Tech stages a significant comeback

On Wednesday, global equity markets rallied as the S&P 500 rose 1.6%, the Nasdaq 100 surged 2.6%, and the Dow added 100 points, led by a strong performance in tech shares following the Federal Reserve's decision to maintain interest rates. Nvidia soared 12.8%, while AMD, Broadcom, and Qualcomm also posted significant gains. In Europe, the Eurozone's Stoxx 50 climbed 0.7% to 4,874, with ASML jumping 5.6% on favourable trade news and companies like Airbus and L'Oreal benefiting from positive earnings. However, BBVA fell 4% on weaker results.

Summary for 01.08.2024

Asian markets were mostly muted Thursday. Japanese shares fell sharply after the Bank of Japan hinted at more rate hikes, while Chinese markets stalled due to weak PMI data. Broader regional markets were mixed, with Australia's ASX 200 and South Korea's KOSPI gaining slightly, tracking positive Wall Street cues.

European equities are expected to extend their gains from the previous day, buoyed by positive cues from Wall Street, as US equity futures, led by a nearly 1% rise in Nasdaq 100 futures on strong earnings from Meta Platforms, point to a positive open.

Oil prices rose in Asian trade this morning, supported by concerns over a potential escalation in the Middle East following the killing of Hamas leader Ismail Haniyeh and a decline in US inventories. Brent crude climbed to $81.24 a barrel, while WTI rose to $77.30. However, gains were limited by economic concerns in China.

The Caixin China General Manufacturing PMI fell to 49.8 in July, indicating the first contraction in factory activity since October 2023. The decline was driven by shrinking new orders, reduced client budgets, and falling buying levels. Output growth slowed, while selling prices decreased and input cost inflation eased. However, business sentiment improved slightly.

The Federal Reserve kept the federal funds rate at 5.25%-5.50% in July, noting continued economic expansion and some progress toward the 2% inflation target, though inflation remains elevated. While job gains have slowed, unemployment is low. A potential rate cut in September depends on further inflation improvements.

In July, US private sector payrolls increased by 122K, the smallest gain in six months, falling short of forecasts. Job creation slowed, with significant additions in trade, leisure, and health services but losses in professional services and information. Annual pay gains for job-stayers eased to 4.8%, while job-changers saw a slowdown to 7.2%. ADP's chief economist noted that rising inflation is unlikely to stem from labour costs.

Euro Area inflation unexpectedly rose to 2.6% in July from 2.5% the previous month, contrary to forecasts of a decline. Core inflation, excluding volatile items, remained steady at 2.9%, above the anticipated 2.8%. Energy costs increased significantly, while services and food inflation slowed. Inflation accelerated in Germany, France, and Italy but eased in Spain.

Meta Platforms exceeded Q2 expectations with earnings of $5.16 per share on revenue of $39.07 billion, surpassing estimates. The company’s Q3 revenue forecast of $38.5B to $41B also beat Wall Street estimates. Capital expenditures rose to $8.47B, and Meta raised its annual capital spending outlook. Shares rallied over 7% in after-hours trading.

Qualcomm's shares fell 1.3% despite reporting Q3 earnings and revenue that exceeded expectations. The company posted an EPS of $2.33 and revenue of $9.39 billion, both above forecasts. For Q4, Qualcomm anticipates an EPS between $2.45 and $2.65 and revenue of $9.5 to $10.3 billion, exceeding analyst estimates.

Arm Holdings' shares fell 10.5% in after-hours trading after a conservative revenue forecast, reflecting concerns over slower returns from AI investments compared to rivals Nvidia and AMD. Despite a 39% surge in first-quarter revenue, Arm's cautious full-year outlook and slower royalty gains from AI chip designs dampened investor sentiment.

Lam Research forecasted September quarter revenue of $4.05 billion, surpassing Wall Street estimates, driven by increased orders for AI-related chip-making equipment. The company's previous quarter revenue of $3.87 billion and adjusted EPS of $8.14 both exceeded expectations. Demand for wafer fabrication tools remains strong amid the AI boom. Nonetheless shares were down 2% in after-hours.

eBay's second-quarter results exceeded expectations with $2.57 billion in revenue and a profit of $1.18 per share, driven by strong demand for pre-owned goods and automotive parts. However, its third-quarter revenue forecast fell short of estimates. The company is leveraging generative AI for fashion sales and expects a boost from improving economic conditions and consumer confidence. Shares remained flat in after-hours.

Carvana's forecast for annual core profit exceeded expectations, driven by strong demand for used vehicles and improved inventory management. Shares rose 13.7% after the company projected 2024 adjusted EBITDA between $1 billion and $1.2 billion, surpassing analysts' estimates. Carvana reported a net income of $48 million for Q2, reversing a loss from the previous year.

Kraft Heinz lowered its 2024 organic sales forecast, citing weak demand for snacks and Lunchables. Despite this, shares rose 4% as the company maintained profit expectations, driven by a 210 basis point increase in gross profit margin and effective cost-saving measures. Adjusted earnings were above estimates, but overall sales missed forecasts.

T-Mobile US raised its 2024 forecast for new phone subscribers to 5.4–5.7 million after strong Q2 growth, driven by demand for its discounted 5G plans with streaming perks. Shares rose 4.0%, and the company expects annual free cash flow of $16.6–17 billion, up from previous forecasts.

HSBC announced a $3 billion share buyback and raised its income outlook, with shares up 4% in London. The bank upgraded its 2024 net interest income forecast to around $43 billion and reported stable first-half profits, gains in wealth management, and a narrowing of losses in Chinese real estate.

Adidas confirmed its full-year guidance and reported strong Q2 results, driven by popular retro sneakers and sports jerseys. Despite an 8% drop in North American sales due to Yeezy inventory issues, overall sales grew 6% in apparel. The company anticipates growth in the US and aims for a 10% profit margin by 2026.

CrowdStrike is facing a shareholder lawsuit alleging it misled investors about its software’s reliability, leading to a July 19 global outage that disrupted over 8 million computers. The incident caused a 32% drop in CrowdStrike’s share price, wiping out $25 billion in market value, and resulted in Delta Air Lines claiming $500 million in losses. CrowdStrike denies the allegations and vows to vigorously defend itself in court.

Boeing appointed Kelly Ortberg as CEO to address ongoing crises and legal issues, following a $1.4 billion loss and cash burn of $4.33 billion. Ortberg, a veteran in aerospace, will start on August 8 and is tasked with restoring trust and improving production of the 737 MAX, amid current challenges in defence and space sectors.

Norwegian Cruise Line Holdings raised its 2024 profit forecast to $1.53 per share, driven by high demand and increased ticket prices. Despite beating Q2 earnings estimates with 40 cents per share, the company’s revenue of $2.37 billion and onboard revenue fell short of expectations.

Nvidia soared nearly 13% on Wednesday, adding $330 billion in market value, the largest one-day gain ever for a company on Wall Street. This surge followed reports of increased AI spending by Microsoft and AMD. Nvidia's value hit $2.88 trillion, making it the third most valuable company. Shares rallied by a further 3.7% in after-hours, reclaiming the $121 levels.

ASML's shares surged 5.6% on Wednesday following reports that the US may exempt the Netherlands from new export restrictions to China. The news alleviated market concerns, as nearly half of ASML's sales were from China in early 2024. The rise partly recovers a previous drop caused by similar trade policy fears.

Applied Materials Inc's bid for US funding under the CHIPS Act to build a $4 billion R&D centre in Silicon Valley was rejected by the Commerce Department due to "overwhelming demand" for subsidies. The facility, announced a year ago and scheduled for completion in 2026, faced difficulties gaining approval.

Wedbush analysts praised Microsoft for its strong Q4 performance and AI-focused outlook. They highlight robust Azure growth and positive AI monetisation trends, maintaining an Outperform rating and $550 price target. The firm's note underscores Microsoft's pivotal role in the AI revolution, enhancing its credibility and market position.

Argus upgraded SAP SE ADR to a 'Buy' with a target price of $240 (€121), citing strong Q2 2024 results, including a 35% rise in pro forma operating income and a 10% revenue boost. Despite a lower 2024 EPS estimate due to accounting changes, SAP's cloud transition and AI focus are seen as promising.

TD Cowen downgraded McDonald's to Hold and reduced its price target to $280, following weaker-than-expected Q2 results with an EPS of $2.80 and revenue of $6.49 billion. The downgrade reflects concerns about sluggish US sales and value perception issues, especially after the $5 Meal Deal launch.

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