Overview of Market Activity
Global equities experienced a downturn on Thursday following cautious remarks by U.S. Federal Reserve Chair Jerome Powell. His assertion that the Federal Reserve does not see an immediate need for rate cuts dampened optimism sparked by the recent post-election rally. Powell highlighted the resilience of the U.S. economy, leading market expectations for a December rate cut to drop sharply—from over 80% to just above 60%. Additionally, the U.S. producer price index revealed an annual core inflation rise to 3.1%, suggesting inflationary pressures may persist despite a cooling labor market.
Bond Yields and Equity Performance
The Federal Reserve’s prudent stance caused bond yields to climb, with the 10-year Treasury yield briefly hitting a four-month high before moderating as buyers entered the market. Equities faced broad declines, with energy and technology sectors being the exceptions, reflecting investor caution over inflationary challenges. The Fed’s gradual approach to rate adjustments aims to ensure a “soft landing,” balancing economic growth and inflation control.
Asian Market Developments
Asian markets echoed the cautious sentiment, influenced by mixed economic data. Japan’s GDP grew 0.9% year-on-year in Q3, slightly exceeding expectations but reflecting a marked slowdown from the previous quarter. Meanwhile, China’s industrial output grew 5.3% in October, missing forecasts. Retail sales rose 4.8%, buoyed by Golden Week, while property investments declined 10.3% year-on-year. Concerns about potential trade tensions and declining property investments continued to weigh on investor sentiment.
Market Updates
U.S. Market Performance
- Equities: The S&P 500 and Nasdaq both declined by 0.6% on Thursday, with the Dow Jones falling by 207 points. Key drivers included inflation data and Powell’s comments.
- Corporate Earnings:
- Cisco shares dropped 2.1% after reporting weaker-than-expected earnings.
- Disney surged 6.2% following strong Q4 earnings.
- Super Micro plummeted 11.4% due to weaker guidance.
European Markets
- Performance: European indices performed strongly, with the Stoxx 50 rising by 1.9%.
- Key Movers:
- ASML: Shares surged 7% on robust sales forecasts.
- Siemens: Despite revising its 2025 outlook, shares gained 4.9%.
Currency and Commodities
- Currencies: The U.S. dollar strengthened to 106.8, supported by rising Treasury yields and reduced expectations for rate cuts. This strength weakened the euro to 1.0540 against the dollar.
- Oil Prices: Oil prices slipped due to concerns over an oversupply, slower Chinese demand, rising production, and a stronger dollar.
Equities in Focus
- Applied Materials: Q4 revenue exceeded expectations, but weak demand outside AI chips weighed on Q1 forecasts. Export restrictions to China and competition in semiconductor equipment remain significant challenges.
- Walt Disney: The company projects significant earnings growth through investments in streaming, parks, and films, with high single-digit EPS growth expected in 2025 and double-digit growth through 2026-2027.
- Berkshire Hathaway: Shares of Domino’s Pizza and Pool Corp rose 6.9% and 5.7%, respectively, following news of investments. The firm also trimmed holdings in Apple and Bank of America, while amassing $325 billion in cash as it refrains from equity repurchases.
- ASML: The company expects 8-14% annual sales growth over the next five years, driven by demand for AI chips. It forecasts €44-60 billion in revenue by 2030 despite U.S. export curbs on China.
- Siemens: Reported a 7% profit beat in Q4, buoyed by strong digital and smart infrastructure growth. It projects 3-7% revenue growth for 2025.
- Deutsche Telekom: Shares rose over 3% after strong Q3 results, supported by growth in Germany and an upgraded 2024 EBITDAaL forecast from T-Mobile US.
- Nissan: Shares increased by over 4% following reports that activist investor Oasis Management had taken a stake, joining Effissimo Capital.
- Burberry: Shares surged 9.3% despite a 20% revenue decline and a £41 million loss in H1. The company plans to refocus on core outerwear under CEO Joshua Schulman.
- Nvidia: Analysts from Wedbush and Raymond James continue to rate the stock a strong buy, citing robust AI-driven growth prospects despite potential short-term volatility and supply constraints.
Upcoming Economic Data
- October U.S. Retail Sales Report: Analysts expect a 0.3% month-on-month increase, reflecting steady consumer spending.
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