market wrap

Watch for:

Weekly Petroleum Status Report; Bank of Canada rate decisions; income from AT&T; Boeing; IBM; Tesla; Levi Strauss; CSX

Today’s Top Headlines/Must Reads:

– Congress on the Sidelines as the US Googles

— Tesla is poised for record quarterly earnings amid Wall Street discomfort

– Jittery investors turn to cash in search of yield

– Amazon caught in a wave of European strike action

– Rupert Murdoch withdraws proposal to merge Fox Corporation and News Corporation

– Joe Manchin to introduce bill to delay EV tax credits

Follow WSJ market coverage here

Opening Call:

Stocks were on track for a soft open on Tuesday after Microsoft’s demand warning weighed on sentiment.

As investors wait for next week’s Federal Reserve interest rate decision — and Fed officials stay quiet until then — the monetary policy vacuum allows for a sharper focus on the fourth-quarter corporate earnings season.

Index futures fell after Microsoft delivered better-than-expected data but warned of softening demand for cloud services amid an economic slowdown.

Shares of Amazon, Microsoft’s main rival in cloud services, were also set to open lower on Wednesday.

The Nasdaq is up 8.3% for the year as investors oversold some big cash-generating names due to a 2022 Fed-induced bear market.

Now, Microsoft’s comments may call tech bulls into question that rally.

“There has been a slight bias to risk-off sentiment over the past 24 hours, partly due to weaker-than-expected earnings releases that have added to growing concerns about a possible US recession,” Deutsche Bank said.

Microsoft’s results and forecasts are symptomatic of a decidedly mixed bag of earnings reports to date this season.

Stocks to watch

Canadian National Railway expects its 2023 earnings-per-share growth to be in the low single-digit range due to a softer economic outlook. Shares fell 3.7% in after-hours trading.

Intuitive Surgical shed 9.1% after it reported fourth-quarter adjusted earnings that missed Wall Street estimates and kept a handful of its flagship Da Vinci Surgical Systems during the period.

Microsoft shares fell 1.3 percent in the premarket after the software giant reported its slowest sales growth in more than six years.

Shares of News Corp. rose 4.5% premarket after Rupert Murdoch scrapped his attempt to merge the company with Fox.

Precigen said it has launched an underwritten public offering for approximately $75 million of its common stock. Shares fell 15% in after-hours trading.

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Stride reported revenue growth last quarter, strong enrollment, growth in revenue per enrollment and growth in adult education. It also raised its revenue outlook for fiscal 2023. Shares climbed 16% in after-hours trading.

Tesla shares fell 1.6% and, often, were the most traded on the S&P 500 before the bell.

Texas Instruments fell 1.6% after providing a revenue forecast for the March quarter that fell short of expectations.

other movers

ASML’s fourth-quarter net profit beat consensus, and it expects strong sales growth to continue in 2023 despite a challenging environment. Its U.S. depository receipts fell 0.8% premarket.

Foreign Currency:

ING said it offers cautious signs if market expectations continue to build “dovis” for the Fed’s February 1 meeting.

Markets expect the Fed to slow the pace of interest rate hikes to 25 basis points but are reluctant to fully price in another 25bp move, ING added. “This suggests the perceived balance of risk is tipped in favor of the dovish ahead of next week’s FOMC.”

If the story gains traction, the dollar could fall but investors are waiting for other event risks to pass, including decisions by the European Central Bank and the Bank of England next Thursday, ING said.

The US GDP data read could prove to be a big test for the dollar

The Bank of Canada may signal at Wednesday’s meeting about halting its interest rate hike cycle, but the Canadian dollar is unlikely to fall materially until such signals are clear, MUFG Bank said.

The BOC could raise rates by 25 basis points and reiterated that it will consider whether rates need to rise further but with a strong signal of confidence that inflation will ease toward its target, MUFG said.

“There must be enough ‘between the lines’ for markets to conclude a pause but perhaps we shouldn’t expect that view to be clearly articulated.”

The UK’s weak economic prospects and high inflation pose challenges for the Bank of England and could weigh on sterling, Commerzbank said.

The German bank is more pessimistic about the UK’s outlook than any other economy, Commerzbank said.

That means the BOE faces a tough choice between fighting high inflation and supporting the economy, it said. “It is hard to imagine that British central bankers will master these movements without damaging the GBP.”

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Energy:

Oil prices fell after the Chinese Lunar New Year holiday period as the market looked at the outlook for demand.

China’s reopening has been a bearish rather than a bullish move for oil in the very short term, Bank of America said.

A surge in Covid-19 cases has seen oil and coal stocks rise, holding oil prices back from rallying, the bank noted.

But in the second half of the year the bank believes “the reopening of the Chinese economy could lead to a huge wave of pent-up demand over the next 18 months.”

metal:

Metal prices were lower as investors looked away from risk assets on ongoing worries of a possible US recession.

Outlook

Base metals should enjoy another leg up as Chinese authorities “become more pragmatic” in managing the world’s second-largest economy, although the next phase could be closer to summer, Bank of America said.

A renewed focus on China’s growth has helped some metals prices reach their strongest January-to-date prices in years, defying a gloomy macroeconomic backdrop, BofA said.

Future gains are likely to come as physical demand picks up, it added.

While some analysts and investors expect Chinese iron ore demand to pick up materially after the Lunar New Year break, UBS analysts said they were cautious.

They “expect demand momentum to reopen to be modest due to continued weakness in China assets (more than 25% of demand) and iron ore prices to decline as inventories build.”

Steel material iron ore has recently been trading above $120/metric ton – a “high” level, UBS said – although market activity is currently slowing due to a holiday in China.

Demand appears weak, with China’s pig-iron output falling again in the first 10 days of January and China’s rebar still depressed, it added.

   
 
 
   
 
 

Today’s top headlines

 
 

Congress on the Sidelines as the US Googles

The Justice Department’s case against the Washington-Alphabet Inc. unit Google is trying to achieve in court what some in Congress have tried and failed to do: curb the power of America’s biggest technology companies.

Tech companies spent heavily last year to successfully block major technology legislation, and that winning streak is expected to continue as Washington transitions into two years of divided government.

   
 
 

Tesla is poised for record quarterly earnings amid Wall Street turmoil

Tesla Inc. It is poised to report record quarterly profits for the final three months of 2022 as Wall Street hungers for clarity on the company’s growth plans in light of apparent demand weakness.

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Elon Musk’s electric car maker is forecast to report fourth-quarter profit of about $3.8 billion, up about 62% from a year earlier, according to analysts surveyed by FactSet, even as vehicle-delivery growth slowed.

   
 
 

Tesla Eyes $3.6 Billion Factory Expansion

Tesla Inc. said it will spend more than $3.6 billion to expand its plant near Reno, Nev., where the electric-vehicle maker assembles batteries and produces EV car components.

The Elon Musk-led automaker said its investment plans will expand its lithium-ion battery and electric-vehicle-components facilities there and employ 3,000 more workers.

   
 
 

Microsoft’s Outlook and Team Down for thousands of users

Microsoft Corp. said it was investigating reports of outages in its services, including Teams and Outlook, with thousands of users worldwide reporting that the products were down.

The company said in a tweet that it has identified a potential networking issue and is working on the next steps to resolve the issue.

   
 
 

Amazon caught in a wave of European strike action

Amazon.com Inc workers in Britain went on strike for the first time on Wednesday, dragging the e-commerce giant into a wave of labor unrest sweeping Britain and other European economies.

Amazon said the industrial action at its warehouse in Coventry, central England, would have little impact on its overall operations, but the strike could further disrupt the company’s most important overseas markets. Union leaders have vowed to extend the strike to other Amazon facilities in the UK over pay.

   
 
 

Rupert Murdoch withdraws proposal to merge Fox Corporation and News Corporation

Rupert Murdoch has halted his attempt to merge the two parts of his media empire, News Corp. and Fox Corp., saying the transaction is “not optimal” for the company’s shareholders at this time.

Mr Murdoch proposed a reunion for News Corp and Fox last autumn, nearly a decade after they parted ways. In a statement on Tuesday, the boards of the two companies said they had received letters from Mr Murdoch withdrawing the offer.

   
 
 

Jittery investors turn to cash in search of yield

The dash for cash on Wall Street is back.

(More to follow) Dow Jones Newswire

January 25, 2023 06:20 ET (11:20 GMT)

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