Industrials:
BASF, the German chemical giant, reported mixed third-quarter results, highlighting challenges in the automotive and agricultural sectors that have affected earnings. The company’s EBITDA rose by 5% to €1.62 billion, but this was below analysts' expectations of €1.67 billion. Sales slightly increased to €15.74 billion, surpassing the forecast of €15.48 billion, yet the automotive sector's weakness weighed heavily on performance, particularly in the surface-tech segment, which experienced a significant 19% decline in sales. BASF expects to only reach the low end of its profit guidance for the year, anticipating EBITDA between €8.0 billion and €8.6 billion, largely due to the ongoing slowdown in car demand impacting broader supply chains.
Despite these headwinds, BASF has achieved its cost-savings target of €800 million by the end of September and is on track to realize more than €2.1 billion in annual reductions by 2026. The company’s resilience in its core business is commendable, as sales grew in Europe and North America, even as declines were noted in other regions, particularly due to slower demand in China. However, the reliance on core business segments to drive results amid sector challenges underscores the need for adaptive strategies. As BASF navigates these market dynamics, its proactive focus on operational efficiency will be critical to mitigating risks and leveraging growth opportunities in the future.
Energy:
Over the past few weeks, big tech companies, including Google, Amazon, and Oracle, have made huge investments in small modular nuclear reactors (SMRs) to meet the rising energy demands of their data centers. SMRs, which are factory-built and under 350 MW, promise faster, cheaper, and potentially safer nuclear energy solutions. SMRs offer innovative safety features, such as passive cooling systems and advanced fuel designs, and can reduce costs over time through standardized manufacturing. With Google partnering with Kairos Power and Amazon collaborating with X-energy, these companies expect SMR projects to launch in the 2030s. However, challenges remain, including high initial costs, regulatory hurdles, and the need to establish HALEU fuel supply chains in the U.S.
In other news, California is suing Exxon Mobil, claiming it misled the public by promoting plastic recycling while most waste ends up as fuel, not new plastic. Exxon argues the suit is politically motivated and says restricting recycling investments could increase landfill waste. With differing definitions of recycling, the case spotlights ongoing debates over advanced recycling's impact and effectiveness.
Lastly, oil prices dropped sharply after Israeli strikes on Iran avoided energy infrastructure, reducing fears of a broader conflict impacting supply. U.S. crude futures fell over 6%, reaching some of the year’s lowest levels. The decline affected stocks across the energy sector, while major indexes gained. Investors now shift focus to forecasts of limited demand growth, with OPEC and allies reconsidering production increases. Analysts say this dip likely means lower gas prices at the pump through Election Day.
Healthcare:
Hurricane Helene has disrupted Baxter International’s production of intravenous fluids (IVs), leading to shortages. The storm damaged Baxter’s North Carolina plant and surrounding infrastructure, making it difficult for them to resume operations. They aim to restore production in phases by the end of the year while importing supplies from other global sites. Currently, Baxter is supplying 60% of normal shipments and expects to increase this to 90-100% by the end of the year. Hospitals are conserving IV fluids by delaying elective surgeries and using alternative hydration methods. Other manufacturers are increasing production to help mitigate the shortage, highlighting the fragility of the medical supply chain.
FIG:
Banks: Trillions Stashed, Profits Splashed, and Rate Cuts Smashed:
Earnings season began on a high note as JPMorgan, Wells Fargo, BlackRock, and BNY beat expectations despite Fed rate cut concerns. JPMorgan’s profits dipped but were in line with guidance, bolstered by strong investment banking fees. Wells Fargo’s profits rose 9% from last quarter, BlackRock saw record inflows, and BNY became the first bank to exceed $50 trillion in assets under custody.
Breaking Bad x TD:
TD Bank’s U.S. branch pleaded guilty to laundering over $670 million for criminal networks, including drug cartels, from 2019 to 2023. The Justice Department criticized its failure to monitor 92% of transactions, fining TD $3.55 billion and capping its U.S. asset growth, potentially stalling its expansion.
Banking Deserts Get a Splash of Chase Oasis:
JPMorgan Chase is opening nearly 100 branches in underserved U.S. communities to combat “banking deserts” and meet Community Reinvestment Act goals. A successful Harlem branch saw a 73% rise in savings, proving the model works. CEO Jamie Dimon insists, “This is business,” as Chase and rivals like Bank of America find that physical branches boost customer engagement in ways apps can’t.
Consumer:
In October 2024, Amazon announced the expansion of its grocery delivery service, Amazon Fresh, into over 100 new cities across the United States. It's in response to an expanded consumer demand for convenience in shopping, which was especially driven by the pandemic. It would give the company a serious competitive advantage over its rivals, like Walmart and Instacart, for the fast-growing market. Infrastructure investments are huge in new fulfillment centers and partnerships with local grocery stores that will further guarantee quicker delivery times and an enlarged selection of the freshest produce. In this light, Amazon's further expansion reflects a more strategic direction to appeal to the evolving preferences of today's shoppers, focused on convenience and speed as more consumers head towards online shopping for their grocery needs.
Macro:
Inflation has been steadily decreasing over the past two years, with September’s year-over-year PCE rate (the Fed's preferred inflation metric) hitting 2.1 percent, nearly reaching the Federal Reserve's 2 percent target. This is its lowest reading since February 2021. However, underlying “core” inflation—which excludes volatile food and fuel costs—remained at 2.7 percent, showing some persistence. This slight stickiness may prevent the Fed from fully ending its anti-inflation measures, though it is widely expected to cut rates by a quarter point soon. Consumer confidence and wages have risen in recent months, evidenced by the fact that Real disposable personal income per capita rose again in September, its 27th straight monthly rise is the longest streak on record. The U.S. nears the 2024 Presidential Election, held on Tuesday.
TMT:
The TMT sector is experiencing a significant surge in private equity-backed M&A activity, leading the way in a broader resurgence of dealmaking. In Q3 2024, private equity firms invested a substantial $52 billion in TMT deals, highlighting the sector's attractiveness to investors. This surge is part of a larger trend, with global private equity and venture capital entries totaling $161 billion in Q3, up 27% from the same period in 2023.
A standout transaction in the TMT space is Blackstone's planned $16.1 billion acquisition of AirTrunk Operating Pty Ltd, a data center operator. This deal underscores the growing interest in digital infrastructure assets among private equity firms. The increased activity in TMT is likely driven by factors such as the ongoing digital transformation across industries and the potential for technological innovations to drive value creation.
The uptick is occurring against a backdrop of falling interest rates, which is expected to further stimulate M&A activity. As private equity firms continue to raise substantial funds, with examples like Forbion Capital Partners BV raising €2.09 billion and Blackfin Capital Partners SAS securing €1.8 billion, the TMT sector is poised to remain a prime target for investments. This trend suggests that technology-driven companies and assets will continue to attract significant private equity interest in the coming months.
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