Biden quits Presidential race

US equities extended losses for the second session on Friday, with the S&P 500 and Nasdaq falling 0.7% and 0.8%, respectively, while the Dow Jones dropped 377 points. Profit-taking followed recent record highs and a global IT outage linked to CrowdStrike and Microsoft. Netflix shares fell 1.5% and American Express dropped 2.7% despite positive earnings. Meanwhile, European shares closed lower for the fifth consecutive session amid US trade barrier concerns, with the Eurozone’s Stoxx 50 down 4.3% for the week. The tech sector and auto manufacturers, including ASML, Infineon, Stellantis, BMW, and Volkswagen, faced significant losses. 

Summary for 22.07.2024 

• Most Asian shares fell on Monday amid US political uncertainty and a tech share rout. Chinese indices dropped despite an unexpected rate cut. Japan, South Korea, and Taiwan saw significant declines, while Australia’s market also slid. Hong Kong’s Hang Seng index rose 0.4% on bargain buying, bucking the regional trend. 

• European markets are set to open higher while US equity index futures rose in evening deals on Sunday, following President Biden’s withdrawal from the re-election race and his endorsement of Vice President Kamala Harris. 

• Oil prices rose in Asian trade on Monday, recovering some of last week’s losses due to optimism over China’s economic conditions following an unexpected rate cut. Despite recent declines amid Israel-Hamas ceasefire speculation, improved sentiment towards China, the world’s largest oil importer, supported the recovery. 

• President Joe Biden has withdrawn from the 2024 Presidential election, endorsing Vice President Kamala Harris as the Democratic nominee. This follows his poor debate performance against Donald Trump and declining support. Trump criticised Biden’s decision, asserting Biden was never fit to be President. 

• The People’s Bank of China lowered the seven-day reverse repo rate by 10 basis points to 1.7%, marking its first cut in nearly a year. This move is intended to enhance economic support and improve the open market operation mechanism, responding to the slowest economic growth in five quarters. 

• CrowdStrike’s recent update to its Falcon cybersecurity software, intended to enhance security, led to a major global tech outage due to faulty code. Affecting nearly 8.5 million Microsoft devices, the flaw disrupted banks, airlines, and essential services. Experts criticised the inadequate quality checks, while CrowdStrike and Microsoft, alongside AWS and Google Cloud, are working to resolve the issue. 

• NVIDIA is creating a new AI chip for the Chinese market, tentatively named the “B20,” to comply with US export restrictions. Partnering with Inspur, NVIDIA aims to boost its competitive edge in China, where local chipmakers like Huawei have posed challenges. This move follows recent reports of weak demand for its existing AI chips in China. 

• Boeing is seeing significant improvements in its 737 MAX factory production flow, according to Stephanie Pope, the new chief of commercial planes. Despite recent setbacks, including a cabin panel incident and legal troubles, Pope emphasised Boeing’s commitment to safety and delivery schedules. The company aims to reach a production rate of 38 MAX planes per month by the end of 2024 and has settled on a design to address delays in the 737 MAX 7’s certification. 

• Eli Lilly’s weight loss drug, tirzepatide, received approval from Chinese regulators, boosting competition with Novo Nordisk in the Asian market. The drug, marketed as Zepbound, helped Eli Lilly shares rise by 1.0%. Tirzepatide has shown superior weight loss results compared to Novo Nordisk’s Wegovy. 

• Activist investor Elliott Investment Management has acquired a significant stake in Starbucks and is exploring ways to improve its share performance. Starbucks shares rose nearly 7% to $79.27 after the news. The coffee chain, facing a 23% drop in share price over the past year and weaker demand in major markets, has been under scrutiny following disappointing earnings and recent labour union activity. 

• Berkshire Hathaway sold approximately 33.9 million shares of Bank of America for around $1.48 billion this week, reducing its holding to about 999 million shares. Berkshire remains one of BofA’s largest shareholders and continues to invest in other major banks like Wells Fargo and JPMorgan Chase. 

• Ryanair this morning reported a 46% drop in after-tax profit for the April-June quarter, falling short of forecasts with a profit of €360 million. Average fares fell 15% year-on-year, and the airline warned of “materially lower” fares for the key summer months, leading to a 24% drop in its shares since April. American Express’s Q2 revenue rose 9% to $16.33 billion, driven by affluent customer spending but missed expectations, causing shares to drop 2.7%. Despite a spending growth slowdown, AmEx raised its 2024 earnings forecast. Profit hit $3.02 billion, with earnings per share exceeding estimates. The company plans a 15% marketing boost. 

• SLB and Halliburton posted higher quarterly profits due to strong global demand but warned of softer North American activity for the second half of 2024. SLB’s international revenue rose 18%, while Halliburton’s grew 8%. Halliburton expects North American revenue to decline 6-8% but anticipates a 2025 demand increase. 

• Rosenblatt analysts view the 11% dip in CrowdStrike shares, caused by a global tech outage from a faulty software update, as a buying opportunity. They emphasise the issue was an isolated glitch, not a systemic flaw, and highlight the company’s transparency and critical role in global cybersecurity. RBC Capital sees the incident as a short-term negative but maintains a long-term positive outlook. 

• Morgan Stanley upgraded Arm Holdings from Equal-weight to Overweight, raising the price target to $190. The upgrade emphasises Arm’s crucial role in edge AI, leveraging its power-efficient compute architecture and large developer community. Significant growth potential is seen in smartphone and automotive sectors, with projected earnings CAGR of 46% by FY27. 

• Societe Generale has warned that the US technology sector, which makes up 35% of the S&P 500, may face a bubble burst. They noted a surge in smaller equities and a decline in major tech firms, drawing parallels to past financial bubbles. Despite current optimism driven by AI advancements, SocGen cautions about a potential sell-off reminiscent of the 1990s Nasdaq crash. 

• This week, investors will focus on the US advance Q2 GDP growth, PCE inflation, and key spending and income metrics. Key global releases include Manufacturing and Services PMI data for major economies and Germany’s Ifo and GfK indices. Central banks in Canada, Turkey, and China will announce interest rate decisions, while South Africa reports inflation and South Korea’s GDP growth rate is also in the spotlight. 

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