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Market Insights

Tesla impresses, ECB talking up July hike

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Crisis averted? After Netflix, all eyes were on Tesla. Was this the next growth stock for the axe? CNBC’s Jim Cramer was trending on Twitter yesterday after his Magnificent 7 call back in October 2020:

“What if earnings just didn’t matter anymore?”

“These are seven companies where buyers don’t seem to care how well the underlying companies are doing, they just want to own the stocks regardless”

Here’s how Jim’s Magnificent 7 companies have done since:

Magnificent 7 companies

Naturally, the masses were just waiting for the last domino to fall…

But they were disappointed. Tesla posted a record profit, and expects to keep ramping up production throughout 2022 and beyond. Musk says Tesla is set to produce 1.5 million vehicles this year, a 60% growth rate, and plans to maintain a 50% growth rate in following years too. He was also positive about recovering the production lost from the Shanghai plant due to China’s lockdowns.

The strong results also triggered another windfall for Musk. He takes no salary and his pay is entirely target-based. His stock-option compensation allows him to buy Tesla stock at heavily discounted prices to current valuations.

Reuters report that this could mean a personal windfall of $23 billion for Musk:

Each tranche gives Musk the option to buy 8.4 million Tesla shares at $70.01 each, a discount of about 90% from Wednesday's closing price of $977.20. At the stock's current price, the three options tranches that will vest as a result of Tesla's March-quarter performance could generate a profit of about $23 billion, or almost $7.7 billion per tranche.

Guess he can afford to not take a salary!

Over in FX land, the ECB are turning heads

And the euro’s on the turn too. Can it last?

EURUSD daily movement

Rate hikes are coming, and it’s a matter of when, not if. At least that’s the implication from a a pair of ECB policymakers on Thursday morning

Vice President De Guindos said:

"I see no reason why we should not discontinue our Asset Purchase Program in July... for the first rate hike we will have to see our projections, the different scenarios,”

"From today’s perspective, July is possible and September, or later, is also possible. We will look at the data and only then decide,"

This was backed up by earlier comments from Governing council member Pierre Wunsch:

“Without any really bad news coming from that front, [Ukraine War] hiking by the end of this year to zero or slightly positive territory for me would be a no brainer,”

Wunsch sees a July hike as a possibility too:

“It’s going to of course depend on data… If we have another inflation surprise, it’s certainly a scenario that I would consider.”

On the inflation front, there was a tiny bit of relief today. The final eurozone CPI figures came in at 7.4% YoY vs the preliminary CPI of 7.5%.

Money markets are pricing in a 75% chance of a 25bps hike for the July meeting.

Not investment advice. Past performance does not guarantee or predict future performance.

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