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Macro overview of the current week

Macro overview of the current week

8 September 2020

Key Tesla News

One of the beneficiaries of the current crisis is the American company Tesla, which produces electric cars. Since the beginning of the year, the company’s shares have risen more than 400%, and at peak points reached $ 540. In the second half of August, shares rose on two major news – the announcement of a share split, thanks to which more individual investors will be able to afford to purchase the company’s shares. Also, a strong incentive to buy securities was the possible inclusion of the company in the S&P 500 index – in this case, index funds would be required to purchase securities in their portfolio, which would increase its price by another 5-10%. At the beginning of last week, the company announced a $ 5 billion additional share issue. On this news, the share price continued to rise, although the rate of rise slowed to 2.6% compared to 8% growth at the beginning of the session. The placement agents will include leading banks such as Goldman Sachs, Bank of America Securities, Citigroup Global Markets and Morgan Stanley.
However, despite a positive start last week, the company’s share price began to plummet on Wednesday. Some analysts attribute this to both the general drop in the tech sector these days and the profit taking for this particular company. Since many investors believed that the company’s securities were heavily overbought. The negative news was also that the investment fund Baillie Gifford & Co, which is the largest shareholder of the company after Elon Musk, will sell part of the company’s shares in its portfolio. The pressure on the company’s stock quotes did not end there. On Monday this week it became known that Tesla shares would not be included in the S&P 500. S&P did not disclose the reasons, but many experts believe that this is due to the excessively high volatility of the company’s shares.
Thus, over the past two weeks, Tesla shares have noticeably lost in value. The main reasons for such a serious fall were the additional issue of shares and the decision of the S&P not to include the company in the index.

Business promotion in France

It was revealed Thursday last week that French President Emmanuel Macron has taken advantage of the coronavirus pandemic to push forward business-friendly reforms that he was unable to implement in his first three years as president. A € 100bn ($ 118bn) stimulus package, officially announced by the government on Thursday morning, breathed life into the French stock exchange, lifting the CAC 40 index by 1.8%. Investors are impressed by the fact that more than a third of the package – about 35 billion euros – is aimed at improving the structural competitiveness of French companies, in part by easing their extremely heavy tax burden. The plan provides for tax cuts for manufacturers by about 20 billion euros over the next two years. Also, the allocated funds will go to retraining young people who have lost their jobs during the coronavirus pandemic. According to average forecasts, thanks to these measures by the end of next year, more than 150 thousand new jobs will be created. If the plan can restore growth to the French economy, the chances of the CAC 40 closing a significant gap this year with the German DAX will be much higher.
The package of stimulus measures for businesses in France was very pleased with investors, because one of its main articles was to reduce the tax burden for firms. These measures will help improve the competitiveness of French manufacturers in the European and global markets.

Fitch Updated Valuations for Selected Base Metals

The international rating agency Fitch Ratings has updated estimates of the value of a number of base metals, which it uses in its forecasts for operating activities and financial indicators of companies in the industry. The short-term estimates for non-ferrous metals and gold have been improved. For iron ore, the expected prices have been increased for almost all periods. The agency raised nickel estimates for 2020 due to higher-than-expected price increases since the beginning of this year. Strong demand is also expected in the long term, in particular from manufacturers of batteries for electric vehicles, where nickel is a key component. Copper price forecasts for 2020-2021 were raised due to less than expected reduction in global demand due to the rapid recovery in China, driven by economic stimulus and the construction sector. At the same time, agency analysts expect a more balanced market in the medium term. In the long term, they no longer predict an increase in the metal deficit in the world, in connection with which the estimates for the cost of copper have been lowered. The demand for zinc recovered in the PRC faster than expected. In addition, supplies of this metal have decreased. In this connection, experts have raised their forecast quotations for all periods, except for 2022, when a surplus of zinc concentrate is expected in the global market. Also, the good pace of recovery in the Chinese economy led to improved expectations for aluminum quotes for the next 2 years. Fitch has raised its forecast for gold prices for 2020-2021. Low interest rates and a weak US dollar may continue into the next year, however, the crisis conditions may cause an increase in scrap supply and improve the attractiveness of alternative investment instruments. This could be the reason for a gradual decline in quotations from the current multi-year highs, as happened in 2013, the message says. The global iron ore market will continue to experience a shortage of supplies, in connection with which the agency’s analysts raised the expected prices for all periods except 2023.
Thus, the agency raised its estimates for most of the most popular metals. This may indicate the agency’s belief in a speedy economic recovery.

Ford Motors problems

For many years, the once-largest automobile manufacturer Ford Motors has not shown stable growth in key indicators – revenue, net profit and EBITDA. The company is rapidly losing market share both in the US and globally. In this regard, the company’s quotes have been in a downtrend over the past five years. Also, Ford Motors has suffered quite hard from the current crisis, the company’s current net profit is negative and amounts to $ 2B. Because the automotive sector is one of the highly procyclical ones.
All these problems of the company could not but affect the decisions made by the management. So on Wednesday last week the company announced that it will cut 1.4 thousand full-time employees in the United States by offering compensation packages to employees close to retirement age. In total, Ford employs about 30,000 employees in the United States. “This is a multi-year process of transforming Ford into a more efficient company,” said Kumar Galhotra, president of the Ford American and International Markets Group, in a speech to employees. Last year, the automaker laid off about 7,000 full-time employees, mainly in Europe, South America and other regions of the world.
Despite Kumar Galhotra’s comments that the current layoffs are part of a plan to make Ford Motors a more efficient company, most analysts understand that the current crisis and the company’s financial difficulties are a key reason for this.

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