Microsoft and Alphabet rose sharply on Friday, and this morning it's Tesla and Apple that are doing the heavy lifting. Tesla's shares jumped 12% in premarket after the it cleared some regulatory hurdles that prevented it from rolling out its self-driving software in China. However, the driving force behind corporate earnings is not limited to the technology sector: 78% of S&P 500 companies beat analysts' estimates in the first quarter, with earnings up an average of 5.6% year-on-year, according to LSEG data. According to S&P, the figure is 77%, so the two providers are close. Companies exceeded expectations by an average of 8.4%.
At first, it would seem that US companies are doing significantly better than expected, but in reality, they always exceed analysts' overly cautious expectations by this margin. Averaged over the last 5 years, 77% of these companies exceeded expectations by 8.5%. So, everything is normal, perhaps too much so. Companies have several levers for orchestrating market expectations. First and foremost, they can guide analysts towards a figure that's a little lower than internal targets, in order to provide some pleasant surprises. Overall, Q1 earnings season is going rather well, even if the price effect generally outweighs volumes, a sign that the consumer remains under pressure.
Last week, indices rebounded, despite indicators that were not very supportive of monetary easing in the USA. Looking at the major indices, the Nasdaq 100 gained 4%, the S&P500 around 2.7%, the Nikkei 225 some 2.3% and the STOXX Europe 600 around 1.7%. Friday's session proved decisive in Europe and the United States. The market considered that the US PCE inflation reading - although high - was not as worrying as expected in March. However, the threat of stagflation was in everybody’s mind, which should have heightened market anxiety about the US central bank's ability to cut rates. But economists were quick to point out that price trends had been inflated by upward revisions to January and February data, which put the March figure into perspective. Relief, then, even if inflation remains too high in relation to the Fed's targets. The market is now hesitating between one and two rate cuts this year, with the first big test coming in September. This week's meeting of the U.S. Federal Reserve's Monetary Committee will provide Jerome Powell and his cohorts with an opportunity to reframe the policy framework. See you on Wednesday at 2:00 pm.
In other news, oil prices retreated slightly as ceasefire negotiations between Israel and Hamas continued. The dollar broke through the 160 yen barrier overnight, its highest level since 1990. Then it plummeted. Did the Bank of Japan intervene in the foreign exchange market? It remains a mystery at the time of writing.
The rebound continues in Asia. The Hang Seng has even crossed the 20% mark since its January lows, synonymous with what is known as a “bull market”. At long last, Chinese indices may finally be on the road to recovery.
On the weekly macro agenda, we'll be treated to Chinese manufacturing PMI indicators tomorrow, followed by the first estimate of European inflation for April (Tuesday). In the US, the March unemployment rate will be announced on Friday, but it's the Fed's decision on Wednesday that will attract all the attention, even if rates are almost guaranteed to remain steady.
The earnings calendar will still be copiously packed with Apple, Amazon, Eli Lilly, AMD, Coca-Cola, McDonald's and Pfizer in the USA. And Novo Nordisk, HSBC, AXA, Stellantis, GSK and Shell in Europe. If last week's events are anything to go by, it's Apple and Amazon that should be considered first and foremost.
Green is absolutely everywhere in Asia Pacific this morning. Well, except in Tokyo, because if the yen is yo-yoing, the stock market is closed for a public holiday. Hong Kong gained 0.5%. India gained 1.2%, Australia and South Korea both rose 0.8%. Leading indicators in Europe are mostly green, with the Stoxx EU 600 and the FTSE 100 both up 0.2%. Futures on Wall Street are slightly up.
Today's economic highlights:
The dollar is worth EUR 0.9330 and GBP 0.7977. The ounce of gold is trading at USD 2332. Oil has fallen back slightly, with North Sea Brent at USD 87.50 a barrel and US light crude WTI at USD 82.89. The yield on 10-year US debt stands at 4.63%. Bitcoin is trading at USD 62,500.
In corporate news:
- Tesla gains 7.3% in pre-market trading, as the US automotive group clears regulatory hurdles that prevented it from deploying its FSD autonomous driving software in China, notably by signing an agreement with Chinese internet giant Baidu.
- Apple has resumed talks with OpenAI, the creator of ChatGPT, about using the startup's generative artificial intelligence technology in new features to be rolled out on the iPhone later this year, Bloomberg reported Friday evening. Apple shares advanced 1.7% in pre-market trading.
- Alphabet - The group's main division, Google, announced on Friday its intention to invest three billion dollars in data centers in Indiana and Virginia, as the rise of artificial intelligence applications has increased demand for cloud computing.
- Paramount Global - The Redstone family and Skydance Media CEO David Ellison have both offered concessions to other investors in Paramount, which is in exclusive talks with Skydance Media while some shareholders want the group to explore other options, Bloomberg reported Sunday. Paramount shares gained 4.8% in premarket trading.
- Blackstone is to buy Hipgnosis Songs Fund, owner of the music rights to Shakira and Red Hot Chili Peppers, for around $1.57 billion, the private equity giant's bid having won out over that of rival Concord.
- Domino's Pizza advanced 4% in pre-market trading after reporting better-than-expected first-quarter like-for-like sales on Monday.
- American Airlines will make adjustments on certain routes in the second half of 2024 and the first quarter of 2025, due in particular to delays in delivery of the Boeing 787, the airline group announced on Friday evening.
- Exxon Mobil - Turkey is in talks with the US energy giant about a multi-billion-dollar deal to buy liquefied natural gas, which would enable it to reduce its dependence on Russian energy, the Financial Times reported on Sunday.
Analyst recommendations:
- Apple Inc.: Bernstein upgrades to outperform from market perform with a target price of USD 195.
- Alphabet Inc.: President Capital Management Corp maintains its buy recommendation and raises the target price from USD 172 to USD 193.
- AT&T Inc.: Barclays upgrades to overweight from equalweight with a target price of USD 20.
- Charter Communications, Inc.: Citigroup remains neutral recommendation with a price target reduced from USD 300 to USD 280.
- Equifax Inc.: Baptista Research upgrades to outperform from hold with a price target reduced from USD 289 to USD 267.30.
- Freeport-McMoRan Inc.: CICC upgrades to outperform from neutral with a price target raised from USD 39.20 to USD 54.50.
- Lululemon Athletica Inc.: Barclays downgrades to equalweight from overweight with a price target reduced from USD 546 to USD 395.
- Schlumberger Limited: Wells Fargo downgrades to equalweight from overweight with a price target reduced from USD 68 to USD 53.
- Tesla, Inc.: Phillip Securities downgrades to reduce from neutral with a price target reduced from USD 175 to USD 145.
- Ulta Beauty, Inc.: Barclays downgrades to equalweight from overweight with a price target reduced from USD 612 to USD 434.
- Verizon Communications: Baptista Research upgrades to outperform from hold with a price target raised from USD 44.80 to USD 45.50.
- Wells Fargo & Company: Phillip Securities downgrades to neutral from accumulate with a target price of USD 60.83.
- Las Vegas Sands Corp.: Baptista Research downgrades to buy from outperform with a price target reduced from USD 63.40 to USD 61.90.
- KLA Corporation: Berenberg maintains its buy recommendation and raises the target price from USD 690 to USD 835.
- Meta Platforms, Inc.: President Capital Management Corp maintains its buy recommendation and raises the target price from USD 385 to USD 518.
- Royal Caribbean Group: HSBC maintains its buy recommendation and raises the target price from USD 145 to USD 184.
- Spotify Technology S.A.: Baird maintains its outperform recommendation and raises the target price from USD 275 to USD 350.
- Targa Resources Corp.: Seaport Global maintains its buy recommendation and raises the target price from USD 95 to USD 129.
- PPG Industries, Inc.: Baptista Research upgrades to outperform from hold with a price target reduced from USD 158.40 to USD 157.60.
- JD Sports Fashion: Barclays downgrades to equalweight from overweight with a price target reduced from GBP 1.65 to GBP 1.40.
- Darktrace Plc: Stifel maintains its hold recommendation and raises the target price from GBX 410 to GBX 620.
- Hunting Plc: Canaccord Genuity maintains its buy recommendation and raises the target price from GBX 450 to GBX 600.
- Nutrien Ltd.: Berenberg upgrades to buy from hold with a price target raised from USD 60 to USD 66.