Stock Index Futures Slip as Middle East Tensions Weigh, Netflix Shares Plunge

June S&P 500 E-Mini futures (ESM24) are down -0.37%, and June Nasdaq 100 E-Mini futures (NQM24) are down -0.53% this morning as worries of a conflict escalation in the Middle East weighed on sentiment following reports of Israel’s strikes on Iran.

ABC News reported on Friday that Israel had launched a retaliatory strike against Iran, citing a senior U.S. official. Later confirmations of the strike were reported by the Wall Street Journal and other media outlets. Iran’s semi-official Fars news agency reported an explosion near Isfahan early Friday, where the country has nuclear facilities and a drone factory. At the same time, state television conveyed that nuclear facilities in the city are completely safe.

Netflix (NFLX) slumped over -6% in pre-market trading despite topping Q1 expectations on earnings, revenue, and subscriber growth as Q2 revenue guidance fell just short of expectations.

In yesterday’s trading session, Wall Street’s major indexes ended mixed. Las Vegas Sands (LVS) slumped over -8% and was the top percentage loser on the S&P 500 following the casino and resort company’s announcement that renovations at an entertainment center and a hotel in Macau would impact results this year. Also, Tesla (TSLA) slid more than -3% after Deutsche Bank downgraded the stock to Hold from Buy with a price target of $123. In addition, chip stocks retreated for a second day, with ON Semiconductor (ON) and Applied Materials (AMAT) falling over -2%. On the bullish side, Genuine Parts Co (GPC) climbed more than +11% and was the top percentage gainer on the S&P 500 after reporting better-than-expected Q1 adjusted EPS and raising its full-year profit guidance. Also, Elevance Health (ELV) gained over +3% after the health insurer posted upbeat Q1 results and boosted its annual adjusted EPS forecast.

Economic data on Thursday showed that the U.S. Philly Fed’s gauge of manufacturing activity unexpectedly rose to a 2-year high of 15.5 in April, stronger than expectations of 1.5. Also, the number of Americans filing for initial jobless claims in the past week remained unchanged at 212K, stronger than expectations of 215K. At the same time, the U.S. leading indicator index fell -0.3% m/m in March, weaker than expectations of -0.1% m/m. In addition, U.S. March existing home sales fell -4.3% m/m to 4.19M, weaker than expectations of 4.20M.

“Most of the data this week shows the economy is still firing on all cylinders. That’s going to be a challenge for the Fed’s rate-cutting plans,” said Chris Larkin at E*Trade from Morgan Stanley. 

New York Fed President John Williams emphasized Thursday that there is “no urgency” to cut interest rates, stating that economic data will determine the timing of rate cuts. “Monetary policy is in a good place,” he said. When questioned about the potential for raising interest rates, Williams said it is not his “base case” but added that “if the data are telling us that we would need higher interest rates to achieve our goals, then we would obviously want to do that.” Also, Atlanta Fed President Raphael Bostic said he’s comfortable maintaining interest rates at their current level, reiterating his belief that it would not be appropriate to reduce borrowing costs until toward the end of the year. “Inflation is high - it’s too high - and we need to get it to our 2% target. I’m comfortable being patient,” Bostic said. In addition, Minneapolis Fed President Neel Kashkari told Fox News Channel that the central bank might keep rates unchanged all year. “I’m in the view of, we need to wait and see, be patient as long as it takes, until we get convinced that inflation is on its way back down to 2%,” Kashkari said.

Meanwhile, U.S. rate futures have priced in a 0.4% chance of a 25 basis point rate cut at the May meeting and a 19.3% probability of a 25 basis point rate cut at June’s policy meeting.

On the earnings front, major companies like Procter & Gamble (PG), American Express (AXP), Schlumberger (SLB), Huntington Bancshares (HBAN), and Regions Financial (RF) are set to report their quarterly figures today.

The U.S. economic data slate is empty on Friday. However, investors will likely focus on a speech from Chicago Fed President Austan Goolsbee.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.586%, down -1.36%.

The Euro Stoxx 50 futures are down -0.55% this morning as investors avoided riskier assets after tensions in the Middle East resurfaced overnight. Retail, industrial, and construction stocks underperformed on Friday. Data from the Office for National Statistics showed Friday that the U.K.’s monthly retail sales were flat in March. Meanwhile, Reuters reported that the German government plans to increase its annual growth forecast while also anticipating a quicker-than-expected easing of inflation. In corporate news, L’Oreal (OR.FP) climbed over +4% after the French cosmetic giant reported better-than-expected Q1 sales. Also, Sodexo (SW.FP) gained more than +1% following the food caterer’s projection of its 2024 organic revenue growth at the upper end of its 6%-8% range.

U.K.’s Retail Sales and Germany’s PPI data were released today.

U.K. March Retail Sales came in at 0.0% m/m, weaker than expectations of +0.3% m/m.

The German March PPI has been reported at +0.2% m/m, stronger than expectations of 0.0% m/m.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.29%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -2.66%.

China’s Shanghai Composite Index closed slightly lower today, tracking other Asian markets lower amid risk-off sentiment following Israel’s retaliatory strike against Iran. Consumer services stocks led the declines on Friday. Semiconductor stocks also retreated after Taiwan Semiconductor Manufacturing Co. lowered its 2024 revenue growth outlook for the chip industry. At the same time, energy stocks gained ground amid supply concerns arising from the escalation of the Middle East conflict. Meanwhile, in a report, Yunbang Xu, a senior analyst at S&P Global Ratings, noted that investment after the introduction of economic policies weakened amid the ongoing slowdown in the property sector. In corporate news, Xiamen Tungsten slid over -5% after the company said it plans to construct a high-end energy materials plant for 277.9 million yuan.

Japan’s Nikkei 225 Stock Index closed sharply lower today, experiencing its largest percentage drop since September 2022 after Israel’s strike against Iran heightened concerns about a widening conflict in the Middle East. Technology and chip-related stocks led the declines on Friday. The Japanese government bond yields fell sharply while the yen advanced as the escalation in the Middle East turmoil sparked a rush to safe-haven assets. Meanwhile, government data showed on Friday that Japan’s core inflation eased in March, attributed to modest increases in food prices while remaining above the central bank’s 2% target for two years. A Bloomberg survey indicated a growing consensus among economists anticipating the Bank of Japan to raise rates in October after maintaining the status quo next week, with the majority highlighting an earlier move in July as a risk scenario. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +13.68% to 24.43.

The Japanese March National Core CPI stood at +2.6% y/y, weaker than expectations of +2.7% y/y.

Pre-Market U.S. Stock Movers

Paramount Global (PARA) surged about +10% in pre-market trading following a New York Times report indicating that Sony’s movie studio division is in discussions with Apollo Global Management about making a joint takeover bid for the company.

Netflix (NFLX) slumped over -6% in pre-market trading despite topping Q1 expectations on earnings, revenue, and subscriber growth as Q2 revenue guidance fell just short of expectations.

Intuitive Surgical (ISRG) gained more than +2% in pre-market trading after the surgical robotics firm reported upbeat Q1 results.

KB Home (KBH) advanced over +1% in pre-market trading after the homebuilder boosted its dividend by 25% to $0.25 per share and announced a new $1 billion share buyback program.

Shopify (SHOP) rose more than +1% in pre-market trading after Morgan Stanley upgraded the stock to Overweight from Equal Weight with a price target of $85.

Ulta Beauty (ULTA) fell over -1% in pre-market trading after Jefferies downgraded the stock to Hold from Buy with a price target of $438.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Friday - April 19th

Procter & Gamble (PG), American Express (AXP), Schlumberger (SLB), Fifth Third (FITB), Huntington Bancshares (HBAN), Regions Financial (RF), Lakeland Bancorp (LBAI).

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