Uncertainty grows over impending Fed decision

U.S. equities ended mostly higher on Monday, with the S&P 500 rising 0.13% and the Dow gaining 0.55%, while the Nasdaq declined 0.52% due to struggles in the tech sector, particularly on reports of weak demand for Apple iPhones. Treasury yields and the U.S. dollar hit multi-month lows, boosting energy and materials shares. European markets saw similar trends, with financials and energy sectors advancing amid expectations of lower interest rates ahead of the Federal Reserve’s upcoming rate cut decision.

Summary for 17.09.2024

Asian equities rose slightly on Tuesday, buoyed by growing expectations of a 50 basis point interest rate cut by the Federal Reserve. Australia's ASX 200 gained 0.3%, and Hong Kong's Hang Seng rebounded 0.9% from prior session losses. However, Japanese shares fell, with the Nikkei 225 down 1.7%, pressured by yen strength and losses in technology sectors. Market holidays in China and South Korea kept regional trading volumes subdued.

US and European equities are expected to open cautiously higher ahead of key data releases, including US retail sales, business inventories, and industrial production, as well as speeches from former ECB President Mario Draghi and JPMorgan Chase CEO Jamie Dimon.

Oil prices extended gains this morning, driven by U.S. Gulf of Mexico output disruptions following Hurricane Francine and expectations of lower U.S. crude stockpiles. Anticipation of a U.S. Federal Reserve interest rate cut also supported market sentiment, as it could boost oil demand. However, price gains were capped by concerns over slower demand growth in China, the world’s largest crude importer.

Apple's shares fell nearly 3% on Monday as analysts suggested weaker-than-expected demand for the new iPhone 16 Pro models, partly due to delays in key AI features. Early pre-order data showed shorter shipping times compared to last year's models, indicating potentially lower demand. However, some analysts believe improved supply and gradual rollout of AI features might boost sales over the coming months.

Intel announced a major deal with Amazon's AWS for custom AI chips, boosting its shares by almost % in extended trading. CEO Pat Gelsinger also outlined cost-cutting measures, including selling a stake in Altera and pausing construction on factories in Germany and Poland. Intel plans to expand its foundry business, receive up to $3 billion from the U.S. CHIPS Act, and proceed with layoffs of about 15,000 employees.

Microsoft announced a new $60 billion share buyback programme and a 10% increase in its quarterly dividend to $0.83 per share. Shares rose 0.6% in after-hours trading. Despite strong quarterly earnings, increased capital expenditures on artificial intelligence have pressured growth, particularly in its Azure cloud business. Microsoft plans to demonstrate the returns on its AI investments, with its annual shareholders' meeting scheduled for 10th December.

Boeing's shares fell slightly on Monday after the company announced a hiring freeze and paused nonessential staff travel amid a strike involving over 30,000 workers. The aerospace giant is also considering employee furloughs and halting orders for certain aircraft models. CFO Brian West stated that the strike threatens Boeing’s recovery and emphasised the need for cost-saving measures while continuing to prioritise safety and customer support.

UniCredit CEO Andrea Orcel suggested that merging with Commerzbank could create a stronger competitor in the German banking market, benefiting all stakeholders. UniCredit recently acquired a 9% stake in Commerzbank, which has faced resistance from German authorities and management. Orcel emphasised that the decision for a merger lies with Commerzbank’s stakeholders and that potential savings would focus on central functions rather than customer-facing areas.

An Oregon judge has overturned a $260 million jury verdict against Johnson & Johnson in a mesothelioma case, ordering a new trial. The company argued the original verdict was flawed, while the plaintiff plans to appeal. J&J faces over 62,000 lawsuits related to asbestos in its talc products and is preparing a $9 billion settlement for ovarian cancer claims, which won't cover mesothelioma cases.

Daimler Truck plans for electric trucks to account for half of its European sales by 2030, aiming to sell up to 30,000 units. The company will begin producing its first fully electric heavy truck, the Mercedes-Benz eActros 600, in November. However, challenges such as high production costs, inadequate charging infrastructure, and regulatory targets for emission reductions pose hurdles to achieving these goals.

Volkswagen may record up to €4 billion in provisions for planned capacity cuts by the fourth quarter, according to Jefferies analysts. The company is considering shutting German plants as part of its cost-cutting strategy. Jefferies noted that there’s no alternative plan and expects provisions of €3 to €4 billion, including separation and closure costs. Volkswagen has also ended a job security scheme, leading to potential union disputes.

Shares in Colgate-Palmolive were flat after Wells Fargo downgraded the equity to "Underweight" from "Equal Weight." The downgrade follows a 30% share surge this year and recent strong returns. Analysts predict "normalisation" in growth and potential decline in global toothpaste market share, citing a historically high valuation compared to peers. Despite this, they expect solid performance ahead.

Barclays analysts initiated coverage of GE Vernova with an Overweight rating and a $250 price target, forecasting superior growth driven by strong pricing, productivity, and volume leverage. They expect GEV to outperform the industrial sector in organic sales, excluding its offshore wind business. The firm is well-positioned due to its significant focus on electric utility investments, with anticipated high free cash flow, potential buybacks, and dividend increases.

Evercore ISI has initiated a "positive tactical trade" on Carvana, predicting strong third-quarter performance and positive catalysts. Following a visit to Carvana's HQ, Evercore noted confidence in its strategy and margin improvements. The firm's base case target has risen to $157, citing cost control, advertising efficiency, and potential benefits from third-party platforms and electric vehicle market growth.

Morgan Stanley lowered its price target on Micron shares while maintaining an Equal Weight rating, citing a 30% EPS estimate divergence for fiscal 2025. Despite positive HBM sector prospects, analysts highlight ongoing commodity oversupply issues. Micron’s HBM3e product shows promise, but oversupply in broader memory markets remains a concern, and the high valuation of Micron shares continues to be a significant factor.

Citi Research downgraded MTU Aero Engines to “sell” from “neutral,” citing slower growth compared to aerospace peers and weaker cash conversion metrics. Analysts forecast an 8% average profit growth CAGR from 2024 to 2029, lower than competitors like Rolls-Royce and Safran. MTU’s cash conversion rate, projected at 82%, is below that of its peers. Citi set a €250 price target, considering MTU's valuation less favourable.

Citi downgraded its outlook on semiconductor equipment shares, anticipating a mid-cycle correction in 1H25 due to weaker consumer demand across PCs, smartphones, and autos. The bank expects modest 5% growth in wafer fabrication equipment and delays in NAND recovery. Entegris was upgraded to Buy, while price targets for Applied Materials, Lam Research, and KLA Corporation were reduced by around 10%.

Goldman Sachs reaffirmed its bullish outlook on gold prices, noting strong central bank demand and expectations of a significant U.S. Federal Reserve rate cut. Gold prices hit an all-time high of $2,589.6 an ounce, bolstered by a weaker dollar and the prospect of a 50-basis-point rate cut. The bank maintains a target of $2,700 per ounce by early 2025, despite potential short-term fluctuations.

For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal ad.