Tesla shares climbed to $1.400 on strong Q2 deliveries

Posted on July 7, 2020July 8, 2020 by Vrasidas Neofytou

Tesla Inc. (TSLA), the California-based electric vehicle maker has become the world’s most valuable car company with $250 billion market value, with its share price climbing to record highs of $1.400 at the beginning of June. Tesla’s market capitalization is well ahead of traditional automakers such as Toyota’s $200 billion and it is almost 10-times that of Ford Motors and General Motors.

Tesla shares have surged 50% over the first days of June and up nearly 300% since the start of 2020, gaining support from the stronger-than expected Q2 delivery figures and production in a time were the global car sales dropped by more than 30% amid coronavirus pandemic.

According to company’s latest report, the Q2 delivery tally was 90,650 units, as the Model 3 and Model Y deliveries hit 80,050 while Model S and Model X deliveries were pegged at 10,600. The new Model Y, an electric SUV, is expected to surpass the sales of its popular Model 3 electric four-door sedan in the next quarters, while the deliveries of the electric truck are expected for late 2021, fuelling Tesla’s exceptional sales growth and profitability for the next years.

The record deliveries came despite the 1.5-month shutdown of the company’s Freemont, California production facility and a sharp decline in overall U.S. auto sales. However, Tesla said earlier this year it would expect to deliver a combined 500,000 vehicles of Model 3 and Model Y by the end of 2020.

Another major catalyst for Tesla’s record valuation is the Chinese market, where the brand-new Tesla’s Shanghai factory is expected to be able to deliver up to 4.000 vehicles per week in the second half of the year.

Fewer COVID-19 deaths and a lower dollar lift sentiment

Posted on July 6, 2020July 9, 2020 by George Kessarios

Analyst Insights, Monday, 6th of July, 2020

Fewer people dying from COVID-19, even as infections continue to rise, is giving markets the hope that the pandemic will soon be behind us. Also contributing to the risk-on environment is a lower dollar, which might be a result of dollar funding not being the problem we all thought.

Meanwhile, the markets in the US and Europe are continuing higher, despite that all data points are telling us that the second quarter will be a disaster. The Asian markets seem to be coming back to normal.

Market Briefing: Chinese stock markets surged 5% on risk-on momentum

Posted on July 6, 2020July 6, 2020 by Vrasidas Neofytou

Asian markets were higher during Monday’s trading session, with the Chinese and Hong Kong indices leading the gains with more than 5%, despite the record spike in virus cases around the world during the weekend.

Coronavirus Update:

The World Health Organization said on Saturday that more than 210,000 coronavirus cases were confirmed over a 24-hour period, with more than 10.9 million cases in total.

Florida and Texas reported 11,445 and 8,258 new cases respectively Saturday, the highest single day totals for both states since the pandemic began, representing about 43% of the more than 45,000 daily cases reported in the US.

The U.S. has reported more than 2.8 million infections since the pandemic hit the nation and at least 129,871 deaths, according to data from Johns Hopkins University.

Asian markets

The Shanghai composite index CSI 300 soared 5.34%, Hong Kong’s Hang Seng index also saw robust gains increasing by 3.8%, while Japanese Nikkei and South Korean Kospi indices followed with 1.8% in gains.

Fig.01: China’s CSI 300 index, Daily chart

The Chinese markets continued their uptrend momentum, gaining support from the ongoing fiscal stimulus from the local government, the cheap liquidity from the central bank and the resilience of the local economy from the virus outbreaks.

Market Reaction:

US futures start the week with 2% in profits after a long holiday weekend, following the bullish momentum in Asian markets despite the record spikes of COVID-19 cases in Florida and Texas on Saturday, raising concerns about the recovery of the US economy from the pandemic.

The Dow Jones and S&P 500 indices finished last week with 3.3% and 4% in gains respectively, while Nasdaq Composite advanced almost 5%, hitting fresh record highs once again.

Crude oil:

Crude oil prices rose 1.5% this morning following the risk sentiment in the equity markets. WTI crude trades near $41 per barrel, while Brent rose at $43.50, on improved fuel demand from Asian and drawdowns in US oil inventories.

Gold:

Gold prices edged lower on Monday morning in response to the risk-on mood and the stock market rally.

However, gold holds recent gains near the $1.775/oz level, after the World Health Organization reported a new record in daily virus cases over the weekend, while the yellow metal receives bids amid the ongoing low interest rates and the massive fiscal and monetary policies from the global central banks.

Forex Market:

The US dollar and Japanese Yen fell across the board this morning as investors retreated from safe havens into riskier currencies such as the Euro and Australian dollar. The EUR/USD pair rose to 1.128 while AUD/USD is testing the key resistance level of 0.70.

The DXY-US dollar’s index against major currencies dropped below the 97 key support level, while it also lost ground against commodities currencies such as the Norwegian crone, Canadian dollar and Mexican peso.

Economic Calendar for July 06, 2020 (GMT+ 3:00):

The easy money has been made

Posted on July 3, 2020July 3, 2020 by George Kessarios

As we closed the quarter, US markets had their best quarterly performance since 2008. Not bad considering the devastation we witnessed when COVID19 broke out. However, the bounce is not spread out evenly against all sectors or stocks.

Technology related stocks performed the best, partially because they were not affected by the pandemic, partially because they were a beneficiary of it. However, most stocks did not benefit and even more have seen losses rarely seen by most of us.

The problem with the market currently is that within the technology space, most stocks are either extremely expensive, or borderline bubble territory. In fact, most of the technology space today is simply not investable by almost any valuation method.

Then there is another very big percentage of the market that is very difficult to invest, because the COVID19 pandemic is still in play and we simply don’t know to what extent these companies will be affected (or not). Most stocks in this category are fairly valued, but we have to wait to see to what extent the pandemic has affected them. More clarity is needed for this category, and we will get this clarity after Q2 results get published.

And then there is another batch of stocks that either haven’t been affected, or have been affected very little, yet trade for scrap and no one is buying them. Yes, this is where the real value is, especially in the small cap space, but they can’t seem to get a bid.

Investors dilemma for Q3

So, the question is, do you buy in the technology game (in essence momentum trading) hoping the sky doesn’t fall under you, or do you buy stocks that have the potential to increase in value, but are out of favor?

It’s a difficult question to answer these days, because the technology trade has been successful for a while now. At the same time it’s very difficult to invest in many of these companies when one considers the balance sheet and the valuation (market cap) when you manage money for a living. Simply put, from an active manager’s perspective going with the flow and trading technology is not easy to do.

Bottom line

We think the easy money has been made during the last quarter’s bounce. There are simply too many variables and unknow factors to buy stocks blindly simply because they are in style, or because everyone else is doing the same.

So, we will keep doing what we know best, buying stocks that have value and can perform under difficult situations. Because when there is room in the balance sheet for error, eventually stocks bounce back. However, when the balance sheet is in question, and the sky falls under you, it might be a very long time before you recover.

Either way Q2 result will probably be worse than Q1 and investors have to be extra careful. And buying a good balance sheet, at a fair valuation, is always a recipe for prudence.

Could the dollar lose its dominant role?

Posted on July 3, 2020July 3, 2020 by George Kessarios

One of the reasons why the US has been so dominant in world affairs over the years is the US dollar. By virtue of the fact that the US dollar is the world’s currency, the US has been able to avoid balancing its trade and current account.

As such, the US can only continue to ignore its current account deficit as long as the dollar remains dominant. If for some reason in the future the world decides to use something else, the US economy will be in a very precarious position.

Unfortunately, current US foreign policy is trying everything it can not only to alienate itself from the global economy, but also doing everything possible for the global economy to find an alternative to the dollar.

For example, assuming the US will be able to shrink its trade deficit with China means fewer dollars floating around in the world economy. A lower trade deficit by default means less dollars going abroad. If the global economy cannot procure the dollars it needs to do business, eventually it will look for some other means to conduct trade. If it does, this will mean a very long-term downward spiral for the dollar.

The problem is not only with China, but with Europe as well. By threating to impose tariffs on European goods, the current US administration is alienating its biggest trade partner and ally.

It was not a surprise to me when speaking at the Economic Policy Symposium in Jackson Hole Wyoming in August of 2019, BoE governor Mark Carney discussed the need for a new international monetary and financial system. He noted that while the U.S. dollar has played a dominant role in the world order over much the past century, recent developments such as increased globalisation and trade disputes may have stronger impacts on national economies at the present moment than they would have in the past.

Carney suggested a number of possible replacements to the dollar, including the Chinese renminbi, but most notably, a digital currency supported by an international coalition of central banks.

We are still very far away from a new world order where the medium of trade will be such a digital currency, but the fact that it is a recognised problem by many, could be a potential problem for the dollar. The bottom line is that if the world economy in the future manages to come up with a new reserve and trade currency, the US dollar will cease to be what we know today.

Could COVID19 speed up political union of Europe?

Posted on July 3, 2020July 3, 2020 by George Kessarios

For many years, many have said that the EURO is a currency destined to fail. Yet, Europe has been getting richer every year, and its citizens enjoy the highest living standards in the world. Yes, Germany’s growth is mediocre at best, however this does not mean that German citizens haven’t received above inflationary pay raises over the years. In fact, with Germany’s current account surplus of around 7% (5% for the Euro Zone), it’s difficult for the average salary to stay the same.

There are many problems in Europe, such as the banking sector, however this has nothing to do with the Euro, but with the fact that banks were never repaired to begin with post of the 2008 crisis as they were in the US. And for those who say that negative rates have not done much to fix Europe’s problem, I say negative rates have nothing to do with Europe’s problems, and are rather a consequence of Europe’s success.

The recent COVID19 crisis could be a reason for faster political union in Europe. By that I mean a Federal Army, Coast Guard, Federal Courts and prison system, banking unification and fiscal unification. Granted that these are very long-term goals in the EU, however they have been proceeding at a snail’s pace.

The 750 billion-euro joint debt plan to help Euro economies cope with the COVID19 pandemic could be a reason for unification among the bloc’s 27 member nations to roll faster.

The importance of this joint debt issue cannot be underestimated, because it is something very few thought was possible before the COVD19 crisis. Yes, European leaders who were against joint debt issues have in a way been forced to agree, however this is still a first step towards a fiscal union.

What’s next? Perhaps a European Federal Coast guard, to tackle the immigration crisis? Perhaps the long-awaited banking union, with a federal system to guarantee deposits? Perhaps a Federal Securities and Exchange Commission, that will at last replace local officials, that sometime act as cheerleaders for local companies and turning a blind eye, as the recent case of Wirecard in Germany.

The bottom line is that the COVID19 pandemic might be a reason for faster political integration in Europe. Yes, Europe still has a long way to go, but the recent joint debt issue, although being a very tiny first step, might speed things up.