LDN - Business

Futures retreat as Treasury yields rise, Tesla slides

[April 19, 2023] By Sruthi Shankar and Ankika Biswas

(Reuters) -U.S. stock index futures fell on Wednesday as Treasury yields rose on expectations the Federal Reserve could keep interest rates higher for longer, while a slide in Tesla and Netflix shares was set to weigh on the tech-heavy Nasdaq.

Tesla Inc dropped 2.0% in premarket trading after the electric-vehicle maker cut prices on some of its Model Y and Model 3 vehicles in the United States, the sixth time it has lowered prices this year.

The company is due to report January-March quarter results after the closing bell on Wednesday.

Netflix Inc fell 1.7% after the video-streaming pioneer beat Wall Street earnings estimates for the first quarter but offered a downbeat forecast.

Morgan Stanley slipped 1.2% after the Wall Street bank reported a fall in quarterly profit, a day after peer Goldman Sachs Group Inc posted a 19% fall in profit on hit to dealmaking and losses from the sale of some loans from its consumer unit, Marcus.

The CBOE Volatility index, also known as Wall Street's fear gauge, rose to 17.47 after falling to its lowest level since January 2022 in the previous session.

The benchmark S&P 500 closed at a more than two-month high on Tuesday as strength in some big technology stocks countered disappointing quarterly reports from Johnson & Johnson and Goldman Sachs.

While the start of the earnings season has been largely supportive for equities, investors will be closely watching updates from market heavyweights as well as consumer companies for signs of inflation and economic slowdown hurting margins.

Mixed economic data recently has fueled bets that the U.S. central bank will hike interest rates by 25 basis points in May, with traders giving nearly 85% odds for such a move, as per CME Group's Fedwatch tool.

The 2-year Treasury yield, most reflective of short-term rate expectations, hit a one-month high of 4.29% on Wednesday and the 10-year yield hit a four-week high as traders scaled back expectations of rate cuts later this year. [US/]

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., April 10, 2023. REUTERS/Brendan McDermid

"Although some of the economic indicators suggest the economy is likely to avoid a recession, the fact is that the cost of borrowing is now at such a level as to deter some consumers from financing their debt," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"This will cause the economy to enter a mild recession, however, it will be only short-lived and may last for a quarter."

Major technology and growth stocks such as Apple Inc, Microsoft Corp, Alphabet Inc and Meta Platforms Inc were down between 0.6% and 1.5%.

The Fed's "Beige Book", a snapshot of the health of the U.S. economy, will be released at 2:00 p.m. ET (1800 GMT), and investors will scrutinize it for the impact of the recent banking crisis on economic activity.

Chicago Fed President Austan Goolsbee and New York President John Williams are set to speak later in the day.

At 7:10 a.m. ET, Dow e-minis were down 120 points, or 0.35%, S&P 500 e-minis were down 21.5 points, or 0.51%, and Nasdaq 100 e-minis were down 104.75 points, or 0.79%.

Further on the earnings front, Citizens Financial Group Inc fell 1.5% after its first-quarter results missed estimates.

Western Alliance Bancorp rallied 18% after the regional bank posted stronger-than-expected earnings and said its deposits had stabilized after the March banking crisis.

Shares of banks First Republic Bank, Zions Bancorporation and Pacwest Bancorp rose between 2% and 4.8%.

(Reporting by Sruthi Shankar and Ankika Biswas in BengaluruEditing by Vinay Dwivedi)

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