By Geoffrey Smith
Investing.com -- Netflix (NASDAQ:NFLX) stock lost a quarter of its value after the company announced a shock drop in subscribers in the first quarter and warned that the current quarter will be much worse. The news makes an 'interesting' backdrop for Tesla (NASDAQ:TSLA) earnings after the bell. Private equity companies have reportedly cooled on the idea of supporting Elon Musk's bid for Twitter (NYSE:TWTR). Inflation stops the Chinese central bank from cutting its key rate, while German producer prices rose at an eye-watering pace in March, putting a July rate hike by the ECB back on the table. Oil prices are higher after a surprisingly large draw on U.S. inventories. Here's what you need to know in financial markets on Wednesday, 20th April.
1. Netflix earnings shock, Series 2
Netflix stock is set to crater again when it opens later, after the streaming giant said it expects to lose 2 million net subscribers in the current quarter, after reporting a shock 200,000 drop in the last three months.
It’s the second quarter in a row that the former market darling has caused a 20%+ drop in its share price with its quarterly results and reflects increasing saturation and competition in the global streaming market, as well as increased pressure on household budgets due to inflation. Netflix stock was down 26% in premarket trading at what would be its lowest level since September 2019.
CEO Reed Hastings said he’s looking at launching a version of the service at least partially supported by advertising, a major break with the company’s business model so far.
2 Tesla expected to report quarterly drop in earnings, revenue; PE cools on Musk's Twitter bid
The collapse in Netflix raises the stakes for tonight’s big earnings update from Tesla which, like its streaming peer, has for most of its existence enjoyed a sky-high valuation underpinned by forecasts of limitless growth and ultra-cheap capital.
Analysts expect Tesla’s earnings to have fallen to $2.36 a share from $2.54 in the previous quarter, albeit that would still be more than double the 93c posted a year ago. Revenue is expected to have edged down on the quarter to $17.63 billion.
Arguably more important will be what CEO Elon Musk has to say about the impact of Covid-19 lockdowns in Shanghai, which kept its plant there shut for three weeks. The factory reopened on Tuesday.
In parallel developments, various news reports suggested that private equity giants including Blackstone (NYSE:BX) had rejected the idea of co-financing Musk’s bid for Twitter, as Musk hinted at a new tender offer for the company.
3. Stocks set to open mixed ahead of more earnings; mortgage data, home sales eyed
U.S. stock markets are set to open mixed later, with the Netflix results having once again shaken confidence in the growth narrative that underpins most of the technology sector. That shock was only partly mitigated by surprisingly strong revenue growth at IBM (NYSE:IBM), a report that was lost in the Netflix noise late on Tuesday.
By 6:15 AM ET (1015 GMT), Dow Jones futures were up 64 points, or 0.2%, while S&P 500 futures were up less than 0.1% and Nasdaq 100 futures were down by less than 0.1%. All three cash indices had made solid gains on Tuesday, especially the tech-heavy Nasdaq, which rose 2.2%.
Early earnings reports include consumer giant Procter & Gamble (NYSE:PG), Abbott Labs (NYSE:ABT) and Anthem (NYSE:ANTM), while CSX (NASDAQ:CSX), Equifax (NYSE:EFX) and Kinder Morgan (NYSE:KMI) report after the bell.
Elsewhere, weekly data for mortgage applications and rates will be of interest at 7 AM ET, while existing home sales for March are due at 10 AM ET. Chicago Federal Reserve President Charles Evans will speak at the same time, while San Francisco’s Mary Daly speaks at 10:30 AM ET.
4. China refuses to cut; ECB rate hawks squawk as inflation rages
The Chinese central bank disappointed local financial markets, leaving its prime loan rate unchanged at its regular policy meeting instead of cutting it as many had expected.
There had already been signs that the degree of actual policy support from the PBoC might not live up to the barrage of rhetoric from the authorities over the last two weeks. The PBoC had on Friday only cut its reserve ratio requirement, a key quantitative tool for steering the money supply, by 25 basis points instead of the 50 expected. On the brighter side, the end of Shanghai's lockdown moved into sight as more districts were reported free of new cases.
In Europe meanwhile, the (not very influential) Latvian National Bank Governor Martins Kazaks put the possibility of a July rate hike from the ECB back on the table, only days after President Christine Lagarde had played down the likelihood, citing the risks to the economy from the war in Ukraine. German producer prices continued to rage higher, gaining 4.9% in March alone to be up 30.9% on the year.
5. Oil rises on API inventory drop; EIA numbers due
Crude oil prices pushed further above $100 a barrel after the American Petroleum Institute’s weekly inventories report showed U.S. crude stockpiles fell by nearly 4.5 million barrels last week, reversing most of the previous week’s rise.
The U.S. government’s data are due at 10:30 AM ET, as usual.
By 6:30 AM ET, U.S. crude futures were up 0.9% at $102.96 a barrel, while Brent futures were up 0.8% at $108.11 a barrel.
Elsewhere in commodities, there were fresh reminders of the potential for local cost-of-living crises to disrupt global supplies, as some 20% of Peru’s copper output was taken offline by protesting miners.