U.S. and European Equity Markets: Positive Momentum Persists
The U.S. equity markets closed last week mixed, but overall, the trajectory remained positive, extending the weekly winning streak to three. While the S&P 500 dipped slightly due to weakness in the tech sector, the Dow Jones hit an all-time high. Semiconductor stocks, particularly Nvidia, experienced volatility as concerns over the Chinese market weighed on performance. In contrast, European luxury goods stocks surged thanks to China’s economic stimulus, although banking and oil sectors lagged. Both U.S. and European markets were buoyed by optimism surrounding declining inflation and potential interest rate cuts.
Key Points:
- U.S. Markets: Dow Jones reached an all-time high; S&P 500 dipped slightly.
- European Markets: Tech and luxury sectors saw gains, while banking and oil stocks underperformed.
- Global Sentiment: Optimism rose due to easing inflation and potential lower interest rates.
Asian Markets: Mixed Reactions to China’s Stimulus
On Monday, Asian equity markets showed mixed results. China’s stimulus efforts boosted its domestic markets, with the CSI300 rising by 3.0% and the Shanghai Composite by 4.4%, building on last week’s strong gains. However, Japan’s Nikkei dropped by 4.1% amid concerns over potential interest rate normalization by the new prime minister. Despite these divergent trends, the overall Asia-Pacific index outside of Japan edged up by 0.3%.
Key Points:
- China’s Markets: Boosted by stimulus measures, showing strong gains with the CSI300 up 3.0% and the Shanghai Composite rising 4.4%.
- Japan’s Market: Dropped 4.1% on concerns of interest rate normalization by the new prime minister.
- Geopolitical Concerns: Uncertainty in the Middle East weighs on investor sentiment.
Oil Markets: Supply Disruptions Drive Price Volatility
Oil prices saw a slight uptick due to concerns over potential supply disruptions in the Middle East following increased tensions between Israel and Iranian-backed forces. Despite this, prices are still under pressure due to OPEC’s decision to increase output by 180,000 barrels per day in December, and the expected return of Libyan exports.
Key Points:
- Middle East Tensions: Heightened supply disruption risks.
- OPEC Output: Planned increase in production of 180,000 barrels per day in December keeps pressure on prices.
- Libyan Exports: Expected to return, adding to global supply.
Economic Data and Central Bank Outlook
This week, both U.S. and European markets are expected to open flat to slightly positive as investors await key economic data and speeches from central bank officials. U.S. markets will be closely watching speeches from Federal Reserve officials, including a key address by Fed Chair Jerome Powell. Meanwhile, China’s factory activity contracted for the fifth consecutive month in September, with manufacturing PMI rising slightly to 49.8, still below the growth threshold despite aggressive stimulus measures.
In the U.S., Personal Consumption Expenditures (PCE) data showed that headline PCE rose by 2.2% year-over-year, the lowest since February 2021. Core PCE increased by 2.7%, with a monthly gain of 0.1%. Goods prices fell by 0.2%, while services rose by 0.2%, driven primarily by housing inflation. This data aligns with the Federal Reserve’s focus on employment, as inflation nears target levels.
Key Points:
- U.S. Federal Reserve: Fed speeches, including Jerome Powell’s, will be closely monitored.
- China’s Factory Activity: Contracted for the fifth consecutive month, with the manufacturing PMI rising to 49.8, still below the growth threshold.
- U.S. Inflation Data: Headline PCE rose by 2.2% year-over-year, while core PCE increased by 2.7%, indicating inflation is nearing the Fed’s target.
Corporate News Highlights
- Apple & OpenAI: Apple has reportedly exited negotiations to join OpenAI’s $6.5 billion funding round. Other tech giants, including Microsoft and Nvidia, remain in talks, with Microsoft expected to invest heavily.
- Nvidia: The company faces pressure as China encourages domestic companies to purchase locally produced AI chips instead of Nvidia’s, adding volatility to its stock. Chinese regulators are discouraging the purchase of Nvidia’s H20 chips, although this is not an outright ban, as they aim to strengthen the local semiconductor industry while managing U.S. relations.
- Moncler & LVMH: Moncler shares surged 10.9% following LVMH’s investment, which analysts believe could lead to further acquisitions. LVMH’s stake, currently at 1.6%, could grow to 4% over the next 18 months, according to analysts.
Key Market Movements
- Volkswagen: Lowered its annual outlook for the second time in three months due to weaker demand, particularly from China. The company now expects a profit margin of 5.6% in 2024 and a decline in sales to €320 billion. Global delivery forecasts are also reduced to around 9 million vehicles.
- Forvia: Slashed its sales and profit forecasts amid weak global auto demand, particularly in Europe and North America. Forvia now expects sales of €26.8-27.2 billion and an operating margin of 5.0-5.3%. The company is accelerating job cuts, with over 90% of reductions to be completed by the end of 2027.
- Siemens: Lowered its full-year sales growth forecast from 4-8% to around 3%, citing challenges in China and Europe. However, profitability remains stable, and a dividend increase is likely. Siemens is focusing more on the growing U.S. market as demand for factory automation continues to face challenges.
Outlook for the Week Ahead
This week kicks off the final quarter of 2024, which is expected to be volatile due to the approaching U.S. elections. Investors will focus on key economic data, including the U.S. jobs report, which will offer insights into the Federal Reserve’s next moves. The ADP data and JOLTS report will also provide clues about labor market health. In the Eurozone, inflation data is due, and a rate cut is on the table for the ECB. Oil prices will depend on the balance between increasing supply and potential disruptions due to geopolitical tensions in the Middle East.
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