Markets have dropped heavily this morning, picking up the baton from New York, following Israeli air strikes on Iran on fears the to and fro could escalate into an all-out war. The FTSE 100 is down 0.75 per cent already with the Dax and Cac falling more, down 1 per cent and 0.8 per cent respectively. Asian markets were broadly lower and the S&P 500 closed down for a fifth straight day – its worst losing streak since October.
Markets were already primed for the idea that the Federal Reserve might not cut at all this year, so the Israeli strike is just noise for now. Wider escalation is the tail risk that is hard to price but a tighter Fed is cover for pulling in the horns. The International Atomic Energy Agency said there was no damage to Iran’s nuclear facilities. The reaction thus far is limited – what happens next is anyone’s guess.
Sterling hit a fresh five-month low against the dollar, with GBPUSD taking a 1.23 handle briefly overnight as risk took flight. UK retail sales were unexpectedly flat – cue chatter about Bank of England cuts. Monetary Policy Committee member Megan Greene said there was no rush to cut. Three more members speak today. Bears are still in charge with monetary policy divergence driving the narrative.
Gold: a clear geopolitical risk premium has been driving the market, though a simple metric of M1 to gold above ground implies $2,400 is about average. Oil prices jumped and then fell back as Israel launched a retaliatory attack on Iran. Geopolitics is unbelievably hard to price – oil had just fallen to where it was before the 1 April attack on the Iranian embassy in Damascus, with WTI futures touching $81. Gold spiked north of $2,400 and then fell back. Bitcoin bounced firmly off the $60k support.
Netflix reported operating income up 54 per cent in Q1 as it added 9.3mn subscribers globally following efforts to reduce password sharing. Total memberships rose 16 per cent in the first quarter, reaching 269mn, but shares fell after it announced it would stop reporting quarterly subscriber figures from the beginning of next year. The company said it wanted to focus on cash flow and profitability.
It’s worth a look at Tesla ahead of earnings. Here was Bernstein a year ago saying that Tesla “may struggle to meet 2024 unit expectations," as Chinese rivals offer models "that are larger and offer similar performance at similar to lower prices. Our survey work suggests that Tesla's brand is increasingly polarising." They slapped a $150 price target on the stock and yesterday it fell through that level, down 40 per cent YTD. Barclays is out with a note this week calling for the Q1 earnings call to be a “negative catalyst” for the stock, expecting soft margins and a miss on earnings. The focus for the call is simple – to understand how Tesla is pivoting strategy away from producing a mass market vehicle (the Model 2) to focus on autonomous driving.
The Trader is written by Neil Wilson, chief market analyst at Finalto
