Marketmind: Netflix flickers

A look at the day ahead in U.S. and global markets from Mike Dolan.

With the macro picture turning foggy again, streaming giant Netflix generated a rare bright spark in an otherwise gloomy corporate earnings season.

Netflix shares surged 7% in after-hours trading as the firm said it picked up more subscribers than expected – some 7.7 million – at the end of last year while co-founder Reed Hastings stepped down as chief executive and handed the reins to longtime partner Ted Sarandos and chief operating officer Greg Peters.

One of the stock market darlings of the pandemic lockdowns, Netflix then plunged almost 70% between late 2021 and early last year on a combination of falling subscribers and stiffer competition as well as rising inflation and interest rates that have squeezed household budgets.

But it has bounced back more than 60% from the lows of last June and the leadership shakeup may not shape the road ahead.

With aggregate S&P500 earnings tracking a year-on-year contraction of about 3% for the fourth quarter, the Netflix news was welcome. State Street and Schlumberger are among the firms reporting later on Friday.

The corporate news was less benign in cryptoland.

The lending unit of crypto firm Genesis on Thursday filed for U.S. bankruptcy protection from creditors, toppled by a market rout along with the likes of exchange FTX and lender BlockFi. Genesis’ lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion, and estimated it had over 100,000 creditors in its filing with the U.S. Bankruptcy Court for the Southern District of New York.

In wider markets, a dour Thursday showed some retreat of the early year optimism on peaking central bank interest rates.

Federal Reserve officials have been resolute all week in insisting policy rates will go above 5% this year from the current 4.25-4.50% range and won’t come down until 2024.

Markets still doubt them and futures markets only nudged their implied ‘terminal rate’ up to 4.9% overnight while still pricing almost half a percentage point of cuts in the second half of the year.

The latest U.S. weekly jobless claims show the labour market is still way too tight for many Fed policymakers to consider taking their foot off the brake, with real wage growth now turning positive once again after about 18 months in the red.

Central bankers in Europe have also doubled down on their hawkish policy message this week, with European Central Bank officials pushing back against reports it was set to slow the pace of its rate hikes next month.

Only the Bank of Japan has offered some relief on that score this week as it retained its super-easy stance and formal cap on government borrowing rates for now at least.

There were bigger concerns about the looming battle over the U.S. debt ceiling. The U.S. government hit its $31.4 trillion borrowing limit on Thursday, amid a standoff between the Republican-controlled House of Representatives and President Joe Biden’s Democrats on lifting the ceiling, which could lead to a fiscal crisis in a few months.

With many investors likely to avoid short-term debt instruments and related cash-management vehicles until the issue is resolved, the starkest reflection of the concern this week has been the biggest inversion in the 3-month-to-10-year yield curve in 40 years.

Elsewhere, world stocks were steadier to higher on Friday. Chinese stocks gained ahead of the Lunar New Year holidays next week, as strong foreign inflows boosted sentiment after the country said the worst was over in its battle against COVID-19.

Key developments that may provide direction to U.S. markets later on Friday:

* Canada Nov retail sales

* Federal Reserve Board Governor Christopher Waller and Philadelphia Fed President Patrick Harker both speak

* U.S. corporate earnings: State Street, Schlumberger, Huntington Bancshares, Regions Financial

(By Mike Dolan; Editing by Toby Chopra)