Netflix up, P&G down

Netflix up, P&G down

The S&P500 traded lower for a third day, US yields rebounded, as the US hit its debt ceiling yesterday.

Wow, Netflix

Netflix added nearly 7.7 million new subscribers last quarter, compared to only about 4.5 million expected by the market. Harry and Meghan, among other popular Q4 shows, clearly did the trick. The stock rose nearly 10% in after-hours trading.

Why not more?

Because earnings per share far exceeded estimates due to a loss on euro-denominated debt – with the euro rebounding 10% from October to year-end. But the company’s profit margin has consistently exceeded analysts’ expectations.

The results were a relief for Netflix which was trading more than 3% at yesterday’s close. We’ll likely see the rally extend to $350 per share, the levels it was trading before the second big crash last year, in April, but the levels before the crash last January, around 500 dollars per share, seem like a distant dream.

Especially since the stock market rally at the start of the year should slowly fade. The S&P 500 traded lower for the third day in a row, failing to clear a very critical resistance zone, above the 4000 level, where the 200-DMA, and the downtrend ceiling of 2022 have prevented investors from extending the rally into a new, bullish era, without major justification either at the company level or at the macro level.

In that sense, P&G hasn’t been as lucky as Netflix. Their sales fell 6% in the fourth quarter, after raising prices by 10%. Price increases for P&G products may have reached a tipping point where customers are no longer willing to pay for

Mixed bag of news

The Federal Reserve (Fed) isn’t backing down from its rate hike rhetoric — despite easing inflation and activity — and Fed officials keep repeating that rates will rise and stay high for long time.

Major banks and institutions agree that the United States is facing a mild recession.

In the meantime, US jobs numbers continue to look strong enough to warrant further rate hikes from the Fed. Yesterday US jobless claims fell below 200,000 for the first time since last September, tempering news that Microsoft and Amazon would together cut 28,000 jobs.

No one knows where these people are going.

And as if all that weren’t enough, the United States reached its debt ceiling yesterday and began using special measures to avoid a default. The US Treasury Department is changing investments in two government-run funds for retirees – a move that will free up enough cash to allow the US government to pay its expenses through June. Then we’ll see.

So far, there is no sign of agreement between Republicans and the Biden administration. Biden does not want to cut spending.

In the FX

The US dollar index remains under pressure.

The dollar-yen is better positioned despite data showing that inflation in Japan reached 4% in December, as expected.

EURUSD remains below the 1.08 level, while the Cable continues to flirt with the 1.24 mark.

The Euro-Sterling fell to the 50 and 100-DMA levels due to a surprisingly stronger British Pound this week.

Sterling’s strength is the result of near-record wage growth and double-digit inflation. But if you ask Mr. Bailey, two months of slowing inflation are “the beginning of a sign that a turning point has been turned”.

This is clearly too optimistic when you consider that inflation in Britain is still above 10%.

Worse, Bloomberg’s English Breakfast Index is 20% higher on average compared to last year, as tea bags cost 10% more, butter block and eggs are 30% more expensive, while milk prices are up 50%!

Either Mr Bailey isn’t eating an average Brit’s breakfast, or he just isn’t earning the average Brit’s salary…

Still, the Bank of England (BoE) is expected to raise interest rates by 50 basis points at the next policy meeting, and that expectation is supporting the pound.

In the euro zone, however, Christine Lagarde seems much more down to earth. She admits that inflation around 9% is still “far too high” for Europe and that the European Central Bank (ECB) should continue to fight it with more rate hikes.

A vision also shared by Thomas Jordan of the Swiss National Bank (SNB). Further hikes are likely needed in Switzerland, he said, even if inflation is at a relatively low 2.8%.

A stricter policy of the SNB, combined with the inflation gap between Switzerland and the United States, supports a further decline of the dollar-franc to 0.90 mark.

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