LDN - Business

Nasdaq futures fall nearly 1% as Tesla earnings disappoint

[April 20, 2023] By Sruthi Shankar and Ankika Biswas

(Reuters) -Nasdaq futures fell nearly 1% on Thursday as Tesla shares tumbled after the electric-vehicle maker posted its lowest quarterly gross margin in two years, while prospects of U.S. interest rates staying higher for a longer kept investors jittery.

Wall Street's main indexes have remained steady this week as mixed earnings from U.S. banks allayed concerns of a contagion from the March banking crisis, but rapidly rising rates and recession worries have dimmed their outlook.

Tesla Inc slid 6.7% in premarket trading after its first-quarter gross margin missed expectations on aggressive price cuts for its vehicles and CEO Elon Musk said the company would put sales growth ahead of profit.

Other megacap stocks such as Apple Inc, Amazon.com Inc and Microsoft Corp fell 1% each.

"A lot of companies are keeping their heads above water but there remain plenty of headwinds to cloud the outlook," said Russ Mould, investment director at AJ Bell.

"The prospect of another round of interest-rate hikes in the U.S. and Europe will further increase cost of borrowing, coinciding with fears that banks are going to have stricter lending policies following the recent Silicon Valley Crisis."

Traders are reassessing the outlook for interest rates after data indicated that the slowdown in U.S. economy was not enough to push the Federal Reserve to start cutting rates as early as this year.

Comments from Fed policymakers this week have also supported bets on further policy tightening.

The Fed will deliver a final 25-basis-point rate hike in May and then hold rates steady for the rest of the year, according to economists in a Reuters poll, which also showed a likely short and shallow recession in 2023.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., April 19, 2023. REUTERS/Brendan McDermid

Fed funds futures traders are pricing in a 78% probability of a 25-bps rate hike next month, according to CME Group's Fedwatch tool.

The two-year Treasury yield, which typically moves in step with near-term rate expectations, traded below the one-month high it hit on Wednesday. [US/]

Meanwhile, the cost of insuring exposure to U.S. sovereign debt rose to the highest level since 2011, over market jitters that the government could hit its debt ceiling sooner than expected.

At 6:56 a.m. ET, Dow e-minis were down 138 points, or 0.41%, S&P 500 e-minis were down 28.25 points, or 0.68%, and Nasdaq 100 e-minis were down 123.25 points, or 0.93%.

The day ahead includes weekly jobless claims data and Philadelphia Fed's business index reading. Several Fed policymakers are also expected to speak later in the day.

Among other stocks, IBM Corp gained 1.3% after the software company beat estimates for first-quarter profit and signaled demand for IT services was better than feared.

Las Vegas Sands Corp climbed 4.4% after the casino operator reported better-than-expected quarterly revenue, while Alaska Air Group Inc fell 1.2% on wider-than-expected first-quarter loss.

Among regional banks, Zions Bancorp, Truist Financial Corp and KeyCorp dropped between 0.6% and 5.3% after their quarterly profits missed estimates.

Chip companies Qualcomm Inc, Nvidia Corp and Micron Technology fell 1% each following major Apple supplier TSMC's weak sales forecast.

(Reporting by Sruthi Shankar and Ankika Biswas in Bengaluru; Editing by Arun Koyyur and Vinay Dwivedi)

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