Tesla's Strong Earnings and US Yield Rise Stir Market Cconcerns

Trump vs the Media

When you start shouting that your opponent is literally Hitler, it’s usually a sign you have lost the argument. The coverage is increasingly hysterical. My thinking is that Trump win the election and it’s not even close. Bill Ackman made some very good points on CNBC yesterday.

European Stocks Lifted by Strong Earnings

European stock markets rose a bit in early trading on Thursday, boosted by earnings from Barclays, Unilever, Hermes and Renault. Hermes lifted the luxury sector, delivering a boost to the CAC. Barclays rose 4% to hit a 9-yr high – so much for the investment bank needing to be hived off. European PMIs are mixed but seem to have lifted the euro slightly despite ECB policymakers discussing a 50bps cut at the next meeting. Tesla shares rallied 12% after-hours as the company beat on profits and guided at least 20% vehicle growth next year.

Tesla Beats Profit Expectations as US Treasury Yields Climb

Let’s take Musk’s comments for a minute. He said his “best guess” is that “vehicle growth” will reach 20% to 30% next year due to “lower cost vehicles” and the “advent of autonomy.” Is that a serious estimate? Musk’s estimates have generally been wildly wrong in the past. Revenues increased 8% from $23.35 billion a year earlier, whilst net income rose to $2.17bn from $1.85bn a year before.

Rates are on the move again, with the US 10yr Treasury yield rising to 4.25%. A Trump trade may well be ‘on, but there are other factors at work here. But the effect is the same – the S&P 500 closed down almost one percent – markets are not so confident of rate cuts...but the Trump trade is supposed to be ‘risk on’...maybe nothing is all that straightforward. I remember that just about everyone got 2016 wrong – both on Brexit and Trump – and that the market is not always efficiently pricing in expected outcomes.

ECB: Heavy Cuts Are on the Way

Job cuts are deepening in Germany, and the latest PMI does not make great reading. Conditions continued to worsen across Germany’s private sector at the start of the fourth quarter, with businesses reporting further decreases in output and employment amid a backdrop of weak underlying demand, according to the HCOB PMI report. ECB policymaker Centeno talked up 50bps.

Bank of Canada Leads with Interest Rate Cuts

The Bank of Canada cut by 50bps, and markets see more to come with the statement noting that policymakers “expect to reduce the policy rate further”.

UK’s Economic Gloom Deepens Before Budget Announcement

PwC says the UK is in a ‘vibecession’...the Budget next week won’t help if the mood music is anything to go by. Very few will be net gainers. The doomsters and gloomsters have taken over the asylum and plan to squeeze us until the pips squeak. Gilts are also on the move, with the 10yr at 4.26% this morning, higher than the US 10yr Treasury again…premium for UK fiscal abandon again? It had come in and flipped negative for a time, but we are looking at this spread closely.

Japan’s Currency Market Intervention Likely as Yen Weakens

Japan’s finance minister, Kato, said there have been "one-sided, rapid" moves recently seen in the currency market, plus the usual jawboning: "It's important for currency rates to move stably. We are closely watching exchange-rate moves with a sense of urgency". USDJPY came off its highs at 153.185 earlier and is back to 152. The belief is that the authorities would intervene at 160, but we should expect some more rate hikes chat at 155...the problem is that the economy is not playing ball for a stronger yen right now. Japan's factory activity contracted for the fourth straight month in October.

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