Wall Street clipped pre-market gains amid worries over European gas supplies Wednesday, with many now focused on Tesla’s second quarter earnings after the close of trading.
U.S. equity futures nudged lower Wednesday, while the dollar extended its recent pullback and oil prices fell, as markets reacted to a solid set of corporate earnings that suggest underlying resilience in the world’s biggest economy.
Futures reversed earlier gains, however, following an emergency plan by the European Commission, the region’s executive branch, to reduce and ration natural gas usage following a warning on supply disruptions from Russia’s President Vladimir Putin.
The move countered reports that Russia’s key European gas pipeline, Nord Stream 1, is set to go back online later this week following extensive repairs.
Still, with the dollar retreating to multi-week lows against its global peers amid fading bets on a jumbo rate hike from the Federal Reserve next week, investors appear willing to moderate their expectations for near-term inflation and its impact on growth.
Falling gas prices and a robust jobs market are also adding some cautious optimism to the broader economic picture, with data from the AAA motor club showing average prices have slumped to $4.467 per gallon, down more than 12.5% from their all-time highs last month.
WTI crude futures for September delivery, the most closely related contract to domestic gas prices, traded $1.70 lower on the session at $99.07 per barrel ahead of Energy Department data on domestic stockpiles later in the day.
Those dynamics, coupled with a series of stronger-than-expected second quarter earnings, have given both U.S. and world stocks a boost this week, with the S&P 500 holding at the highest levels since June 9 and world stocks holding at a three week peak.
All that said, the Atlanta Fed’s GDPNow forecasting tool shows the U.S. economy is shrinking at a 1.6% clip, following contractions in both the first and second quarter, and the CME Group’s FedWatch suggests there’s still a 35.6% chance of a 100 basis point rate hike when the central bank meets next week in Washington.
Benchmark 2-year Treasury note yields traded at 3.19% overnight, against a 2.986% rate for 10-year notes, holding the so-called ‘inversion’ of the yield curve — an accurate predictor of recession — near the steepest since December of 2000.
For the moment, however, stocks are set for a modestly softer open, with contracts tied to the S&P 500 indicating a 10 point opening dip while those liked to the Dow Jones Industrial Average are priced for an 87 point move to the downside. Futures linked to the tech-focused Nasdaq are indicating a 21 point slip.
Netflix (NFLX) – Get Netflix Inc. Report shares were the most active in pre-market trading, suring more than 6% after the streaming entertainment service topped second quarter earnings forecasts and posted a smaller-than-expected paid subscriber exodus.
Netflix lost 970,000 paid subscribers over the quarter, the company said, less than half of the anticipated 2 million, helping revenues rise 8.6% from last year to $7.97 billion.
Tesla (TSLA) – Get Tesla Inc. Report shares were also active, rising 1% ahead of the carmaker’s hotly-anticipated second quarter earnings after today’s closing bell.
The carmaker is expected to post a 43% year-on-year gain in group revenues, at $17.2 billion, with a bottom line of $1.86 per share. Key to the update, however, will be Tesla’s expectations for the second half of the year, and whether the “gigantic money furnaces”, as Elon Musk has described his new gigafactories, can ramp-up output over the September quarter.
Chip stocks such as Nvidia (NVDA) – Get NVIDIA Corporation Report, Advance Micro Devices (AMD) – Get Advanced Micro Devices Inc. Report and Intel (INTC) – Get Intel Corporation Report were trading modestly higher following a mixed set of second quarter results from semiconductor equipment maker ASML NV and the clearing of the first Congressional hurdle towards billions in sector relief from the government.
ASML posted record bookings of €8.6 billion euros and better-than-expected group revenues of €5.43 billion, but cut its full year growth forecast in half and plans to defer delivery of at least 15 of its extreme ultraviolet lithography systems, or EUV machines, until next year.
That outlook is crucial for the tech sector, as ASML’s €100 million EUV systems, which design complex chips, are used by sector titans such as Samsung Electronics, Intel and Taiwan Semiconductor.