Latest Services Economy Data Send Mixed Global Message
Also, Qualcomm makes inroads in chips for the automotive market and the S&P 500 adds two new members while ditching two others.
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* August Services PMIs show Japan and China growing, eurozone and UK still contracting
* China expected to launch a $40 billion state-backed fund for chips
*Qualcomm makes auto noise, but smartphones are still its key driver near term
*Grain prices likely to move higher on Russian news, Deere shares poised to move higher
*Airbnb, Blackstone in the S&P 500, Newell Brands and Lincoln National. Are out
We have an abbreviated trading week that hits the ground running with final Services PMIs for the four economic horsemen - Japan, China, the eurozone and the US. Those reports will bring renewed questions about the global economy and inflation. The data for the US will be published tomorrow, but the reports here on Tuesday show Japan's and China's Services economy still are growing, while those for the eurozone and UK continued to contract during August. When we get the US data we will size it up against last week's softer-than-expected August Employment Report, which also showed some progress on wage pressure and dialed back rate hike expectations. We will also be digging into the array of Fed speakers this week and the latest Fed Beige Book.
Getting back to China, reports indicate the country is set to launch a new state-backed investment fund that aims to raise about $40 billion for its semiconductor sector, including equipment for chip manufacturing. We've seen similar programs in the past and there is little question this latest one is in response to geopolitical tensions, including those with Taiwan, as well as chip re-shoring activities not only in the US but also in the eurozone and Japan. Details in the formal announcement will give us a better sense if this action benefits our shares of Applied Materials AMAT . In response to the news, however, chip stocks are trading lower.
Qualcomm, Mercedes and BMW
Qualcomm QCOM shared it will supply chips to power in-car infotainment systems to luxury automakers Mercedes MBGYY and BMW BMWYY . During an interview at the Munich auto show, Qualcomm CEO Cristiano Amon shared the company expects to have $4 billion in revenue from the automotive sector by 2026, rising to $9 billion by the end of the decade. We recognized this longer-term opportunity for Qualcomm when we added the shares to the portfolio. However, in the near term, the smartphone business will continue to be the main driver of revenue and profits. The next catalyst for the shares will be Taiwan Semiconductor's TSM August revenue report, which should be published later this week. We will also be mining end-market comments from the rash of investor conferences this week, including Goldman's Communacopia Technology Conference.
Russia, Grain and Deere
President Vladimir Putin said Russia won't rejoin a deal enabling Ukrainian grain to be shipped globally until the West meets its demands to facilitate Russian agricultural exports. Odds are this move will drive grain prices higher as we approach the harvest season, something that should give some additional lift to our shares of Deere DE .
Changes to the S&P 500
Airbnb ABNB and Blackstone BX will join the S&P 500 before the start of trading on Monday, Sept. 18. Airbnb is replacing Newell Brands NWL , which will head to the SmallCap 600, and Blackstone will be replacing Lincoln National LNC , also headed to the SmallCap 600.
These adjustments happen periodically, and we will revisit their impact on expected S&P 500 earnings for 2023 and 2024 when this latest one is complete. Odds are it won't have a meaningful impact on current consensus forecasts, which have been modestly revised lower for the second half of 2023. We discussed that in last week's Roundup.
At the time of publication, Action Alerts PLUS was long AMAT, DE and QCOM.