Hope it was a great week! Here are some tidbits to chew over the weekend.
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Highlights from the Week
Defy the Haters: Tesla’s stock has had a rough week, trading as high as $1,650 and as low as close to $1,400, but that’s mainly been overshadowed by a more critical piece of news. Somehow, Elon Musk did it. He rallied his electric vehicle empire to a second-quarter profit, his fourth in a row, and the first streak of its kind in the company’s 17-year history. The development is a coup for Musk, who fought vigorously to keep his California manufacturing facility open during the Covid-19 lockdown.
It’s been a long road. Tesla faced financial collapse on several occasions, losing more than $6.78 billion since 2003. But the company seemed to turn a corner after losing $408 million in the second quarter a year ago as the “Model 3 fueled massive growth and Tesla successfully opened its first overseas assembly factory in China.” The achievement has multiple implications, stemming far beyond the accomplishment of persevering amid global chaos. Tesla can now be considered for the S&P 500 index, which could lead to a race of large index funds buying up shares. It also should finally silence the naysayers that have clung the idea that electric cars were too costly to make. Musk and Tesla have shown it is possible to make money, and a lot of it, on electric vehicles.
Tough Times Ahead: It’s been a week of escalating tensions between the U.S. and China. In the aftermath of the U.S. and U.K. barring Huawei from their 5G networks, The Wall Street Journal reported Monday Beijing was preemptively considering retaliation against Nokia and Ericsson if the European Union does the same. By Friday, the two powers were at each other’s throats again, trading consulate closures in Chengdu and Houston over national security concerns. It’s an unprecedented move dating back to when the U.S. and China normalized relations in 1979. But clashes over trade, technology, geopolitical influence and the coronavirus pandemic have eroded the ties between the world’s two large largest economies. All the while, TikTok has found itself in the middle of the conflict and is reportedly weighing a majority sale to avoid sanctions from the Trump administration.
Tracking the Vax: Even though cases are rising at an alarming rate in the U.S., we’ve gotten encouraging news on the Covid-19 vaccine front in the past few weeks. Moderna announced it’s vaccine candidate was headed to Phase 3 trials after generating the expected immune response in all participants of its 45-person study, and the University of Oxford’s candidate (co-produced by AstraZeneca) isn’t far behind after being shown to have brought about a “double protection” immune response. This week, the Pfizer-BioNTech candidate announced they were preparing to enter Phase 3 trials, and that the partnership also scored a massive $1.95 billion government contract. The more players in the vaccine race, the better. The government subsidy will allow Pfizer-BioNTech to deliver hundreds of millions of doses of their vaccine candidate to Americans “at no cost.”
Institutional Research Roundup
One of the more exciting highlights in the coming week will be the Fed’s latest monetary policy decision and Chair Powell’s subsequent presser. Recent word from the U.S. Central Bank has made it clear the FOMC is preparing to pivot away from stabilization to accommodation.
The Q2 GDP releases will be the primary data highlight next week, showing the scale of declines in output and how far economies will have to go to return to their pre-Covid-19 levels of activity. For the U.S., the consensus expects an annualized quarter decline of -34 percent, the largest quarterly contraction since the 1940s. Germany expects a -8.5 percent contraction, which would far exceed the worst three-month contractions after the global financial crisis in 2008-09. The expectation for the Euro Area group is a -10.7 percent quarterly contraction, the most significant decline since the Euro Area was first formed back in 1999.
Another key highlight next week: earnings releases from 190 S&P 500 companies and 169 from the STOXX 600.
- Monday: SAP, Ryanair and LVMH
- Tuesday: Starbucks, Visa, McDonald’s, Pfizer, Peugeot and Nissan
- Wednesday: Facebook, Sanofi, Rio Tinto, GlaxoSmithKline, Qualcomm, PayPal, Boeing, Santander, General Electric, General Motors, Barclays and Nomura
- Thursday: Alphabet, Amazon, Apple, Samsung, Nestle, Procter & Gamble, Comcast, L’Oreal, Stanley Black & Decker, AstraZeneca, Linde, Mastercard, American Tower, AB InBev, Total, Volkswagen, Ford, Royal Dutch Shell, Lloyds Banking Group and Credit Suisse.
- Friday: Chevron, Charter Communications, Merck, AbbVie, Phillips 66, ExxonMobil, BNP Paribas, Caterpillar, Nokia, NatWest Group and Fiat Chrysler Automobiles
Informal talks between the U.K. and the European Union on their future relationship will continue in London next week. After that, the next round of negotiating won’t be until mid-August. Coming out of this week, the two key sticking points continue to be “the question of the level playing field, where the EU is seeking guarantees that the UK won’t undercut it with lower standards, along with fisheries.” The two sides have until the end of the year to finish the deal when the Brexit transition period concludes.
Covid-19 Impact Tracker
- Covid-19 cases in earlier hotspots continue to decrease. But rising infection rates in places such as Florida, California, Texas, Arizona and much of the South continue to bend the curve upwards. A spike in mortality rates indicates this isn’t just a factor of increased testing. Estimates show 50 to 80 percent of GDP come from countries with worsening virus trends, signaling the continued presence of significant downside risk.
- Seasonally adjusted initial claims for the week ending July 18 inched up. It was largely because of seasonal factors, which predicted a 16.4 percent reduction in NSA initial claims from the previous week. As NSA claims decreased by 9.4 percent, seasonally adjusted claims increased by 109,000. The recent leveling off in high-frequency data, as a response to virus flare-ups, may begin to impact the labor market as consumers and businesses retrench.
- High-frequency data on balance strengthened. The predicted GDP growth rate rose around 40bps from the previous week. Recent data are about ten standard deviations worse than average and consistent with a roughly 8.7 percent year-over-year contraction in GDP.
- Data on mobility, small business activity, and restaurant seatings appear to be leveling off even with improvement in many aggregate economic activity measures. Motor vehicle gasoline demand fell slightly, relative to last week, supporting what’s signaled by recent mobility data. Until either the virus is under control or there is a vaccine, “households and businesses will not be comfortable returning to “normal” levels of economic activity, and more needs to be done to ensure the recovery remains on a solid footing, both in terms of public health as well as economic assistance.”