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Tesla's Trillion, Facebook Buyback, Microsoft and Alphabet - What's Moving Markets

Oct 26, 2021

Tesla's (NASDAQ:TSLA) market value hit $1 trillion after a landmark contract from rental firm Hertz Global Holdings (OTC:HTZZ). Facebook (NASDAQ:FB) cushioned the blow of softer revenue growth with a big increase in its buyback program. Microsoft (NASDAQ:MSFT) and Google parent Alphabet (NASDAQ:GOOGL) are set to report earnings after the close, while General Electric (NYSE:GE) and UPS get the earnings ball rolling ahead of the open. Janet Yellen and Liu He struggle to make headway on trade issues and the American Petroleum Institute updates its estimates for U.S. crude oil stocks as prices hover near seven-year highs. Here's what you need to know in financial markets on Tuesday, 26th October.

1. Tesla joins the trillion-dollar club

Tesla became the first automaker to achieve a valuation of $1 trillion, after its stock gained 12.7% in response to news of a bulk order from Hertz Global.

The deal, for 100,000 Model 3 cars over 14 months, is by far the biggest in Tesla’s history and something of a splash for Hertz, which only emerged from bankruptcy a few months ago. While it’s not the first big order for electric cars from a rental firm, it represents a big landmark in EVs’ journey into the mainstream.

CEO Elon Musk, whose own personal net worth hit $200 billion as a result of the move, tweeted that Hertz will pay no discount for the cars, a departure from the usual dynamics between carmakers and rental firms that again underlines the pricing power of the Tesla brand. However, whether an order worth $4.2 billion can justify the addition of nearly $120 billion of market value is another question.

2. Facebook’s buyback softens the blow of slower growth

Facebook stock rose nearly 3% in after-hours trading after the company announced a $50 billion increase to its stock buyback program.

The social media giant’s revenue growth slowed to 35% on the year, from over 50% in the first half, as Apple’s new privacy rules made it harder for advertisers to target Facebook users, and its guidance of $31.5 billion to $34 billion in revenue in the current quarter was below analysts’ forecasts. However, earnings per share were 1% ahead of expectations.

Facebook also said it will spin off its augmented and virtual reality operations, investment in which will shave $10 billion off the company’s bottom line this year.

3. Stocks set to open higher; Microsoft, Alphabet earnings due

U.S. stock markets are set to open higher later, with Facebook’s buyback and the sharp rise in Tesla on Monday helping to keep sentiment buoyant.

By 6:15 AM ET (1015 GMT), Dow Jones futures were up 102 points, or 0.3%, while S&P 500 futures were up 0.4% and Nasdaq 100 futures were up 0.6%.

Microsoft and Alphabet head the earnings roster, albeit they report after the close along with Visa (NYSE:V) and Texas Instruments (NASDAQ:TXN) and Twitter (NYSE:TWTR). Early reporters include UPS, General Electric, S&P Global (NYSE:SPGI), and defense giants Raytheon (NYSE:RTN) and Lockheed Martin (NYSE:LMT).

4. Yellen, Liu He compare notes

Treasury Secretary Janet Yellen and China’s top trade negotiator Liu He spoke by telephone, but failed to make any substantial progress on ongoing points of contention between the U.S. and China.

A statement from the Chinese commerce ministry said that Liu had raised concerns about the ongoing tariffs on Chinese exports to the U.S., put in place by President Joe Biden’s predecessor Donald Trump. The tariffs haven’t stopped U.S. imports from China rising to record levels as consumers have shifted spending away from services toward goods during the pandemic.

Elsewhere in China, another real estate developer, Modern Land, defaulted on an international bond citing “unexpected liquidity difficulties” and hitting Chinese property shares. Debt-laden China Evergrande (OTC:EGRNY), which avoided falling into official default last week, faces another major payment deadline on Friday.

5. Oil prices ease ahead of API inventories

Crude oil prices eased off Monday’s highs as the market digested a series of comments from officials in OPEC countries that ultimately added little to market expectations of the bloc’s production policy.

Attention will now turn to the release of U.S. inventory data from the American Petroleum Institute at 4:30 PM ET, which are expected to show a modest build of just over 1 million barrels. Other U.S. data, including house price data, the Conference Board consumer confidence index and the Richmond Fed business survey may also have an indirect impact.

By 6:30 AM ET, U.S. crude futures were down 0.5% at $83.38 a barrel, while Brent futures were down 0.2% at $85.00 a barrel.

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