Range trading amid US holiday
The FX market had slow start on Wednesday as US traders take a day off for Independence Day. The Dollar Index eased to 94.50, down 0.10% on the session, as the euro edged up 0.05%, the yen 0.15% and the Swissie 0.15%. However, most currency pairs have been range-bound as trade tensions stabilise. Indeed, the lack of fresh news regarding the trade conflict between the US and its largest trading partners has allowed the risk sentiment to pick-up somewhat. Nevertheless, investors remain on the defensive, which explains the lack of clear trend in financial markets.
On the economic calendar, it will be a busy day in Europe as PMI figures are due for several countries. However, there is little change it will impact significantly the market, especially as trading will be thinner than usual today. Things will be back to normal tomorrow with ADPs, US PMIs and crude inventories.
Tesla shines
After years of hype, Tesla finally did it. CEO Elon Musk reached his goal of making 5,000 Model 3s in a week: signalling that Tesla has become a “real car company.” It now expects to increase to 6,000 per week by late August, using among other things a production line inside a tent next to its Fremont factory. Efficiency has jumped: Tesla’s engineers unexpectedly determined that cars built now need 300 less welds than cars built a short time ago. While traditional automakers ridicule the relatively small numbers, Tesla is regaining it mythic reputation. Given this position in the market, forecasts of electric-vehicle growth and lack of real competition, Tesla’s outlook remains bright.
Its shares jumped as much as 6.4% to $364.78 on the news. Still, markets questioned the sustainability of production and the extra costs of additional effort. Cash burn for the Model 3 production has been frightening. Problems with batteries, over-reliance on automation and bottlenecks threaten Tesla’s dominant position in electric cars. Financials remain weak. Tesla has no earnings, so no P/E, but book value is a negative 11.68. Long term debt equals more then 2x shareholder equity.
At last Friday’s close, 34.83 million Tesla shares or 27.5% of those accessible for trading were sold short. Prices of its three convertible bonds were unmoved by the production news, indicating that investors remain unwilling to convert from safe bonds into volatile equity.
