Trump trade fizzles ahead of inflation data

General market commentary

U.S. equities fell on Tuesday for the first time since the election, pressured by rising Treasury yields, profit-taking, and weakness in overseas markets. The benchmark 10-year Treasury yield surged to 4.43%, nearing last week's four-month highs, as investors anticipated tighter monetary conditions due to the changing fiscal policy landscape. This increase in yields reduced the likelihood of a Federal Reserve rate cut in December, although markets are still pricing in a 60% chance of a 0.25% cut. Investors also showed caution ahead of key inflation reports, including the October Consumer Price Index (CPI) and Producer Price Index (PPI), which could influence future rate expectations.

The U.S. dollar strengthened, reaching its highest intraday level since early May, supported by expectations that domestic growth could be bolstered by policy changes such as tax cuts, deregulation, and potential tariffs. Bitcoin also continued its upward trend, briefly surpassing $90,000. In other developments, former Federal Reserve official Loretta Mester suggested the Fed might slow the pace of rate cuts in 2025 due to potential inflationary pressures from tariffs under President-elect Donald Trump. Meanwhile, Trump appointed Elon Musk and Vivek Ramaswamy to co-lead the newly created Department of Government Efficiency, aimed at cutting government waste and reducing regulations. Musk will remain in charge of Tesla, SpaceX, and X, while the department will operate outside the formal structure of government.

Latest market update

US equity futures edged lower ahead of key inflation data, with investors cautious about future Fed rate cuts.

Asian equities fell on Wednesday, weighed down by concerns over U.S. inflation data, weak Chinese stimulus, and uncertainty around Trump’s policies. Key indices, including Japan’s Nikkei and Hong Kong’s Hang Seng, posted losses.

US equities retreated on Tuesday, with the S&P 500, Dow, and Nasdaq all closing lower as investor sentiment cooled amid profit-taking and higher Treasury yields. Tesla and Trump Media saw sharp declines, while Nvidia, Microsoft, and Alphabet posted gains.

The Euro Stoxx 50 fell sharply by over 2% on Tuesday, its biggest drop since August, as concerns over Donald Trump's return to office and weak economic data weighed on investor sentiment. Mining shares led the losses, while technology was the only sector to post slight gains.

Bond yields rose again yesterday, with the 10-year Treasury yield surpassing 4.4%, driven by strong U.S. economic growth and higher inflation expectations. As a result, investment-grade bonds have struggled, and market expectations for Fed rate cuts have decreased.

The U.S. dollar remained near a 6.5-month high, supported by expectations of inflationary policies under President-elect Trump, while Bitcoin paused just below its record high.

Oil prices rose slightly this morning amid signs of near-term supply tightness, but remain near two-week lows, pressured by OPEC's downgraded demand growth forecast and weak Chinese consumption.

Equities on the move

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

Home Depot, one of the equities under our core coverage, raised its annual forecast, driven by strong contractor demand and hurricane-related spending, with third-quarter results exceeding expectations and a smaller-than-expected drop in same-store sales.

Bayer warned of further earnings declines due to weak agricultural markets, causing a sharp drop in shares to a 20-year low, while CEO Bill Anderson faces pressure to accelerate the company’s turnaround.

AstraZeneca has raised its annual sales and profit forecast again, driven by strong demand for cancer and rare disease medicines, and announced a $2 billion investment in the U.S. for R&D and manufacturing expansion, while continuing to address concerns around its operations in China.

Vodafone's shares fell 8.2% after its German operations reported a 9.3% drop in EBITDA and Leasing, raising concerns over growth in a key market, despite stable results in the UK, Turkey, and Greece. The company maintained its full-year guidance.

Shopify forecasted strong Q4 revenue growth, above estimates, driven by AI-powered tools and increased merchant adoption ahead of the holiday season. The company also exceeded Q3 revenue expectations, reporting a 26% rise to $2.16 billion.

Cava Group raised its 2024 same-restaurant sales growth forecast to 12-13% after strong third-quarter results, driven by increased foot traffic and popularity among younger consumers. The Mediterranean chain also boosted its target for new restaurant openings and profit margins.

Siemens Energy raised its midterm outlook after reporting a record order backlog and a narrowed Q4 loss, driven by strong demand for power equipment and improvements at its wind turbine unit. The company expects sales growth of 8-10% in 2025 and a profit margin improvement.

RWE raised its full-year 2024 guidance, now expecting adjusted net income to fall within the €1.90 billion to €2.40 billion range, up from its previous lower-end forecast. The company also confirmed its dividend target of €1.10 per share for the year.

Infineon has cut its FY25 sales forecast, expecting a 2% decline due to weakness in the automotive sector, with lower margins and a weaker Q4 outlook.

SoftBank posted a 1.18 trillion yen profit for Q2, driven by gains in its Vision Fund from recovering tech valuations and exits from companies like Didi and PayTm. The result marks a positive turnaround after a period of losses, with the group also benefiting from a stronger yen.

Apple is reportedly set to launch a wall-mounted display, codenamed J490, featuring AI navigation, video conferencing, and appliance control, potentially priced up to $1,000. The device aims to compete with smart home products from Google and Amazon.

Honeywell has received pressure from Elliott Investment Management, which has acquired a $5 billion stake, to split into two standalone companies focused on aerospace and automation, arguing this could boost shareholder value and improve performance.

Pfizer is exploring the sale of its hospital drugs unit to reduce debt, after recently selling a $3.26 billion stake in Haleon, amid pressure from activist investor Starboard Value.

Commerzbank is considering acquiring a mid-sized German bank to strengthen its independence and deter a potential takeover by UniCredit.

Burberry shares fell 8.0% after reports that Italian brand Moncler is not in talks to acquire the British fashion house, following earlier speculation of a potential bid. The news came ahead of Burberry's upcoming strategy announcement under new CEO Joshua Schulman.

Nvidia is expected to grow due to strong demand for AI hardware, with analysts forecasting 38% annual earnings growth through 2030. Redburn Atlantic set a "Buy" rating and a $178 target ahead of Q3 results.

Airbnb was downgraded to "Reduce" by Phillip Capital, citing high valuations and rising operational costs, despite strong Q3 results. The firm expressed concerns over Airbnb's premium valuation compared to rivals and limited near-term profitability due to increased investments.

Tesla's recent rally is expected to continue, with JPMorgan's Paige Hanson citing increased investor optimism after Trump's election win and a shift towards positive growth expectations, while Morgan Stanley forecasts a $500 share price by 2030, driven by its expansion into energy and network services.

Upcoming data

Inflation data will be key this week, with October CPI expected to rise 2.6% and PPI 2.3%.

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