Tesla’s shares super charged by earnings beat

The news shaping the markets today

The US is reportedly sending more rocket systems, ammunition and military aid to Ukraine. Despite continued geopolitical tensions around the Moscow-Kyiv war, the US dollar index declined slightly lower this morning.

The Bank of Japan held its short-term interest rate at -0.1%, while lowering its 2022 GDP growth estimate from 2.9% to 2.4%. The news exerted some pressure on the JPY/USD forex pair.

New Zealand reported a trade deficit of NZ$701 million in June, sending the NZD/USD pair slightly lower in forex trading this morning.

Argentina posted a trade deficit of $115 million in June, compared to a $1,101 million surplus in the year-earlier month, exerting pressure on the ARS/USD forex pair.

Russia’s producer prices rose 11.3% year-over-year in June, after a 19.3% increase in the prior month. Although this was the lowest producer inflation since February 2021, the RUB/USD pair declined in forex trading this morning.

What’s happening: Shares of Tesla gained in after-hours trading on Wednesday, following the release of upbeat second-quarter earnings by the electric vehicle maker.

What happened: Although CEO Elon Musk had said in May last year that Tesla would not sell its Bitcoin holdings, the company announced the sale of most of the cryptocurrency it held to increase liquidity.

Tesla also said there was uncertainty around the prospects of its market in China.

How were the results: The EV maker reported solid growth in sales for the second quarter but the figures still missed market views.

• Revenues jumped 42% year-over-year to $16.93 billion, missing the consensus estimate of $17.39 billion.
• Adjusted earnings came in at $2.27 per share, down from $3.22 per share in the previous quarter, but surpassing Street expectations of $1.91 per share.

Why it matters: Tesla, along with other automakers, has been forced to increase prices amid soaring inflation. The company’s Model Y long-range version is now priced at $65,990 in the US, over 30% more than its price at the beginning of 2021.

The rise in the prices of its vehicles helped Tesla to record a smaller-than-expected decline in quarterly profits, which were impacted by production challenges faced by the EV maker due to pandemic-related restrictions in China.

Automotive revenues jumped 43% year-over-year to $14.6 billion in the second quarter. Automotive gross margins shrank to 27.9% due to inflation. Deliveries during the quarter grew 27% year-over-year to 254,695 units.

“Though we faced certain challenges, including limited production and shutdowns in Shanghai for the majority of the quarter, we achieved an operating margin among the highest in the industry of 14.6%, positive free cash flow of $621 million and ended the quarter with the highest vehicle production month in our history,” the company said in a statement.

Tesla said it had converted approximately 75% of its Bitcoin holdings into fiat currency during the second quarter, adding $936 million in cash to the balance sheet. The company did not liquidate any part of its Dogecoin holding.

Tesla ended the quarter with cash and cash equivalents of $18.9 billion. Management projected the company would average 50% annual growth in deliveries going ahead.

How shares responded: After gaining 0.8% during the regular trading session, Tesla’s shares rose 1.5% to $753.68 in extended trading session on Wednesday, following the release of quarterly results. The stock has lost 38% year to date.

What to watch: Investors will keep an eye on rising inflation and the covid conditions in China. Musk said inflation could begin to ease and commodity prices start to stabilise by yearend.

The markets today

The euro will be in focus today ahead of the European Central Bank’s interest rate decision

Context: The EUR/USD forex pair settled lower on Wednesday, after recording gains in the previous session.

Details: The European currency has climbed over 3% over the past four trading sessions on prospects of the ECB raising rates by 50 bps. Reports of a key Russian gas pipeline reopening on time, after its closure for maintenance, also provided support to the euro.

The EU told member states to voluntary reduce gas usage by 15% starting next month on the possibility of Russia continuing to halt natural gas supplies despite the Nord Stream 1 being completed.

Investors sentiment was hurt by news of a decline in Eurozone’s customer confidence to a record low of -27 in July. The consumer confidence indicator declined by 3.2 points from last month’s reading of -23.8 and came in below market expectations of -24.9.

The Eurozone also announced a current account deficit of €15.4 billion in May, representing the biggest gap since January 2020.

The EUR/USD forex pair also came under pressure due to strength in the US dollar. The US dollar index, which measures the greenback’s performance versus a basket of major currencies, gaining around 0.4% to reach 107.08 on Wednesday.

The EUR/USD forex pair fell more than 0.4% to close at 1.0184 on Wednesday.

What to watch: Traders await the ECB’s interest rate decision today. Minutes released from the ECB’s monetary policy meeting in June showed that most policymakers favoured a rate hike of 25bps, which others suggesting a higher increase.

Other Markets: US indices closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.15%, 0.59% and 1.55%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

UK’s public sector net borrowing, France’s manufacturing climate indicator and business climate indicator, Bank of Indonesia’s interest rate decision, Mexico’s retail sales, South Africa’s building plans passed and South African Reserve Bank interest rate decision, Central Bank of Turkey’s interest rate decision, Canada’s new housing price index, US Philadelphia Fed manufacturing index, initial jobless claims, continuing jobless claims and natural gas stocks change, Australia’s new home sales, China’s foreign direct investment, as well as Brazil’s federal tax revenues.