Nasdaq Futures Rise as Tesla Reports Strong Earnings

This week started off poorly for investors, primarily due to a mix of political uncertainties in the United States, ongoing geopolitical tensions in the Middle East, and increasing expectations that the Federal Reserve (Fed) may slow down its pace of monetary easing. These factors have caused many to hold back on investments.

Interestingly, gold prices have surged to new records in spite of rising US yields. This increase in yields can be attributed to two main reasons: a shift away from the previously dovish stance on potential Fed rate cuts and a general hesitance in the market as the upcoming US presidential election approaches. Concerns about international trade and inflation, particularly with a possible Trump win, have also added to the anxiety. The International Monetary Fund (IMF) has revised its global growth forecast for next year to 3.2%, citing rising risks from conflicts and protectionist policies, although it has kept its 2024 predictions steady. The IMF expects inflation to drop to 4.3% in 2025, down from 5.8% this year.

On the Fed's front, member Mary Daly has mentioned that there is nothing indicating they should halt the rate cuts, yet other members, like Neel Kashkari, believe cuts should occur more gradually. The current outlook for Fed funds futures suggests about a 92% probability of a 25 basis point cut in the upcoming November meeting, although speculation is growing that the Fed might pause its easing strategy in December.

As a result, the US dollar is recovering against most major currencies. Although it showed some weakness today in Asia, the dollar index has rallied by more than 4% since a dip in September. The EUR/USD exchange rate fell to 1.0761 yesterday, as expectations of rate cuts in the Eurozone remain strong. These expectations stem from inflation appearing manageable and weak economic data. With many European Central Bank (ECB) members becoming increasingly dovish, the potential for further rate cuts in Europe looms large. Notably, ECB officials have discussed the need for an agile response to avoid delays in cutting rates, which could exacerbate economic issues in the region.

Meanwhile, the USD/JPY pair has surpassed the 150 resistance level, advancing beyond the 200-day moving average and trading above 152. This upward momentum follows dovish comments from Japan's new Prime Minister, who suggested that further rate hikes are not necessary this year. However, the yen may require intervention to prevent its rapid depreciation.

In the UK, the British pound has slipped below the 100-day moving average, facing downward pressure as the Bank of England (BoE) noted that inflation is declining faster than anticipated. Across the Atlantic, the Canadian dollar has also weakened, hitting its lowest levels against the US dollar since early August after the Bank of Canada announced a widely anticipated 50 basis point rate cut.

While some market correction is expected following the dollar’s rally, it’s likely to occur after the US elections.

In the equities market, European stocks are under pressure. Although dovish statements from the ECB are seen as positive, the earnings reports from European companies have not been encouraging. For instance, ASML posted disappointing results, and Deutsche Bank warned of a rise in bad debts due to the challenging economic backdrop, announcing a larger reserve for growing loan issues than anticipated. Similarly, European automakers and luxury goods producers are contending with diminishing demand both domestically and in China. Hermes is set to report earnings today, and forecasts indicate it could show the slowest growth in three years, underscoring a stark contrast with the situation in the US.

Conversely, US financial institutions reported robust earnings last quarter. Tech firm TSMC exceeded expectations last week, suggesting that US chipmakers are thriving. Netflix also performed better than forecasted and Tesla, which has faced challenges recently, surprised the market with stronger-than-expected results. Tesla reported an 8% revenue increase and a 17% rise in net income, with production costs per vehicle dropping to around $35,100. The company’s operating margin improved from 7.6% to 10.8% year-over-year, and the Cybertruck reached profitability for the first time. Following this announcement, Tesla shares rose 12% in after-hours trading, potentially setting the stage for gains in the S&P 500 and Nasdaq 100 after recent declines.

Nasdaq, Tesla, Earnings