US equities continue their record-breaking rallies

On Tuesday, the S&P 500 and Nasdaq set new highs, each gaining 0.1%, while the Dow Jones fell 52 points after Fed Chair Jerome Powell hinted at potential rate cuts amid optimism about inflation cooling. Financials led gains, with JP Morgan (+1.2%) and Bank of America (+2%), alongside Nvidia (+2.4%) and Tesla (+3.7%). In Europe, political uncertainty in France weighed on markets; the CAC 40 dropped 1.56%, with French banking shares declining, while the DAX and FTSE 100 also closed lower amid cautious investor sentiment.

Summary for 10.07.2024

Asian equities traded in a tight range on Wednesday, influenced by mixed inflation data from China and Japan and uncertainty about US interest rate cuts. Japanese shares hit record highs despite mixed PPI data, while Chinese shares saw mixed reactions to disappointing CPI but improved PPI. Broader markets remained flat.

European and US equity index futures are a tad higher this morning as investors assessed Fed Chair Jerome Powell's Senate testimony and awaited key inflation data and earnings reports

Oil prices rose in Asian trade on Wednesday due to a larger-than-expected draw in US inventories, despite a build in distillate stockpiles. Crude prices had fallen earlier on potential Israel-Hamas ceasefire talks and a weakening tropical storm Beryl, which had limited impact on Texas oil infrastructure.

Chinese consumer inflation shrank in June, with CPI growing only 0.2% year-on-year, below expectations. Month-on-month CPI fell 0.2%, indicating persistent deflationary trends due to weak consumer spending, high unemployment, and property market concerns. However, PPI inflation improved, shrinking by 0.8%, reflecting some manufacturing sector recovery amid government support.

Japanese producer prices increased by 2.9% year-on-year in June 2024, up from 2.6% in May, matching market expectations. This marked the 41st consecutive month of producer inflation growth, driven by higher costs in transport equipment, food, chemicals, and machinery. Monthly, producer prices rose 0.2%, the smallest increase since February.

In his testimony to lawmakers on Tuesday, Jerome Powell refrained from specifying a timeline for interest-rate cuts but acknowledged indications of a cooling job market and emphasised the necessity of substantial evidence for inflation deceleration. He also discussed potential revisions to bank capital regulations, suggesting a pivotal shift for Wall Street banks.

Shares in Novo Nordisk, known for obesity drug Wegovy, fell 1.9% after a study showed Eli Lilly's tirzepatide leads to faster weight loss than semaglutide in Ozempic and Wegovy. Novo highlighted the need for direct trials. Both firms aim to dominate the $150 billion weight-loss drug market, accelerating production of their self-injection pen drugs.

BP's shares dropped over 4% yesterday as it warned of weaker second-quarter results due to low refining margins and an expected $500-$700 million impact from poor oil trading. Additionally, BP anticipates a $2 billion impairment related to its Gelsenkirchen refinery. Jefferies analysts foresee a 20% earnings downgrade, emphasising a challenging quarter ahead.

Volkswagen's Audi division may close its Brussels plant due to plummeting demand for high-end electric vehicles, prompting a potential operational shutdown affecting 3,000 jobs. The move is part of cost-cutting measures as Volkswagen faces significant financial impacts, lowering its profit forecast and adjusting margins amidst ongoing challenges in the automotive market.

Porsche reported a 7% decline in global vehicle deliveries for the first half of the year compared to 2023, largely due to a substantial 33% drop in deliveries to China amid EU-China tariff tensions. North America saw a 6% decrease, while Germany saw a notable 22% increase to 20,811 vehicles delivered.

Adidas is poised for a robust second-quarter with strong sales driven by popular sneakers like the Samba and Gazelle, contrasting with Nike's unexpected sales decline. Adidas anticipates its highest profit margin in three years amidst Nike's struggle with innovation and market competition, which analysts view as an opportunity for Adidas to capitalise on.

Global PC shipments rose by 3% in Q2, reaching 64.9 million units, driven by demand for AI-capable devices. Apple led with a 20.8% increase year-over-year, followed by Acer Group at 13.7%. The market rebounded after pandemic-related slowdowns, though weak results in China tempered overall growth, excluding which shipments grew over 5%.

Elon Musk's AI startup xAI and Oracle have ceased negotiations on a potential $10 billion server deal, per reports. Talks to expand their existing arrangement, where xAI rents Nvidia chips from Oracle, stalled due to disagreements over speed of supercomputer construction and infrastructure concerns, despite xAI's existing AI training contract with Oracle's Gen2 Cloud.

Argus analysts raised Microsoft's price target to $526, citing its pivotal role in the generative AI platform shift. They maintain a Buy rating, emphasising Microsoft's robust long-term growth strategy through GenAI and cloud investments. Despite macroeconomic risks, Microsoft's diversified assets and strong customer base position it favourably as a technology leader and potential haven for investors.

Jefferies analysts are bullish on Amazon, raising their price target to $235 from $225, citing strong growth in AWS and advertising. They highlight AWS's acceleration in revenue growth and predict stable growth in advertising, bolstered by Prime Video. Jefferies underscores Amazon's attractive valuation and potential upside driven by high-margin segments.

TD Cowen analysts are upbeat on Netflix's earnings, anticipating 5.19 million new paid subscribers in Q2 2024, driven by sharing initiatives and ad-supported tier growth. They raised Netflix's price target to $775, citing strong AVOD prospects and a leading position in home entertainment despite YouTube's mobile gains.

Mizuho analysts raised Sony's target price to ¥21,100, foreseeing a 45% potential upside based on a positive company update and recent share rally. Despite past investor frustrations, Mizuho is optimistic about Sony's fiscal year 2025 prospects, predicting strong operating profit growth driven by gaming and sensor segments, alongside shareholder-friendly initiatives.

Mizuho analysts are cautious about Coinbase's upcoming earnings, foreseeing a 10% shortfall compared to consensus. They highlight declining trading volumes and market share loss to competitors as concerns, expecting a significant revenue miss for Q2. Mizuho maintains an Underperform rating on Coinbase with a $145 price target.

Piper Sandler analysts warn of a potential correction in the S&P 500, citing deteriorating market breadth and narrowing leadership among high-performing shares. They anticipate a significant pullback despite recent highs, driven by weak market internals and technical indicators pointing towards a downturn in mid-cap and small-cap shares.

Moody's warns that France's parliamentary election outcome, with potential for a fragmented government, poses credit risks due to anticipated fiscal challenges. The election results complicate forming a stable government capable of fiscal consolidation or tax increases, impacting France's deficit and debt trajectory negatively, despite its current stable credit rating outlook.

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