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Video / 03 April 2017 at 7:23 GMT

From the Floor: Is 2017 Tesla's year? — #SaxoStrats

#SaxoStrats
   • Tesla beats Q1 delivery estimates with 25,000 vehicles shipped
   • Australian retail sales, credit growth indicator disappoint
   • Vols 'very low and not ready to reverse' — Horchani
   • Eurozone, UK PMI, US march ISM manufacturing data out today
   • 'Inflation is cooling off in Europe, expect some EU/US divergence' — Garnry
   • Corn and wheat recovery candidates post-planting report
   • 'Crude needs to consolidate and establish a lower range' — Hansen
   • Opec compliance, production deal extension key for oil prices
   • French-German bond spreads widen ahead of new 10-year issue

SaxoStrats
By Michael McKenna

Tesla has released its first-quarter delivery numbers, and they show a strong start to 2017 for the high-profile electric carmaker. Tesla delivered 25,000 cars during Q1 versus 24,200 expected by analysts, reports Saxo bank head of equity strategy Peter Garnry, with the total near-evenly split between the Model S sedan and the Model X SUV.

The firm missed its 2016 target for deliveries, shipping 76,320 cars versus its goal of 79,000 on fourth-quarter production delays. Tesla shares have been in the spotlight of late following a 30% year-to-date gain and on the back of Chinese tech firm’s buying a 5% stake in the carmaker (worth over $2.2 billion) last week.

Garnry maintains his negative view on Tesla shares as expressed in his February 16 trade view. According to Saxo's equities head, "the steep production ramp-up is set to begin in the second half and thus the real challenge is just around the corner. In addition, Tesla has an ability to not meet own expectations which is also weighing down on our outlook."

On today’s Morning Call, Garnry reiterated his view that he is neutral US stocks (and bullish their European counterparts) on the current valuation gap. Concerning the macro data, however, Saxo’s equities head notes that he sees inflation cooling off in Europe while strong US data point to a developing trend divergence between Europe and the US on this front.

Today sees two Federal Reserve speakers out, New York’s William Dudley and Philadelphia’s Patrick Harker. With the March nonfarm payrolls release out Friday, investors will be analysing the two Federal Open Market Committee voters’ words for clues as to the US central bank’s policy trajectory.

Last Friday, Dudley was out stating that the Fed could begin slashing its $4.5 trillion balance sheet later this year, adding that the FOMC may well pause its rate hike schedule if and when this process begins.

Reporting from Saxo Bank’s Singapore desk, Tareck Horchani said that Australian retail sales disappointed overnight, coming in at minus 0.1% versus an expected monthly gain of 0.3%. The new sent AUD spiralling lower with the currency dropping from just under 0.7640m to below the 0.76 handle versus USD.

In addition to the retail miss, Saxo Bank head of forex strategy John Hardy reports that the latest credit growth figures also point to a slowdown Down Under.

In FX markets, Hardy reports that last week saw the USD find support versus the majors with the focus on the European Central Bank apparently walking back what many investors took as a hawkish line at its last summit. “We saw a whole lot of EURGBP selling” on the week, says Hardy; EURUSD is also heading lower from its highs north of 1.07 Friday.


EURGBP

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Source: Saxo Bank 

Overall, Hardy says, this week will be an important one with Friday’s NFP as well as president Donald Trump’s summit with Chinese leader Xi Jinping representing two key dollar risk events.
On the day, we have final Eurozone manufacturing PMI and UK PMI data for March up, along with the US March ISM manufacturing report due this afternoon. 

According to Horchani, today’s Asian session saw dollar dip versus Asian currencies while vols remain “very low and seemingly unwilling to reverse”.

According to Horchani, investors may look to AUDJPY as a hedge for risk-off sentiment, while those already long equities might look for covered calls for some extra premium should they wish to maintain their existing long in stocks.

On the commodities front, Saxo Bank head of commodity strategy Ole Hansen points to corn and wheat as recovery candidates in light of Friday’s US planting report, which showed 83,000 farmers surveyed set to plant more soybeans and less corn/wheat.

“We saw a selloff in grains leading into the report,” says Hansen, “and are looking for a recovery rather than a reversal in corn and wheat as stocks remain elevated”. In oil, Hansen points to Opec as they key factor after crude retraced 50% of its March selloff with WTI hitting $50.90/barrel and Brent reaching $53.50/b.

“The rally was driven by short seller pain last week,” says Hansen, adding that the Opec production deal remains the major driver as compliance concerns as well as the likelihood of an extension continue to animate markets.

Hansen reports that “we need to consolidate and establish a lower range” in oil, but cites the $51.95/b level in WTI and $54.45 in Brent as potential markers of a further outbreak.

Finally, Saxo fixed income trader Michael Boye says that the Franco-German 10-year bond spread is about 10 basis points wider than last week’s narrowest point. According to Boye, the development is due to France’s planned sale of about €7-8bn in total debt this week including a new 10-year benchmark OAT.

Tesla
Tesla may be on-target in terms of deliveries, but can it live up to investor expectations?
Photo: Shutterstock

Michael McKenna is an editor at Saxo Bank

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