Top 5 Things to Know in the Market on Wednesday, 22nd January

By Geoffrey Smith

Investing.com -- Stocks are set to bounce after China reassured that it would be transparent about the progress of the coronavirus outbreak. Well-received earnings from Netflix (NASDAQ:NFLX) and IBM (NYSE:IBM) are likely to help U.S. indices at the open, but a new warning from Boeing (NYSE:BA) over the 737 MAX program is weighing on the Dow. President Donald Trump revived threats of a trade war with the EU, while the dollar goes from strength to strength - and may get a further boost later from either U.S. housing market data or a shift to easier monetary policy from the Bank of Canada. Here's what you need to know in financial markets on Wednesday, 22nd January.

1. Trump revives trade threats

President Donald Trump revived the threat of a trade war with the European Union, with a fresh threat to levy tariffs on European auto exports if the EU fails to agree to a “new deal”. He didn’t specify what that new deal would entail, other than complaining about the size of the EU’s surplus with the U.S. (which he exaggerated).

Trump told CNBC that in his meeting with new EU Commission President Ursula von der Leyen on Tuesday, he had said that in the absence of a new deal, he would “take action” in the form of “very high tariffs on their cars and other things.”

The comments expose the persistent divisions between the two, which were papered over at the weekend by reports talking up an informal truce until next year. French sources suggested that France had agreed to suspend its plans for a digital services tax, which would largely have hit U.S. tech giants, until next year.

2. China reassures on coronavirus

China’s National Health Commission said the number of confirmed fatalities from the coronavirus had risen to nine, while the number of confirmed cases had risen to 440. However, global stock markets were taking a more relaxed view of the outbreak on Wednesday: Chinese stocks rose across the board after reassurances of transparency from the country’s authorities regarding the outbreak's progress.

Late on Tuesday, the U.S. Center for Disease Control had confirmed the first case of the disease in the U.S., in Washington state.

The outbreak is happening just before the Lunar new year holiday, typically the peak season for travel in China. That has raised fears that the pneumonia-like virus, which appears to have originated in the central Chinese city of Wuhan, will spread throughout the country and region.

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3. Netflix’s leaky bucket

Netflix (NASDAQ:NFLX) pulled in 8.3 million new subscribers in foreign markets in the last quarter of the year, far more than either it or Wall Street expected. The numbers reflect the continuing potential to grow by raising penetration in overseas markets.

Revenue rose 30%, a fraction more than expected, while earnings were flattered by a one-off tax gain.

The less good news was that it missed its forecasts for U.S. subscriber growth for the third quarter in a row, evidence of increasing pressure from competing streaming services such as Disney+. Given that those rivals are set to follow Netflix’s international expansion in due course, the onus will be on Netflix (NASDAQ:NFLX) to prove that it can defend its first-mover advantage. Netflix stock rose 2.3% in after-hours trading.

4. Stocks set to open higher

U.S. stock markets are set to open clearly higher on Wednesday in the wake of reassuring updates not only from Netflix (NASDAQ:NFLX) but IBM (NYSE:IBM) too, which finally reported a quarterly rise in revenue after 20 straight declines. The news gave some hope that the acquisition of Red Hat last year will accelerate the company’s reinvention as a cloud-based service provider.

By 6:20 AM ET (1120 GMT), Dow futures were up 83 points, or 0.3%, while S&P 500 futures were up 0.4% and Nasdaq 100 futures were up 0.6%. Dow 30 futures were underperforming after Boeing (NYSE:BA) once again pushed back its timeline for delivering the 737 MAX to its increasingly frustrated customers. Airbus (OTC:EADSY) stock hit a new record high.

Johnson & Johnson leads the day’s earnings roster, with updates from Raymond James, Amphenol (NYSE:APH) and Baker Hughes also due.

5. King dollar extends its reign; Canadian rate meeting eyed

The dollar continued to hold close to its highest in over a month, profiting from the relative strength of the U.S. economy amid persistent uncertainties over the outlook in China.

The greenback may get a further boost if the Bank of Canada surprises with an interest rate cut or guidance thereof when it holds its policy meeting later. Canadian inflation data ahead of the decision may give an important clue.

In the U.S., the day’s data releases will be concentrated in the housing sector, with updates on mortgage applications, house prices, and existing home sales in the course of the New York morning.