Earnings reports continue to flood markets. Results from Toyota, NXP Semiconductors and Palantir, released yesterday, were very well received by investors. Today, healthcare groups are under the spotlight, including Eli Lilly, the world's largest capitalization in the sector, as well as Amgen and Gilead.

Eli Lilly forecast 2024 earnings ahead of Wall Street estimates, thanks to demand and increased production capacity for its weight loss drug Zepbound and diabetes drug Mounjaro. The stock gained 2.3% before the opening.

The Nasdaq and S&P500 lost a little ground yesterday, after a rather buoyant end to the previous week, while futures are muted in premarket trading this morning. It's a small price to pay for Jerome Powell's clarification on the timing of interest rate cuts. The Fed head said that easing would come later than expected, which means not in March or May, but rather in June or July. Traders are now giving a 65% chance that we'll have at least a 25-basis-point rate cut in May, down from around 90% over a week ago, according to the CME FedWatch Tool.

But investors are pleased because Powell did say that rate cuts are on the way, and that's good enough for them as long as it's not in two years time. All the more so as, at the same time, US economic data showed that the economy is doing well. Yesterday, the ISM services index clearly exceeded expectations, with strong activity and prices rising at a pace not seen since February 2023. However, it did worry investors that inflation was too resilient. On Friday, it was the strength of the job market that surprised investors. The dynamism of the US economy is also what is preventing the Fed from cutting rates as quickly as the market hopes. Staying with the central bank theme, Australia's RBA kept its main policy rate unchanged at 4.35%, while emphasizing that further rate hikes cannot be ruled out.

Today, the focus of investors is also on China, which is scrambling to save its financial markets. Why is Beijing spending its time plugging the holes in its financial sector instead of proposing a vast plan to revive its entire lagging economy? I've been pondering this question for a while now, but I keep coming back to the same answer: because the situation in China's financial sector is such a mess, it needs to be dealt with first.

How bad is it? Well, Xi Jinping himself today summoned the market's regulatory authorities to tackle the problem. The fact that he is coming to the market's bedside has sent indices tumbling in Hong Kong and Shanghai. Shortly before, new band-aids had been slapped on to stop the bleeding, including a further turn of the screw to rein in quantitative fund positions, increased sovereign wealth fund investment in ETFs and a vigorous plea for share buybacks by listed companies. They follow a litany of initiatives that have failed to stabilize the edifice: partial ban on short-selling, quality control of IPOs, reinforcement of the means to combat market manipulation, easing of the conditions for aid to property developers via interest rate policy, and so on.

So far, it's been a case of a sword in the water. Will February 2024 be the month of the low point and the Chinese revival? All those who have predicted a turnaround over the last five years have been proven wrong, but someone will be right in the end. 

In Asia Pacific, the Hang Seng and CSI300 gained over 3% at the end of the day, thanks to the Chinese announcements. Japan, Australia and South Korea were down by around 0.6%. India managed to gain 0.3%. European leading indicators are bullish. The French CAC40 is up 0.4%, the UK’s FTSE rose 0.7% and the Euro Stoxx 600 advanced 0.3%. Futures on the Nasdaq 100 are up 0.2%, while S&P 500 and Dow Jones Futures are hovering around zero.

Economic highlights of the day:

The dollar is flat against the euro at EUR 0.9316 and is down 0.3% against the pound to 0.7956. The ounce of gold loses ground to USD 2025. Oil stabilizes, with North Sea Brent at USD 78.44 a barrel and US light crude WTI at USD 73.23. The yield on 10-year US debt falls to 4.13%. Bitcoin trades at USD 42,800.

In corporate news:

  • Alphabet announced on Monday that it was seeking outside investors for its GFiber broadband Internet division, which competes with other services providers, in order to expand its offering into new US cities. Meanwhile, Alphabet subsidiary Google on Tuesday warned against spyware companies and called for stricter regulations in this area.
  • Centene beat Wall Street estimates for fourth-quarter sales on Tuesday, thanks to higher premiums in its commercial insurance business.
  • Dupont de Nemours beat Wall Street estimates for fourth-quarter earnings on Tuesday, as the chemicals manufacturer benefited from cost-cutting measures. The stock gained 2.1% before the opening.
  • Palantir Technologies announced Monday evening that it expects earnings this year to beat Wall Street expectations, thanks to strong demand for its artificial intelligence (AI)-based offerings. In addition, Jefferies upgraded Palantir from "underperform" to "hold". The stock climbed nearly 19% in pre-market trading. NVIDIA, a stock linked to the AI sector, took 1.5% in the group's wake before the opening.
  • Willis Towers Watson reported better-than-consensus quarterly earnings on Tuesday, thanks to strong performances in its risk and brokerage businesses.
  • KKR said Tuesday that its fourth-quarter distributable earnings were up 4%, thanks to strong growth in revenues from asset sales as well as management and transaction fees.
  • General Motors will recall 323,232 vehicles to resolve a tailgate problem, the U.S. National Highway Traffic Safety Administration said Tuesday.
  • TSMC said Tuesday it would build a second plant in Japan, scheduled to come on stream by the end of 2027, bringing its total investment in the archipelago to over $20 billion.
  • Virgin Galactic Holdings - The space tourism company announced on Monday that it had informed the Federal Aviation Administration (FAA) of a non-safety-related part detachment during a flight of the VMS Eve on the "Galactic 06" mission.
  • FMC Corp falls 14% in premarket trading after the agricultural products specialist reports lower-than-expected quarterly earnings and weak forecasts for 2024.

Analyst recommendations:

  • Bristol-Myers Squibb Company: Redburn Atlantic downgrades to neutral from buy with a target price of USD 77.
  • Chevron Corporation: DZ Bank AG Research downgrades to hold from buy with a price target reduced from USD 170 to USD 160.
  • Mcdonald's Corporation: BTIG downgrades to neutral from buy.
  • On Semiconductor Corporation: Fubon Securities downgrades to neutral from buy with a price target raised from USD 80 to USD 85.
  • Caterpillar Inc.: Daiwa Securities maintains a neutral recommendation with a price target raised from USD 240 to USD 340. Goldman Sachs maintains its buy recommendation and raises the target price from USD 274 to USD 357.
  • Estee Lauder: Berenberg maintains its hold recommendation with a price target raised from 118 to USD 152. Morgan Stanley maintains its overweight rating and raises the target price from USD 134 to USD 164. Evercore ISI maintains its outperform rating and raises the target price from USD 145 to USD 180.
  • Humana Inc.: Bernstein maintains its market perform recommendation and reduces the target price from USD 531 to USD 420.
  • Meta Platforms, Inc.: DZ Bank AG Research maintains its buy recommendation and raises the target price from USD 375 to USD 550.
  • Palantir Technologies Inc.: Citi downgrades to neutral from sell with a price target raised from USD 10 to USD 20. Morgan Stanley maintains its underweight rating and raises the target price from USD 9 to USD 12. Jefferies upgrades to hold from underperform with a price target raised from USD 13 to USD 22. Deutsche Bank maintains its sell recommendation and raises the target price from USD 12 to USD 18. Wolfe Research maintains its underperform recommendation and raises the target price from USD 11 to USD 14.
  • Tesla, Inc.: Daiwa Securities downgrades to neutral from outperform with a price target reduced from USD 245 to USD 195.
  • Uber Technologies, Inc.: JMP Securities maintains its market outperform recommendation and raises the target price from USD 62 to USD 75.
  • W.w. Grainger, Inc.: Stephens maintains its equalweight recommendation and raises the target price from USD 775 to USD 1000.
  • Entain Plc: Barclays downgrades to equalweight from overweight with a price target reduced from GBP 11.20 to GBP 10.70.
  • J Sainsbury Plc: HSBC upgrades to buy from hold with a price target raised from GBP 3 to GBP 3.10.
  • Vodafone Group Plc: Oddo BHF downgrades to neutral from outperform with a price target reduced from GBP 0.85 to GBP 0.74. DZ Bank AG Research downgrades to hold from sell with a price target raised from GBP 0.65 to GBP 0.70.
  • Diversified Energy Company Plc: Dowgate Capital maintains its buy recommendation and raises the target price from GBX 160 to GBX 2600.