Fed chair Jerome Powell is set to speak later in the session, while Wall Street indices are set to open lower after bond yields rose to record levels.The earnings season continues in full flow, with Netflix and Tesla in the spotlight after releasing results after Wednesday's close.

1. Powell’s speech in the spotlight  

Jerome Powell is set to hold the spotlight Thursday, as the Federal Reserve chairman speaks at the Economic Club of New York later in the session, with markets nervous that he may strike a hawkish tone after a series of U.S. data pointed to strength in the economy.

Fed policy makers have recently signaled that the central bank may be close to ending its rate-hiking cycle, as rising yields have done some of their job in cooling the economy by reining in credit. 

However, recent data has indicated that the labor market remains strong and inflation sticky, and this prompted New York Federal Reserve president John Williams to take a more hawkish stance, stating Wednesday that the Fed will likely keep rates higher for longer for “some time” to rein in inflation toward its 2% target.

The benchmark 10-year Treasury yield surged on Wednesday, trading past 4.9% for the first time since 2007.

Another pause on rate hikes for November is nearly fully priced in, according to Investing’s Fed Rate Monitor Tool, but the odds of a December rate hike have jumped to 40% this week from 26% last week.

2. Futures sell off as risk sentiment takes a hit

U.S. stock futures traded lower Thursday, continuing the previous session’s weakness as rising bond yields prompted investors to exit more risky assets.

At 04:50 ET (08:50 GMT), the Dow futures contract dropped 100 points or 0.3%, S&P 500 futures fell by 13 points or 0.3%, and Nasdaq 100 futures dropped by 34 points or 0.2%.

The major indices closed lower Wednesday, weighed by escalating tensions in the Middle East and worries over elevated bond yields, with the benchmark 10-year Treasury yield climbing to its highest level since mid-2007. 

Investors have started to become fearful of the possibility of another rate increase in December to round out the year, and all eyes will be on Federal Reserve Chair Jerome Powell as he speaks later in the session [see above].

Economic data on deck include weekly jobless claims, existing home sales for September and the Philadelphia Fed manufacturing index for October.

There are more earnings to digest during the session [see below], while Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA) will also be in the spotlight after the two corporate powerhouses reported results after the close Wednesday.

3. Netflix soars with new subscribers; Tesla disappoints

Netflix’s subscription service was in demand in the third quarter, as the streaming giant shattered expectations for new customers, sending its stock surging over 12% in premarket trading.

The company said paid subscribers rose 8.76 million in the third quarter, boosted by its efforts to restrict sharing of accounts, well above expectations for just over 6 million.

These gains represented its strongest quarterly uptick since the second quarter of 2020, in the early days of the global pandemic. 

Substantial subscriber additions came in Europe, the Middle East and Africa, where Netflix added nearly 4 million subscribers. More than 70% of its members now reside outside the United States.

Netflix also increased subscription prices for some of its streaming plans as it posted revenue of $8.54 billion, in line with forecasts. Earnings came in at $3.73 per share, ahead of Wall Street's expectation of $3.49.

Tesla, on the other hand, disappointed with its quarterly results as its recent wave of electric vehicle price cuts weighed on margins. Its stock fell over 4% premarket.   

Gross margins excluding credits, which have been closely watched following recent price EV cuts, slowed to 16.1% in the third quarter from 18.7% in the previous quarter.

Tesla delivered 435,000 EVs in the quarter, down from 466,140 in the second quarter, with the company citing upgrades at various factories for the decline in production volumes.

Tesla was also cautious about expanding electric vehicle production capacity, with CEO Elon Musk saying he was worried that higher borrowing costs would prevent potential customers from affording its vehicles despite substantial price cuts.

4. Third-quarter earnings season continues

The quarterly earnings season continues Thursday, with results due from the likes of American Airlines (NASDAQ:AAL), telecoms company AT&T (NYSE:T), tobacco giant Philip Morris (NYSE:PM), railroad operator CSX  (NASDAQ:CSX), asset manager Blackstone (NYSE:BX) as well as a number of regional banks.

So far, admittedly very early in the season, 83% of companies have so far topped earnings expectations, while about 70% have surpassed sales estimates, according to FactSet data.

Earlier Thursday, Taiwan Semiconductor Manufacturing (NYSE:TSM), the world's largest contract chipmaker and a major Apple (NASDAQ:AAPL) supplier, posted an almost 25% fall in third-quarter net profit as global economic woes hit demand for chips used in applications from cars to cellphones and servers.

Nokia (NYSE:NOK) announced plans to cut up to 14,000 jobs in a new cost reduction effort after the Finnish telecom gear manufacturer’s third-quarter sales fell by a fifth, taken down by sales of next-generation 5G equipment.

5. Crude’s recent rally cools

Oil prices fell Thursday, handing back a lot of the previous session’s sharp gains, as markets awaited more developments in the Israel-Hamas war and the outlook for global supply.

By 04:50 ET, the U.S. crude futures traded 1.7% lower at $85.75 a barrel, while the Brent contract dropped 1.7% to $89.78 a barrel. 

Crude prices climbed about 2% in the previous session on concerns of disruptions to global supplies after Iran called for an oil embargo on Israel over the conflict in Gaza and after the U.S., the world's biggest oil consumer, reported a larger-than-expected inventory draw.

However, the Organization of the Petroleum Exporting Countries has shown few signs of taking any immediate action on Iran's call, easing worries over potential disruptions.

Prices have also been pressured after a deal was reached between the Venezuelan government and the country's political opposition to ensure fair 2024 elections, potentially allowing the country’s oil flows to reenter the global market after years of sanctions.

Source : Investing.com / October 19, 2023