Here is what you need to know.
CoCo bonds are getting hit hard. A lot of the recent worries with European banks have been centered on CoCo bonds, or contingent convertible bonds. These bonds automatically convert debt to equity when a bank’s cash reserves fall below a certain level. Thursday’s selling has run the yields on Deutsche Bank’s and Santander’s CoCo bonds to fresh highs (yields rise when prices fall), causing more concerns about Europe’s banks. Bank stocks across Europe are down at least 3%.
Stock markets pretty much everywhere are getting crushed. Spain’s IBEX (-3.8%) leads the drop in Europe after Hong Kong’s Hang Seng (-3.9%) returned from its Lunar New Year break. S&P 500 futures are down 38.50 points at 1808.00.
Sweden’s central bank cut rates deeper into negative territory. The Riksbank cut its key interest rate 15 basis points to -0.50%. The bigger than expected rate cut comes as the central bank tries to ignite inflation that is currently running near zero, well short of its 2% target. The Riksbank noted, “There is still scope to cut the repo rate further.” The Swedish kroner is weaker by weaker by 0.2% at 8.3960 per dollar.
Gold is surging. Overnight buying has the precious metal higher by 3.3% at $1236 per ounce. Thursday’s gain has gold sitting at its best level in a year. Gold has gained about 17% since its six-year low of $1051 per ounce set on December 17.
The 10-year yield is threatening its lowest close in more than 3 years. The heavy selling of stocks has caused money to rush into the safety of Treasuries. Buying has pushed the US 10-year yield down 11 basis points to 1.56% where it is on track to close at its lowest level since December 2012. This leaves the record low of 1.39% that was set in July 2012 not too far away.
Janet Yellen takes her show to the Senate Banking Committee. On Wednesday, Fed Chair Janet Yellen gave her semi-annual testimony in front of the House Financial Services Committee. On Thursday, Yellen travels across the Capitol to the Senate Banking Committee. Yellen’s prepared remarks on the economy will remain the same, noting financial conditions were “less supportive of growth” and that the path of rate hikes could be slower that previously anticipated. The Q&A session should bring some interesting questions from Sen. Rand Paul (R-Kentucky) and Sen. Elizabeth Warren (D-Massachusetts).
Twitter is under pressure after reporting earnings. The social media service earned an adjusted $0.16 per share on revenue of $710 million. However, the adjusted EPS beat and in-line revenue weren’t enough to lift shares as monthly active user growth stalled. The closely followed metric came in unchanged from the third quarter at 320 million while analysts were expecting a jump to 323 million. Twitter also issued disappointing revenue guidance of $595 million to $610 million, missing the $629 million that Wall Street was expecting. Shares of Twitter tumbled as much as 13%, but are now down 6.5% ahead of the opening bell.
Tesla missed big but shares are surging. The electric vehicle maker reported an adjusted loss of $0.87 per share, falling well short of the $0.10 gain that was expected. Revenue surged 59.5% to $1.75 billion, but that was shy of the $1.81 billion the Bloomberg consensus was calling for. However, Tesla shares are up more than 5% in pre-market trade as projected deliveries topped estimates. The company said it will deliver between 80,000 and 90,000 Model S and Model X vehicles this year, beating the forecast of 76,200.
Amazon announced a big buyback. The online retailer’s board of directors has announced a $5 billion share buyback program. According to Reuters, the program replaces the $2 billion buyback plan that was announced in 2010. That program had about $763 million remaining.
Earnings reporting is heavy. Kellogg, Molson Coors Brewing, Nokia, Peabody Energy, PepsiCo, and Teva Pharmaceuticals are among the names reporting ahead of the opening bell. AIG, Groupon, Pandora Media, Wynn Resorts, and Zillow highlight the names releasing their quarterly results after markets close.
US economic data remains light. Initial and continuing claims cross the wires at 8:30 a.m. ET and natural gas inventories will cross the wires at 10:30 a.m. ET. Treasury will hold a $15 billion 30-year bond auction at 1 p.m. ET.
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