LDN - Business

Morning Bid: Tanking Tesla reports, Europe business beats

[April 23, 2024] A look at the day ahead in U.S. and global markets from Mike Dolan

World markets have cheered up a bit this week, but ailing Tesla's tanking stock price faces a critical earnings test later on Tuesday and this month's European business pulse proved surprisingly racy.

Relief at cooling Middle East tensions helped steady the ship on Monday after the worst week on Wall Street since 2022 - with bellwether chip giant Nvidia recouping some of Friday's 10% lunge as Big Tech megacaps get set to report first quarter updates over three days of a heavy earnings diary.

First of the "Magnificent 7" vanguard stocks to report on Tuesday is electric vehicle behemoth Tesla, which is down a massive 43% for the year to date and off almost 60% over the past two years amid a brutal price war, waning EV demand worldwide and serial corporate governance and product questions.

Tesla lost another 3% on Monday despite the wider Wall Street rebound after it cut prices again in a number of its major markets, including China and Germany, following price reductions in the United States. It was little changed out of hours ahead of Tuesday's bell.

China's state planner expects an intensified price war among automakers of electric cars and plug-in hybrids this year because of overhanging supply and other issues, the government body said in a statement on Monday.

While Big Tech nerves are a feature of this month's shakeout of the major stock indexes, investors will look to the upcoming earnings for a clearer picture.

Artificial intelligence darling Nvidia, which is still up more than 50% for 2024, appeared to catch a bid on last week's sizeable dip - with worsening geopolitics one factor influencing the stock.

Chinese universities and research institutes recently obtained high-end Nvidia AI chips through resellers despite the U.S. widening a ban last year on the sale of such technology to China, according to a Reuters review of tender documents.

What is more, Apple's smartphone sales in China declined by 19.1% in the first quarter of 2024, while rival Huawei's grew by 69.1%, signaling an increasing threat to the U.S. firm's dominance in the high-end segment of the world's largest smartphone market.

Apple's China smartphone market share fell to 15.7% in the fist three months, according to Counterpoint Research.

More broadly, S&P500 futures held Monday's cash market bounce back above the 5,000 round figure - with eyes now trained on both the earnings season and increasing pessimism about the chances for any Federal Reserve interest rate cut this year.

As Fed officials are now in a blackout period before their next May 1 policy decision, futures pricing has reduced 2024 easing expectations to less than 40 basis points for the first time this year and now only sees an 80% chance of a quarter point rate cut before the November election.

With some $69 billion of two-year Treasuries coming under the hammer later on Tuesday, two-year yields hovered just shy of 5.0%.

Even in the face of more stern warnings from Japanese government officials about potential yen-supporting intervention, the dollar continued to set new 34-year highs against the Japanese currency just under 155.

The Bank of Japan will raise rates again if trend inflation accelerates towards its 2% target as expected, BOJ governor Kazuo Ueda said.

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A trader works on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., April 5, 2024. REUTERS/Andrew Kelly/File Photo

Flash U.S. April business readings will color in the picture further today, with Europe's equivalent surveys out already and beating forecasts. German business, in particular, unexpectedly returned to expansionary mode this month.

That surprise gave the euro a lift - and knocked the dollar's wider DXY index back a bit in the process - even though money markets are still more than 50% priced for a European Central Bank rate cut as soon as June.

Despite a miss in the manufacturing sector, the overall British business reading also beat forecasts and lifted sterling off Monday's five-month lows.

The combination of recent sterling weakness and rising Bank of England rate cut hopes earlier saw Britain's blue-chip FTSE 100 hit a record high - even though it still lags U.S. and European benchmarks this year and the domestically-focused FTSE250 midcaps remain in the red for 2024.

Elsewhere, China's mainland stocks continued to underperform worldwide - although Hong Kong gained again on Tuesday amid optimism over proposed reforms aimed at boosting the city's attractiveness to foreign investors.

Delivery giant Meituan and e-commerce firm JD.com led Tuesday's gains and rose 8% and 6% respectively.

In Europe, a near 5% gain in Novartis stood out as the Swiss drugmaker raised its full-year outlook.

The wobbly tech sector got a boost from SAP's 4% rise after the German company reported a 24% jump in first-quarter cloud revenue.

Back on Wall Street, the wait for Tesla's update will be filled with updates from the likes of Texas Instruments, Visa, UPS, General Motors, Lockheed Martin and Halliburton.

Key diary items that may provide direction to U.S. markets later on Tuesday:

* Flash April business surveys from the United States and around the world, U.S. March new home sales, Richmond Federal Reserve April business surveys, Philadelphia Fed releases April service sector survey

* US corporate earnings: Tesla, Texas Instruments, Visa, MSCI, Invesco, Lockheed Martin, UPS, General Motors, Halliburton, GE, Chubb, Steel Dynamics, CoStar, Pepsico, IDEX, EQT, Baker Hughes, Seagate Technology, Quest Diagnostics, Freeport-McMoRan, Kimberly-Clark, Danaher, Nextera Energy, Enphase Energy, Pentair, Equity Residential, Veralto, Pultegroup, Fiserv, Sherwin-Williams, WR Berkley etc

* Bundesbank President and European Central Bank policymaker Joachim Nagel speaks; Bank of England chief economist Huw Pill speaks

* US Secretary of State Antony Blinken visits China

* US Treasury sells $69 billion of 2-year notes

(By Mike Dolan, editing by Ed Osmond, mike.dolan@thomsonreuters.com)

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