Market Wrap

Market Wrap: The Big Tesla Short, and what made commodities soar

Annie Charalambous, Friday, 21 May 2021

ETX Capital Market Wrap

What has more effect? A draconian lockdown which has lasted more than a year and had a permanent effect on the method by which many companies do business and put many out of business, or a few lines entered into the glib world of social media by personalities with an influential standing?

The answer is of course both, however as the week began, it was clear that a few words uttered in a one-liner via Twitter was able to move the markets substantially, whilst news the same day of the British government sticking to its plan to reopen the majority of what it heavy-handedly has kept under lock and key made very little difference.

Have we got to a point in which the government's anodyne ramblings which never lead to anything are taken less seriously than Reddit subgroups, or perhaps even more poignantly, Elon Musk?

On Monday, the outspoken Mr Musk announced that following his previous tweet which stated that Tesla will not be accepting Bitcoin for the purchase of vehicles resulting in the price of the cryptocurrency tanking, Tesla has not sold any Bitcoin, therefore his statement saying the firm would no longer accept it as payment for vehicle purchases was enough to move a heavily inflated market down by a substantial amount very quickly.

There was no sell-off by Tesla. What people say these days certainly seems to have just as much, if not more effect than what they actually do, especially if they are notorious disruptors in technology. It seems that today's innovators are able to influence thought as well as release new technology.

On the more mainstream front, this week has been a stellar period for the British Pound, which became volatile by Wednesday having reached its year-long high against the US Dollar at 1.42 and then very soon afterwards dropping back to 1.418 despite analysts having predicted a continued boom for the British currency due to perceived increases in consumer spending as the public heads to the great outdoors, the shops, and some modicum of free movement.

The sustained rise did not come to fruition, especially given the unwelcome dialog by Neil Ferguson - known as 'Professor Lockdown' - who is attempting to push the government into maintaining restrictions past the vehemently agreed date of June 21.

On the day of that announcement, the Pound dropped, but by the end of the week it was back up to 1.42 again, largely due to the British economy's surprising resilience compared to that of Europe in the face of seemingly endless lockdowns, hence the Pound's performance against the US Dollar has been greater than that of the Euro's.

A disruptor that gets disrupted by an even more experienced disruptor is an interesting conundrum, and on Wednesday that is exactly what happened when Michael Burry, a notorious trader who was portrayed in The Big Short by actor Christian Bale in 2015, reared his head once again.

Mr Burry is known for many things, one of the most prominent being his shorting of the sub-prime mortgage market in the United States in 2008, just before the credit crunch began, leading to a global financial crisis.

This time, he is out to attack Tesla, and has shorted Tesla's stock by making a £376 million position against Tesla's share prices, and holding a 'put' option on 800,100 shares in Tesla.

We examined the shrewd move by Mr Burry, who has been looking at this for some time, and has not done so quietly, which is why such a trade should perhaps not come as a surprise.

At the end of last year, Mr Burry made a public announcement that his own family office, Scion Asset Management, had begun shorting Tesla stock which at the time was trading at an astonishing $883, a level it has never been traded at previously.

Thursday's boardroom meetings at Tier 1 FX dealers were surprisingly focused on the value of cryptocurrency. Why do banks even care about a peer-to-peer, community driven non-asset when they are leading the top level market making effort for global sovereign currency trading?

Deutsche Bank, once the world's second largest FX interbank dealer by market share, sent a notice to its clients with the opinion that Bitcoin “has gone from trendy to tacky in just three months” and that it was, rather like a fashion faux-pas, passe.

Whilst the banks show their disdain for what they've viewed as a thorn in their side for over ten years, good old fashioned analogue asset classes were having another heyday.

Copper in particular has been a clear point of interest. One particular North American market commentator explained on Thursday that, "Copper is very popular at the moment from an observational point of view and a number of investors are watching its chart pattern. It is third only to the current interest in cryptocurrency and some of the tech stocks."

In some markets, notably those of central Europe and parts of Eastern Europe, an analytical interest in precious metals including copper, platinum and titanium has been increasing significantly.

Indeed, copper prices on NASDAQ have risen from $4.221 per pound (LB) to $4.7255 per LB two days ago, settling at $4.57 per LB by Thursday afternoon.

As the week drew to a close, GBPUSD headed back up to 1.42 again, which is the highest since February, when it reached a 3-year high. It tailed off very slightly on Thursday, giving the impression that buyer confidence was off the table given the government's whimsical droning about potentially more restrictions, however consumer confidence soon returned, and many analysts think Britain is heading for a spending boom and is doing better at recovering from the government's iron-handed lockdowns than mainland Europe so therefore the GBP's performance against the Dollar is greater than the Euro's performance against the dollar.

By Friday morning, it became clear that interest in mainland Chinese bonds has picked up, especially from foreign institutional investors according to insiders at the JPMorgan China Bond Opportunities Fund. The foreign share of mainland China's bond market — the second largest in the world — reached 3.44% in April, up from 3.2% in December, according to research by Natixis.
 

Mark your Economic Calendar

  • Jumping ahead to Tuesday the British government will announce the Public Sector Net Borrowing figures, which are expected to be £27.27 billion, and the Public Sector Net Cash Requirement. Both announcements will take place at 01:00 am GMT. At the same time, Germany's GDDP will be announced for the first quarter of this year, and it is expected to be down 3.3% on last year, which was also down 3.3% on the year previous. Bearing in mind that Germany is the largest economy in the Eurozone, this is an important announcement. Finally, wrapping up the day, at 20:30 GMT, the Australian report on construction work completed for the first quarter of 2021 will be announced, and is expected to be a negative figure of -0.9% of that of last quarter, which was 2.2%.
  • On Wednesday at 12:00 pm GMT, the United States will release its 5-year note auction figures, which are anticipated to be 0.849% of that of the previous year. Japan has had a downturn in investment from overseas in Japanese stocks; this figure will be announced on Wednesday at 18:50 GMT and is expected to be a large negative figure of -471.4 billion Yen.
  • On Thursday at 1:00 am GMT, the Swiss Trade Balance for April 2021 will be announced, looking to stand at a healthy 5.816 billion Swiss Francs (CHF). Germany's Consumer Climate forecast for June will be also released at the same time, which is looking set to be down -8.8 from -5.5 which was the previous month's forecast. Exports from Hong Kong for April have been strong, with figures set to be released at 3:30 am GMT on Thursday, estimated at 26.4% and imports at 21.7%. The country's trade balance, due to be released at the same time, is looking lower, however, at a negative figure of -27 billion Hong Kong Dollars. At 4:00 am, Italy will announce its non-EU trade balance which is set to be 4.8 billion Euros.
  • On Friday at 1:45 am GMT, France will release its monthly consumer spending figures which are down to a negative percentage of -1.1% compared to that of March which was a positive 0.4%. France's GDP will be announced for the first quarter of 2021, which is expected to be 0.4% higher than that of last period. The United States economy has been doing well lately. On Friday at 7:30 am GMT, Personal Income figures for April will be released, and are expecting to be up 21.1% from March which was down to a minus figure of -14.5% over the previous month. Additionally, personal spending is expected to be announced at a rise of 4.2% compared to 0.6% rise the previous month. Chicago PMI will be released at 8:45 am on Friday and is expected to be at forecast at 72.1 compared to 66 in April. The elephant in the room here is Canada's yearly budget balance figures, set to be announced on Friday at 10:00 am GMT at a huge negative figure of -282.56 billion Canadian Dollars.

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