U.S. and European equities slipped Tuesday, led by a sharp drop in semiconductor shares after ASML prematurely posted disappointing earnings, dragging down major U.S. indexes. The S&P 500 fell 0.76%, the Dow lost 0.75%, and the Nasdaq dropped 1.01%. Solid earnings from major banks like Goldman Sachs and Bank of America couldn't offset tech sector declines. Treasury yields eased as inflation concerns waned, while volatility rose with the VIX climbing to 20.72.

Summary for 16.10.2024

Asian equities fell on Wednesday, led by declines in technology and chipmaker shares following a weak sales outlook from ASML. Japan's Nikkei 225 dropped 1.9%, while South Korea's KOSPI fell 0.7%. Chinese markets continued to struggle as optimism over stimulus faded, with the Shanghai Shenzhen CSI 300 down 0.8%. Australia’s ASX 200 also dipped 0.3%.

European and U.S. markets are expected to open lower today, reflecting negative sentiment from disappointing earnings reports. European shares, particularly in the tech and luxury sectors, may continue to decline following ASML's weak sales forecast and LVMH's revenue drop. Futures indicate a bearish trend for U.S. markets as well, driven by similar concerns over consumer demand and earnings misses in key sectors. Overall, cautious investor sentiment is anticipated to prevail at the market open.

Oil prices rose slightly in Asian trade, stabilising after sharp declines due to eased Middle East tensions following reports that Israel will not target Iran's oil facilities. Weak Chinese economic data, including reduced oil imports, and downgraded demand forecasts from the IEA and OPEC further pressured prices. Both organisations cited concerns over demand, particularly from China, impacting the oil market outlook.

Italy's government is close to securing up to €4 billion from banks to help finance its 2025 budget, aiming to cover €25 billion in measures, including tax cuts. Plans include altering bank tax credits and raising excise duties. Italy targets reducing its deficit to 2.8% of GDP by 2026 but anticipates a gradual debt increase to 137.8% of GDP.

ASML's shares fell 16% after the company unexpectedly published its results a day early and lowered its 2025 sales forecast, citing prolonged weakness in parts of the semiconductor market despite strong AI chip demand. Q3 sales reached €7.5 billion with €2.1 billion in profit, but bookings fell short at €2.6 billion. The outlook shift surprised analysts, with concerns over reduced demand extending to 2025. Sales to China hit a record €2.79 billion.

LVMH reported a 3% decline in Q3 2024 revenue to €19.1 billion, impacted by weaker performance in Japan due to a stronger yen. While Europe and the U.S. showed slight growth, the Wines & Spirits division saw an 8% revenue drop. Fashion & Leather Goods dipped 1%, but Perfumes & Cosmetics and Selective Retailing grew 5% and 6%, respectively. LVMH remains confident despite economic uncertainties.

Goldman Sachs reported strong Q3 2024 results, with adjusted earnings per share of $8.40, beating estimates of $6.93, and revenue of $12.7 billion, surpassing expectations of $11.81 billion. Key drivers included $8.55 billion from Global Banking & Markets and $3.75 billion from Asset & Wealth Management. Investment banking fees rose 20%, while assets under supervision hit a record $3.10 trillion. ROE was 10.4%.

Citigroup's Q3 profit beat expectations, driven by a 31% rise in investment banking revenue to $934 million and growth in services and wealth management. Despite a 2% decline in operating expenses, net income fell to $3.2 billion due to a $1.9 billion increase in credit loss allowances. CEO Jane Fraser emphasised progress in simplifying the bank and addressing regulatory issues.

Charles Schwab's Q3 earnings exceeded expectations, with adjusted EPS of $0.77 and revenue of $4.85 billion. Client assets reached a record $9.92 trillion, and net new assets totalled $90.8 billion. The firm saw growth in transactional cash sweep balances, signalling strong client momentum post-Ameritrade integration. Adjusted operating margin was 41.2%, surpassing guidance, while short-term funding balances and CD balances decreased slightly.

United Airlines reported stronger-than-expected third-quarter earnings, with adjusted profit of $3.33 per share, beating estimates of $3.17. The airline also announced a $1.5 billion share buyback program, its first since the pandemic. United forecasts a fourth-quarter profit between $2.50 and $3 per share, exceeding analysts' expectations. Improved pricing power and capacity adjustments, alongside lower jet fuel prices, have bolstered the airline's outlook.

UnitedHealth's Q3 earnings exceeded expectations, with EPS of $7.15 and revenue of $100.82 billion. The UnitedHealthcare segment grew 7.2% to $74.9 billion, while Optum's revenue rose 13% to $63.9 billion. Despite strong results, the company trimmed its annual profit forecast, citing increased business disruption costs and a higher-than-expected medical loss ratio.

Adidas reported a 10% rise in Q3 revenue to €6.438 billion, driven by a 14% growth in currency-neutral terms (excluding Yeezy sales). Operating profit surged to €598 million, prompting the company to raise its full-year forecast, now expecting 10% revenue growth and €1.2 billion in profit. Adidas's strategic moves and strong brand performance have bolstered its financial outlook for 2024.

TotalEnergies' shares fell 4.2% after its Q3 2024 update highlighted weaker performance, driven by lower refining margins, reduced production, and declining oil prices. Average liquids prices dropped to $77 per barrel, and European refining margins plummeted to $15.4 per ton. Despite production challenges, hydrocarbon output remained steady at 2.4 million barrels per day, while natural gas prices increased, benefiting the LNG segment.

MTU Aero Engines raised its 2024 earnings guidance, now expecting adjusted EBIT to surpass €1 billion, up from the previous €0.95-0.98 billion forecast. Strong performance across its OEM and commercial maintenance segments contributed to this revision. For the first three quarters, revenues reached €5.29 billion with an EBIT of €744 million. Despite this, revenue and free cash flow forecasts remain unchanged for 2024.

Trump Media & Technology Group shares fell nearly 10% on Tuesday, despite early gains, with $3 billion worth of shares traded. The company, seen as a speculative bet on Trump's 2024 election chances, has surged 120% since September. Trump's stake is now valued at $3.1 billion, though the firm's $5.4 billion market cap remains disconnected from its modest revenue.

RBC Capital Markets downgraded Enphase Energy to "sector perform" from "outperform," lowering its price target to $100 from $125 due to increasing competitive pressures. Analysts cite rising adoption of TPO systems and competition from Tesla and Delta as key concerns. They anticipate slower revenue growth for 2025 and 2026, forecasting revenues of $1.825 billion and $2.05 billion, both below consensus estimates.

UBS raised its S&P 500 targets to 5,850 for 2024 and 6,400 for 2025, driven by optimism around economic conditions and strong sector performance. Goldman Sachs strategists also foresee a strong year-end rally, predicting the index could rise "well north of 6K." They noted a shift among clients from defensive to aggressive positioning, driven by institutional investors' fear of underperforming benchmarks.

UBS remains optimistic about Chinese equities, maintaining an Overweight rating despite recent cooling in the rally. Analysts noted that while shares are not as cheap as a month ago, there is still value to be gained. UBS emphasised that the direction of China's stimulus policy is positive, with increased fiscal measures expected. They foresee more clarity and spending details trickling in, supporting their continued bullish outlook.

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