Risk on edge as we wait for Trump, as Netflix attempts to seal the deal for Warner Brothers

Stocks are still in the red as we wait for US markets to open, however, there has been a slight pick up in sentiment. US stocks are poised to open lower, although some of the earlier losses in the futures market have been erased as we move through the morning.

Scott Bessant fails to calm markets

Comments from US Treasury Secretary Scott Bessant that the market is overreacting like it did to Liberation Day tariffs, have taken the edge off risk aversion today, however, if Scott Bessant was rolled out to calm markets, that has not happened.

Ahead of the US open, the Dow is expected to fall 700 points, and the Nasdaq is poised to open lower by 1.8%. US stocks that are plunging on Tuesday include Nvidia, which is lower by 2.3%, and JP Morgan, which is down 1.8%. Both banks and US tech are at risk from EU tariffs, which could hurt US blue chips with the biggest global footprints and supply chains.

Overall, this is a manmade crisis, and the continued sell off on Tuesday suggests that US threats to Greenland and their effects on financial markets could have further to go if the situation does not deescalate soon.

Japan’s bond market a longer-term risk for financial markets compared to Trump

The Greenland issue is taking the headlines today, however, in the long term, the insane rise in Japanese bond yields could have a bigger global effect. The sell off in long end bond yields has been global on Tuesday, but the biggest move by far is in Japan. The 30-year Japanese bond yield rose 26bps today, as investors fret about an expansionary fiscal policy if PM Takaichi wins the 8^th February election.

No sign that Japanese investors are bringing money on shore yet  

Japan is central to global capital flows, if there is disruption in Japanese financial markets then this could have a knock-on effect on global capital flows and overall risk sentiment. Right now, there is no sign that Japanese investors are pulling their money from overseas and bringing it back to the ‘safety’ of home. For example, the yen continues to be a major underperformer in the G10 FX space. In fact, with fiscal risks growing, it could be safer for Japanese investors to stay invested overseas right now.

However, the bigger risk in our view, is that the sell off in bonds causes something to break, either a Japanese bank or fund gets into trouble like Silicon Valley Bank back in 2023, which is why it is worth watching the Japanese bond market as well as the Trump show this week.

Netflix goes the extra mile to get Warner Bros

The other major event for traders to digest today is Netflix’s new and improved offer for Warner Bros. The company has said that its offer of $27.75 a share will now be all in cash. Warner Bros has agreed to this deal, Netflix has always been its preferred suitor, however, Netflix still has hoops to jump over. Warner Bros. is calling a special meeting of shareholders to approve the deal  and Netflix said that its shareholders will get a chance to vote on the deal by April. Thus, anyone who expects this deal to get over the line quickly, will be disappointed.

We expect Paramount to continue to fight for Warner Bros, as it engages in an aggressive campaign to win the battle to buy Warner. There are also regulatory hurdles for Netflix to get over, as it would make the company a behemoth, and it is already the world’s largest streamer.

The new  Netflix deal would see Warner’s cable business get spun off, it would be called Discovery Global, and would include its sports offering. This suggests that the board has been working with Netflix to sweeten this offer.

The market likes what it is hearing, Netflix’s share price is higher by 1.5% in the pre-market. The announcement of the deal also gives tonight’s earnings release from Netflix a new dimension.