Market Watch 31.10.2021

Tesla is now the world’s 6th largest company. Tesla has become the first car company ever to be valued over $1tn and is now as large as the next nine car companies combined. The surge follows recent news that Hertz has ordered 100,000 model 3s, around $4.2bn in revenue for Tesla. As a result, Tesla shares climbed 17.19% this week and closed at $1,114 on Friday, giving it a market cap of $1.11tn. In Q3 Tesla produced 241,300 cars, making the deal very sizeable and about one-tenth of what the car company can make in a year. Tesla’s Price to Earnings ratio is now a staggering 361.45, while the S&P 500 average is 29.2.


Many Tesla sceptics including Bernstein analysts and Mirabaud researcher, Neil Campling believe the stock move is “historically unprecedented” and “insane”. Even Elon Musk couldn’t fathom the rally, saying it was strange the Hertz announcement had “moved valuation, as Tesla is very much a production ramp problem, not a demand problem”. Musk anticipates production will be able to reach 20 million cars a year by 2030, almost double what Toyota and Volkswagen currently produce. However, Pierre Ferragu, managing partner at New Street Research, believes car sales will only account for 25% of future profits and the rest from their self-driving software subscriptions.


Chancellor Rishi Sunak announces his Budget. The Chancellor of the Exchequer praised his third budget as “a new age of optimism”, which focuses on “tax, spend and save”. He decided to target spending on improving public services and UK public finances in a bid to offset growing inflation. Following on from his efforts to combat COVID-19, he said this budget “begins the work of preparing for a new economy post Covid”. This economy would consist of “higher wages, higher skills and rising productivity”, as well as “strong public services”. The Office for Budget Responsibility’s assessment of the economy and public finances has improved since the March Budget.


Firstly, the GDP increase of 4% for 2021 has been revised to 6.5%, the fastest rate in 50 years. OBR predicts inflation will reach 4.4%, however, the Treasury will be happy with this because it will force a raise in wages. Public borrowing is expected to reach £183bn, much lower than the March Budget expectation of £234bn and the cash size of the economy in 2025 is predicted to be 5% larger. Greater revenue expectations mean Sunak is achieving his newly declared core fiscal rules: underlying public sector net debt on a negative trajectory by 2024-25 and offsetting the budget excluding net investment. In his most recent Commons speech, Sunak said he now focuses on delivering tax cuts before the next general election.



Tech giants have mixed Q3 earnings. Apple fell as much as 5.3%in after-market earnings on Thursday. Q4 revenue missed forecasted estimates of $84.7bn by $1.4bn and the $38.9bn in Q3 iPhone sales missed analysts’ prediction of $41.6bn. Chief Executive Officer Tim Cook, announced supply chain issues will cost apple over $6bn in sales and expects the problem to only worsen as we approach Christmas. The global scarcity of semiconductors affects “pretty much most of our products currently,” he said, “Demand is very robust.” Facebook renamed itself to Meta and is also affected by global supply chain shortages. Its weak Q4 outlook however, couldn’t tumble the shares, as Q3 revenue climbed 35% to $29bn and daily active users beat analyst predictions of 2.77bn by 2.81bn.


After market-trading saw shares rise by around 1%. Amazon slid 4% in after-market trading on Thursday, after Q4 expectations signal the end of the pandemic boom. Revenue is forecasted to miss by$1.6bn-$11.6bn and earnings were $6.12 per share, a massive downgrade from $12.37 last year. Alphabet revenue expectations of $52.6bn was beat by $1bn and earnings per share exceeded the forecasted $23.50 at $27.99. Microsoft also beat expectations in revenue and earnings per share by $1.4bn and $0.20 respectively. The share price rose by 7.24% this week and coupled with apple’s slide means they overtook them to become the world’s largest company. For now, the majority of the tech giants head towards a lacklustre Q4 from the global chip shortage, which should be resolved next year.



Main Events


  • FOMC STATEMENT AND INTEREST RATE DECISION

The highlight of the week will be the FOMC’s meeting that will take place on Wednesday. Here, the federal reserve’s board of governors will announce their most recent decision on the US interest rate. The current interest rate set by the Fed is 0.25% in order to sustain the economic recovery from the Covid-19 pandemic.


However, with the inflationary pressures becoming more prevalent, interest rates hikes will be paramount in controlling it. Following this decision, there will be both a policy statement and a FOMC press conference held. For this meeting, investors will closely monitor the Fed’s decision regarding tapering the bond-buying programme as the labour market data is improving and the consumer sentiment is reaching pre-pandemic levels. On the economic data front, the US Non-Farm Payrolls report is expected to point an acceleration in employment growth, with an increase of 425,000 in October, compared with September's 194,000.



  • BoE INTEREST RATE DECISION AND MONETARY POLICY REPORT

In the UK, investors will keep an eye on the Bank of England’s monetary policy plan, as the Governor Andrew Bailley announced that the BoE will have to act to tame the inflation treats.


Currently, the UK interest rate is set at 0.1%, with analysts forecasting no furthered changes for this meeting. However, it is expected to see a rate hike in December to 0.25% and by the end of 2022, the interest rate could reach 1%. Key data for this week will include the manufacturing and composite PMIs along with the coronavirus infection and deaths numbers, that could imply tighter restriction for the winter.


Economic Calendar 1st November – 5th November


MONDAY

  • Data: China Caixin Manufacturing PMI, UK Manufacturing PMI, US ISM Manufacturing PMI

  • Events: Bank of Japan Monetary Policy Meeting Minutes, Central Bank of Brazil Focus Market Readout, Russian Monetary Policy Meeting Minutes


TUESDAY

  • Data: RBA Interest Rate Decision, German Manufacturing PMI, New Zealand Employment Change, Eurozone Manufacturing PMI

  • Events: RBA’D Debelle Speech, Bank of Japan Monetary Policy Statement


WEDNESDAY

  • Data: UK Composite and services PMI, US ADP Non-farm Employment Change (Oct), U.S Non-Manufacturing PMI, FED Interest Rate Decision, Eurozone Unemployment Rate, Crude Oil Inventories

  • Events: FOMC Statement and Press Conference, Central Bank of Brazil Coupon Meeting Minutes


THURSDAY

  • Data: UK Construction PMI, BoE Interest Rate Decision

  • Events: ECB Press Conference, BoE Monetary Policy Report and Minutes, BoE Bailey Speech


FRIDAY

  • Data: US Non-Farm Payrolls, US Unemployment Rate, Canadian Employment Change and Ivey PMI (Oct), EU Retail Sales

  • Events: RBA Monetary Policy Statement



Thank you to Cameron Barker, George Fol and Mihai Golumbeanu for your in-depth analysis!

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