Tesla jumps despite earnings miss

Tesla’s Q1 results didn’t look good at all. The revenue dropped 9% - the first revenue drop in four years - and net income plunged by 55% compared to the same time last year. And these numbers were not only bad, but they were also worse than the expectations for the 3rd straight month. Yet investors looked past the ugly quarterly results from Tesla and sent the stock price 13% higher in the afterhours trading – yes there is no mistake, Tesla jumped 13% after announcing a revenue and earnings miss, as investors focused on plans to accelerate the launch of new models that include cheaper models. The post-earnings jump could be a flash in the pan given rising challenges the company faces.

Elsewhere, Apple eked out a small gain despite news that iPhone sales in China fell 19% in Q1 while Huawei’s rose almost 70%. Texas Instruments rose on a bullish revenue forecast for the current quarter hinting at a slower decline in chip demand from industrials and car industry. Spotify rallied 11% after its CFO said that ‘historical price increases have had minimal impacts on growth’ a few weeks after revealing plans to increase prices later this year. GM raised its 2024 profit outlook and Visa’s profit surged amid higher credit card spending. Meta, Ford and IBM will report today.  

Overall, there was nothing worrying in company news yesterday, and even the bad news saw a positive market reaction, partly due to a decline in US yields yesterday following a set of lower than expected PMI figures from the S&P Global and a strong sale of 2-year treasury notes. According to the S&P’s survey, the expansion in US services was unexpectedly slower than expected in April, while manufacturing PMI slipped below 50, into contraction, whereas analysts had penciled a faster expansion. The dollar index fell as a reaction, and the greenback’s major peers strengthened.

Note that the EURUSD was already up before the release of the US PMI numbers yesterday, as the PMI data released in Europe revealed a surprise rise in German and French services; the German services expanded fast enough to push the composite PMI into the expansion zone. German manufacturing – which is the country’s main strength – came in weaker than expected, yet the better-than-expected Eurozone PMI combined with the worse-than-expected US PMI sent the EURUSD above the 1.07 level. We will be watching the German sentiment index, the 10-year bund auction, the US durable goods orders and the 5-year note auction today.

In Japan, the yen strengthened a little bid yesterday but the gains remained limited after news that the Bank of Japan (BoJ) will focus on the falling yen when it meets this week. But the yen’s medium-term bearish trajectory will be hard to reverse unless the BoJ gives hints of further rate increases in the foreseeable future. In Australia, the AUDUSD extended a rally to the 200-DMA after the inflation data came in stronger-than-expected and fueled the Reserve Bank of Australia (RBA) hawks. Trend and momentum indicators are about to turn positive, but the dollar’s weakness is subject to important risks this week as the Q1 GDP update and the core PCE index could easily reverse the recent weakness and send the dollar soaring again, on melting rate cut bets for the Federal Reserve (Fed).

Equities

News of improved activity boosted appetite in the Stoxx 600 ahead of closely watched bank earnings in the next few days. The European banks have been performing very well as high European Central Bank (ECB) rates boost earnings expectations and high capital returns attract investors. The severe retreat in ECB rate cut bets should continue to back optimism, but the banks should deliver to keep the rally going.

In the UK, the British FTSE 100 advanced to an all-time high and is expected to further benefit from the developing reflation trade that should back mining and energy stocks.

In the US, the lower US yields helped the S&P500 rebound yesterday. Technology stocks led gains but there are mixed views regarding the future of the US stock rally. Earnings expectations for the mega tech stocks are very high, and the market reaction could be unpredictable as forecasts matter at least as much as earnings and revenue prints.

In commodities, US crude jumped to $84pb as yesterday’s API report printed a 3-mio-barrel decline in weekly inventories, while gold rebounded after tipping a toe below the $2300 per ounce, in a move that’s reportedly caused by margin calls.