US and European Equity Markets Slide
On Thursday, US equities experienced a drop, driven by escalating tensions in the Middle East and disruptions from a domestic dock workers’ strike. The S&P 500 fell by 0.17%, while the Dow Jones dropped 0.44%, and the Nasdaq saw a marginal decline of 0.04%. In Europe, major indices also ended lower, with the Eurozone’s Stoxx 50 falling by 1% to 4,916, as concerns over Chinese economic stimulus measures weighed on corporate performance. All sectors declined except energy producers, which were the only sector to post gains, benefiting from a rise in oil prices.
Asian Markets Reflect Global Sentiment
On Friday, Asian equities followed suit, with MSCI’s Asia-Pacific index down by 0.32% and Australian shares dropping by 1%. Japan’s Nikkei gave up early gains, ending down 0.08% and was set for a weekly decline of over 3%, largely due to rising geopolitical risks and speculation over domestic rate hikes. The yen faced its sharpest decline since 2016, contributing to market volatility. Investor focus now shifts to the upcoming U.S. jobs report, which may provide further clarity on the economic outlook.
European Markets Set for Lower Open
European markets are poised to open lower later today, reflecting the cautious sentiment from Asia amid escalating geopolitical tensions and mixed economic signals. Meanwhile, US equity futures remained largely unchanged as investors await the September jobs report for insights into the labour market.
Oil Prices Surge Amid Supply Concerns
Oil prices saw a steady rise during early Asian trading, reflecting concerns about potential supply disruptions due to the Middle East conflict. This comes after reports of U.S. discussions on strikes against Iran. However, OPEC’s spare capacity and Libya’s resumed production helped ease some fears of a global supply shortage. Oil prices are on track for weekly gains of around 8%, driven by these geopolitical risks.
US Dock Workers Strike Tentatively Resolved
After a three-day strike by U.S. dock workers that caused shipping delays along the East and Gulf coasts, a tentative deal has been reached. The agreement includes a 62% wage increase over six years, raising wages to $63 per hour. Operations will resume as negotiations continue on unresolved issues, including the automation of port facilities.
ISM Services PMI Surges
The ISM Services PMI in the U.S. jumped to 54.9 in September, up from 51.5 in August, marking the highest growth in the services sector since February. The surge was driven by increases in business activity, new orders, new inventories, and inventories. However, the report noted a decline in employment and rising price pressures, while concerns about political uncertainty and labor costs, especially regarding potential port labour issues, persisted.
IMF Issues Middle East Conflict Warning
The IMF expressed concerns over the potential economic fallout from the escalating Middle East conflict, particularly in Gaza and Lebanon, where economies have severely deteriorated. Though commodity prices remain below last year’s peaks, the IMF is closely monitoring the situation and plans to update its global projections later in October during its fall meetings.
European Auto Industry Faces Challenges
Germany’s government announced it will vote against EU tariffs on Chinese electric vehicles, following pressure from the country’s automotive industry. German carmakers, heavily reliant on Chinese sales, fear potential trade retaliation. German unions and carmakers argue that tariffs won’t improve Europe’s automotive competitiveness. At the same time, Stellantis warned investors of possible cuts to dividends and share buybacks after issuing a U.S. profit warning, causing its shares to plunge to a two-year low. Barclays downgraded Stellantis, citing inventory problems and reduced free cash flow, which may impact future pay-outs.
Other Major Corporate News
- Air France-KLM is implementing cost-saving measures to restore its EBIT margin to 8% by 2028, aiming to improve staff productivity by 5% by 2025 and to outsource maintenance operations from Schiphol to achieve savings. Citi Research views the margin target as incremental, while the airline also seeks new revenue opportunities in on-board catering.
- Barclays downgraded Porsche to Underweight with a €35 price target, while Mercedes-Benz and Stellantis received Equal Weight ratings, with price targets of €65 and €12.5, respectively. Analysts expressed concerns over margin pressures and competition, despite recognising potential for future cash flow and shareholder returns.
- Morgan Stanley named Baker Hughes its top pick in the oilfield services sector, raising the price target to $45. The firm cited Baker Hughes’ strong exposure to liquefied natural gas (LNG), a diversified portfolio, and robust prospects in new energy and digital businesses.
- Spirit Airlines is exploring options for Chapter 11 bankruptcy after its failed merger with JetBlue, citing ongoing financial challenges, including debt maturities in 2025 and 2026. Spirit has struggled with losses, competitive pressure, and an oversupply of seats, casting doubts on its ability to manage debt effectively.
- EVgo shares soared by 60% following a $1 billion loan guarantee from the U.S. Department of Energy, aimed at expanding its electric vehicle fast-charging network. The DOE’s conditional commitment will help EVgo deploy 7,500 new stalls by 2030, with a focus on underserved areas.
- Bank of America reiterated a Buy rating for AMD ahead of its “Advancing AI” event on October 10. Analysts highlighted potential share gains, similar to those following a previous AI event, but noted challenges in growing market share against NVIDIA. AMD’s AI sales are expected to rise, with the possibility of reaching $10 billion by 2025, but competition and market dynamics remain significant hurdles.
- JPMorgan maintained its Underweight rating on Tesla, raising the price target to $130 from $115, despite shares trading well above $200. The bank cited Tesla’s Q3 deliveries falling short of investor expectations, potentially marking its first-ever full-year decline in unit volumes. JPMorgan warned this could undermine Tesla’s growth equity status, highlighting deteriorating performance metrics and a 74% projected EBIT decline for 2024.
Conclusion
Global markets continue to reflect a cautious sentiment driven by geopolitical tensions and economic uncertainty. Investors are awaiting key data, including the U.S. jobs report, to gauge the direction of the economy, while companies navigate challenges from labor disputes to competitive pressures. The IMF plans to update its economic projections during its fall meetings later in October.
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