Netflix Cheers, Tesla Earnings Due, Putin's Promise - What's Moving Markets

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Netflix Cheers, Tesla Earnings Due, Putin's Promise - What's Moving Markets

By Geoffrey Smith -- Netflix's better-than-feared earnings allow stocks to extend their gains after Tuesday's leap. Tesla's earnings after the bell may show how much momentum the bear-market rally has. Vladimir Putin says Russia will keep pumping gas to Europe, but prices rise nonetheless. Italian stocks and bonds gain as Mario Draghi says he's willing to stay on as Prime Minister, although the threat to quit is still there if you read between the lines of his speech to the Senate earlier. And the U.S. housing market data drip continues with weekly mortgage applications and what's likely to be a fifth straight drop in existing home sales. Here's what you need to know in financial markets on Wednesday, 20th July.

1. Netflix offers relief

Netflix (NASDAQ: NFLX ) stock jumped 7% in premarket trading after predicting a return to subscriber growth in the current quarter.

The streaming giant reported a second straight quarterly drop in subscriber numbers in the second quarter, as increased competition and a customer revolt at two price hikes within seven months drove cancellations in North America in particular. It’s trying to keep subscription costs down by introducing a cheaper version, in partnership with Microsoft (NASDAQ: MSFT ), that will feature advertising.

However, the bleed wasn’t anywhere near as bad as feared, and the stock’s reaction contrasts sharply with the 20%+ dumps that have followed its last two reports. Having been a prime example of the exaggerated valuation of tech/growth stocks for a decade, the company now trades at an almost cheap-looking 16 times trailing earnings.

2. Tesla earnings to show impact of Chinese lockdowns

On the subject of inflated valuations – Tesla (NASDAQ: TSLA ) reports its quarterly earnings after the bell and will need to come clean about the impact of the shutdown of its Shanghai plant, as well as provide more detail about its Austin and Berlin plants, where CEO Elon Musk has complained of high ramp-up costs.

Analysts predict a 38% rise in revenue to $16.52 billion, a little behind the 50%+ growth that Musk is targeting this year, while earnings per share are seen rising 28% to $1.86 a share. Margins will be under a particularly harsh spotlight after a surge in prices for battery metals over the last six months.

Other companies to report Wednesday include chip lithographer ASML (AS: ASML ), which halved its sales growth forecast to only 10% for the year. Abbott Labs (NYSE: ABT ) and Biogen (NASDAQ: BIIB ) are the top reports from life sciences, while Kinder Morgan (NYSE: KMI ) and CSX (NASDAQ: CSX ) will provide insight into the oil transportation market. Baker Hughes (NASDAQ: BKR ) and United Airlines (NASDAQ: UAL ) will offer two sides of the rising oil price narrative.

3. Stocks set to extend gains; existing home sales and mortgage applications due

U.S. stock markets are set to extend their gains at the open, after notching their biggest one-day rise in three months on Tuesday. The rally took hold as the still-unfolding earnings season suggested that enough bad news has been priced into the profit outlook for now.

By 6:20 AM ET, Dow Jones futures were up a relatively modest 42 points, or 0.1%, after a 754-point gain on Tuesday for the DJIA cash index. The S&P 500 futures contract was up 0.1% and Nasdaq 100 futures were up 0.3%.

The economic data calendar is relatively light, although the steady stream of housing sector data continues with weekly numbers on mortgage applications and rates at 7 AM ET and existing home sales data for June set for a fifth straight monthly drop at 10 AM ET.

In other news, Cathie Wood closed her ARK Transparency ETF (NYSE: CTRU ) – her first fund closure since she opened ARK in 2014. Her flagship ARK Innovation ETF (NYSE: ARKK ) has shown signs of bottoming out recently after losing over two-thirds of its value from its 2021 peak.

4. Italian markets cheer as Draghi softens threat of early elections

Italian bonds celebrated as Prime Minister Mario Draghi removed the threat of early elections – for the time being at least.

Draghi told the Italian Senate he’s willing to carry on as Prime Minister, pointing to continued high levels of support both from the population and officialdom. While he appealed to the populist 5 Stars Movement to rejoin the coalition and expressed his own readiness to renew the coalition agreement, he didn’t explicitly drop his threat to quit if it doesn’t play ball.

Italian 10-year yields fell as much as 14 basis points before retracing a little, while the FTSE MIB eked out a gain of 0.2%.

5. Putin says Russia will continue to ship gas after Nord Stream maintenance - but there's a catch

President Vladimir Putin indicated that Russia will resume some gas flows through the Nord Stream pipeline at the end of its scheduled maintenance period this week.

Putin kept up the pressure on European governments, however, by saying that shipments could be limited to 20% of their contracted volume if the necessary compression equipment isn’t returned after its own maintenance. European governments have already dismissed Gazprom’s claims of technical constraints as insincere and baseless, given the availability of alternative export routes.

Benchmark European natural gas futures rose 5.8% after initially jumping on Putin’s words with too much enthusiasm on Tuesday. Also supporting prices was a report that Uniper (ETR: UN01 ) may get another credit line from state-owned German banks to carry on buying gas in the spot market, and other reports suggesting that Berlin may allow it to start raising its prices to customers.

Crude oil prices meanwhile were off their overnight highs, with the U.S. government expected to confirm another rise in domestic inventories at 10:30 AM ET.

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