The Nasdaq jumped 3.4% yesterday, and futures are trading 1.8% higher today as investors position for earnings. So far, Q3 updates from the banks have been broadly encouraging.
· Pound and gilts rebound after Chancellor Hunt scraps most of the mini-budget
· German ZEW economic sentiment is expected to fall to a record low, the DAX rises
· Netflix rose 6.6% yesterday ahead of earnings today – subscribers are forecast to rise by 1M
European stocks closed firmly higher on Monday amid an upbeat market mood after the British Chancellor scrapped most of the mini-budget announced just three weeks earlier. In addition to dropping the tax cuts, Hunt also announced spending cuts and put an April deadline on the household energy support bill to try to balance the books. Jeremy Hunt’s fiscal statement helped to stem the dramatic loss of confidence in the UK economic outlook. Gilts rose, pulling the 10-year yield back below 4%, and the pound rallied against its major peers. GBP/USD jumped 1.5% to a two-week high and is extending those gains ahead of the European open at 1.1375.
With Jeremy Hunt seemingly taking all the decisions, doubts are rising over how long Prime Minister Truss can cling to her job. The prospect of more political uncertainty or even a general election could keep gains in the pound limited. Meanwhile, the BoE has said that it will delay quantitative tightening to allow the gilt market time to stabilise.
Tech rally
Stocks on Wall Street also rebounded strongly yesterday, fueled by a tech-led rally. The Nasdaq closed 3.4% higher, and the S&P500 jumped 2.6%. US bank’s earnings continued to boost the market mood after Bank of America reported a smaller drop in earnings than expected, along with the highest net interest income in a decade. So far, earnings have not been as bad as feared, and investors have started to position for not-as-bad as-feared earnings. Netflix, which will report after the close today, jumped 6.6%, and Tesla, which will release earnings on Wednesday, rose 7%.
The strong finish on Wall Street saw Asia push higher, despite China’s decision to delay the release of Q3 GDP and retail sales data. Whilst no explanation was given, the most likely reason was to prevent it from overshadowing the 20th National Communist Congress. Europe is also following the trend and points to a positive start on the open.
German ZEW economic sentiment
The only economic data of note in the European session will be the German ZEW economic sentiment data for October, which is expected to fall to a record low of -66, down from -61.9 in September and below the 1992 level of -62.2. The data comes as the DAX trades at a monthly high just shy of 12800 and the EUR/USD trades at a two-week top of 0.9850, still some distance from the October high of parity.
Netflix Q3 earnings
The streaming giant is set to report as the share prices trade around 55% lower across the year, significantly worse than the 23% decline in the S&P500. As always, subscriber numbers will be in focus and are expected to rise by 1 million after falling across the past two quarters. Wall Street is expecting EPS of $2.17 on revenue of $7.84 billion. This is down from EPS of $3.19 on revenue of $7.48 billion in the same period last year.
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