Global markets rallied overnight, with US markets back at all-time highs after a 3rd week of gains last week.
The rally is reflecting another (so far) better than feared US earnings season, tentative signs of stabilisation in global manufacturing and “no news is good news” progress in US-China trade talks. Overnight Trump said he expected to sign a significant part of the trade deal with China ahead of schedule but did not elaborate on the timing – keeping in mind the US Presidential election is in just over a year's time.
On the economic growth front, there will be important US economic data published at the end of the week. Further, the US Federal Reserve is still likely to cut funds rates for the third time this year at Wednesday’s meeting, to a range of 1.5-1.75%. The market sees it as a 90% probability, but it will be the outlook commentary that will be of more interest to the market.
Stock in Focus: Tesla (TSLA:Nasdaq)
Shares in Tesla shares soared higher after posting a surprise profit for the third quarter of the 2019 fiscal year.
The surprise profit came from improved gross margins for the model 3 despite further lowering the average selling price, as Tesla benefitting from operational efficiencies, increasing scale and producing the same car at a lower cost.
Tesla’s guidance was also upbeat given the completion of its Shanghai Gigafactory ahead of schedule and bringing forward Model Y production earlier than initially anticipated, aiming for a 2020 summer launch. 2019 full year vehicle deliveries are expected above 360,000 and at a minimum expected to be up +46% from 2018, with sequential quarterly vehicle delivery growth expected. Financial cash flow and net profit are expected to remain positive going forward, with the exception for a launch and ramp up of new products. From a big picture point of view we have said that buyers of Tesla shares in essence need to believe in the Tesla story and Elon Musk – as an industry disruptor. The recent result once again highlights the volatility involved with holding Tesla shares.
We currently have a HOLD rating on Tesla,
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index +0.02%) ended Monday flat, after rallying on Friday, with miners advancing after an easing of global trade tensions and updates from Viva Energy and Beach Energy helping the market to a marginal gain. Rural Funds Group gained after announcing that its fiscal 2020 forecast distributions are unchanged. The firm also said it will sell its poultry assets to ProTen Investment Management and acquire three cattle properties. Waste manager Cleanaway continued to sell-off, extending losses from last week when it released an underwhelming update from management in terms of profit guidance for the year ahead.
The New Zealand market was closed yesterday, but was lower on Friday (NZX50 Index -0.40%), ending a week where the index heavyweight power generator sector weighed on the broader market. Port of Tauranga was slightly lower as it said it expects full-year earnings to remain strong, despite telling shareholders at its AGM that first-quarter cargo volumes were weaker. Outside the benchmark index, Serko soared 29%, after it has raised $40 million in a placement which brought in booking.com operator Booking Holdings as an investor.
3 Things Markets Will be Watching this Week
- US earnings season for the 3rd quarter continues this week.
- The US Federal Reserve makes an interest rate decision Thursday morning AU/NZ time.
- On the economic growth front, there will be important US economic data published at the end of the week.
Have a Great Day,