The Tesla Inc. Gigafactory stands in Shanghai, China, on Friday, Nov. 1, 2019.
Qilai Shen | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Markets were mostly flat Wednesday despite major companies reporting. Investors weren’t swayed by better-than-expected numbers.
Tesla’s net income dropped 24% from the year-ago quarter to $2.51 billion, though its revenue rose 24% to $23.33 billion — despite six price cuts this year — surpassing estimates. Shares dropped 2.02% during market hours and a further 6.06% in overnight trading.
Morgan Stanley, like fellow investment bank Goldman Sachs, had a tough first quarter. Morgan Stanley’s earnings fell 19% from a year earlier to $2.98 billion, and its revenue slipped 2% to $14.52 billion. Still, both figures beat Wall Street’s expectations, boosting the bank’s shares 0.67%.
IBM’s first-quarter revenue rose just 0.4% from a year earlier to $14.25 billion, but its net income jumped a more drastic 26% to $927 million. That suggests the technology giant managed to improve margins. Investors cheered, pushing its shares up 1.61% in extended trading.
Sugar prices hit 24.37 cents a pound, an 11-year high. That’ll cause food prices to spike, analysts said, as many of processed items contain sugar. Worse, supply of sugar looks like it’ll remain constrained this year because of extreme weather, which means prices could increase further.
PRO Earnings reports from regional banks show that deposits are stabilizing. Investors were so bullish on one regional bank that they caused its shares to surge 24.12% on Wednesday.
Companies have been beating earnings estimates. The 44 companies in the S&P 500 that had reported earnings as of Tuesday night posted sales growth that was 2.2 percentage points better than expected and earnings that were 8 percentage points higher than forecast, according to Julian Emanuel at Evercore ISI.
Adding on to the optimism, the Cboe Volatility Index — a gauge of investor fear popularly known as the VIX — is near a 52-week low. In other words, investors think stock prices will rise over the next 30 days.
Yet the positive sentiment hasn’t seeped into broader markets. Of course, individual stocks have reflected companies’ financial health. IBM, for example, rose on the news that it managed to trim costs, while Netflix sank 3.17% because its earnings fell.
But the broader indexes have remained essentially flat. There are, in my opinion, two reasons for that.
First, even though companies have been reporting better-than-expected results, that trend could have low base expectations to thank: Analysts think S&P 500 earnings will fall 5.2% in the first quarter. But this has the effect of making earnings look better than they actually are. As CNBC Pro’s Scott Schnipper wrote, “Expectations about the immediate earnings outlook have been down for so long, the actual numbers themselves could look like up to investors.”
Second, fewer major companies gave forecasts for the year ahead. The lack of direction regarding their future earnings, coupled with a possible interest rate hike in the U.S. — which now seems more concrete after the U.K. reported yesterday that its inflation remained in the double digits — exacerbated investors’ uncertainty.
It appears that investors are already training their eyes on the Federal Reserve’s next meeting in May, rather than poring over last quarter’s earnings.
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An aerial view of Tesla Shanghai Gigafactory on March 29, 2021 in Shanghai, China.
Xiaolu Chu | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Markets were mostly flat Wednesday despite major companies reporting. Investors weren’t swayed by better-than-expected numbers.
Tesla’s net income dropped 24% from the year-ago quarter to $2.51 billion, though its revenue rose 24% to $23.33 billion — despite six price cuts this year — surpassing estimates. Shares dropped 2.02% during market hours and a further 4.19% in overnight trading.
Morgan Stanley, like fellow investment bank Goldman Sachs, had a tough first quarter. Morgan Stanley’s earnings fell 19% from a year earlier to $2.98 billion, and its revenue slipped 2% to $14.52 billion. Still, both figures beat Wall Street’s expectations, boosting the bank’s shares 0.67%.
IBM’s first-quarter revenue rose 0.4% from a year earlier to $14.25 billion, but its net income jumped a more drastic 26% to $927 million. That suggests the technology giant managed to improve margins. Investors cheered, pushing its shares up 1.61% in extended trading.
PRO Earnings reports from regional banks show that deposits are stabilizing. Investors were so bullish on one regional bank that they caused its shares to surge 24.12% on Wednesday.
Companies have been beating earnings estimates. The 44 companies in the S&P 500 that had reported earnings as of Tuesday night posted sales growth that was 2.2 percentage points better than expected and earnings that were 8 percentage points higher than forecast, according to Julian Emanuel at Evercore ISI.
Adding on to the optimism, the Cboe Volatility Index — a gauge of investor fear popularly known as the VIX — is near a 52-week low. In other words, investors think stock prices will rise over the next 30 days.
Yet the positive sentiment hasn’t seeped into broader markets. Of course, individual stocks have reflected companies’ financial health. IBM, for example, rose on the news that it managed to trim costs, while Netflix sank 3.17% because its earnings fell.
But the broader indexes have remained essentially flat. There are, in my opinion, two reasons for that.
First, even though companies have been reporting better-than-expected results, that trend could have low base expectations to thank: Analysts think S&P 500 earnings will fall 5.2% in the first quarter. But this has the effect of making earnings look better than they actually are. As CNBC Pro’s Scott Schnipper wrote, “Expectations about the immediate earnings outlook have been down for so long, the actual numbers themselves could look like up to investors.”
Second, fewer major companies gave forecasts for the year ahead. The lack of direction regarding their future earnings, coupled with a possible interest rate hike in the U.S. — which now seems more concrete after the U.K. reported yesterday that its inflation remained in the double digits — exacerbated investors’ uncertainty.
It appears that investors are already training their eyes on the Federal Reserve’s next meeting in May, rather than poring over last quarter’s earnings.
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Club holding Morgan Stanley (MS) reported better-than-expected first-quarter results on Wednesday, even as the stock came under pressure due to rising expenses. But the results, including stellar non-interest income, were impressive in a challenging economic environment. Revenue declined 2% year-over-year, to $14.52 billion, but outpaced analysts’ expectations of $13.92 billion, according to estimates compiled by Refinitiv. Earnings-per-share dropped by 16% annually, to $1.70, but exceeded the $1.62 per share forecasted by analysts, Refinitiv data showed. Morgan Stanley stock initially tumbled nearly 4%, before reversing some of those losses to rise just under 1% in afternoon trading Wednesday, to about $90.50 a share. Bottom line An increase in provisions for credit losses and higher-than-expected compensation expenses weighed on shares early in Wednesday’s session — but Morgan Stanley, nonetheless, reported a solid first quarter. Notably, the increase in provisions was due to pressure in the commercial real estate market, the deteriorating macroeconomic outlook and a higher estimate for the Federal Reserve’s main interest rate, all of which are out of management’s control. Net interest income came in a tad short versus expectations, but we’re more focused on the better-than-expected results coming from the non-interest income side of the business. That income — the bulk of which is generated in the wealth management division — is fee-based, which makes it less volatile because it’s not reliant on interest-rate fluctuations. As a result, it stands to support a higher valuation multiple, given the consistent, recurring revenue. Institutional securities were down annually, a result of lower underwriting and M & A activity. But the management team said Wednesday they’re already seeing growth in the M & A pipeline and “some spring-like signs of new issuance emerging,” though the real rebound won’t be realized until the second half of 2023 and into 2024. Asia was a bright spot for institutional securities, delivering its third-highest quarter on record, driven by Japan and China’s economic reopening. In the wealth management division, the bank was able to pull in about $110 billion in net new assets for the quarter. Morgan Stanley aims to grow net new assets by $1 trillion every three years, which amounts to about $333 billion per year. That makes $110 billion in the first quarter a solid start to achieving that nearer-term goal, ahead of the bank’s longer-term objective of amassing $10 trillion in client assets. We were also pleased to hear management cite positive international momentum at its investment management division, helped by its acquisition of asset management firm Eaton Vance. Despite a difficult operating environment, Morgan Stanley remains a best-in-class investment bank. As the macroeconomic picture improves, we expect the bank to be able to expand top-line growth and reduce expenses. We maintain a 2 rating on the stock — meaning we would wait for a pullback before buying up more shares — and a price target of $105 per share. In the meantime, we’re content to collect the 3.5% yield the stock currently offers, while management leverages the lower price to repurchase more shares. Segment results Institutional securities Investment banking revenues contracted as a result of lower advisory fees in connection with reduced M & A activity; a decline in equity underwriting revenues due to lower initial public offering volumes; and a fall in fixed-income underwriting revenues as a result of fewer non-investment grade loan issuances. Equity revenues were down on lower volumes and global equity market declines. Fixed income revenue suffered from a decline in commodity prices and foreign exchange-related revenues. Total expenses fell 2.3% annually, to $4.72 billion, while provisions for credit losses increased to $189 million, from $44 million a year ago. The increase in provisions reflects the growing risks being seen in the commercial real estate market and worsening macroeconomic outlook. Wealth management Asset management revenue was down on lower asset levels, due to market declines. Transactional revenue was up nicely on a reported basis, but fell 12% annually when including the impact of mark-to-market gains on investments associated with deferred compensation plans. Net interest income was higher on the back of rising interest rates and lending growth. Total expenses for the segment increased 10.4% annually, to $4.8 billion, while provisions for credit losses increased to $45 million, up from from $13 million a year ago, due to the firm’s worsening macroeconomic outlook. Notably, the bank added roughly $110 billion in net new assets in the first quarter, $20 billion of which management believes was the result of outflows from regional banks following the collapse of Silicon Valley Bank last month. Management noted that the regional banking crisis in the U.S., coupled with rising interest rates over the past year, resulted in a 3% decline in deposits in the first quarter. That was, in part, due to clients increasing their allocations to cash equivalents like money market funds and U.S. Treasurys by over 60% year-over-year. Roughly 23% of client assets are being held in these cash-like securities, well above the roughly 18% level seen historically, management said Wednesday. Investment management Asset management and related fees fell as a result of lower assets under management, which were hit by lower asset prices and outflows. Performance-based income and other were up, in part due to mark-to-market gains on investments connected with deferred compensation plans. Total assets under management fell largely as a result of lower asset values compared with a year ago. Total expenses for the segment increased 1.4% annually, to $1.12 billion. Capital returns Morgan Stanley repurchased 16 million shares in the first quarter, at an average purchase price of $95.16 per share, resulting in a return of capital to shareholders of $1.5 billion. There is about $14.25 billion remaining under the current buyback authorization, as of the start of the second quarter. Looking ahead, the board authorized a quarterly dividend of nearly 78 cents per share. (Jim Cramer’s Charitable Trust is long MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The Morgan Stanley headquarters building is seen on January 17, 2023 in New York City.
Michael M. Santiago | Getty Images
Club holding Morgan Stanley (MS) reported better-than-expected first-quarter results on Wednesday, even as the stock came under pressure due to rising expenses. But the results, including stellar non-interest income, were impressive in a challenging economic environment.
The opening days of the first-quarter earnings season have spurred a sigh of relief among investors, especially when it comes to the regional banks whose future seemed seriously in doubt just a month ago. The headliner of the group is Western Alliance , which said on Tuesday that its deposits dropped 11% in the first quarter, to $47.6 billion, but that the trend has reversed and deposits grew by $2 billion in the first two weeks of April. The stock surged by 24% on Wednesday after being down about 45% for the year before the report. WAL 1D mountain Western Alliance’s stock surged on Wednesday. The inflows of deposits suggest that individual and business customers have grown comfortable with the banks again after a wave of withdrawals led to the failures of Silicon Valley Bank and Signature Bank in March. “It appears that mgmt. has stabilized the liquidity stress that it experienced in the aftermath of SVB’s failure,” Bank of America analyst Ebrahim Poonawala said in a note to clients about Western Alliance’s report. Similarly, Wells Fargo analyst Timur Braziler said in a note that “existential risk” is off the table for Western Alliance, and that sentiment could be extended across much of the group. For example, Wedbush upgraded Western Alliance to outperform from neutral and added the stock to its best ideas list, but it also added Regions Financial , M & T Bank and New York Community Bancorp . A quick glance at the early reports from the biggest regional banks show only modest deposit declines in the first quarter. One deposit drop that caught some analysts off-guard among the larger regional banks was a nearly $20 billion decline at US Bancorp , but the bank still has more than $500 billion in deposits. More than half of the decline came from accounts associated with MUFG Union Bank, which US Bancorp acquired late last year. The much smaller SVB, by contrast, suffered more than $40 billion in withdrawals in a single day before it was seized by regulators. There were even some smaller banks that reported growing deposits for the first quarter, including Pinnacle Financial Partners and United Community Banks . Consumer finance company Synchrony also reported an expanded deposit base. Longer term outlook However, the stabilized funding may not be enough for the regional bank stocks to catch up to their larger competitors, which are viewed as safer and have more diversified businesses. “We’re struck by the dichotomy developing between the big banks and the small banks… the former have stabilized post JPM earnings, while the latter continues to plumb fresh lows,” Strategas partner Chris Verrone said in a note to clients on Wednesday morning. Even if deposits stabilize, a shift away from noninterest-bearing accounts is squeezing profit margins at all manner of financial institutions. Citizens Financial , for example, cut its full-year guidance for net interest income growth to 5%-7% from 11%-14% previously. The loan books for these banks could also hold back the stocks. A potential recession could cause credit losses at regional banks in the coming months, and commercial real estate exposure is particularly concerning for investors. And there is at least one big hurdle still to come for regionals this earnings season. First Republic , which saw larger banks step in to refill its deposit base last month, is set to announce its results next Monday, April 24. — CNBC’s Michael Bloom contributed to this report.
France has been mired in turmoil for months, as president Emmanuel Macron’s push to raise the pension age led to widespread protests . But oddly, the French stock market has been climbing, thanks in part to high-end consumers in China and a seemingly insatiable demand for all things Cartier, Dior and Chanel. The iShares MSCI France ETF (EWQ) is nearing an all-time high, and Strategas Securities’ ETF and technical strategist Todd Sohn said in a note to clients that the fund is getting a boost from its large percentage of luxury goods companies, which give investors a more stable way to bet on China’s economic reopening after its Zero Covid slowdown. “There’s crazy volatility with Chinese markets, because they decline 20-40% in any given year. And so if I don’t want to deal with that, if I can’t stomach it, let me play a derivative of it, and France, in a way, is the best way to do that,” Sohn told CNBC. For example, the biggest holding in EWQ is LVMH Moet Hennessy — Louis Vuitton , which reported that 16% of its revenue came from Asia ex-Japan in 2022 , down from 30% in 2019 , before the pandemic. With China’s reopening gaining steam this year, Paris-traded LVMH has jumped by 29%, making its chairman and CEO Bernard Arnault the world’s richest man . LVMH accounts for about 13% of the EWQ. Other large luxury holdings in the ETF include cosmetics maker L’Oreal and women’s scarves and silk accessory company Hermes International . Those stocks have helped push up the EWQ more than 14% this year to levels rarely seen in its history. The fund is threatening to top its all-time closing high, set back in November 2021, according to FactSet data. That rally barely topped a previous high from 2007. EWQ ALL mountain The iShares MSCI France ETF is trading at close to its all-time high. “You’ve been, in a way, rangebound for 15 years now,” Sohn said. To be sure, the outsized rallies for luxury stocks — and new highs for the fund — could also be a sign that a reversal is near, at least in the short-term. However, Roth MKM chief market technician JC O’Hara said in a note to clients on Sunday that it appears that luxury stocks still have room to run. “We first highlighted the strength of the Luxury Goods market in early December. Since that time, the S & P Global Luxury Goods Index has risen +13%, versus the S & P 500, +1.8%. We continue to favor the technical setup of many of the luxury good charts,” O’Hara wrote. Investors could certainly buy some of the individual luxury names on their own. But from an ETF perspective, the EWQ — with an expense ratio of 0.53% — might be the smartest option for U.S. investors even if it is not a pure play, according to Sohn. What’s more, not all French luxury goods stocks trade in the U.S. “If you want to get exposure, the France country ETF is the best way, because otherwise you’re playing Europe regional ETFs or international quality ETFs, and they’re more watered down. There’s no good thematic way to play those luxury names,” Sohn said. — CNBC’s Michael Bloom contributed to this report.
An employee exits Goldman Sachs headquarters in New York, US, on Tuesday, Jan. 17, 2023.
Bing Guan | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Markets were mostly flat on Tuesday despite a bevy of big companies reporting earnings. Investors were likely concerned about higher interest rates.
Goldman Sachs had a bad first quarter. The bank’s earnings fell 18% from a year earlier to $32.23 billion and its revenue dropped 5% to $12.22 billion. Revenue slid because the bank sold part of its Marcus loans portfolio at a $470 million loss.
Netflix’s earnings fell to $1.31 billion from $1.6 billion from a year earlier even though its revenue grew to $8.16 billion from $7.87 billion. This suggests its margins are narrowing. Separately, the company is delaying plans to stop users in the U.S. from sharing passwords after the scheme slowed subscriber growth in other countries.
Johnson & Johnson’s first-quarter sales grew 5.6% compared with the same period last year, though it reported a net loss of $68 million because of a lawsuit involving the company’s talcum powder. The consumer staples giant foresees headwinds for its pharmaceutical department, lowering its sales target for 2025 to $57 billion from $60 billion.
PRO Disney has a strong slate of films coming out — and its share could rally as much as 34.6% on the back of “tentpole titles” like “The Little Mermaid,” according to a Deutsche Bank analyst.
There are two types of banks, broadly speaking. First, commercial banks, which primarily serve consumers and businesses by accepting their deposits and extending loans to them. Second, investment banks, which help institutions and governments navigate complex financial transactions such as trading, mergers and acquisitions.
Intuitively, the way they make money is different. Commercial banks reap profits from the difference in interest rates between the loans they make and the deposits they receive, while investment banks earn fees on their dealmaking activity.
Bank of America belongs to the first category; Goldman the second. This explains why their earnings, fundamentally, diverged so much. In today’s high interest rate environment, commercial banks tend to earn more since they can charge higher rates for their loans while keeping deposit rates low, whereas investment banks typically see a fall in fees because of reduced financial activity.
Investors punished Goldman for the bank’s lackluster quarterly results and apparently confusing strategy, sending its shares down 1.7% — and they dipped a further 0.18% in after-hours trading. Investors were also let down by Johnson & Johnson’s sales forecast. The company’s shares dropped 2.81%.
Nevertheless, U.S. markets were mostly flat. Investors were probably more worried about interest rates, a problem of the future, than earnings reports, a snapshot of the past. And for good reason: Atlanta Federal Reserve President Raphael Bostic told CNBC he anticipates “one more move” on rate hikes, followed by a pause “for quite some time.”
Higher interest rates for longer means tighter margins, lower profits for companies and a general slowdown in the economy. No wonder markets are still, despite the bevy of earnings reports from big companies.
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Netflix Inc.’s stock initially plunged in after-hours trading Tuesday, after the streaming giant posted weaker subscriber growth and forecast a smaller profit than Wall Street expected. But shares later recovered and crossed into positive territory on company disclosures that its new ad-supported service is a success and its crackdown on shared accounts in the U.S. is coming this quarter.
Netflix NFLX, +0.29%
reported that subscribers increased by 1.75 million in the first quarter of the year, missing analysts’ average estimate of 2.2 million. Netflix reported fiscal first-quarter net earnings of $1.31 billion, or $2.88 a share, compared with $3.53 a share in the year-ago quarter.
Revenue improved to $8.16 billion from $7.87 billion a year ago. Analysts surveyed by FactSet had expected on average net earnings of $2.86 a share on revenue of $8.18 billion.
For the second quarter, Netflix executives guided for earnings of $2.84 a share on $8.24 billion in revenue, while analysts on average were expecting earnings of $3.07 a share on sales of $8.18 billion. Netflix no longer provides guidance on subscriber additions, a sign its years of rapid growth are clearly cooling.
Shares plunged lower than $300 in after-hours trading immediately following the release of the results, after closing with a 0.3% increase at $333.70. But shares had crossed into positive territory and were recently above $335 in the extended session.
Netflix executives have hoped to goose their financial results with cheaper, ad-supported options and a crackdown on password sharing. In a letter to shareholders Tuesday, company executives said the ads plan in the U.S. “already has a total ARM (subscription + ads) greater than our standard plan.”
At the same time, they disclosed a password crackdown in the U.S. will occur in the second quarter, a bit later from previous expectations.
“We shifted out the timing of the broad launch from late Q1 to Q2,” Netflix executives wrote. “While this means that some of the expected membership growth and revenue benefit will fall in Q3 rather than Q2, we believe this will result in a better outcome for both our members and our business.”
“This a catch-22 environment for streaming companies as they are pivoting from chasing subscribers to chasing profits while at the same time inflation-weary consumers are reassessing their discretionary spending habits,” KPMG U.S. National Media Leader Scott Purdy said, in assessing the results. “Today’s figures, a bellwether for the industry at large, signal that winter is coming for the consumer. All of the subsidies are ending. Consumers can expect to be hit with ads, higher prices, and password sharing crackdown.”
Expectations among investors heading into Netflix’s quarterly report were muted. The focus was on Netflix’s switch toward better monetization with an ad-supported service and a rolling crackdown on shared accounts. Analysts in particular were closely watching the performance of Netflix’s new “Basic with Ads” plan ($6.99 a month) and its effectiveness in stanching the defection of subscribers to competing services from Walt Disney Co. DIS, +0.63%
and Apple Inc. AAPL, +0.75%.
Netflix’s rollout of the ad-supported tier could also have a temporary impact on margins: Netflix reported an operating margin of 21%, compared with about 25% in the year-ago quarter.
At the same time, Netflix put an end to paid shared accounts in some Latin American countries last year, and expanded plans to do so Canada, New Zealand, Portugal and Spain in February.
“In our view, the password-sharing crackdown will result in a greater number of subs as well as revenue because the primary account holder will either pay an additional fee for members who have moved out of the household or those sharing accounts become full subscribers,” Bank of America analysts said in a recent note.
Shares of Netflix have climbed 12% so far this year, while the broader S&P 500 index SPX, +0.09%
has advanced 8%.
A federal appeals court ruled Monday that Berkeley, California, cannot enforce a ban on natural gas hookups in new buildings, saying a U.S. federal law preempts the city’s regulation.
The ruling from the 9th U.S. Circuit Court of Appeals in San Francisco was a response to a case from 2019 by the California Restaurant Association against the city of Berkeley. In the appeal, the three-judge panel said the U.S. Energy Policy Conservation Act of 1975 preempts the city’s ban on the installation of natural gas piping within new construction.
“By completely prohibiting the installation of natural gas piping within newly constructed buildings, the City of Berkeley has waded into a domain preempted by Congress,” Judge Patrick Bumatay, a Trump appointee, wrote for the panel.
The decision could have ramifications for efforts by other cities and counties in California to ban natural gas appliances in new buildings to help reduce climate-changing greenhouse gas emissions. A few dozen cities across the country, including San Francisco, New York City, San Jose, Seattle, and Cambridge, Massachusetts, have also moved to ban natural gas hookups in some new buildings, citing environmental and health reasons.
All three judges on the panel were Republican appointees. The ruling reversed a 2021 decision by a U.S. district judge who had blocked the challenge to the city’s ban.
However, states such as Texas and Arizona have barred cities from imposing natural gas bans and argued that consumers should have the right to choose their energy sources.
Jot Condie, president and chief executive of the California Restaurant Association, in a statement said the city’s ordinance is an overreaching measure beyond the scope of any city and that it would limit the variety of cuisine that restaurants can offer.
“Natural gas appliances are crucial for restaurants to operate effectively and efficiently,” Condie said. “Cities and states cannot ignore federal law in an effort to constrain consumer choice, and it is encouraging that the Ninth Circuit upheld this standard.”
Netflix reports earnings after the bell Tuesday and traders know that pretty much all that matters to the stock is how many subscribers did the streamer add for the prior period. The stock has been on a roll the last three quarters as Netflix posted an increase in net global subscriptions that, each time, significantly beat Wall Street’s expectations. Netflix’s recent streak of subscriber surprises come after the streaming giant struggled to add subscribers in the fourth quarter of 2021 and glaringly missed consensus expectations in the following quarterly period. Those uncharacteristic misses dramatically cut the value of the stock. But Netflix has doubled off its 52-week low as it got its subscriber mojo back. Here’s a look at recent quarters’ subscriber additions vs. Wall Street estimates and the subsequent stock reaction, according to Goldman Sachs data. The question for investors now is: Will Netflix be able to keep this momentum? Although the stock is seeing better days, Goldman isn’t too sure. Analysts at the firm expect Netflix to report in-line to a possible slight upside in subscriber performance for the first quarter, saying they had expected the company to implement a more accelerated global crackdown on widespread password-sharing . The company’s crackdown extended to just four additional markets during this period, Goldman noted. “We believe NFLX mgmt will frame the password sharing crackdown as a longer duration initiative in 2023 that it is likely to be better aligned in specific geographies with a more robust content slate than the one seen in March 2023,” Goldman analyst Eric Sheridan wrote in the research note that contained data on the company’s subscription performance. Analysts surveyed by FactSet expect the streaming giant to announce 1.38 million new memberships for the first quarter of 2023, and to post earnings per share of $2.86 on revenue of $8.18 billion. The company previously predicted that revenue growth in the first quarter of this year would rise 4%, driven by additional paid memberships and more money per paid membership. So far, the recent surge in subscriptions have proven the success of Netflix’s less-expensive ad-supported plan launched in November. Although ad-supported subscribers represent 1% of Netflix’s U.S. subscriber base, Goldman analysts expect this plan to attract additional members. The first quarter also marks Netflix’s rollout of its paid sharing program launched in February, which allows users to pay extra to share their account with people outside of their homes. Netflix previously said it would no longer give subscriber guidance after its earnings report for the third quarter of 2022, although it will still report the numbers in future earnings reports. The company said it is prioritizing revenue as its primary top line metric rather than paid membership growth.
Gerry Fowler, head of European equity strategy at UBS, discusses the radical rotations in stock markets and how investors can position themselves in the current climate of economic uncertainty.
and other Chinese stocks fell Tuesday despite the country’s economy rebounding at a faster-than-expected pace in the first quarter.
China’s gross domestic product (GDP) rose 4.5% in the first three months of the year, convincingly beating the FactSet economists’ consensus for 3.4% growth.
U.S. Treasury yields were little changed on Tuesday, as investors continued to assess the outlook for the U.S. economy and digested the latest round of corporate earnings.
As of around 2:20 a.m. ET, the yield on the benchmark 10-year Treasury note was fractionally higher at 3.5946% while the yield on the 30-year Treasury bond also nudged marginally upwards to 3.8080%. Yields move inversely to prices.
Corporate earnings season dominates this week’s agenda, with giants Johnson & Johnson, Bank of America and Goldman Sachs all set to report before the opening bell on Wall Street on Tuesday.
On the data front, traders will have an eye on the March housing starts and building permits figures due at 8:30 a.m. ET. Housing starts for the month are expected to have fallen by 3.4% to 1.40 million units, according to Dow Jones consensus estimates, while building permits are projected to drop by 4.9% to 1.45 million units.
Markets are closely following economic data for a read on where the Federal Reserve might take interest rates at its next meeting in early May. More than 84% of traders are calling a 25 basis point hike at the next policy meeting, according to CME Group’s FedWatch tool.
An auction will be held Tuesday for $34 billion of 52-week Treasury bills.
Tourists bustle in front of Huawei’s global flagship store near Nanjing Road Pedestrian street in Shanghai, China, March 21, 2023.
CFOTO | Future Publishing | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
China’s economy boomed in the first three months of the year. In the U.S., regional banks’ earnings reports weren’t a disaster, but neither were they a picture of health.
China reported its first-quarter gross domestic product popped 4.5% from a year earlier, more than economists’ expectation of 4% and the highest since the first quarter of 2022. Retail sales, a key engine of China’s growth, surged 10.6% in March.
Markets expect the Federal Reserve to continue hiking rates at its next meeting, but central banks in Asia-Pacific are already hitting the brakes on rate increases — and some might even start cutting rates this year.
Samsung is reportedly considering switching from Google to Microsoft’s Bing as the default search engine on its phone. If the South Korean conglomerate carries through on its plan, Alphabet, Google’s parent, could lose billions of dollars in advertising. Alphabet sank 2.66% on the news.
PRO Higher interest rates helped big U.S. banks reap huge profits and revenue. But they’re hurting smaller banks like State Street, which fell short of earnings expectations. Here’s why rates affect those banks’ revenue differently.
China’s economy is rebounding on multiple fronts, according to data released Tuesday by the country’s National Bureau of Statistics. Last month, gross domestic product shot up, retail sales boomed, industrial output rose and fixed asset investment climbed.
Admittedly, some of those figures were lower than expected. Real estate investment declined, indicating China’s property sector is still a weak point in the country’s economy. Detractors can also point to China’s lower-than-expected 0.7% rise in March’s consumer price index, year on year, as a sign that consumption might not be as robust as retail sales suggest.
Indeed, the tepid reactions of stock markets on the mainland and in Hong Kong reinforce the idea that the red-hot numbers aren’t as significant as they initially seem.
Meanwhile, regional banks in the U.S. began reporting results Monday. It wasn’t the disaster many had feared, but it didn’t paint a picture of health in the sector, either.
First, the good news. Charles Schwab’s first-quarter net income rose 14% from a year ago to $1.6 billion, while its revenue increased 10% to $5.12 billion. Its revenue didn’t reach Wall Street’s estimate, but it’s pretty remarkable the bank (which also functions as a brokerage) managed to increase its profit despite being one of the hardest-hit financial institutions amid SVB’s collapse. Investors thought so too, pushing Charles Schwab shares 3.94% higher.
M&T Bank, a bank with assets of $201 billion (as of 2022), posted even better results. It beat first-quarter expectations on both the top and bottom lines, causing its stock to surge 7.78%.
But other banks didn’t fare as well. State Street, which is a custodian bank that holds financial assets like stocks and bonds, saw a 5% decline in first-quarter net income, to $549 million, even though its total revenue rose. The report made investors unload State Street stock, which plunged 9.18%.
Bank of New York Mellon, another large custody bank, sank 4.59% after State Street posted its earnings.
Earnings aside, all banks that reported Monday revealed a drop in deposits. Those at State Street and M&T shrank about 3%, while Charles Schwab saw an 11% drop in deposits from the prior quarter. However, when juxtaposed against the banks’ stock movement, it seems investors were more concerned about profitability than the size of deposits, which could be a promising signal that it’s back to business as usual in the sector.
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UNITED STATES – JUNE 30: Pedestrians pass by a Charles Schwab brokerage, in New York, Friday, June 30, 2006. (Photo by Stephen Hilger/Bloomberg via Getty Images)
Stephen Hilger | Bloomberg | Getty Images
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Regional banks’ earnings reports weren’t a disaster, but neither were they a picture of health.
Samsung is reportedly considering switching from Google to Microsoft’s Bing as the default search engine on its phone. If the South Korean conglomerate carries through on its plan, Alphabet, Google’s parent, could lose billions of dollars in advertising. Alphabet sank 2.66% on the news.
PRO Higher interest rates helped big U.S. banks reap huge profits and revenue. But they’re hurting smaller banks like State Street, which fell short of earnings expectations. Here’s why rates affect those banks’ revenue differently.
Regional banks in the U.S. began reporting results Monday. It wasn’t the disaster many had feared, but it didn’t paint a picture of health in the sector, either.
First, the good news. Charles Schwab’s first-quarter net income rose 14% from a year ago to $1.6 billion, while its revenue increased 10% to $5.12 billion. Its revenue didn’t reach Wall Street’s estimate, but it’s pretty remarkable the bank (which also functions as a brokerage) managed to increase its profit despite being one of the hardest-hit financial institutions amid SVB’s collapse. Investors thought so too, pushing Charles Schwab shares 3.94% higher.
M&T Bank, a bank with assets of $201 billion (as of 2022), posted even better results. It beat first-quarter expectations on both the top and bottom lines, causing its stock to surge 7.78%.
But other banks didn’t fare as well. State Street, which is a custodian bank that holds financial assets like stocks and bonds, saw a 5% decline in first-quarter net income, to $549 million, even though its total revenue rose. The report made investors unload State Street stock, which plunged 9.18%.
Bank of New York Mellon, another large custody bank, sank 4.59% after State Street posted its earnings.
Earnings aside, all banks that reported Monday revealed a drop in deposits. Those at State Street and M&T shrank about 3%, while Charles Schwab saw an 11% drop in deposits from the prior quarter. However, when juxtaposed against the banks’ stock movement, it seems investors were more concerned about profitability than the size of deposits, which could be a promising signal that it’s back to business as usual in the sector.
The major U.S. indexes all rose, but only mildly. The S&P 500 added 0.33%, the Dow Jones Industrial Average 0.3% and the Nasdaq Composite rose 0.28%. Investors are still waiting for companies in other industries to report this week — some, like health care and communications, may disappoint investors, according to Sam Stovall, chief investment strategist at CFRA Research.
″It’s sort of a wait and see,” Stovall said, “because what the banks giveth, the rest of the market might taketh away.”
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Market Movers rounded up the best reactions from investors and analysts on Alphabet ‘s latest news. The experts, including Jim Cramer , discussed the tech giant as its shares fell 2.6%. The action followed a report in The New York Times that Samsung is considering a switch from Google to Microsoft’s Bing as its default search engine on its devices. Further, Morgan Stanley reiterated Alphabet as overweight and remained bullish on the stock heading into earnings next week. Alphabet is currently held in Jim Cramer’s Charitable Trust portfolio.
Defense spending is on the rise around the globe. That’s good for Lockheed Martin’s business, but investors should still brace for a sales “miss” when the company reports first-quarter earnings on Tuesday morning.
Wall Street is looking for per-share earnings of $6.05 from $15 billion in sales. A year ago,
Lockheed
(ticker: LMT) reported per-share earnings of $6.44 from sales of just under $15 billion.
Oil and gas giant Shell must donate more than $1 billion in unexpected profits from the potential sale of its assets in Russia to help rebuild Ukraine, according to a top Kyiv official.
In a letter to CEO Wael Sawan, dated April 18 and seen by POLITICO, Ukrainian President Volodymyr Zelenskyy’s economic adviser Oleg Ustenko called on Shell to share with Ukraine any profits from a potential Russian buyout of the British firm’s stake in a Siberian fossil fuel venture.
“If completed, this sale would represent the transfer of more than $1 billion in Russian cash into Shell’s accounts. That would be blood money, pure and simple,” Ustenko wrote.
“We call on Shell to put any Russian sale or dividend proceeds to work for the victims of the war — the same war that those assets have fuelled and funded,” he added.
Following the full-scale invasion of Ukraine last year, Shell announced it would exit the Russian market and write off up to $5 billion of assets and investments in the country as a result.
That included a 27.5 percent stake in the Sakhalin-2 project, a major oil field and offshore gas drilling venture in the Russian far east. The company wrote down around $1.6 billion for its stake in the site, and the Kremlin’s move to nationalize the venture in July last year raised concerns the firm would lose its capital.
However, Russian business media reported earlier this week that the government signed off on a trade in which the country’s second-largest gas producer, Novatek, would buy out Shell’s stake for 95 billion rubles — currently worth around $1.16 billion. Shell has previously said it is not involved in any negotiations on the issue.
Shell declined to give a public comment, but pointed out that the company is not actively engaged in any business with ongoing operations inside Russia, is not party to any current negotiations for the sale of a stake in Sakhalin-2 and has no clarity over what would happen to the proceeds from such a sale.
“We appreciate that as of this moment, Shell may not have a choice on whether to accept this offer,” Ustenko conceded in the letter, but maintained there is an “overwhelming” moral case for donating any such profits.
Rebuilding from the rubble
According to NGO Global Witness, the funds would amount to more than a tenth of the total repair bill for attacks on Ukraine’s energy infrastructure, which a U.N. report last week warned could be as high as $10 billion.
“It would be egregious if Shell kept this money,” said Louis Wilson, who leads Ukraine policy at the NGO. “This is money they’ve told the world they’ve written off as a loss and it’s money that comes straight from the Russian oil and gas sector. Shell has already set a precedent that profits from the war should go to Ukraine.”
In March 2022, the energy firm said it would donate $60 million to humanitarian causes in Ukraine following an outcry over its decision to purchase a cargo of Russian crude to be refined into petroleum products. While the trade did not contravene sanctions at the time, Shell admitted “it was not the right decision” and apologized.
In an interview with POLITICO last month, Ukrainian Energy Minister German Galushchenko urged major energy companies to donate excess revenues to his country.
“A lot of energy companies get enormous windfall profits due to the war,” he said. “I think it would be fair to share this money with Ukraine. To help us to restore, to rebuild the energy sector.”
That idea is getting some support from EU countries — although the final decision of whether to send cash to Ukraine is up to companies and their shareholders.
LONDON — Joe Biden is not someone known for his subtlety.
His gaffe-prone nature — which saw him last week confuse the New Zealand rugby team with British forces from the Irish War of Independence — leaves little in the way of nuance.
But he is also a sentimental man from a long gone era of Washington, who specializes in a type of homespun, aw-shucks affability that would be seen as naff in a younger president.
His lack of subtlety was on show in Belfast last week as he issued a thinly veiled ultimatum to the Democratic Unionist Party (DUP) — return to Northern Ireland’s power-sharing arrangements or risk losing billions of dollars in U.S. business investment.
The DUP — a unionist party that does not take kindly to lectures from American presidents — is refusing to sit in Stormont, the Northern Ireland Assembly, due to its anger with the post-Brexit Northern Ireland protocol, which has created trade friction between the region and the rest of the U.K.
The DUP is also refusing to support the U.K.-EU Windsor Framework, which aims to fix the economic problems created by the protocol, despite hopes it would see the party reconvene the Northern Irish Assembly.
The president on Wednesday urged Northern Irish leaders to “unleash this incredible economic opportunity, which is just beginning.”
However, American business groups paint a far more complex and nuanced view of future foreign investment into Northern Ireland than offered up by Biden.
Biden told a Belfast crowd on Wednesday there were “scores of major American corporations wanting to come here” to invest, but that a suspended Stormont was acting as a block on that activity.
One U.S. business figure, who spoke on condition of anonymity, said Biden’s flighty rhetoric was “exaggerated” and that many businesses would be looking beyond the state of the regional assembly to make their investment decisions.
The president spoke as if Ulster would be rewarded with floods of American greenbacks if the DUP reverses its intransigence, predicting that Northern Ireland’s gross domestic product (GDP) would soon be triple its 1998 level. Its GDP is currently around double the size of when the Good Friday Agreement was struck in 1998.
Emanuel Adam, executive director of BritishAmerican Business, said this sounded like a “magic figure” unless Biden “knows something we don’t know about.”
DUP MP Ian Paisley Jr. told POLITICO that U.S. politicians for “too long” have “promised some economic El Dorado or bonanza if you only do what we say politically … but that bonanza has never arrived and people are not naive enough here to believe it ever will.”
“A presidential visit is always welcome, but the glitter on top is not an economic driver,” he said.
Joe Biden addresses a crowd of thousands on April 14, 2023 in Ballina, Ireland | Charles McQuillan/Getty Images
Facing both ways
The British government is hoping the Windsor Framework will ease economic tensions in Northern Ireland and create politically stable conditions for inward foreign direct investment.
The framework removes many checks on goods going from Great Britain to Northern Ireland and has begun to slowly create a more collaborative relationship between London and Brussels on a number of fronts — two elements which have been warmly welcomed across the Atlantic.
Prime Minister Rishi Sunak has said Northern Ireland is in a “special” position of having access to the EU’s single market, to avoid a hard border with the Republic of Ireland, and the U.K.’s internal market.
“That’s like the world’s most exciting economic zone,” Sunak said in February.
Jake Colvin, head of Washington’s National Foreign Trade Council business group, said U.S. firms wanted to see “confidence that the frictions over the protocol have indeed been resolved.”
“Businesses will look to mechanisms like the Windsor Framework to provide stability,” he said.
Marjorie Chorlins, senior vice president for Europe at the U.S. Chamber of Commerce, said the Windsor Framework was “very important” for U.S. businesses and that “certainty about the relationship between the U.K. and the EU is critical.”
She said a reconvened Stormont would mean more legislative stability on issues like skills and health care, but added that there were a whole range of other broader U.K. wide economic factors that will play a major part in investment decisions.
This is particularly salient in a week where official figures showed the U.K.’s GDP flatlining and predictions that Britain will be the worst economic performer in the G20 this year.
“We want to see a return to robust growth and prosperity for the U.K. broadly and are eager to work with government at all levels,” Chorlins said.
“Political and economic instability in the U.K. has been a challenge for businesses of all sizes.”
Prime Minister Rishi Sunak has said Northern Ireland is in a “special” position of having access to the EU’s single market | Pool photo by Paul Faith/Getty Images
Her words underline just how much global reputational damage last year’s carousel of prime ministers caused for the U.K., with Bank of England Governor Andrew Bailey recently warning of a “hangover effect” from Liz Truss’ premiership and the broader Westminster psychodrama of 2022.
America’s Northern Ireland envoy Joe Kennedy, grandson of Robert Kennedy, accompanied the president last week and has been charged with drumming up U.S. corporate interest in Northern Ireland.
Kennedy said Northern Ireland is already “the No. 1 foreign investment location for proximity and market access.”
Northern Ireland has been home to £1.5 billion of American investment in the past decade and had the second-most FDI projects per capita out of all U.K. regions in 2021.
Claire Hanna, Westminster MP for the nationalist SDLP, believes reconvening Stormont would “signal a seriousness that there isn’t going to be anymore mucking around.”
“It’s also about the signal that the restoration of Stormont sends — that these are the accepted trading arrangements,” she said.
Hanna says the DUP’s willingness to “demonize the two biggest trading blocs in the world — the U.S. and EU” — was damaging to the country’s future economic prospects.
‘The money goes south’
At a more practical level, Biden’s ultimatum appears to carry zero weight with DUP representatives.
DUP leader Jeffrey Donaldson made it clear last week that he was unmoved by Biden’s economic proclamations and gave no guarantee his party would sit in the regional assembly in the foreseeable future.
“President Biden is offering the hope of further American investment, which we always welcome,” Donaldson told POLITICO.
“But fundamental to the success of our economy is our ability to trade within our biggest market, which is of course the United Kingdom.”
A DUP official said U.S. governments had been promising extra American billions in exchange “for selling out to Sinn Féin and Dublin” since the 1990s and “when America talks about corporate investment, we get the crumbs and that investment really all ends up in the Republic [of Ireland].”
“President Biden is offering the hope of further American investment, which we always welcome,” Donaldson said | Behal/Irish Government via Getty Images
“The Americans talk big, but the money goes south,” the DUP official said.
This underscores the stark reality that challenges Northern Ireland any time it pitches for U.S. investment — the competing proposition offered by its southern neighbor with its internationally low 12.5 percent rate on corporate profits.
Emanuel Adam with BritishAmerican Business said there was a noticeable feeling in Washington that firms want to do business in Dublin.
“When [Irish Prime Minister] Leo Varadkar and his team were here recently, I could tell how confident the Irish are these days,” he said. “There are not as many questions for them as there are around the U.K.”
Biden’s economic ultimatum looks toothless from the DUP’s perspective and its resonance may be as short-lived as his trip to Belfast itself.
This story has been updatedto correct a historical reference.
Workers erect a construction barrier in front of JPMorgan Chase & Co. headquarters in New York, U.S., on Friday, Jan. 11, 2019.
Michael Nagle | Bloomberg | Getty Images
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On Friday three big U.S. banks reported better-than-expected first-quarter earnings. But investors realized this wasn’t an unambiguously good sign for markets.
JPMorgan Chase, Wells Fargo and Citi reported earnings Friday. All three big U.S. banks handily beat profit and revenue expectations. JPMorgan’s numbers were the most impressive, with profit surging 52% in the first quarter.
U.S. markets fell Friday as weak retail sales overshadowed banks’ stellar earnings. Asia-Pacific stocks were mixed Monday. China’s Shanghai Composite rose 1.21% on the back of two pieces of good news: The country’s economy is expected to expand 4% in the first quarter, and its home prices grew the fastest, month over month, in almost two years.
PRO Markets this week will mostly be influenced by earnings reports, writes CNBC Pro’s Scott Schnipper. One important tip: Investors shouldn’t assume all better-than-expected numbers are good — because earnings forecasts have been negative for so long.
Investors weren’t misled by big banks’ bonanza of incredible earnings.
Yes, profit and revenue for all three banks that reported Friday rose compared with a year earlier. JPMorgan reported a record revenue of $39.34 billion, a 25% jump that beat analysts’ estimate by more than $3 billion. Wells Fargo’s revenue popped 17%, and Citi’s rose 12%.
Investors rewarded the banks for their sterling balance sheets: JPMorgan soared 7.55% and Citi added 4.78% — though Wells Fargo dipped 0.05%, not because its numbers were bad but, I suspect, because it didn’t beat Wall Street expectations as much as the other two banks.
Why were the figures so good? They had to thank rising interest rates, which allow banks to charge more for loans they make, while keeping the interest on saving accounts low. Banks pocket the difference, which is known as net interest income. It seems banks will continue benefiting from today’s high interest-rate environment: JPMorgan predicted net interest income will be $7 billion more than the bank had previously forecast.
But high interest rates are a double-edged sword. Even though higher rates fueled big banks’ earnings, they also expose weaknesses in balance sheets, as Dimon himself warned. This means that regional banks, lacking the financial heft of bigger ones to cushion possible losses — that’s essentially how SVB failed — might not have such good news to share when they report earnings next week.
In other words, what’s good for big banks’ income is not necessarily good for the economy. Indeed, data released Friday showed the economy is slowing down. Retail sales in March declined 1%, two times more than economists had expected, according to an advanced reading. Citigroup CEO Jane Fraser said on an investor call that the bank saw a “notable softening” in consumer spending this year.
Despite the excitement over the big banks’ earnings, then, investors kept a cool head, causing the three major indexes to fall. The S&P 500 lost 0.21%, the Dow Jones Industrial Index slid 0.42% and the Nasdaq Composite fell 0.35%.
Further earnings this week will give investors a clearer sense of markets.
Here are some key reports to look out for: Charles Schwab on Monday; Bank of America, Goldman Sachs and Netflix on Tuesday; Morgan Stanley, IBM and Tesla on Wednesday; American Express on Thursday; Procter & Gamble on Friday. By the end of this week, investors should know if the disconnect between a profitable corporate America and a flagging economy is limited to big banks — or if it’s another side effect of the strange times we live in.
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