Mixed showing in Asia as markets digest NFLX, TSLA earnings: Russell 2000, Straits Times Index, USD/JPY

Market Recap

Wall Street eked out further gains (DJIA +0.31%; S&P 500 +0.24%; Nasdaq +0.03%) to end the trading session overnight, but after-market earnings releases from Netflix and Tesla have brought about a more mixed showing in US equity futures this morning. Given that both companies’ share prices have witnessed stellar gains this year (Netflix +62%, Tesla +170% year-to-date), expectations may be priced for a perfect outcome on all fronts in their results, with pockets of weaknesses revealed this morning not very much well-received.

Netflix has managed to grow its subscriptions by 8% in the second quarter (Q2), revealing some success in its password-sharing clampdown, but a miss in Q2 revenue and lower-than-expected revenue forecast for Q3 translate to an 8.3% plunge in share price in after-hours trading.

On another front, Tesla has beaten both top and bottom-line estimates, but volume growth comes at the expense of its operating margin (9.6% versus 11.4% previously) with price cuts and increased discounts. Possibilities of further price cuts remain on the table as signalled by its CEO, Elon Musk. Tesla’s share price is down 4.2% in after-hours trading.

Apart from fresh market reaction to Netflix and Tesla results, the day ahead will leave eyes on a series of economic data out of the US to provide a gauge of economic conditions, such as the jobless claims data and the Conference Board leading index. The Russell 2000 is just a touch away from its key psychological 2,000 level after surging more than 9% over the past two weeks. Further broadening out of the risk rally could translate to more catch-up gains in the index, with a bullish crossover formed between its 50-day and 200-day moving average (MA) lately. A reclaim of its key 2,000 level could pave the way to retest the 2,110 level next.

Asia Open

Asian stocks look set for a mixed open, with Nikkei -0.43%, ASX +0.81% and KOSPI -0.20% at the time of writing. China's one-year and five-year loan prime rate settings were kept unchanged, which are largely expected. Australia’s jobs data will be on the agenda next to provide clues on the Reserve Bank of Australia’s (RBA) next move in rates. Thus far, rate expectations remain unconvinced for a prolonged rate pause from the RBA thus far, with bets for one more additional 25 basis-point (bp) hike by the end of this year. A weaker showing in Australia’s labour market may potentially challenge that.

On the earnings front, TSMC’s earnings will be due, with expectations for a 27% decline in quarterly profits from a year ago and a 13% decline in net revenue over the same period, reflecting ongoing moderation in the chip sector demand. Given the recent rally in share price since May this year, expectations could be for a turnaround, with Refinitiv estimates suggesting that Q2 may mark the worst in terms of top and bottom-line before a turnaround in Q3 onwards. Validation will be sought on management’s guidance on that aspect.

Perhaps a surprise showing from the mounting traction towards value sectors is the 4.8% jump in the Straits Times Index over the course of the past two weeks. A breakdown of the lower trendline of a symmetrical triangle pattern in early July eventually came short-lived, after finding support at its March 2023 bottom at the 3,140 level. Holding above its 3,270 level may leave its 3,320 level in sight next, but more signs could still be needed on whether recent upmove marked a trend reversal, given the presence of lower highs still in place.

On the watchlist: USD/JPY attempting to stabilise ahead of Japan’s inflation data tomorrow

Following a steep 5% sell-off over the past two weeks, the USD/JPY has been attempting to stabilise around its 137.60 level lately as sentiments moderate from oversold technical conditions. The 137.60 level marked a key support confluence for the pair to hold, where its 100-day MA coincides with the lower edge of its Ichimoku cloud support on the daily chart. Failure for the 137.60 level to hold for the USD/JPY could pave the way to retest a lower channel trendline at the 135.80 level, followed by the 131.50 level next.

Fresh updates on Japan’s inflation number will be on watch tomorrow. A recent pull-ahead in Japan’s wage pressures in May has sought to challenge the Bank of Japan (BoJ)’s long-lasting view of inflation being ‘transitory’. Another pull-ahead in inflation data, particularly the core aspect, may raise the odds of pricing pressures being more ingrained and further support hawkish positioning in the yen ahead of the BoJ meeting next week.

Wednesday: DJIA +0.31%; S&P 500 +0.24%; Nasdaq +0.03%, DAX -0.10%, FTSE +1.80%