On Thursday, April 20th, financial markets are waiting for new income reports as oil prices dropped due to concerns over the slowdown of the US economic growth. Tesla disappointed with their Q1 earnings report as the electric car manufacturer prioritized growth over profit, and HSBC’s management is trying to maintain the bank’s integrity.
1. Tesla reports higher sales growth than profits
Tesla (NASDAQ: TSLA) reported its first-quarter earnings after Wednesday’s closing bell. The electric car manufacturer failed to meet Wall Street’s expectations and showed the lowest quarterly gross margin in the past two years, which was caused by a price reduction.
During the accompanying conference call, CEO Elon Musk indicated that the price war he started at the end of last year will continue. This is because the company prioritizes sales growth over profits due to weak market conditions.
“It’s better to ship a large number of cars at a lower margin and get that margin in the future when we improve autonomy,” said Musk.
The company reported a total gross margin of 19.3%, which was below the market’s expectation of 22.4%, and maintained its official delivery target of 1.8 million units this year.
Tesla is reducing prices on its electric vehicles worldwide, including in the US, where it recently announced its sixth price reduction this year. The reduction was significant, with the base price of the Model 3 in the US dropping below $40,000 for the first time in several years – $7,000 less than at the beginning of the year.
Tesla’s stock fell more than 7% in pre-market trading.
2. Income reports continue to pour in. On Thursday, there will be a flow of data on incomes, as just over one-tenth of companies on the S&P 500 list reported their earnings in the Wednesday evening earnings season update.
Telecommunications giant AT&T (NYSE: T), financial company American Express (NYSE: AXP), airline Alaska Air (NYSE: ALK), and private investment company Blackstone Group (NYSE: BX) are among the companies expected to release their results on Thursday.
In addition, IBM’s (NYSE: IBM) shares rose 2% ahead of market opening after the blue chip company exceeded profit expectations in the first quarter after Wednesday’s closing bell and signaled that demand for IT services was better than expected.
Taiwan Semiconductor Manufacturing (NYSE: TSM) reported slightly better-than-expected net profit in the first quarter, as some stability in global demand for microchips boosted sales, while Nokia (NYSE: NOK) reported operating profits that fell short of expectations in the first quarter, with the telecommunications equipment manufacturer indicating signs of slowing customer spending growth.
3. The futures market is decreasing; concerns about economic slowdown are taking center stage.
The American futures market traded sharply lower on Thursday as investors “digest” a series of corporate earnings reports ahead of the release of more important economic data with concerns about a slowdown in growth.
At 5:05 a.m. Eastern Time (9:05 a.m. Greenwich Mean Time), Dow futures fell 165 points or 0.5%, S&P 500 futures fell 32 points or 0.8%, and Nasdaq 100 futures retreated 155 points or 1.2%.
So far, earnings reports have been mixed, but it is evident that the financial results of companies listed on the S&P 500 will be weaker than they were a year ago. This suggests that the economy may slip into a recession at the end of the year.
There will be more economic data to study on Thursday – jobless claims and pending home sales – while Federal Reserve System Governor Christopher Waller, Atlanta Fed Chief Raphael Bostic, and Cleveland Fed Chief Loretta Mester are among the central bank’s speakers who will comment on the state of the US economy.
4. HSBC is trying to fend off talks of division as pressure mounts on its leadership to justify their business model, following renewed calls from one of its largest shareholders earlier this week for the Asia-focused bank to be split up.
In a statement, Ping An Asset Management Company claimed that HSBC has deprived its Asia division of dividends and capital growth to support relatively low-yielding non-Asian businesses.
The largest shareholder is expected to vote in favour of dividing the bank at the annual investors’ meeting on May 5.
HSBC responded on Wednesday evening, stating that carving out its Asia arm would lead to a significant loss of value for HSBC shareholders.
With around 8% of HSBC shares, Ping An will not be able to force a decision on its own, but the lender reported a sharp rise in profit in the last quarter of last month after several years of restructuring and cost-cutting.
Nevertheless, it is clear that the leadership of one of Europe’s largest banks has been alerted to the need for further success.
5. Oil prices fell to the lowest level since the OPEC+ decision. Crude oil prices fell on Thursday, extending recent losses on concerns that the US economic slowdown will hit crude oil demand from the world’s largest energy consumer.
As of 05:10 Eastern Time, WTI futures fell 1.9% to $77.77 a barrel, while Brent contracts fell 1.7% to $81.68 a barrel. Both benchmarks fell about 2% on Wednesday and are now at their lowest level since April 2, when OPEC+ announced an unexpected cut in production.
The Federal Reserve’s Beige Book, which periodically examines regional conditions, indicates that the US economy slowed down in recent weeks, with slower job growth and inflation, and tightened access to credit, raising concerns that the economy was slipping into recession.
These concerns outweighed the news that US oil inventories fell by 4.6 million barrels last week, according to data released Wednesday by the US Energy Information Administration.