Talks of a looming stagflation in the European Union have intensified over the past month as the region suffers from what many describe as the worst conflict in the continent in decades, threatening skyrocketing inflation, supply shortages, job losses and famine.
Even before the Ukraine invasion began, European countries had already suffered the worst economic shock since World War II in 2020 when the disruptions caused by the COVID-19 pandemic led to a 6.4% drop in the EU’s real GDP. That was worse than the GDP drop during the global financial crisis.
The EU region rebounded in 2021, posting 14.09 trillion euros in GDP, up 5.3% from pandemic-hit 2020.
However, just as the EU’s economic recovery was gathering pace, the region could now plunge into recession, or worse a stagflation — a period of high inflation, elevated unemployment, and slow economic growth rate — as the region is caught in between the Russia-Ukraine conflict.
As the Ukraine invasion drags on, the global oil trade remains in disarray as sanctions against Russia have prevented it from selling crude to some of its overseas customers. Although oil prices have fallen in recent days due to upbeat developments surrounding peace talks between the two warring countries, oil prices remain high as the absence of Russian crude continues to be felt in global markets.
This sparked concerns of rationing in many markets, particularly in Europe, the top buyer of Russian oil, as many European leaders have scoffed at Vladimir Putin’s demand to pay for natural gas and oil in rubles.
"Governments have a very clear understanding that there is a clear link between diesel and GDP, because almost everything that goes into and out of a factory goes using diesel,” John Cooper, director general of Fuels Europe, a unit of the European Petroleum Refiners Association, was quoted by Reuters as saying.
Germany, Poland, Turkey, Britain, France and Spain are the countries that are most dependent on Russian diesel, the news outlet added, citing data from energy consultancy FGE.
In addition to the shortage of oil, the Ukraine war has also exacerbated the global food shortage at a time when many countries are already struggling with poverty and hunger during the COVID-19 pandemic.
David Beasley, executive director of the UN World Food Program, on Tuesday warned that the war in Ukraine has led to “a catastrophe on top of a catastrophe,” that "will have a global impact beyond anything we’ve seen since World War II.”
In February, global food prices jumped to an all-time high, according to the FAO Food Price Index. Beasley said high prices mean more people globally will fall into hunger.
Employment levels in the EU have declined since the start of the pandemic, while the total hours worked also slumped reflecting supply and demand factors, according to a recent report by the International Monetary Fund.
As economies reopened prior to the war, labor markets have recovered from the pandemic-induced slump, with the EU unemployment rate shrinking to a historical low of 6.8% in December 2021, the IMF noted.
However, as inflation continues to soar, wages will likely follow the trend, prompting more rate hikes by central banks.
Against the many signs that point to a possible stagflation in the EU in the near term, Christine Lagarde, chief of the European Central Bank, said in a Wednesday conference that no data suggests Europe will fall into stagflation.
Although inflation will “no doubt” increase this year, conditions remain “quite fluid,” Lagarde was quoted by the Associated Press as saying.
The nickel market has been in disarray in recent weeks as prices soared to unprecedented levels before going on a freefall amid supply concerns and an unexpected short-squeeze by one of the world’s largest steelmakers.
Nickel is one of the most common metal elements in the world used to make stainless steel, batteries, coins, and other metal applications.
Russia is one of the world’s largest producers of nickel, supplying about 20% of class 1 nickel that is mainly used in the production of stainless steel and electric vehicle batteries. Data from market research firm Statista showed that Russia was the world’s leading exporter of nickel and nickel products in 2020, shipping about $3.02 billion worth of the commodity.
The conflict between Russia and Ukraine sparked fears of a nickel supply crunch as Russia has been hit with a number of economic sanctions and as importers of other Russian commodities like oil avoid being impacted by sanctions.
In addition to the supply concerns induced by the ongoing Ukraine conflict, a short-squeeze involving Tsingshan Holding Group, touted as the largest nickel producer in the world, was also behind soaring nickel prices.
The Chinese company took a nickel short position of 200,000 tons of nickel in the London Metal Exchange (LME) and as the price of nickel surged in the early days of the Ukraine crisis, the company’s short position was left in disarray, setting it up for a paper loss of about $8 billion.
Tsingshan recently inked a deal with banks to avoid further margin calls, buying it time to cut its nickel position as markets stabilize.
The short-squeeze and supply concerns sent nickel prices skyrocketing by more than 50% to $100,000 per tonne on March 8, significantly up from about $25,000 per tonne a week earlier.
Since the trade resumption, prices have been on a freefall over low trading volumes and concerns about the status of Tsingshan’s short position. The benchmark three-month nickel on the LME fell 2.2% on Tuesday at 10:30 a.m. GMT to $32,000 per tonne.
Higher nickel prices could drive up the costs of electric vehicles even higher as nickel is one of the key materials used to produce EV batteries. Morgan Stanley auto analyst Adam Jonas had recently warned that EVs in the US could be $1,000 more expensive as nickel prices soar.
This could hurt electric carmakers’ profit margins and impede the growth of the burgeoning EV market at a time when markets like China, Europe, and the US transition to new-energy vehicles.
The shortage in nickel and skyrocketing prices of the metal have forced some EV makers like Tesla (NASDAQ:TSLA) to look for other battery materials. In late February, Tesla CEO Elon Musk tweeted that the Silicon Valley-based company’s biggest concern for scaling lithium-ion cell production is nickel.
“That’s why we are shifting standard range cars to an iron cathode,” Musk said. Tesla recently hiked the prices of its Model 3 and Model Y cars in the US and China, the world’s biggest car market, due to high raw material prices.
Its rivals in China including XPeng (NYSE:XPEV), Li Auto (NASDAQ:LI) and BYD (HKG:1211) also announced price hikes to counter rising raw material costs. However, NIO (NYSE:NIO), another local player, last week said it has no plans to raise prices at the moment after its sales have lagged behind its rivals XPeng and Li Auto for five straight months.
The prices of cryptocurrencies including Bitcoin, the most popular of the lot, have been highly volatile in recent months due to conflicting regulatory signs and rising interest rates.
Despite the massive sell-off of digital tokens, Tesla (NASDAQ:TSLA) CEO Elon Musk is among those who are still bullish on digital currencies. As such, the recently reminted $1 trillion dollar company is caught in the crosshairs of movements in the cryptocurrency market.
After reaching an all-time high of $67.5K in November, the price of Bitcoin is now hovering around $40K since the start of the year. The crash is partly due to remarks from the US Federal Reserve about launching its own digital currency similar to China’s e-renminbi and US President Joe Biden’s recent order directing government agencies to coordinate on a regulatory framework for digital currencies.
While the regulatory forces mentioned above have helped to suppress any upside in digital assets, the largest contributor in the price crash of Bitcoin is the about-face that Musk, and by association Tesla, pulled for its support of Bitcoin. In a way, those cryptocurrency crosshairs are attached to the rifle wielded at times by Musk and Tesla.
Last year, Tesla revealed that it invested a total of $1.5 billion in Bitcoin and hinted that it may acquire and hold digital assets “from time to time or long-term.” Since that announcement in February 2021, the company has had no additional Bitcoin purchases.
Tesla disclosed in its 2021 annual report that it still held around $1.26 billion worth of digital assets and incurred $101 million of impairment losses on its digital assets.
At the same time, the EV leader also reiterated its confidence in the long-term potential of digital assets both as an investment and as a liquid alternative to cash. However, the carmaker warned, in an ambiguous statement, that it may boost or reduce its digital asset holdings based on its business needs and on its view of market conditions. However, knowing Tesla dependency on Musk as its “product architect and social media manager”, as quoted by Bloomberg, the company’s position on digital currency’s may be far closer aligned with his own personal view than the above statement suggests.
Over a month after the company’s disclosure, Musk on Twitter said he still owns and “won’t sell” his own personal Bitcoin, Ethereum or Dodge holdings, stressing that “it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high.”
After waging war against Ukraine that triggered a humanitarian crisis as well as skyrocketing oil prices that fueled global inflation concerns, Russia has been hammered with a series of sanctions by Western governments in an attempt to weaken its economy.
Foreign nations have slapped economic sanctions on Vladimir Putin's government and among the most sweeping sanctions are efforts to cut Russia’s access to the global financial system.
Russian banks have been barred from using the Society for Worldwide Interbank Financial Telecommunications (SWIFT) payment system that connects banks in 200 countries and regions to more than 11,000 financial institutions globally.
Washington and its European allies have also moved to cut off the Russian central bank from overseas transactions, further restricting Russia’s ability to use its international reserves to fund the war.
The actual cost of the Ukraine invasion on Russia may be far less than the magnitude of damage on Ukrainians, although it has definitely taken a toll on Russians as wars are expensive.
A recent study by Ukraine-based think-tank Center for Economic Recovery estimates that an almost 100-hour full-scale invasion cost the Russian economy $7 billion in direct losses including $2.7 billion of potential GDP loss in the next 40 years.
If the war drags on, Russia might have to bank on its reserves to continue funding its military.
As of mid-February, before Russia started to invade Ukraine, the country had amassed $643 billion in international reserves, according to the Bank of Russia. But with the unprecedented sanctions imposed on the Russian central bank, much of the country’s foreign exchange reserves have been rendered useless.
Russian central bank assets held in US banks have also been frozen and financial institutions outside the US that hold dollars for the central bank will be unable to transfer the assets.
With the restricted access to the US dollar, Russia may be prompted to use its gold reserves to support its deteriorating economy. The central bank earlier this week suspended purchases of gold from banks amid increased demand from households, which the Bank of Russia attributed to the cancellation of value-added tax on consumers’ gold purchases. The central bank did not disclose when it will resume buying gold from banks.
Russia had built more than $130 billion worth of gold as of the end of January, accounting for about 22% of its reserves, data from the central bank showed.
A large portion of Russia’s foreign currency and gold reserves are kept in China, France, Japan, Germany and the US as of mid-2021, according to a now unavailable report by the Bank of Russia that was archived by Wayback Machine. Russia and China are seen as de-facto allies, making it easy for the Kremlin to recover its gold from Asia’s largest economy.
However, with no signs of Putin backing down from the war, US lawmakers are now targeting Russia’s access to its gold. A bipartisan bill was introduced last week, aiming to apply sanctions to any American entities that transact or transport gold from Russia’s central bank or sell gold physically or electronically in Russia.
"Russia’s massive gold supply is one of the few remaining assets that Putin can use to keep his country’s economy from falling even further,” US Senator Angus King, one of the bill’s authors, said.
Putin has acknowledged that the Russian economy had suffered a setback from the war, saying in televised remarks on Wednesday that Russia "will have to make deep structural changes in our economy.”
"I will not pretend that they will be easy or that they will not lead to a temporary increase in inflation and unemployment.”
On Sunday, International Monetary Fund Managing Director Kristalina Georgieva told CBS's "Face the Nation" program that Russia may default on its debts, triggering a deep recession in its economy this year.
The Russian ruble fell to 105.45 against the US dollar on Thursday.
To begin, it may pay to define what a stock split is: A stock split is a simple mechanism that a listed company can employ to increase the number of issued shares while keeping its market capitalisation/ valuation the same.
There are a couple of reasons a company may elect to perform a stock split, the chief among them is to increase the liquidity (or accessibility/ tradability) of their stock.
The most popular stock split ratios are 2:1, 3:2, and 3:1. By way of example, if a hypothetical company were to perform a 3-for-1 stock split, its shareholders would be issued an additional two shares for every share they owned before the split. In conjunction with the split, the value of each share would be devalued to 1/3 of its pre-split value. Effectively, the total value of three shares after the stock split should be worth the same value as one share before the stock split.
A reverse stock split is when a company reduces the number of shares available while keeping its market capitalisation/ valuation the same. A company cannot simply remove shares as easily as it can issue new shares. Therefore, with a reverse stock split, a company is forced to revoke all existing shares and issue new shares, proportional to the reduction that the company is pursuing.
A primary reason a company performs a reverse stock split is to avoid being delisted from its stock exchange which may have set minimum share-price conditions on its listees.
Tesla (NASDAQ: TSLA) performed a 5:1 split of its stock in August 2020. At the time, TSLA shares were trading above US $1,300. Tesla CEO Elon Musk believed the EV Company’s shares were too expensive for retail investors, so he reduced its price via a stock split.
Microsoft (NASDAQ: MSFT) has been a serial stock splitter. Since listing on the Nasdaq in 1986, The Software Company has performed nine stock splits, the last occurring in 2003. Consequently, 100 MSFT shares in 1986 would now total approximately 30,000 shares.
The beleaguered General Electric (NYSE:GE) performed a 1:8 reverse stock split in July 2021. Before the reverse stock split, GE shares were teetering around US $12. The reverse stock split meant that GE shares began trading above US $100 per share, a threshold not crossed for a very long time.
Q3 earning season is currently underway, and most high-profile companies are delivering revenue beats. Yet, Q3 revenue is not the only thing investors are watching. Investors are interested in revenue growth, customer acquisition, and pace of growth alongside the balance sheet. Inflationary and supply chain pressures that may affect the outlook of reporting companies are an additional concern for investors.
Tesla's Q3, 2021 earnings were, once again, record-setting for the Company. The Company is increasing sales and has stated it is on track to "achieve 50% average annual growth in vehicle deliveries" at a time when chip shortages are hampering other automakers ability to do so. Improving gross margins (up to 30.5%) was also a significant factor in Tesla performance in Q3.
TSLA shares since earnings report:
The popularity of Netflix's series Squid Game hadn't completely filtered into the Company's finances at the time of its Q3, 2021 earnings report. Yet, Netflix delivered a favourable report, with revenue coming in on par and subscriber growth beating expectations. Squid Game IP is estimated to be worth $900 million to Netflix and should help boost its Q4 earnings, which typically get a seasonal bump anyway.
NFLX shares since earnings report:
Johnson & Johnson's Q3 earnings-per-share beat expectations, with revenue climbing 10.7% from the previous corresponding period. J&J increased its (bottom-end) revenue guidance for the full year from $93.8 billion - $94.6 billion to $94.1 billion to $94.6 billion. J&J noted that its Covid vaccine would be responsible for $2.5 billion at years end and $502 million of its Q3 revenue.
JNJ shares since earnings report:
PG beat revenue estimates, increasing sales revenue by 5% over the last quarter, but expects to fall short of 2020 revenue. The consumer goods Company also noted that rising producer costs, particularly as it relates to shipping and raw commodity prices, has already had and is going to continue to have a larger-than-anticipated effect on its earnings. In response, PG has begun raising the prices of some of its premium products as a quick remedy to help offset its rising costs.
PG shares since earnings report:
There are plenty more juicy earning reports due next week.
Tesla Inc (NASDAQ: TSLA) appears to have tremendous short potential still. It might pay to wait for the Company's stock to fall below $560 per share, though. On at least two occasions in 2021, buyers have been waiting at this price point to scoop up shares, significantly countering any downwards momentum. Thus, waiting for a decent break below $560 might be prudent before betting against the EV manufacturer. For the more cautious, waiting until $500 is another entry point worth considering.
YTD, Tesla shares have fallen 11.7%. For the stock to reach $560 or $500, the stock would have to fall another 13.1% and 22.4%, respectively.
The share price has been traversing down a flattening wedge since the beginning of the year. Of course, This technical perspective is no perfect predictor of where the price is heading. Still, from a fundamental perspective, recent Tesla's PR isn't exactly helpful to for Tesla Bulls.
The issues that have recently affected Tesla include:
- The Company's CEO, Elon Musk, said last week that he doesn't enjoy his role at the Company. Further, he believes the Company would fail if he were to step back from leading the Company, intimating that the Company's success hinges too much on his involvement
- The above piece of hot gossip was revealed during Musk's court testimony in which he is defending Tesla's allegedly poor decision to purchase the cash-strapped SolarCity in 2016. The lawsuit's plaintiff is asking Tesla repay shareholders the $2.6B cost spent on acquiring the SolarCity.
- Tesla has had to "recall" almost 300K vehicles in China due to safety concerns regarding its Autopilot feature. Admittedly, the recall is considered a soft recall and only involved a software update. Nevertheless, Tesla's Autopilot credentials have taken another hit. Early in July, Musk admitted that the Company has struggled to overcome the many challenges included in implementing a safe self-driving vehicle. Personally, the idea of self-driving cars always seemed a little far-fetched to me, so I never understood how the Company's was able to leverage the hype of this technology.
In May, Michael Burry, via his investment company, Scion Asset Management, revealed a half-a-billion short position against Tesla.
One reason that Burry is so Bearish on Tesla is that he sees a significant portion as unsustainable. Currently, Tesla pads its balance sheet by selling carbon credits to other automakers. In April, Tesla reported $518 million from the sale of carbon, equivalent to 20% of the Company's revenue for the period. Naturally, Burry sees this form of revenue drying up soon, as Tesla's competitors push into EV production themselves and require fewer credits from the EV leader.
Curiously, Tesla shares have risen 11.6% since Burry’s revelation.
A theory: Elon Musk will hand Tesla Inc (NASDAQ: TSLA) over to a successor when Tesla can no longer generate much fanfare. At least, not as much as they currently do. This point in time will come once legacy car manufactures are firmly entrenched in the EV space. It is likely General Motors Company (NYSE: GM), Stellantis NV (BIT: STLA), and the dominant Asian brands will outcompete Tesla on price, range, and looks. Consequently, Tesla will be relegated to a periphery player. If legacy car brands convert their production to EV as fast as they say they will, I expect Musk will move on to his next project before 2030.
To stay in the game, Tesla will have to double down on its status as a luxury vehicle. I think this would be the right move for Tesla in the long run. Imagine this; Tesla becomes an electric equivalent of Ferrari, Lamborghini, or McLaren.
Last week, Ferrari NV (BIT: RACE) announced Benedetto Vigna as its new CEO. The appointment of Vigna surprised the market as his background is in computer engineering rather than the automotive or luxury goods sector.
The appointment strongly indicates a new priority for vehicle manufacturers. Moving forward, the success of their respective businesses will be heavily dependent on their electronic and computing technology.
Tesla's CFO (Master of Coin), Zachary Kirkhorn, easily fulfils the criteria to lead the Company. After all, Kirkhorn holds degrees in both economics and engineering. Tesla's Senior VP, Andrew Baglino, an electrical engineer, is an equally appropriate choice to head the Company.
However, Elon probably won't play by the industry rules. Instead, Elon may hand the reins over to his little brother, Kimbal Musk, a Tesla board member and a self-described chef, restauranteur, and philanthropist. I am not hinting that Kimbal's Directorship is undeserved. Rather, I am noting the unconventional choice in the same manner that his ascension to CEO would be unconventional.
While Kimbal Musk does not profess a penchant for electrical or computer engineering, he is very successful in his own right within the technology space. In addition to his culinary pursuits, Kimbal has co-founded and directed many of Elon's technology companies, including Zip2, SpaceX and X.com.
Legacy car manufacturers are about to begin producing EVs in earnest. In response, I believe Tesla will have to do something drastic to meet shareholder expectations. The price of Tesla shares indicates that shareholders expect Tesla to become the dominant car manufacturer in the world.
Legacy car manufacturers pose a great risk to Tesla. For one, they are highly capitalized and already have the facilities to produce a diversified group of EVs. I suspect, the market is going to want a wider range of vehicles than Tesla currently offers.
To better compete in the near future, it would be prudent for Tesla to approach other native-EV manufacturers. Tesla would do well to consider a merger with their smaller competition. American EV companies would be the best partner for Tesla. Not only would they have a similar brand story, but the US EV industry could be strengthened as a whole. At least, it could help the country better compete with the competition coming out of China and Europe.
While the world continues to grapple with the Coronavirus, the financial markets are captivated by the financial phenomena that are GameStop. Currently, the stock price sits at $255, but by the time this is posted, the price will likely be plus or minus $50. Lawsuits have been served to Robinhood in New York and Chicago due to the low-cost brokerage withholding the ability to purchase more stocks of GME. Sources have stated that Robinhood is currently drawing millions from credit lines from Goldman Sachs and JP Morgan Chase.
It is incredible how captivated the financial community and even main street on what is currently happening with GameStop. Yesterday, we had the titans on the equity markets releasing earnings. Apple, and Tesla. We also had the FOMC releasing their interest rate decision, alongside Federal Reserve Chairman Jerome Powell releasing his views on the economy, but everyone was too focused on GameStop.
The Federal Reserve keeps rates unchanged as Jerome Powell believes that "its going to be a struggle "the pandemic still provides considerable downside risks." The Federal Reserve continues to show its unwavering support for the US, introducing a new bond purchase program worth $120 Billion a month and will continue to do so every month until 2% inflation is reached and lower unemployment is reached.
Apple released their highest revenue figure in the company's history, reporting $111.4 Billion, in which $65.6 billion came from iPhone sales. This was higher than the $59.8 billion analysts expected. Dan Ives praised Apple, stating that "this [was] a masterpiece quarter" for Apple.
Tesla missed earnings for the first time in 10 months. However, it wasn't all bad news, as their quarterly sales were better than expected. They have over 10 Billion in cash through the issuance of Tesla stock. Shares weakened slightly; however they rebounded today.
Be ready for more GameStop in your news feed. However, do not forget about the technical and fundamentals regarding specific currency pairs you are following.
(GME's price at closing was at 190. After hours? $350.)