LCG MARKET WRAP: Stocks resume selloff, Tesla FOMO

LCG MARKET WRAP: Stocks resume selloff, Tesla FOMO

Equity Asset Management
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It’s a very gloomy picture in Asian markets.

It’s a FOMO rally in Tesla but it can go further.

Ralf Speth is making way so Jaguar Land Rover can usher in the electric era.

We think Powell just signalled a soft pivot for the Fed.

Carney probably has the votes for his ‘retirement rate cut’. (Sayonara stimulus?)

EQUITIES

Some Asian stock indices are posting a sixth day of losses and markets opening for the first time since the Lunar New Year are getting slammed as they play catchup to the selloff. Shares in Taiwan are down over 5%. Worried tones from central bankers and nerves about the coronavirus are setting up a very weak open for UK and European shares.

There was a whole host of big earnings releases from the US overnight. US stock markets are getting squeezed by generally well-received company earnings and detrimental external factors. The S&P 500 finished -0.09% on Wednesday.

Shares of Tesla jumped double digits in reaction to a second quarterly profit, record vehicle production and optimism about . The exuberance after these results from Tesla scream FOMO to us. But shorts have been so badly squeezed we wouldn’t make that call.

Facebook shares look like they will crumble at the open of trading on Wall Street after reporting the slowest ever revenue growth. Shares dropped over 7% in afterhours trading. Facebook has been under microscope ever since it was judged its ads played a big part in the 2016 US election result. That heightened after Cambridge Analytica. Now user growth is slowing just as the costs are rising to defend against extra scrutiny. We think Facebook’s revenues can pickup again but the costs will be harder to bring down before the November US election.

Ralph Speth is stepping down at Jaguar Land Rover according to the FT. Speth’s contract expires in September and he will step down then. It’s the end of a job well-done leading the turnaround from obscurity to one of the most respected car-brands. It makes sense that Speth would want to hand over the baton as Jaguar Land Rover transitions to EVs. We suspect this could also be a pre-cursor to another takeover, perhaps by BMW.

FOREX

The reaction to the Fed meeting wasn’t too strong in rates and forex markets. That’s probably because although we think the Fed made a dovish tilt, the dollar is in demand as a haven because of the coronavirus. The Fed seems to be undergoing a transition to the market’s way of thinking... again.  Having at the last meeting raised the bar to a rate hike, Powell appears to have lowered the bar for a rate cut. The April exit date for Treasury bill purchases is significant only if the purchases actually stop. And there’s a good chance they don’t.

 One can understand Mark Carney wants to go out with a bang. But for us the timing of a rate cut now seems a little harder to grasp. Economists are split on the “Boris bounce” to the UK economy so today’s decision by the Bank of England will be divisive either way. We think it will be tight with votes probably split 5-4 favouring a rate cut. A rate cut isn’t fully priced in so if it does occur, we think it ushers in another leg lower in the pound. Our expectation would be GBPUSD to 1.25 within Q1 if rates are lowered. Keeping rates on hold would be a positive surprise and we’d look for GBPUSD toward 1.33 in pretty short order.

Opening Calls

FTSE 100 is set to open 63 points lower at 7420

DAX is set to open 140 points lower at 13,205

S&P 500 is set to open 28 points lower at 3245