MARKET WRAPS
Watch For:
Weekly Petroleum Status Report; Bank of Canada Rate Decision; Earnings from AT&T; Boeing; IBM; Tesla; Levi Strauss; CSX
Today's Top Headlines/Must Reads:
- Congress on the Sidelines as U.S. Takes on Google
- Tesla Poised for Record Quarterly Earnings Amid Wall Street Unease
- Jittery Investors Turn to Cash in Hunt for Yield
- Amazon Caught in Wave of European Strike Action
- Rupert Murdoch Withdraws Proposal to Merge Fox Corp. and News Corp
- Joe Manchin to Introduce Bill to Delay EV Tax Credits
Follow WSJ market coverage here
Opening Call:
Stocks were on course for a soft open after a warning on demand by Microsoft on Tuesday hit sentiment.
As investors wait for next week's Federal Reserve interest rate decision - and Fed officials keep quiet until then - the monetary policy vacuum allows for a sharper focus on the fourth quarter corporate earnings season.
Microsoft caused a sell-off in index futures after it delivered mostly better-than-expected figures but warned of softening demand for its cloud services amid an economic slowdown.
Shares in Amazon, Microsoft's main rival in cloud services, were also set to open lower on Wednesday.
Nasdaq is up 8.3% for the year to date as investors made bets some of the big cash-generative names had been sold down too much in the wake of the 2022 Fed-induced bear market.
Now, the Microsoft comments may cause tech bulls to call that rally into question.
"There's been a little bit of a bias towards risk-off sentiment over the last 24 hours, thanks partly to some weaker-than-expected earnings releases that added to growing concerns about a potential U.S. recession, " Deutsche Bank said.
The Microsoft results and forecast are symptomatic of what has been a decidedly mixed bag of earnings reports for the season to date.
Stocks to Watch
Canadian National Railway said it expects its 2023 per-share earnings growth to be in the low single-digit range due to a softer economic outlook. Shares fell 3.7% in after-hours trading.
Intuitive Surgical dropped 9.1% after it reported fourth-quarter adjusted earnings that missed Wall Street estimates and said it placed fewer of its flagship Da Vinci Surgical Systems during the period.
Microsoft shares fell 1.3% premarket after the software giant reported its slowest sales growth in more than six years.
News Corp. shares rose 4.5% premarket after Rupert Murdoch called off his effort to merge the company with Fox.
Precigen said it has commenced an underwritten public offering for about $75 million of its common stock. Shares declined 15% in after-hours trading.
Stride reported revenue growth in the latest quarter, driven by strength in enrollment, increases in revenue per enrollment and growth in adult learning. It also raised its revenue outlook for fiscal 2023. Shares climbed 16% in after-hours trading.
Tesla shares fell 1.6% and, as often, were the most heavily traded in the S&P 500 before the bell.
Texas Instruments fell 1.6% after it provided a revenue forecast for the March quarter that was below expectations.
Other Movers
ASML's fourth-quarter net profit beat consensus, and said it expects strong sales growth to continue in 2023 despite a challenging environment. Its American depositary receipts slipped 0.8% premarket.
Forex:
The dollar could fall modestly if market expectations continue to build for a "dovish" Fed Feb. 1 meeting that delivers cautious signals, ING said.
Markets expect the Fed to slow the pace of interest rate rises to 25 basis points but are reluctant to fully price in another 25bp move, ING added. "This signals the perceived balance of risks is tilted to the dovish side ahead of next week's FOMC."
Should this narrative gain traction, the dollar may fall but only slightly as investors wait for other event risks to pass including the European Central Bank and Bank of England's decisions next Thursday, ING said.
Read US GDP Data Could Prove Big Test for Dollar
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The Bank of Canada could hint about pausing its interest-rate rise cycle at Wednesday's meeting but the Canadian dollar is unlikely to fall materially unless such signals are explicit, MUFG Bank said.
The BOC may raise rates by 25 basis points and reiterate that it will consider whether rates need to rise further but coupled with greater signs of confidence that inflation will ease toward its target, MUFG said.
"There should be enough 'between the lines' for the markets to conclude a pause is more likely but we perhaps shouldn't expect that view to be expressed explicitly."
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The U.K.'s weak economic prospects combined with high inflation poses a challenge for the Bank of England and could weigh on sterling, Commerzbank said.
The German bank is more pessimistic about the U.K. outlook than any other economy, Commerzbank said.
That means the BOE is facing a difficult choice between battling high inflation and supporting the economy, it said. "It is difficult to imagine that the British central bankers will master these wanderings without damaging GBP."
Energy:
Oil prices edged lower as the market mulled the outlook for demand after the Chinese Lunar New Year holiday period.
China's reopening has been bearish, rather than bullish, for oil in the very short term, Bank of America said.
A surge in Covid-19 cases has seen oil and coal stocks rise holding oil prices back from rallying, the bank noted.
But in the second half of the year the bank believes "the reopening of the Chinese economy could unleash a large wave of pent-up demand over the next 18 months."
Metals:
Metal prices were lower as investors looked away from risk assets on ongoing concerns of a potential U.S. recession.
Outlook
Base metals should enjoy another leg higher as Chinese authorities "become more pragmatic" in managing the world's second-largest economy, although that next step up may happen closer to summer, Bank of America said.
China's refocusing on growth has helped give some metals prices their strongest January-to-date in years, defying a gloomy macroeconomic backdrop, BofA said.
Future gains will likely come once physical demand picks up, it added.
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While some analysts and investors expect Chinese iron-ore demand to pick up materially after the Lunar New Year break, UBS analysts said they are cautious.
They are "expecting the demand impulse on reopening to be modest due to the ongoing weakness in China property (more than 25% of demand) and that iron-ore prices will fall as inventories build."
Steel ingredient iron ore has been recently trading above $120/metric ton--an "elevated" level, UBS said --although market activity is currently subdued due to the holiday in China.
Demand looks weak, with China's pig-iron production falling again in the first 10 days of January and China rebar spreads still depressed, it added.
TODAY'S TOP HEADLINES
Congress on the Sidelines as U.S. Takes on Google
WASHINGTON-The Justice Department lawsuit against Alphabet Inc. unit Google seeks to achieve in court what some in Congress have tried and failed to do: curb the power of America's largest technology companies.
Tech companies spent heavily last year to successfully block major technology legislation, and that winning streak is expected to continue as Washington transitions to two years of divided government.
Tesla Poised for Record Quarterly Earnings Amid Wall Street Unease
Tesla Inc. is poised to report record quarterly profit for the final three months of 2022 as Wall Street hungers for clarity on the company's growth plans in light of apparent demand weakness.
Elon Musk's electric-car maker is forecast to report nearly $3.8 billion in fourth-quarter profit, up around 62% from a year earlier, according to analysts surveyed by FactSet, even as vehicle-delivery growth slowed.
Tesla Eyes $3.6 Billion Factory Expansion
Tesla Inc. said it would spend more than $3.6 billion to expand its plant near Reno, Nev., where the electric-vehicle maker assembles batteries and produces EV car components.
The Elon Musk-led auto maker said its investment plan would expand its lithium-ion battery and electric-vehicle-component facilities there and employ 3,000 additional workers.
Microsoft's Outlook and Teams Down for Thousands of Users
Microsoft Corp. said it was investigating reports of outages to its services including Teams and Outlook, with thousands of users globally reporting that the products were down.
The company said in a tweet that it had identified a potential networking issue and was working to troubleshoot the next steps.
Amazon Caught in Wave of European Strike Action
Amazon.com Inc. workers in Britain went on strike for the first time Wednesday, dragging the e-commerce giant into the wave of labor unrest that has been sweeping the U.K. and other European economies.
While Amazon said the industrial action at a warehouse in Coventry in central England would have little impact on its overall operations, the strikes could portend further disruption for the company in one of its most important overseas markets. Union leaders have already vowed to extend strike to other Amazon facilities in the U.K. in a dispute over pay.
Rupert Murdoch Withdraws Proposal to Merge Fox Corp. and News Corp
Rupert Murdoch called off his effort to merge the two parts of his media empire, News Corp and Fox Corp., saying the transaction "is not optimal" for shareholders of the companies at this time.
Mr. Murdoch proposed reuniting News Corp and Fox last fall, nearly a decade after they split apart. In statements on Tuesday, the boards of the two companies said they received a letter from Mr. Murdoch withdrawing the proposal.
Jittery Investors Turn to Cash in Hunt for Yield
The dash for cash on Wall Street is back on.
(MORE TO FOLLOW) Dow Jones Newswires
01-25-23 0620ET
