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U.S. equities experienced a strong rally on Wednesday, with the S&P 500 and Dow Jones Industrial Average reaching record highs, rising 0.71% and 1.03% to 5,792.04 and 42,512.00, respectively. Despite persistent high Treasury yields, which pushed the 10-year note yield to 4.06%, market optimism prevailed across various sectors. Meanwhile, European markets remained steady, with the Eurozone’s Stoxx 50 closing 0.7% higher at 4,984, buoyed by optimism over potential fiscal stimulus from China, led by gains in tech shares like ASML and Infineon, along with strong performances from automotive and industrial companies.
Summary for 10.10.2024
Asian shares drifted higher on Thursday, with markets focused on U.S. inflation data for interest rate cues. Chinese equities were volatile, swinging 1% as doubts lingered over Beijing's fiscal stimulus plans. Hong Kong’s Hang Seng surged 2.5%, driven by Trip.com. Japan’s Nikkei rose 0.3%, Australia’s ASX 200 added 0.6%, and South Korea’s KOSPI gained 0.5%.
European markets are set to open cautiously today, with investors awaiting U.S. inflation data that could provide more clarity on future interest rate moves. U.S. equity index futures are trading flat as traders anticipate the consumer price index report, which will be a key factor in shaping the Federal Reserve's monetary policy outlook.
Oil prices rose slightly in Asian trade this morning, stabilising after two days of sharp losses. Focus remained on the Middle East conflict, with fears of supply disruptions, and anticipation of more Chinese stimulus measures. However, gains were limited by a strong U.S. dollar and higher-than-expected U.S. inventory data. Brent crude and WTI futures both climbed 0.4%, following a recent 5% drop.
During the September meeting, Federal Reserve officials expressed uncertainty about the extent of interest rate cuts, ultimately deciding on a 50 basis point reduction. Only Governor Bowman dissented, advocating for a 25 basis point cut. The Fed emphasised that the cut did not indicate a negative economic outlook and that inflation was expected to trend toward 2%. They projected a total of 100 basis points of easing by year-end.
Hurricane Milton, a Category 5 storm, could cause insured losses of $60-$100 billion, potentially matching Hurricane Katrina's 2005 losses. Analysts expect a surge in 2025 reinsurance prices, benefitting some insurers. Reinsurers like Swiss Re, Munich Re, and Beazley saw share drops, but analysts predict a rebound as higher rates are set for policy renewals. The sector's stronger financial position may mitigate impact.
TSMC reported third-quarter revenue equivalent to $23.62 billion, surpassing market expectations and its own forecasts, driven by strong AI-related chip demand. This represents a 36.5% year-on-year growth. September alone saw a 39.6% revenue increase. TSMC’s shares have surged 72% in 2024, ahead of its full earnings report and updated outlook, set for October 17.
European luxury shares fell 2%-6% yesterday on investor concerns that Beijing might retaliate against EU tariffs on Chinese EVs by targeting luxury goods. However, analysts believe such a move is unlikely, as China benefits from domestic luxury sales, which boost tax revenue. Despite the ongoing trade tensions, Beijing is more likely to focus on other sectors, like brandy, pork, and dairy.
Daimler Truck reported a decline in Q3 2024 sales, with 114,917 units sold, down from 128,861 in 2023. Weaker demand in key markets, especially for Mercedes-Benz and Trucks Asia, drove the drop. While North American sales slightly improved, they couldn't offset overall declines. Battery-electric vehicle (BEV) sales rose modestly, though their share remains small. Bus sales also decreased marginally.
Stellantis CEO Carlos Tavares plans a major management reshuffle amid profit warnings and declining North American operations, Bloomberg reports. Facing pressure from falling sales and profits, particularly in the U.S., Stellantis cut its 2024 profit forecast and plans output reductions and discounts. Tavares may present changes at an upcoming board meeting, which could also address his future with the company.
Wedbush analysts remain bullish on Tesla ahead of the "We, Robot" Robotaxi Day event, expecting it to be a pivotal moment for the company’s autonomous driving and AI journey. They anticipate the unveiling of the "Cybercab" and advancements in Full Self-Driving (FSD) technology. Wedbush maintains a price target of $300, projecting a $1 trillion value in AI and FSD segments for Tesla in the future.
IBM received bullish price targets of $250 from Goldman Sachs and Bank of America. Analysts expect strong performance in IBM’s software segment, driven by Red Hat services and transaction processing. Despite flat consulting revenues, IBM is benefitting from AI opportunities and backlog conversions, with optimism around its revenue growth, free cash flow improvements, and upcoming mainframe cycle.
Jefferies analysts maintained a Buy rating on Alibaba, highlighting its clear growth roadmap across various segments, particularly Taobao Tmall Group and Alibaba International Digital Commerce Group. They project a 6% year-over-year revenue growth for the September 2024 quarter. Despite a projected 5% decline in EBITA due to investments and losses in some areas, Jefferies sees strong long-term potential driven by operational improvements and market expansion.
Loop Capital upgraded Home Depot and Lowe's from Hold to Buy, citing indications of a bottoming demand in the home improvement sector. They raised Home Depot's price target from $360 to $460 and Lowe's from $250 to $300, anticipating future demand growth despite short-term disruptions from storm damage. Analysts expect Home Depot’s long-term growth to accelerate more than Lowe’s, particularly due to its acquisition of SRS.
Citi analysts are optimistic about cruise shares, projecting over 20% EPS compound annual growth rates (CAGRs) through 2025. They upgraded Norwegian Cruise Line to Buy with a $30 price target and anticipate Royal Caribbean to hit $20 EPS by 2027, setting a $253 price target. Carnival is seen slower but with strong debt-reduction efforts and a $28 target.
Citi initiated research coverage on 19 companies in the Transportation and Logistics sector, acknowledging recent struggles due to a supply-demand imbalance affecting freight rates and margins. Despite the Transports Index underperforming the S&P 500, analysts see potential for strong earnings growth in 2025 and 2026. They recommend equities like JB Hunt, Saia, CSX, and UPS, while rating Werner Enterprises as a Sell.
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