profits, though crude was still set for a weekly gain. The U.S. Federal Reserve's interest rate cut helped support oil, along with tensions in the Middle East. However, concerns over slowing demand in China and the U.S. tempered larger gains, despite the overall weekly recovery.
The Bank of Japan kept interest rates unchanged at 0.25%, aligning with market expectations, while forecasting continued economic growth and rising inflation. The central bank highlighted "high uncertainties" regarding economic activity and noted that volatility in foreign exchange markets could impact local prices. Following the decision, the yen strengthened against the dollar.
U.S. jobless claims dropped to 219,000 last week, below the expected 230,000, marking a four-month low. This suggests that American employers are slowing hiring rather than implementing large-scale redundancies, indicating a resilient yet gradually cooling labour market. Slower job growth could temper wage increases, helping to ease services inflation and support the "soft landing" narrative for the U.S. economy.
The Bank of England held the Bank Rate at 5% yesterday, following a 25 basis point cut in August. While one member advocated for a further reduction, inflation rose to 2.2% in August and is expected to reach 2.5% later this year. The Committee also decided to reduce its UK government bond holdings by £100 billion over the next 12 months.
FedEx reported a significant quarterly profit drop and revised its full-year revenue forecast downward, attributing the decline to customers opting for cheaper delivery options. Shares fell nearly 11%, impacting rival UPS as well. CEO Raj Subramaniam noted weaker industrial demand and the challenges of restructuring. The company now expects low single-digit revenue growth for fiscal 2025 and anticipates a $500 million impact from losing its USPS contract.
Nike announced that Elliott Hill, a former executive with 32 years at the company, will replace John Donahoe as president and CEO. Hill, who previously led Nike’s consumer marketplace, will assume the role on 14th October. The leadership change aims to revive sales and address rising competition. Nike's shares rose 8% after the news, adding $11 billion to its market value.
Lennar Corp reported third-quarter profits exceeding Wall Street estimates, driven by low housing supply and declining mortgage rates, which have fallen to about 6.1%. Despite a year-on-year drop in gross margins due to rising land costs, the company delivered 21,516 homes, surpassing last year's figures. However, shares fell 3.6% post-announcement, and Lennar expects to deliver between 22,500 and 23,000 homes in the fourth quarter.
Airbnb is shifting focus to expand its long-term rental business, targeting stays of 28 days or longer, amid increasing scrutiny of short-term rentals in tourist hotspots like Athens and Barcelona. CEO Brian Chesky noted that long-term bookings now represent 17% to 18% of Airbnb's business, up from 13% to 14% pre-pandemic. The company also aims to explore sponsored home listings as a significant revenue opportunity.
Union Pacific expects its revenue to outpace volume growth over the next three years, forecasting a high single to low double-digit EPS CAGR. Despite improved train speeds and operating ratios, concerns remain about potential EPS growth not meeting market expectations. The company plans $4 billion to $5 billion in annual share repurchases starting in 2025 and aims for $3.5 billion to $3.7 billion in capital investments.
Mobileye shares surged 15% in regular trading on Thursday after Intel announced it has no plans to divest its 88% stake in the autonomous driving firm, despite earlier reports of potential sales. Intel emphasised its commitment to Mobileye's value creation and growth opportunities. This announcement coincided with Intel's $10 billion cost-cutting plan and securing a $3 billion investment from the Biden administration.
Ryanair shares rose 10.1% after BofA Securities increased its fiscal year 2025 EPS estimate by 9%, citing resilience in bookings and lower fuel costs. The airline's Q3 fare decline expectations were adjusted to 2%. With an €800 million share buyback and a €480 million dividend, BofA set a new price target of €21 per share, indicating strong investor confidence amid competitive challenges.
Shares of Deutsche Telekom fell 2.5% yesterday after T-Mobile US adjusted its financial guidance, projecting slower service revenue growth for 2025 at 4%. Concerns over a reduced free cash flow forecast, along with rising cash taxes, impacted investor sentiment. Despite this, Morgan Stanley noted T-Mobile’s solid long-term strategy and capital return plans, maintaining an "overweight" rating on Deutsche Telekom with a target price of €31.
Next PLC raised its FY25 profit guidance to £995 million, exceeding initial forecasts. Despite mixed first-half results, total sales reached £2.9 billion, surpassing expectations. Key highlights included strong retail and online sales, with EBIT figures also above predictions. Analysts at RBC anticipate continued growth driven by Next’s omnichannel strategy, although risks remain with its Total Platform business.
BTIG upgraded DoorDash to a Buy from Neutral, setting a price target of $155, citing strong growth prospects and underappreciated tailwinds. Analysts noted positive momentum, predicting DoorDash will achieve positive EBIT and net income in late 2024. They forecast 19% growth in gross order volume for Q3 and a compound annual growth rate of 15% in GOV through 2026, supported by a favorable competitive landscape.
BMO Capital Markets raised its 2024 S&P 500 target to 6,100 from 5,600, citing unexpected market strength following the Federal Reserve's recent half-percentage point rate cut. Chief investment strategist Brian Belski noted that historical patterns suggest a robust fourth quarter ahead. BMO did not alter its S&P 500 EPS target in this adjustment.
UBS analysts warn that aggressive Federal Reserve rate cuts could lead to a new equity market bubble. Historically, markets gain 4% in the eight months following a rate cut, but with varied outcomes during recessions. UBS also predicts a weaker economy may push rates lower, impacting the U.S. dollar. They remain cautious on equities, suggesting small caps and defensives could outperform amid changing conditions.
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