Cryptocurrency update: BTC hits accelerator on Telsa u-turn

After hitting the brakes on BTC payments, Tesla appears to have changed its tune, while El Salvador is fully in the cryptocurrency fast lane with a daring new strategy.

Crypto update

Musk’s Tesla Bitcoin handbrake turn

Bitcoin hit the accelerator this morning following yet another market-empowering tweet from Elon Musk.

The Tesla CEO and ardent cryptocurrency supporter has partially u-turned from the automaker’s decision to stop accepting Bitcoin as payment owing to crypto mining’s environmental impact.

Musk said Sunday 13th June that Tesla will resume bitcoin transactions once the electric vehicle maker confirms there is “reasonable” clean energy usage by miners.

In response to a tweet from cryptocurrency news aggregator Coin Telegraph, Musk confirmed his stance, while also addressing questions over Tesla’s own BTC holdings.

It’s not clear how exactly Musk and co. plan to vet crypto miners, or how they would check their green energy credentials. However, this is the first indicator we’ve had that Tesla is shifting its stance following its self-imposed BTC payment ban.

Tesla still owns a substantial number of Bitcoin tokens, valued at anywhere between $1-2bn. In selling a 10% stake in Q1 2021, the carmaker allegedly made more profit from BTC sales than from selling actual cars.

As is commonplace when Musk powers up the Twitter app on his smartphone, this latest tweet has acted as propellant for BTC prices. As of Monday morning, Bitcoin was looking to test the $40,000 level after a few weeks of sideways trading – a 12% leap. We’re still someway off April’s $65,000 record highs, though, and it might take time for the token to reach those levels again.

The environmental cost of cryptocurrency mining has been under intense scrutiny in recent weeks. China has cracked down on mining operations citing massive energy consumption concerns. Iran has banned all such activity until September as blackouts in capital Tehran were triggered by mining operations guzzling up power.

Again, there has been no real indicator as to how Tesla ensures its supply of Bitcoin tokens come from environmentally friendly miners. But green power and clean energy are at the core of Tesla’s philosophy. Ensuring its crypto strategy is in line with basic principles is good for brand image, but it does leave you questioning with a carmaker is dabbling with crypto trading anyway.

That’s legal tender! El Salvador pushes ahead with ambitious BTC plan

El Salvador has become the first country in the world to accept Bitcoin as legal tender.

Under Millennial meme-loving President Nayib Bukele, the Central American state has taken the radical step of turning the world’s most popular crypto into actual, legal currency. It will gain full legal tender status in 90 days’ time.

Merchants were already free to accept payment in BTC at their own discretion, but now they must do so unless they lack the proper technology.

The US dollar will remain El Salvador’s primary currency. Prices for goods and services will be listed in USD rather than BTC for instance. But BTC can now be used for everyday purchases and even for paying taxes.

It’s an interesting move, especially for a digital currency that revolves around decentralised finance. How would paying taxes work exactly – especially when regulators worldwide are keen to crack down on crypto-led money laundering and tax evasion?

What about energy and mining? While the bill that passed BTC into law does not specifically mention mining, President Bukele tweeted a drone-shot video showing a geothermal powerplant in action. Bitcoin by volcano anyone?

The government has set about guaranteeing convertibility of BTC to dollars through a $150 million trust created at the country’s development bank BANDESAL.

Why has El Salvador taken this path? Bukele says the move will help foster financial inclusion, investment, tourism, innovation and economic development.

Bukele is particularly hopeful remittance, i.e. payments sent back home from citizens living overseas, can pick up. Using BTC to pay these would cut out the middleman, and possibly result in billions of extra cash by negating conversion fees.

Others are wary of the decision.

The IMF, with which El Salvador is hashing out a $1bn economic relief deal, states the Central American country’s move “raises a number of macroeconomic, financial and legal issues that require very careful analysis”.

We’ve seen institutional digital currency support rise in recent months – but we’ve also seen numerous regulatory bodies urge caution. An entire country taking the leap to legitimising BTC has legal tender is entirely new ground. Cryptocurrencies, and especially Bitcoin, are inherently volatile. What El Salvador is doing could have considerable blowback.

El Salvador is thus a Central American guinea pig with its legal tender experiment.

FTSE hits post-pandemic high, Bitcoin leaps on Musk tweet

European stock markets rose in early trade Monday, with the DAX in Frankfurt hitting a new all-time high and the FTSE 100 making a fresh post-pandemic high above 7180 as the broadly positive mood in equity markets continued to override concerns about inflation. Travel shares like IAG and EasyJet fell as it appears all but certain England’s full reopening will be delayed by another 4 weeks. Markets are now caught between last week’s big inflation reading and this week’s Fed meeting. Despite the big inflation reading from the US, inflation expectations are not really rising which should allow the Fed to keep its dovish stance. Treasury yields have held under 1.5%, indicating investors are buying the transitory story for now. Nevertheless, I’d expect these to take offer at some point and for 10s to retest 2% in the coming months. 

 

Wednesday’s statement from the Federal Reserve is not expected to feature any fireworks, but it is an important meeting as it will offer clues about the reaction function of the central bank to rising inflation. We know the Fed is happy to let inflation run a little hot over the summer as it pins everything on its employment mandate. So, labour market data is arguably more important than inflation numbers right now. On that front the last NFP jobs report was something of a Goldilocks number – not too hot to worry about an early taper of the Fed’s $120bn-a-month bond buying programme, but not so cool as to fret about the recovery. The truth is the Fed is looking at both and this meeting comes at a time of great uncertainty over whether inflation will indeed prove to be as transitory as policymakers believe.  

 

Minutes from the FOMC meeting in April had the Fed floating a trial balloon, as these indicated some policymakers are thinking about thinking about tapering asset purchases. “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes said. Members of the FOMC also stressed the importance of “clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases”. The question remains: when does the Fed think it’s hit the landing area for the economy, and does inflation take off in the meantime? This week’s meeting is not expected to deliver any surprises – the jobs numbers are positive right now, but the labour market is some way off the Fed’s goal, whilst the inflation story is fairly-well understood for now. Anything to suggest the Fed could tighten earlier would lead to volatility. 

 

Meanwhile Bitcoin shot higher this weekend to trade close to $40k after Elon Musk indicated Tesla could accept the crypto asset for purchases. “When there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend, Tesla will resume allowing Bitcoin transactions,” the ‘Technoking’ of Tesla tweeted. Tesla’s decision last month to stop accepting Bitcoin led to considerable volatility in the asset, whilst it was the company’s big investment announced in February that helped propel it to an all-time high near $65k. This latest tweet only confirms what a crazy relationship Musk has with Bitcoin and his incredible influence on prices. 

 

Oil prices made fresh highs as the outlook for demand improves and supplies remain on the tight side. WTI broke out clear of $71, its highest in almost 3 years. It comes after the International Energy Agency (IEA) called on OPEC and its allies to increase production. “OPEC+ needs to open the taps to keep the world oil markets adequately supplied,” it said last week. 

Thematic investing: electric vehicles

Electric vehicles are gaining traction among car owners, legislators, and fleet operators worldwide. Can the same be said for investors? In our latest thematic investing guide, the spotlight turns to EV stocks. 

EV stocks & why you should consider them 

Goodbye ICE. Hello EVs 

More and more EVs are appearing on the world’s roads. Drivers have long enjoyed the freedom of movement afforded to us by Nicolaus Otto’s people-empowering invention but the internal combustion engine’s days are numbered.  

The environmental cost of fossil-fuel-powered engines is getting heavier. Slowly, but surely, the chug of a diesel engine or the throaty roar of a high-powered V8 will disappear from our roads. 

The changeover may be coming even faster than that. Reports indicate the EU will move to ban sales of new ICE vehicles as early as 2025. The UK has brought its ban forward to 2030. The book is closing on petrol and diesel. The next chapter begins with lithium-ion battery-powered machines. 

Proliferation is not total. ICE still dominate everyday driving, but EVs sales continue to grow year-on-year, quarter-on-quarter.  

More pure EVs and plug-in hybrid models are on the roads in key automotive markets. 245,000 fully electric models, plus 515,000 hybrid vehicles, were registered in the UK by the end of April 2021, for instance, representing just over 13% of all registered vehicles. 

In China, pure battery-powered car sales were up 113% in Q1 2021, with 333% more hybrids being sold in the same period. Overall EV sales in the US in the first quarter of 2021 shot up 81% too. The appetite for electric power is spreading among vehicle owners.  

Tesla is arguably the most visible electric vehicle brand. Its optics are massive, especially with relentlessly self-publicising CEO Elon Musk in the driver’s seat. That said, the race is on to develop hybrid and electric vehicles by legacy marques, as well as new badges hoping to overtake Tesla. 

It was Toyota that really got the hybrid trend rolling with its iconic Prius model, launched for worldwide sales in 2002. Now, all the major marques have at least one hybrid model in their range or adding one. 

Even luxury brands like Aston Martin are in the act. The “big three” of hypercars, the Porsche 908, Ferrari La Ferrari and McClaren P1, are all hybrid-drive vehicles for example. 

Ford has even transferred its iconic Mustang name to a new electric model, launched in 2020. Renault has plans to resurrect its cheeky-but-charming 5 as a full EV too. VW is planning for its ID range of four electric models will be the core of its range as it pivots towards full electrification.  

The list of car manufacturers making the jump to electric power is extensive, but here are some stocks below to keep an eye on. 

EV stocks to watch 

Tesla 

Beginning with the biggest name in EVs, Tesla shares have been a bit of a journey across the year so far.  

The Elon Musk-controlled marque was soaring, closing January 2021 at $883 – an all-time high.  

Now, a combination of concerns over criticisms from the Chinese market, fatal accidents caused by Tesla’s autopilot system, rising competition, and questions over the brand’s acquisition of $1.5bn worth of Bitcoin cryptocurrency, has caused Tesla’s share price to drop. As of May 21st, Tesla stock was trading at around $593.50. 

Despite this, Tesla increased vehicle deliveries in Q1 2021. Net income hit $438 million during the quarter. Earnings of 93 cents per share on $10.39 billion in revenue.  

New Tesla models are on their way. An updated version of the flagship Model S sedan is coming soon. The Model X SUV will start rollout in Q3 2021. It has also weathered the EV chip shortage by pivoting to new suppliers, meaning manufacturing can continue relatively undisturbed. 

However, if you are considering investing in Tesla stocks, make sure to do your research. Michael Burry, the hedge fund guru who gained fame for exploiting the 2008 Financial Crisis, is shorting $534m worth of Tesla shares, indicating he thinks further stock price declines are on their way. 

A bumpy ride may be ahead for Tesla – but its major brand recognition and positive financial outlook may help steer it back on a growth footing in 2021. 

NIO 

Nio is not the largest Chinese electric automaker, but it is making big waves.  

Q1 2021 saw NIO deliver just over 20,000 vehicles – a more than 400% y-o-y increase. NIO has already delivered about 95,000 vehicles in total in the year so far. It is leading the way in China’s electric SUV market too, selling slightly more than 7,100 in April, outpacing Tesla. 

In terms of prices, NIO shares are showing similar volatility to Tesla. Since the start of 2021, NIO stock is down 37.5%. Year-to-date, however, NIO share price has soared 870%. Market cap stands at around $55bn. Currently, NIO stocks are trading at around $34.50. 

So where next for NIO? It’s already showing impressive sales growth figures. China is already the largest auto market in the world. It’s forecast to become the largest EV market too, accounting for 40% of the 31.1m global EV sales Deloitte predicts for 2030.  

For NIO, being a native Chinese brand is a huge advantage here. It is protected by domestic laws favouring homegrown brands over foreign marques like rival Tesla. It already holds 23% of the electric SUV segment too. If it can maintain deliveries, NIO and its shares may look very positive in the future.  

Volkswagen 

The above EV stocks are manufacturers that deal exclusively in pure electric, battery-driven vehicles. Volkswagen is a legacy marque. While it has made substantial headway in introducing its ID range of electric cars, it is still a manufacturer of ICE-powered machines. 

That said, it has an aggressive electrification plan in place. A new factory has been built dedicated solely to EV production at its Wolfsburg campus. It’s even pushing for one million EV sales by the end of 2021, with the ID.4 model identified as VW’s electric golden goose. 

VW shares were up 62.3% from the start of 2021 to the beginning of April, reaching $258. As of May 21st, the share price had grown further with VW shares changing hands for $272. Optimistic electric vehicle sales are potentially powering this growth. VW may be on course to outsell Tesla in 2022 if it can maintain successful sales. 

Here’s the rub. While Tesla had an enormous head start over legacy manufacturers, once the full weight of Toyota, VW, GM, Ford and so on is turned towards non-ICE cars, it will be difficult to match their potential output. These are companies with already massive manufacturing capabilities and the capital to invest in new factories and product lines as we’ve already seen. Therefore, don’t think of single-play manufacturers when looking at EV stocks. Remember established automakers too. 

Risks in investing & trading EV stocks 

Whether a newer brand or a legacy marque, always remember trading EV stocks comes with inherent risks. Market volatility has been seen in the electric vehicle space. While profits can be made, you can also lose money. Always do your research and only invest or trade if you are comfortable taking any potential losses. 

Stocks slide before FOMC minutes and cryptos hit by China ban

Crypto prices shot lower with BTCUSD tumbling to a 3-month at $38.5k in early trade this morning, now looking to test the long-term trend line from the ramp at the tail end of last year. There is a major bleed across the entire crypto space today, and both Bitcoin and Ether are 30% lower across the last 7 days, and Bitcoin has now given back all the gains made since Tesla announced in early February that it invested $1.5bn in the asset. Spurring the move lower today is news that Chinese financial regulators have instructed financial and payment institutions not to accept cryptocurrencies as payment nor offer related services or products. Cryptos are “seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” three industry bodies said in a joint statement on the PBOC WeChat account. China has for some time been putting pressure on the crypto space, but this marks an intensification – other countries might follow now as central banks make strides towards their own digital currencies. Until now western regulators have been pretty relaxed about Bitcoin, but this might change soon.

 

The crypto bros have had a hard time lately. First, they got down on their knees to the saviour Elon Musk as he pumped up Bitcoin and Doge. Then they got mad because he called one a hustle and signalled that he wasn’t all that keen on the other after all. Musk clearly gets all the spotlight, but it’s also worth looking at Michael Saylor, founder of MicroStrategy. The company is doubling down on Bitcoin, with Saylor saying yesterday it had purchased an additional 229 Bitcoins for $10.0 million in cash at an average price of about $43,663. “As of 5/18/2021, we #hodl ~92,079 bitcoins acquired for ~$2.251 billion at an average price of ~24,450 per bitcoin,” he tweeted. YOLO.  Binance CEO Changpeng Zhao tweeted  “Legend,” in response. 

 

Shares in MSTR are down about 60% since the Feb peak when Tesla announced its investment in Bitcoin. Saylor has been a longer-term Bitcoin bull than many and last year led a major pivot in terms of corporate acceptance of crypto assets that helped fuel the rally through to the recent all-time highs. If you recall in February MicroStrategy said it had sold $1bn in convertible debt to buy more Bitcoin. 

 

So now you have a situation where a publicly listed stock with a market cap of almost $5bn is seemingly entirely dependent on the price of Bitcoin remaining above $24k. This seems entirely odd. I can barely remember what the actually does. Not a lot is apparently the answer: just $122.9m in revenue in Q1, with a net loss of $110m. As of March 31st, the company had cash and cash equivalents of $82.5 million. If Bitcoin tanks, there does not appear to much wiggle room. No wonder short interest remains at 16%. Saylor might be right, he might be wrong, but rather like we have discussed before with Tesla: are corporate balance sheets the place for Bitcoin speculation, given that people are not using it to transact? 

 

So now we come to the options market and what it’s telling us about Bitcoin, which is that investors feel there is further to pull back from here, or least there was before prices dropped under a huge wedge of puts at $40k. Even long-term hodlers think it can drop further. Which makes you question what kind of mark to market losses MSTR will have to report. Which comes back to the point as to why a company which is not in the business of making investment decisions, like say Berkshire Hathaway or Baillie Gifford, is busy making bold investment decisions in an asset that is at best understood by a few, and at worst a complete scam.  Moreover, the company’s investments are entirely concentrated in a single asset – like Berkshire only owning Apple, and becoming a proxy to the stock itself. This is not like a company that needs to buy 10m Deutsche marks because it’s opening a factory in Stuttgart. It’s not an airline purchasing oil futs as a hedge against its jet fuel costs. It is not even like investing in a stock like Apple, with a call on their future cash flows, dividends etc. 

 

Meanwhile, stocks in Europe opened weaker, with the main bourses tracking ~1% lower at the start of the session following a soft day on Wall Street as investors continue show signs of indecision as inflationary pressures, reopening uncertainty and toppy valuations just give them cause for a breather. Bund yields are at their highest in two years, close to flipping positive. US benchmark 10-year yields are hovering around 1.65% ahead of the FOMC minutes tonight. Gold is holding the 50% retracement around $1,870. WTI takes a $64 handle again after touching a high at $67 on Monday, as the API reported US crude stockpiles rose by 620k barrels last week – EIA figs due today f/c +1.5m. The annual rate of inflation in the UK rose to 1.5% in April, doubling from the +0.7% printed in March and in line with expectations. It does not signal runaway inflation just yet.

 

On the FTSE, Ferguson rose to the top of the blue chips as it rallied 4% as it raised its full-year guidance as Q3 numbers came in ahead of expectations, with revenues +24.5% and profits +65.4%. John Laing rose 11% on an offer of 403p a share from KKR, whilst Dunelm rose 7% as it said sales were up 59% from the same period two years ago.

 

Bitcoin, Musk & the great Tesla U-Turn

Elon Musk, eh? His influence on cryptocurrency seems total. Even his smallest tweet can cause seismic price movements. He’s been at it again, this time with a major statement that has wiped billions off Bitcoin’s market cap. 

Musk voices big Bitcoin concerns 

On Wednesday, Musk announced Tesla will no longer be accepting payment in Bitcoin. The enigmatic billionaire cited concerns over “rapidly increasing use of fossil fuels for bitcoin mining”, as reasons for this big U-turn. 

“Cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost to the environment,” Musk wrote in a long statement posted as a tweet. 

It appears, at least on the surface, that Musk’s cryptocurrency jitters have been triggered by some pioneering research from Cambridge University.  

The Cambridge Bitcoin Electricity Index measures the volume of electricity needed to power Bitcoin mining, the complex computational conundrum that generates the in-demand tokens. 

Cambridge’s findings are shocking, to say the least. Generating new Bitcoin tokens requires more energy than countries like Sweden or Malaysia. Fossil fuels, particularly coal, are heavily involved in Bitcoin’s power generation chain.  

The conclusion is simple: heavier Bitcoin mining means higher greenhouse gas emissions. 

Musk’s decision to stop accepting Bitcoin as payment is also a realisation of a fact: people don’t want to spend their Bitcoin. People are investing in it, not spending it. It’s less a currency than an investment asset to buy and hold (or HODL). 

The U-turn that turned into a slide 

Markets were not happy. Losses mounted quickly. Musk’s comments initially led to a $365.8 million drop in value for Bitcoin, heavily biting into its previous $2.5tn market cap valuation. 

Bitcoin, which recently passed the $61,000 mark for the first time, had been trading around $56,000. It subsequently dipped below $50,000, hitting $46,000 to reach the lowest levels since early March.  

Bitcoin is a crypto bellwether. Usually, when it goes, all the other tokens go with it. That was the case on Wednesday evening. 10 of the major cryptos, including joke-but-not-actually-a-joke token Dogecoin, a pet favourite of Musk, fell precipitously too. 

Despite its wild price swing, BTC is still making gains at a frenzied pace. The world’s most popular crypto is up 400% year-to-date.  

What’s next?  

It all depends on how Bitcoin mining reacts. If it keeps up its current energy consumption levels using fossil fuel-powered energy generation, then the damage to the environment will rise. That may cause further ripples of discontent against the crypto. 

The complexity of the algorithm required to mint fresh Bitcoin tokens is increasing too. It will require more computing power to create new coins. More power will be needed. Not great for the environment. 

Some steps are being taken. China announced in March that crypto mining operations in the Inner Mongolia region will be shut thanks to their power-hungry energy requirements becoming too high for example. 

Others say increased crypto mining activity could act as a catalyst for renewable energy.  

Cathie Wood of Ark Investment fame, alongside Square’s Jack Dorsey, has put out a memo with words to that effect, but critics are not so sure. They claim Woods and Dorsey have a vested interest in touting Bitcoin’s potential positive environmental impact when the current research suggests the opposite. 

There’s a bit of hypocrisy, or at least contradiction, at play for Tesla too. The company makes electric vehicles that are viewed as the environmentally-friendly alternative to internal combustion motoring (questions around battery component mining notwithstanding).  

Can it really be seen to continue investing in Bitcoin for its balance sheet with the current conversation around crypto mining’s sustainability? 

Eagle-eyed crypto hounds will no doubt recall Tesla padding its balance sheet with $1.5bn of Bitcoin earlier in the year. Its stake had grown to $2.5bn as of May 2021.  

Trading reports suggest the automaker even made more profit from cryptocurrency trading than from the actual sales of cars in Q1 2021. 

CFO Mark Kirkhorn said in Tesla’s April earnings call that he believes in the token’s long-term value and was planning on using customer purchases to acquire more. Obviously, customer-generated BTC acquisition is off the cards, but will Tesla continue to dabble on crypto exchanges? 

ESG, environmental, social & governance, is a growing concern for investors. Some Tesla shareholders may be feeling a little queasy at the automaker’s crypto dalliance. After all, this is meant to be a company pioneering a greener mode of travel. If it continues to work with Bitcoin, some shareholders’ green thinking may cause them to pull out and that could affect the share price. 

Bitcoin probably isn’t going anywhere any time soon either. This volatility is something we’ve come to expect from the world’s most popular crypto. But with ESG and sustainability conversations intensifying, it’s going to be an interesting year for the digital currency. 

Tesla questions remain, BP and HSBC profits leap, GME roars higher on equity offering

Record highs for the S&P 500 and Nasdaq yesterday failed to really kick start the European session this morning with the major bourses all looking a bit sloppy in the face of a raft of big corporate earnings announcements. We’re into the meat of earnings season proper now with 173 S&P 500 companies that account for around half the market capitalisation are reporting this week. So far so good: of those that have already reported, revenues are up 10% on average, while earnings are up by a third. A stunning turnaround from last year’s pandemic washout, driven by a combination of massive fiscal stimulus, extraordinarily accommodative monetary policy and a vaccine-led cyclical bounce back of epic proportions.

Tesla posted better-than-expected earnings in the first quarter. The company posted GAAP net income of $438m with earnings per share coming in at $0.93 on $10.39 billion in revenue, up 74% from a year ago. Some $518m in regulatory credits helped, whilst it added $101m to its bottom line from the sale of Bitcoin after its $1.5bn ‘investment’ announced in February. Is this an automaker or not? I have been very sceptical about this Bitcoin position and what it exposes the company to. Shares slipped more than 2% in after-hours trade following the results. Still, it was a record quarter for sales and progress is being made on the delayed new models with the new Model S landing on customers’ driveways by May 2021 and Model X deliveries to commence in Q3. Tesla also pointed to Model Y production ramps at Fremont and Shanghai going well. Meanwhile buildout of Berlin ‘Gigafactory’ is continuing to move forward, with production and deliveries remaining on track for late 2021, Tesla said. Chip shortages are a problem, but Tesla suggests it’s finding ways around. And although margins did pic up, there are maybe some questions over margins with the lower average selling prices – excluding regulatory credits the margins in the core auto business were 22%. I don’t think these results really tell us an awful lot more than we already know about Tesla.

BP profits jumped to $2.6bn, easily beating analyst expectations and well ahead of last year. Looney says the company is in good shape. As he puts it, these results really put to rest some of the fears investors may have had around this stock as it’s managed to reduce net debt ahead of schedule and is delivering shareholder returns. Looney seems really committed to pushing the dividend, which I suppose you can do if you are not doing any more oil and gas exploration. Still, he better keep some back for those wind turbines. BP is confident that China and the US will drive the recovery in crude demand.

The reduction in net debt is eye-catching, with the figure down around $18bn in the last year from $51.4bn to $33.3bn, meeting the objective a year early. Reported profit for the quarter was $4.7bn, compared with $1.4bn profit in Q4 2020 and a loss of more than $4.3bn a year before. Underlying replacement cost profit came in at $2.6bn, compared with $0.1bn for the previous quarter. BP said this was driven by an exceptional gas marketing and trading performance, significantly higher oil prices and higher refining margins. Dividend of 5.25 cents per share declared and shares rose more than 2% in early trade in London.

HSBC profits rose 79% from a year ago on a mixture of improving economic conditions and a reduction in provisions for bad loans. Among other things, the company noted solid growth in Hong Kong and UK mortgages. Interestingly for a bank that has been seen to put all its eggs in one Asian basket as other regions have been less profitable, all regions were profitable in Q1 and notably the UK bank reported pre-tax profits of over $1bn in the quarter. Reported profit after tax was up 82% to $4.6bn, while reported profit before tax rose 79% to $5.8bn. The bank said that reduced revenues, which fell 5% $13bn, continued to reflect low-interest rates. Provisions for bad loans were less than expected, particularly in the UK, mainly reflecting a better economic outlook and government support schemes. As such reported provisions for bad loans was a net release of $0.4bn, compared with a $3.0bn charge a year ago. Shares rose a touch in early trade.

Sticking with banks – UBS this morning admitted it took a $774m hit from the Archegos fiasco. This is not as large as the $5.5bn for Credit Suisse, but nevertheless shows how the fallout was wider than initially thought. Despite this, profits at UBS rose 14% to $1.8bn. Wealth management profits rose 16%, whilst investment banking was down 42%. UBS, which has fallen 2% this morning on the update, says it has now unwound all its exposure to Archegos. Nomura meanwhile says it is 97% out and has taken a $2.3bn loss on its Archegos exposure, adding that it expects to book about $570m more in charges related to Archegos this financial year.

Shares in GameStop rallied almost 12% and added a further 9% in after-hours trade to hit $184.50 after the company completed its at-the-market equity offering. In an update to investors yesterday, management said they had sold 3.5m shares of common stock and generated aggregate gross proceeds before commissions and offering expenses of approximately $551m, Roughly, that means they got this offering off at about $157 per share. Net proceeds will be used to continue accelerating GameStop’s transformation as well as for general corporate purposes and further strengthening the company’s balance sheet.

As I previously argued, shareholders who have been bidding up the stock should be pleased by the offering. Although it entrails a meaty dilution, the cash call is entirely expected and without a big capital raise now that takes advantage of rally in the stock, Chewy.com founder Cohen might not have the cash to fulfil the ambition of becoming the Amazon of Gaming.

Elsewhere, oil prices trade higher with WTI back above $62 as OPEC’s technical committee stuck to an optimistic view of demand growth whilst also cautioning about the rise of the coronavirus in India, the world’s number three importer of crude. The technical committee, which met ahead of Wednesday’s meeting, indicated that demand growth is still seen around 6m bpd in 2021, whilst the stock surplus should be eliminated by the end of the second quarter. There are also concerns about Japan, the fourth largest importer of oil. Copper prices continue to advance, hitting a fresh 10-year high this morning, whilst US 10-year yields pulled back from 1.6% yesterday in a choppy session ahead of this week’s Fed meeting.

FOMC preview: Wait and see mode

The Federal Reserve kicks off its two-meeting today. This week’s meeting of the Federal Open Market Committee (FOMC) ought to pass off without too much fanfare or market noise. Even as the economic indicators improve, the Federal Reserve remains in emergency mode. The Fed should be thinking about thinking about tapering, but it likely will not want to signal this just yet. It remains the case, it should be noted, that the Fed is now in a reactive policy stance where it is waiting for the data to hit certain thresholds rather than acting pre-emptively. We also know that not only is the Fed happy to let inflation get hot, but it is also focused squarely not just on employment but the ‘right’ people getting jobs. It’s a central bank that is taking a political angle to its policy making. In any event, tapering of the Fed’s $120bn-a-month asset purchase programme will be signalled well in advance, and this is not the time to do it.

Bond yields have cooled somewhat since the March meeting, with the 10-year note chopping around in a 1.55%-1.60%. In any event, if the rise in nominal yields was not a worry then, it’s certainly not one now. Fed speakers including chairman Powell have made it clear they think rates will move up because of the screaming cyclical bounce, not because people are worried about inflation.

Meanwhile, since the March meeting the pace of vaccinations has meant over half of all adults in the US have had at least one vaccination. Jobless claims have hit the lowest since the pandemic struck more than a year before and retail sales are powering head. The IHS Markit composite PMI hit a record high in April as all corners of the economy picked up steam. Despite this the Fed will remain cautious with regards to the outlook, citing the risk of fresh infections. Chairman Powell will need to acknowledge the economic recovery in progress but seek to tamp down expectations. And despite the strong demand impulse combining with weak supply to put upwards pressure on prices, he will stick to the line that any inflation will be temporary.

Stocks creep higher, Tesla earnings ahead

European stocks trade higher in early trade on Monday, but there is not a lot of direction in the markets this morning. We’re in a holding pattern for the moment. Wall Street closed higher on Friday to end a very choppy week basically flat. European stocks have also put a rally that has been in play since November largely on pause. As discussed last week, the macro picture is largely understood, whilst the rally in bond yields has also paused. Vaccinations in the US and UK are positive, a startling rise in infections in India is a negative, but markets are largely looking through the bad with ample monetary and fiscal support. The confidence in the macro outlook could change, but PMIs last week didn’t suggest things were about to. Plans for higher US capital tax gains may not pass the Senate but could beget a spate of selling if lawmakers back it. Earnings this week should be important with a number of the largest growth and momentum names on the calendar. A Fed meeting this week should pass off without too much fanfare as policymakers lean on the economic rebound to do the heavy lifting. The dollar is keeping a little softer with the euro hitting its strongest since the start of March. Yields are keeping quiet too, helping gold maintain a bullish bias despite easing off a two-month high struck last week.

Sweeten the deal: shares in Tate & Lyle surged more than 6% as the company confirmed it is looking to sell its industrial sweetener business. In a statement this morning the company said it looking to sell a controlling stake in its ‘Primary Products’ business, which it says would deliver ‘enhanced shareholder value’.

Tesla (TSLA) is due to release first-quarter 2021 results today after the closing bell, kicking off a mammoth week for the big tech/growth/momentum earnings. Consensus estimates indicate earnings per share (EPS) of $0.79 on revenues of $9.92 billion. Earlier this month Tesla reported record Q1 sales, delivering 184,800 vehicles, more than double the 88,400 reported last year and about 10k ahead of expectations. The addition of Bitcoin to the Tesla balance sheet this year was portentous. The stock is down ~15% since the SEC filing on Feb 8th, but has recovered about 30% since hitting a low around $560 at the start of March to trade at $729 at Friday’s close.

A fatal crash in Texas has thrust the safety of the company’s Autopilot system into focus, although it is understood no one was at the wheel at the time. Autopilot is not meant to be left to control the vehicle exclusively, however there are concerns that people are liable to misunderstand the functionality of the system. Meanwhile it appears that the autopilot function was not engaged at the time of the crash. CEO Elon Musk tweeted on Monday: “Data logs recovered so far show Autopilot was not enabled & this car did not purchase FSD. Moreover, standard Autopilot would require lane lines to turn on, which this street did not have.”

Tesla has been forced to make a grovelling apology after a backlash from the state-run Chinese media following customer complaints. This is important – China is a key market for Tesla and other automakers who are seeking to tap the growing EV market in the world’s second-largest economy. Tesla has made a big investment in local production, which seems to be paying off. Tesla reported sales of $6.7bn in China last year, making it the second biggest for the firm after the US, whilst the Model 3 sedan was China’s best-selling electric vehicle in 2020. Meanwhile the Model Y is also proving popular, with production for the domestic market rising to 34,635 units in March, almost double the level in February.

The competition is getting fiercer for Tesla, and it remains the case that the chief bear thesis on the stock is that current valuations imply a massive market share gain from the traditional OEMs. Given the pace of progress they are making on the EV front, it seems hard to justify the Tesla multiple even allowing for ongoing sales growth and margin improvements.

Last week’s Shanghai auto show displayed the range of competition from local Chinese rivals such as Xpeng, Nio and Geely. Mercedes recently said it will launch a range of new electric vehicles, including a battery-powered version of its S-Class saloon, in the next 18 months. Other rivals like BMW, VW and Audi have also seen their electric vehicles met with approval. For Tesla, things are only going to get tougher.

TSLA share price: What to watch from Q1 Tesla earnings

Tesla (TSLA) is due to release first-quarter 2021 results on Monday Apr 26th, after the closing bell. Consensus estimates indicate earnings per share (EPS) of $0.79 on revenues of $9.92 billion.

The company plans to webcast the conference call with analysts after the quarterly results at 17:30 (EST).

Tesla earnings: what to watch

Autopilot

A fatal crash in Texas has thrust the safety of the company’s Autopilot system into focus. Although it is understood no one was at the wheel at the time. Autopilot is not meant to be left to control the vehicle exclusively, however there are concerns that some drivers have misunderstood the functionality of the system. Meanwhile it appears that the autopilot function was not engaged at the time of the crash. CEO Elon Musk tweeted on Monday: “Data logs recovered so far show Autopilot was not enabled & this car did not purchase FSD. Moreover, standard Autopilot would require lane lines to turn on, which this street did not have.”

Deliveries

Earlier this month Tesla reported record Q1 sales, delivering 184,800 vehicles, more than double the 88,400 reported last year and about 10k ahead of expectations.

The strong first-quarter delivery numbers could send the stock nearly 15% higher, Mizuho Securities said earlier this week as it raised its price target on Tesla to $820 from $775.

“With a strong start to the year, we see upside to the TSLA 831K consensus deliveries given proposed Biden infrastructure package with $100B in EV rebates and potential extension and expansion of EV credits,” the analyst note said.

Bitcoin

The addition of Bitcoin to the Tesla balance sheet this year portentous. The stock is down ~13% since the SEC filing on Feb 8th, but has recovered about 30% since hitting a low around $560 at the start of March to trade at $744 by the time the market opened on Thursday, Apr 22nd. Mizuho are unfazed by the crypto exposure: “TSLA regulatory credit sales and Bitcoin could be NT tailwinds, offset by near-term product/mix headwinds.»

China

Tesla has been forced to make a grovelling apology after a backlash from the state-run Chinese media following customer complaints. This is important – China is a key market for Tesla and other automakers who are seeking to tap the growing EV market in the world’s second-largest economy. Tesla has made a big investment in local production, which seems to be paying off. Tesla reported sales of $6.7bn in China last year, making it the second biggest for the firm after the US, whilst the Model 3 sedan was China’s best-selling electric vehicle in 2020. Meanwhile the Model Y is also proving popular, with production for the domestic market rising to 34,635 units in March, almost double the level in February.

Competition

The competition is getting fiercer for Tesla, and it remains the case that the chief bear thesis on the stock is that current valuations imply a massive market share gain from the traditional OEMs. Given the pace of progress they are making on the EV front, it seems hard to justify the Tesla multiple even allowing for ongoing sales growth and margin improvements.

This week’s Shanghai auto show displayed the range of competition from local Chinese rivals such as Xpeng, Nio and Geely. Mercedes recently said it will launch a range of new electric vehicles, including a battery-powered version of its S-Class saloon, in the next 18 months. Other rivals like BMW, VW and Audi have also seen their electric vehicles met with approval. For Tesla, things are only going to get tougher.

Analysts are still split on Tesla stock

Analysts are mixed on Tesla earnings.

Hedge funds remain sellers

Hedge funds are Tesla stock sellers.

 

Take a position on Tesla ahead of its earnings report and start trading now.

Thematic investing: Tech & and the Fourth Industrial Revolution

New technology impacts our lives daily, but what about investing. The fourth revolution is coming and may present some of the best investment opportunities for you. 

Thematic investing & the Fourth Industrial Revolution 

What is the Fourth Industrial Revolution? 

You might be asking yourself “why should I invest my money in this sector?”. Thematic investing is, like the name suggests, picking stocks and companies to invest in based around a particular theme. In this case, we’re talking about the Fourth Industrial Revolution (4IR). 

This is all about disruptive technologies; technologies that change the way we live and the way we work. That includes things like: 

  • Artificial Intelligence (AI)
  • The Internet of Things and great device connectivity (IoT) 
  • E-commerce 
  • Blockchain 
  • Social Media 
  • Healthcare & genomics 
  • Electric vehicles (EVS) 
  • Cloud computing 

How widespread will the 4IR be? 

Unlike other industrial revolutions which tended to be local (think the UK’s massive steam-powered mills and factories in the North of England), the Fourth Industrial Revolution is well and truly global. Today’s advancements in interconnected technologies mean communicating and working with partners around the world has never been easier. 

4IR looks like it could be one of the best investment opportunities because it is likely to touch all areas of the economy. When you’re using your smartphone to shop online, facetime a friend or relative, or use any app, you’re already feeling its effects. 

The Covid-19 pandemic has blended with FIR to push remote working platforms like Microsoft Teams and Slack to the forefront of people’s working days. Tesla is pioneering electric vehicles, not just in personal transport, but also in developing electric trucks for transport & logistics purposes. 

AI, big data and increasingly powerful computing power has also seen a huge rise in data sciences and analytics in any number of fields, for good or for ill. Burnley FC might be using AI to help scout the next generation of football players for its academy, while others have used it to sway elections – who else remembers the Cambridge Analytica scandal? 

Advances in robotics is making manufacturing faster, as well as changing up warehousing operations. Ocado, the UK online grocery retailer, has pumped substantial money into proprietary warehousing robotics technology for instance. 

The World Economic Forum Founder and Executive Chairman Professor Klaus Schwab, a former engineer, believes this is only just the beginning.  

In his book which gave FIR its name, Professor Schwab said: “Prior industrial revolutions liberated humankind from animal power and made mass production possible and brought digital capabilities to billions. This fourth industrial revolution is fundamentally different – characterised by a range of new technologies that are combining the physical, digital and biological worlds. It is impacting all disciplines, economies and industries, and ultimately may even challenge ideas about what it means to be human,»  

We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before. 

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as AI, robotics, the Internet of Things, autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing. 

So, what does this mean for people exploring thematic investing? Are there any stocks to watch out for? How can you get involved in this worldwide event from an investors’ standpoint? 

Finding the best investment opportunities in the Fourth Industrial Revolution 

Thematic investing is summed up by Exchange Traded Funds (ETFs). These are funds that track markets and indices based around a theme, grouping together stocks based on that theme. Investing in such a fund gives you exposure to a number of stocks at one time, without relying too much on any individual stock. 

In this space, there are many ETFs available. The ARK Innovation ETFs from stellar investor Cathie Wood’s ARK are a good case study here. There are five current ARK exchange traded funds: 

  • ARKQ – ARK Autonomous Technology & Robotics ETF  
  • ARKF – ARK Fintech Innovation ETF  
  • ARKK – ARK Innovation ETF 
  • ARKW – ARK Next Generation Internet ETF  
  • ARKG – ARK Genomic Revolution ETF 

There are other, new funds that are offering investors the chance to invest in a cluster of 4IR stocks. The VanEck Social Sentiment ETF, which is listed as BUZZ on the New York Stock Exchange, lists many tech and social media companies pioneering Fourth Industrial Revolution industries. 

What’s interesting is the BUZZ ETF also uses 4IR tech to select its constituents. An AI algorithm scours the internet to find stocks that are causing the most positive buzz on social networking and news websites. Those getting praise from investors are added – provided they have a minimum market cap of $5bn. 

You may also wish to invest in a single company, rather than a stock. If you were looking at 4IR thematic investing, then you’d be looking at companies involved in the sectors mentioned earlier in this article. So, for EVs, you might want to consider Tesla, e-commerce you might pick Amazon, or big data you might invest in Palantir. 

A diversified portfolio would be a good approach here. Diversification means your portfolio would not lean too heavily on a single stock. With the variety of sectors falling under the 4IR umbrella, there are still ways to invest thematically without overexposing yourself in one particular direction. A mixture of ETFs and stock picks may present the best investment opportunities for you, should you decide to pursue such a strategy.  

Of course, any investment strategy, requires careful analysis and research. It also comes with inherent risk. The value of your investment can go up or down. You could come away with less money than you deposited. Always do your due diligence prior to committing any capital and monitor your open positions carefully. 

Lunch update: Europe cools, US futures flattish

European stocks cool, gilts are higher, Empire State manufacturing points to inflation. After rising to 6,805 in early trade the FTSE 100 has pared gains to trade broadly flat for the day.

After rising to 6,805 in early trade the FTSE 100 has pared gains to trade broadly flat for the day.

Gilt yields on the march higher this morning…taking out new highs after Bank of England governor Andrew Bailey was on the wires this morning sounding calm about the march higher in yields.

•	Gilt yields on the march higher this morning

US futures are mixed but overall showing little real impetus. Some single stock names to watch include AMC (a meme stock favourite), which is up 9% pre-market as it embarks on re-opening cinemas in California. GameStop is +4.5% or so with Koss +9.

NXP Semiconductors, Penn National Gaming, Generac and Caesars Entertainment all rose pre-market as they are set to be added to the S&P 500 as part of its quarterly rebalancing.

Airlines up as the US Transportation Safety Administration said screenings are at a 1-year high. The TSA said officers screened the most people in a single day on Friday since Mar 15th 2020. Travel is clearly picking up.

Tesla shares were flat ahead of the open after a frankly bizarre update from the company saying that Elon Musk’s title was changing to Technoking of Tesla, whilst CFO Zach Kirkhorn would henceforth be known as ‘Master of Coin’. More crypto focus or just epic trolling…? The stock remains in a bear market over 20% off its highs. All perfectly normal and I’m sure absolutely fine…

This is fine

NY Fed’s Empire State Manufacturing Survey rose to 17.4 in March from 12.5 in February, which was ahead of expectations and the best reading in 8 months. Of note was the inflation component: «Input price increases continued to pick up, rising at the fastest pace in nearly a decade and selling prices increased significantly.» The report added that: «Looking ahead, firms remained optimistic that conditions would improve over the next six months, anticipating significant increases in employment.»

US 10-year yields trade a little short of Friday’s peak, hovering around 1.62% this afternoon ahead of the open. Gold trades up at $1,732 with near-term resistance offered by Thursday’s highs around $1,740.

Gold trades up at $1,732

Bitcoin entered correction territory from its all-time high over the weekend, again looking like it not a great store of value. Purely speculative accumulation going on here.

Gold trades up at $1,732.

But with all these mega stimulus cheques landing the big question is where does the money go? Middle-class couples with two kids will receive up to $5,600 on top of any earnings. This excess liquidity will need to go somewhere.

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