Tesla earnings, HSBC break up, jobless claims - what's moving markets

By Peter Nurse 

Investing.com -- Tesla has disappointed with its first-quarter earnings as the EV manufacturer put growth above profits, while HSBC’s management tries to keep the bank together. More earnings are due, while crude slumps on fears of a U.S. economic slowdown.

1. Tesla puts sales growth ahead of profit

Tesla (NASDAQ:TSLA) reported its first-quarter earnings after the close Wednesday, and the electric vehicle manufacturer missed Wall Street estimates, posting its lowest quarterly gross margin in two years, hurt by price cuts.

CEO Elon Musk made it clear in the accompanying conference call that the price war he started at the end of last year would continue, as the company prioritizes sales growth ahead of profit in a weak economy.

"It's better to shift a large number of cars at lower margin and harvest that margin in the future as we perfect autonomy," Musk said. 

The company reported a total gross margin of 19.3%, short of market expectations of 22.4%, and maintained its official target of 1.8 million deliveries this year.

Tesla has cut prices worldwide on its EVs, including in the U.S. where it recently announced price reductions for the sixth time this year. And the cuts have been dramatic, with the base price of Model 3 falling below $40,000 in the U.S. for the first time in years, a drop of around $7,000 from the start of the year.

Tesla stock slumped over 7% in premarket trading.

2. Earnings continue to flood in

The earnings deluge continues Thursday, with just over a tenth of companies in the S&P 500 having reported earnings as of Wednesday evening.

Telecom giant AT&T (NYSE:T), financial services firm American Express (NYSE:AXP), carrier Alaska Air (NYSE:ALK) and private investment firm Blackstone Group (NYSE:BX) are among the companies scheduled to release results Thursday.

Additionally, IBM (NYSE:IBM) stock rose 2% premarket after Big Blue beat expectations for first-quarter profit after the close Wednesday and signaled demand for IT services was better than feared.

Taiwan Semiconductor Manufacturing (NYSE:TSM) reported a slightly stronger-than-expected net income in the first quarter as some resilience in global chip demand helped fuel stronger sales, while Nokia (NYSE:NOK) reported operating profit below forecasts for the first quarter and the telecom equipment maker said it was seeing signs of customer spending slowing down.

3. Futures lower; slowdown concerns to the fore

U.S. futures traded sharply lower Thursday, as investors digest a series of corporate earnings ahead of the release of more important economic data amid fears of a slowdown.

At 05:05 ET (09:05 GMT), the Dow futures contract dropped 165 points or 0.5%, S&P 500 futures fell 32 points or 0.8%, and Nasdaq 100 futures retreated 155 points or 1.2%.

Earnings reports have been mixed so far, however, it’s clear that results from the S&P 500-listed companies are going to be weaker than the year-ago period. This plays into the narrative that the U.S. economy could fall into recession later in the year.

There is more economic data to study Thursday in the form of jobless claims and existing home sales, while Federal Reserve Governor Christopher Waller, Atlanta Fed President Raphael Bostic and Cleveland Fed President Loretta Mester are among central bank speakers slated to comment on the state of the U.S. economy.

4. HSBC tries to head off break-up talk

HSBC’s (LON:HSBA) (NYSE:HSBC) management team is under pressure to justify its business model, after a major shareholder renewed its call for a break up of the Asia-focused bank earlier in the week.

Ping An Asset Management Company said in a statement HSBC has "drained" its Asia unit of dividends and growth capital to support its relatively low-return non-Asian businesses. 

The biggest shareholder is seen as likely to vote in favor of splitting the bank up at its annual investor meeting in early May 5.

HSBC responded late Wednesday, saying, in a note, that spinning off the Asian business “would result in material loss of value for HSBC shareholders.” 

With an around 8% stake in HSBC, Ping An would not be able to force the issue on its own, and the lender did report a sharp jump in its fourth-quarter profit last month after years of transformation and cost-cutting.

That said, it’s clear that the management of one of Europe’s largest banks is under notice that continued success is required.

5. Oil prices fall to lowest since OPEC+

Crude prices slumped Thursday, extending recent losses on concerns a stalling U.S. economy will hit crude demand from the world’s largest consumer of energy.

By 05:10 ET, U.S. crude futures were down 1.9% at $77.77 a barrel, while the Brent contract fell 1.7% to $81.68 per barrel.

Both benchmarks fell around 2% on Wednesday, and are now at their lowest since OPEC+ announced its surprise production cut on April 2.

The Fed’s Beige Book, a periodic look at conditions in its regional districts, suggested that the U.S. economy stalled in recent weeks, with hiring and inflation slowing and access to credit narrowing, adding to concerns that the economy is slipping into recession.

These fears outweighed the news that U.S. crude stockpiles fell by 4.6 million barrels last week, according to data released Wednesday by the U.S. Energy Information Administration.