Mixed earnings, hawkish Fed, growing pressure on Truss and USD/JPY

Equities give back early-week gains on hawkish Fed talk, and mixed earnings. Netflix soared 13% yesterday, but Tesla lost more than 6% after the bell, after announcing a slight revenue miss in Q3. The UK’s political turmoil gets worse by the day, and the dollar-yen tests the 150 level amid mounting expectation of a Bank of Japan (BoJ) intervention. 

Overall 

The market mood was rather bearish yesterday, as the major US indices gave back a part of the early week gains. The S&P500 slid 0.67%, Nasdaq gave back 0.85%, and the Dow Jones eased 0.33%.  

One of the biggest gainers was Netflix which jumped 13% to meet its 200-DMA for the first time since January, while other FANG stocks, or MAMAA stocks, including Microsoft, did poorly on hawkish Fed expectations, as Minneapolis Fed President Kashkari said that the Fed could push the interest rates beyond 4.75% if inflation doesn’t stop rising. The US 2-year yield rallied above 4.50%, as the US dollar strengthened across the board.  

Mixed earnings, mixed sentiment

Mixed earnings didn’t really help improve sentiment.  

Procter & Gamble did better than the earnings and revenue expectations, but said that the sales for the fiscal year 2023 could fall between 1 to 3%.  

Nestle reported its strongest 9-month sales growth in 14 years, mostly driven by higher prices to offset rising costs, and raised its full-year guidance. But the latter could hardly give a boost to the share price, which fell around 1.30% yesterday. 

IBM also did better than analyst expectations, and boosted its full year profit forecast, and the stock lost 0.35%.  

Tesla announced a better-than-expected earnings per share, but slightly missed on revenue expectations. The company said that the rising raw material prices and inefficiencies in the Berlin factory, combined to the strong US dollar weighed on results. And Tesla missing revenue expectations is not good for the stock price, as any misstep has the power of sending the share price aggressively lower. Tesla shares slipped more than 6% in the afterhours trading. That means that Tesla will be testing a critical support approaching the $200 support again, and could break it, if the market mood remains bearish.  

Philip Morris and Dow are due to announce earnings today, American Express and Barclay on Friday. 

Oil rebounds 

The barrel of American crude rebounded yesterday, after falling toward $82 earlier this week. With the recession fears already priced in, and with the US having played its ‘strategic oil reserve’ card, there is not much left to pull the price of a barrel below the $80/82 range. 

Still, offers are expected to come in play above the 50-DMA, which stands around $87 per barrel  

Dear, oh dear

Liz Truss is really in a hot seat, as the chaos among the Tories got worse yesterday, after Home Secretary Braverman got fired for sharing confidential information.  

It is said that many Conservative Party members want Truss to resign immediately.  

Cable continued falling, while the gilt yields eased - more on the long-end of the curve as the Bank of England (BoE) said it will not be selling that part of the curve. But the Financial Times said that the UK is now paying extra money to borrow due to the ‘moron risk’, as the British leaders are a ‘few sandwiches short of a tea party’.  

Elsewhere, the EURUSD remains sold below the 50-DMA and the Japanese yen continues diving against the US dollar. The dollar-yen is now testing the 150 resistance. There is, of course, a mounting speculation that the Bank of Japan (BoJ) could intervene directly at any moment, which would clean some speculative positions, but the medium run outlook remains bearish for the yen, as the growing divergence between the increasingly hawkish Fed expectations, and the soft BoJ  hints that the BoJ may not stop bleeding in the yen unless it hints of adjustment in rate policy. Some analysts see the dollar-yen advance toward 160 level.  

Meanwhile, Turkey is expected to cut its policy rate by another 100bp to 11%, which would push the Turkish inflation-adjusted rate down to -71.5%. But tell that to Mr. Erdogan!