Stocks falter after Wall Street rallies, yields eye break out

European stocks were weaker on Wednesday morning after a mixed session the day before. The FTSE 100 hovered around the 5,900 level in early trade before retreating to 5,850.

US stocks rose in the prior session, with the S&P 500 recovering to 3,440 and the Nasdaq clearing 11,500 again. US Treasury yields rose, with the 10-year breaking to 0.82%, its highest in over 4 months.

Gold broke higher as the dollar weakened. WTI (Dec) was steady around the $41 level after the API reported a 584,000-barrel build in crude stocks vs a forecast 1.9-million-barrel draw. EIA data later expected to show a 0.5m build.

Both Democrats and Republicans say they’re making progress on stimulus talks, though the chances of a deal before the election still look very slim.

Brexit talks are still alive as the two sides put the weekend’s harrumphing behind them. Sterling was lifted by dollar weakness with GBPUSD moving to towards the top of the range at 1.30, but this was largely about the greenback softening. DXY took a 92 handle.

The spread of the virus in Europe and the response of governments is a clear weight on the market, whilst US stimulus and election risks are to the fore. We’re also in the midst of an earnings season. And then we can throw in Brexit into the mix – lots of reasons to chop sideways for a while longer.

The boom in new customers Netflix enjoyed in the first half of the year due to the pandemic and lockdowns faded in the third quarter. Earnings missed on the bottom line and fell short in terms of net subscriber additions. EPS of $1.74 was short of the $2.14 expected, though revenues of $6.44bn were a little better than anticipated.

The key though is the net subscriber adds, which fell to 2.2m vs more than 3.5m expected. For the fourth quarter, the company guided 6m net adds, short of the 8.8m added in Q4 2019.

Clearly, there has been, as Netflix told us, a significant pull forward in demand in the first part of the year. Shares fell 5% in after-hours trade.

Alphabet – the US Department of Justice filed an antitrust lawsuit accusing the Google parent of abusing market power in a landmark case.

This may create regulatory risk and overhang for the stock going forward until there is a resolution. Whilst it is much harder to really pin the same thing on some of the other big tech names, it is clear Alphabet has monopoly power over search. It’s hard to argue otherwise, though we are sure Alphabet’s lawyers will do their best. Investors are unconcerned about it – shares rose over 1%.

Tesla reports later today. The stock has soared around 450% this year as the company has driven sales and profits higher whilst also allaying concerns about its balance sheet. Investors are expecting strong earnings off the back of a record quarterly delivery number. Tesla delivered 139,300 vehicles in the third quarter and produced 145,036. This marked a significant uptick from the roughly 90,000 delivered in Q2.

Election Watch 13 days to go

Biden’s lead is diminishing but is still meaningful. Nationally, Biden’s lead has fallen to 8.6pts, whilst in the key battlegrounds it has come into just 4pts, which is getting close to margin for error territory. At this stage in 2016, Trump was 4.1pts behind Clinton in the swing states that matter.