21/01/2022
Netflix's (NASDAQ:NFLX)'s profit warning issues the clearest challenge yet to growth stock valuations, while Peloton (NASDAQ:PTON) and wind turbine maker Siemens Energy also fall heavily on disappointing news flow. Russia and the U.S. hold last-ditch talks to avert war in Ukraine but hopes to avert conflict are low. Intel (NASDAQ:INTC) is planning to build another $20 billion chip factory, this time in Ohio. And oil prices slip from seven-year highs on concerns about a Covid-driven soft patch for the economy. Here's what you need to know in financial markets on Friday, 21st January.
1. Netflix struggles to grow; Peloton hits the brakes
Netflix stock lost nearly one-fifth of its value after forecasting a sharp slowdown in subscriber growth in the current quarter. The stock is set to open at its lowest since April 2020, having effectively unwound almost all the gains it posted since the start of the pandemic.
Netflix is hardly the first technology stock to fall out of bed in the last few months. However, it is by some distance the biggest and highest-profile company to do so. While investors may have dismissed the problems of other ech darlings as being down to company-specific issues, Netflix’s inability to sustain the narrative of unending growth that has driven its stock market gains for the last decade is more likely to have implications for its peers.
Netflix wasn’t the only big bet on future trends to turn south overnight. Peloton stock – another early winner from the pandemic – tumbled after reports that it’s cutting production of its bikes and treadmills due to slumping demand, while Siemens Energy (DE:ENR1n), which owns one of the world’s biggest wind turbine businesses, fell 13% after warning that it was struggling to pass on higher costs to customers.
2. Blinken, Lavrov go through the motions
U.S. Secretary of State Anthony Blinken is holding talks in Geneva, Switzerland, with his Russian counterpart Sergey Lavrov in an attempt to avert war in Ukraine.
The talks are reportedly scheduled to last only 90 minutes and a press conference is scheduled for 7 AM ET (1200 GMT), which gives the two sides little time to achieve anything substantial.
Ukraine is a sovereign state and a member of the United Nations. Russia, which already invaded it in 2014, annexing part of its territory and establishing breakaway republics in its east, has repeatedly that the mere possibility of it choosing to join NATO in the future is justification for a pre-emptive military invasion on its part. NATO has not offered Ukraine a path to membership.
French President Emmanuel Macron and German Chancellor Olaf Scholz are also holding talks on Ukraine today. The two countries’ vulnerability to economic pressure from Russian energy supplies has effectively prevented any unified western response, as it did in 2014.
3. Stocks set to open lower again; Nasdaq in correction territory
U.S. stocks are set to open lower again, with Netflix’s profit warning and developments at Peloton dealing a fresh blow to belief that the market can sustain what is still a historically high valuation.
By 6:20 AM ET (1120 GMT), Dow Jones futures were down 0.1%, while S&P 500 futures were down 0.4% and Nasdaq 100 futures were down 0.8%. The Dow is set for a decline of over 3% this week, while the Nasdaq Composite is now firmly in correction territory, having declined over 10% from its November peak.
Stocks reporting earnings later include oilfield services giant Schlumberger (NYSE:SLB), railroad operator Kansas City Southern (NYSE:KSU) and IHS Markit (NYSE:INFO). Estee Lauder (NYSE:EL) will also be in focus after its quarterly earnings late on Thursday came and went without any further negative shocks.
4. Intel 'to build new chip plant in Ohio'
The semiconductor cycle continues to turn. With signs that demand is set to outstrip supply for longer than thought, Intel has committed to building a new $20 billion chip factory in Ohio, according to Time magazine and others.
It’s the latest multi-billion dollar capacity expansion to be announced by the world’s major chipmakers. Samsung (KS:005930) and Taiwan Semiconductor Manufacturing (NYSE:TSM) have, like Intel, also committed to large-scale investments over the coming years.
Intel stock, whose modest performance over the last two years has left it less vulnerable to valuation-driven sell-offs, fell 0.4% in premarket trading.
5. Oil slips as gasoline inventories continue to mount
Crude oil prices slid on concerns that the latest wave of Covid-19 will hold world demand back in the short term, allowing the restoration of some depleted inventories around the world.
U.S. gasoline inventories rose by over 5 million barrels for the third week in a row last week, although the rise was the smallest in those three weeks. Those numbers coincided with data showing jobless claims surged to a three-month high as the hospitality and travel sectors were hit by a sudden shift in customer behavior.
By 6:40 AM ET, U.S. crude futures were down 1.8% at $83.98 a barrel, while Brent futures were down 1.7% at $86.87 a barrel. Baker Hughes’ rig count and the CFTC’s positioning data round off the week later.
