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Risk Appetites Challenged by Lavrov’s Warning about Nuclear Conflict

Overview: The recovery attempt of risk appetites, reflected in the recovery and strong close in US stocks yesterday was dealt a blow by Russia’s Foreign…

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Overview: The recovery attempt of risk appetites, reflected in the recovery and strong close in US stocks yesterday was dealt a blow by Russia's Foreign Minister's warning of a "serious" danger of nuclear conflict.  In the Asia-Pacific, most of the large equity markets advanced.  China was an exception even though the currency snapped a five-day slide following the hike in foreign currency reserve requirements announced yesterday.  Australia's resource companies led the ASX to its largest loss (~2%) since Russia's invasion of Ukraine two months ago.  European shares are trying to stabilize after the Stoxx 600 fell by 3.6% over the past two sessions.US futures are softer.  The US 10-year yield is a few basis points lower around 2.79%.  European benchmark yields are sllightly softer. The dollar is mostly firmer, though the Antipodean and yen have edged higher.   The euro's loss has been extended deeper into the $1.06-handle and sterling still struggles to sustain modest upticks.  Among emerging market currencies, several Asia Pacific currencies, in addition to the yuan have traded better.  European currencies are taking the brunt.  Gold closed below $1900 yesterday for the first time since late February and is straddling that area in quiet turnover.  June WTI stabilized after falling to around $95.30 yesterday.  An attempt on the upside stalled in front of $100.  US natgas is up 3.5% after yesterday's 2% advance.  Europe's benchmark is off 1.7% after fell nearly 8% over the past two sessions.  Iron ore stabilized, rising by about 1.6% earlier today after dropping almost 9.7% yesterday. Copper is also tryint to steady.  It fell by more than 5% Friday-Monday.  Poor planting news is helping July wheat rise 2.1% after falling for the past five sessions.  

Asia Pacific

The PBOC cut the reserve requirement for foreign currency deposits in a clear sign of concern about the yuan, which had fallen sharply and was trading near 17-month lows.  The 1% cut was more symbolic than substantive.  It had lifted the reserve requirements twice last year for the first time in a decade and each move was 200 bp.  Ostensibly, the reduced reserve requirements boost the local supply of dollars and other currencies.  The Politburo's quarterly meeting is expected to announce new measures to support the economy and counter the effect of the lockdown.  Some industries are being allowed to re-open in Shanghai, while the lockdown continues, including autos and semiconductor producers.  Universal testing is required in Beijing and some fear that the testing is a prelude to a lockdown.  Some districts have already restricted movement.  

There are four developments in Japan to note.  First, Finance Minister Suzuki denied reports that he discussed the possibility of intervention with US Treasury Secretary Yellen.  The initial press reported from Tokyo said that such a discussion was "likely," but in later reiterations in what seemed like an echo chamber, it become a definite.  Given the assessment by the IMF's regional head that the yen's gains reflected fundamentals, and the US efforts to rein in prices, the bar to intervention is high.  Second, Japanese labor market improved marginally last month.  The unemployment rate unexpectedly eased to 2.6% from 2.7% and the job-to-application ratio ticked up to 1.22 from 1.21.  Third, the BOJ's defense of the 0.25% 10-year yield cap had it buy JPY921.5 bln today, its largest purchase in nearly four years.  Moreover, it extended its fix-rate purchases for the next two days, which carries it through the BOJ meeting.  Fourth, the government's support measures for the economy are taking shape.  A JPY6.2 trillion (~$48.5 bln) package that will be funded by an additional budget and tapping into the fiscal reserves will be submitted.  The economic objective is to help curb the rise in energy prices, ensure stable food supplies, support small and medium-sized businesses, and help struggling families.  The current Diet session ends in mid-June ahead of the upper house elections.

 The dollar made a marginal new five-day low against the Japanese yen near JPY127.35.  Buyers stepped in the middle of the Asia Pacific session and retested the session high around JPY128.20.  It is consolidating in the European morning.  The nearly 20 bp pullback in the US 10-year yield from last week's highs has helped to blunt the upside pressure.  A break of the JPY127.25 area could spur a move toward JPY126.75 initially.  On the upside, the greenback may be capped around JPY128.40.  The Australian dollar has stabilized after falling from about $0.7560 four sessions ago to $0.7135 yesterday.  It needs to rise above $0.7260 now to signal a correction is at hand.  And even then, the $0.7300 area may prove to be formidable resistance.  While the Chinese yuan snapped its losing streak, it still looks fragile and the relative wide range (~CNY6.5275-CNY6.5610) suggests the market remains unsettled.  The dollar traded inside yesterday's range.  The PBOC set the dollar's reference rate today at CNY6.5590, slightly below the median projection (Bloomberg survey) of CNY6.5606.  

Europe

The ECB's Lagarde seemed clear when she appeared on US television over the weekend.  She said that the bond purchases would end in Q3 and there was a high probability of them ending early in the quarter.  With over half of the eurozone's inflation stemming from energy prices (in March energy prices contributed around 4.4 percentage points to the 7.4% headline rate, Lagarde did not seem to be in a hurry to hike rates.  Lagarde also noted that the Covid response in EMU focused on protecting jobs/employment, while in the US the government replaced lost income via transfer payments.  Hawks are pushing for an early rate hike (July), but it does not seem that a consensus has formed yet.  Others seem to want to wait for September when the forecasts are updated.  The swaps market has priced in about a 20 bp hike in July and another 55 bp before the end of the year.  This seems to be aggressive. 

While the Fed's balance sheet was expanded primarily through asset purchases, the ECB's balance sheet also grew by extending loans.  The TLTROs amounted to around 2.2 trillion euros.  The last of the loans expire in March 2024, but banks are thought likely to repay early.  Some suggest a trillion euros could be repaid in later this year and into early 2023.  

Hungary is expected lift its bank rate by 100 bp today for the second consecutive month.  If delivered it would stand at 5.4%.  The central bank appears to be trying to close the gap between the bank rate and the one-week deposit rate, which become the key rate.  It stands at 6.15% and is expected to be raised later this week by 30 bp.  

The euro dipped below $1.07 yesterday for the first time since March 2020 and today it fell deeper into the $1.06 territory.  The low in late Asian/early European turnover was slightly below $1.0675.  It has caught a little bid in late European morning turnover, but the immediate cap looks to be around $1.0725, where an 815 mln euro option expires today.  Recall that the low set in the early days of the pandemic was near $1.0635.  Sterling is also struggling to stabilize after yesterday's plunge that took it briefly below $1.27 for the first time since September 2020.  The pound has risen in only one session of the past nine counting today's losses.  A convincing break of $1.27 targets the $1.25 area. we

America

There is a full slate of US economic reports today.  March durable goods orders and shipments may help economists fine-tune Q1 GDP forecasts.  The first official estimate will be released at the end on Thursday.  House prices (February) and new homes sales (March) are also due.  The Conference Board announces the results of its consumer survey and the Richmond Fed's April manufacturing survey is due.  

However, barring some shock, the data is unlikely to matter much to the Fed.  It is convinced of the economic resilience, the strength of the labor market, and that prices pressures are way too high.  The "expeditious" course, the language that several Fed officials have used, signals a campaign to bring the target rate to neutral.  While the risk of a 75 bp move is not very strong, the Fed funds market is pricing in 50 bp hikes at the next three meetings and leans strongly that direction at the fourth meeting in September.  Separately, note the heavy Treasury issuance starting today (~$165 bln in coupons to be sold this week), and what appears to be among the busiest weeks of the year for state and local government issuance as well.  

The Bank of Canada Governor Macklem leaned against the speculation of a 75 bp hike in his testimony before Parliament yesterday.  The central bank hiked by 50 bp earlier this month for the first time in 20 years.  Macklem also seemed committed to bringing the target rate into the neutral range, which is seen between 2% and 3%.  The swaps market has the year-end target rate around 2.9%.  

Mexico reports February retail sales.  Economists (median, Bloomberg survey) expected a 0.8% gain after a 0.6% rise in January.  The data is too old to have much impact.  Mexican President AMLO has promised to unveil new anti-inflation proposals next week.  With inflation still accelerating, and the Fed tightening set to accelerate, Banxico is under pressure to hike rates more the 50 bp moves delivered at the last three meetings.  It meets again on May 12.  

The US dollar pulled back to around CAD1.2685 earlier today after peaking slightly above CAD1.2775 yesterday.  However, the risk-off mood has seen the greenback return bid and recorded the session high in the European morning near CAD1.2750.  This is just above the upper Bollinger Band.  The performance of the US stock market is arguable the number one driver of the Canadian dollar today.  The greenback has forged a shelf around MXN20.16.  If that is the lower end of the range, then the MXN20.50 is at upper end.  Chinese demand for commodities is being undermined by the lockdowns and this has spurred profit-taking in the Latam currencies broadly, for which the peso sometimes acts as a proxy.  The US dollar is rising for the third time in four sessions against the peso.  The Brazilian real, which had been the market's darling fell 3.75% before the weekend and another 1.7% yesterday.  The dollar tested resistance yesterday near BRL4.95.  The next target is the BRL5.00-BRL5.02 area. 



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International

Tesla Rivals Challenge Its Lead as Nio Sets Encouraging Record

Tesla’s rivals are not even coming close to producing and delivering EVs at the same rate as the Austin, Texas-based market leader.

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Tesla's rivals are not even coming close to producing and delivering EVs at the same rate as the Austin, Texas-based market leader.

Electric vehicle makers have been struggling over the last two years to produce and deliver cars, trucks and SUVs despite obstacles such as supply chain disruptions, semiconductor shortages and factory shutdowns caused by the covid pandemic.

The industry's leading EV manufacturer Tesla  (TSLA) - Get Tesla Inc. Report on July 2 said that plant closures at its Shanghai gigafactory in April and May and supply chain disruptions led to a smaller number of deliveries than expected in its second quarter ending June 30 with 254,695, which was 26.7% higher than the same period in 2021, but 17.7% lower than its record of 310,048 delivered in the first quarter of 2021. Analysts were originally expecting about 295,000 deliveries.

Tesla's production declined to 258,580 vehicles in the second quarter compared to 305,407 in the first quarter. It had produced 305,840 vehicles in the fourth quarter of 2021.

Tesla's rivals are not even coming close to producing and delivering EVs at the same rate as the Austin, Texas-based market leader. But they keep trying.

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Tesla Rivals Struggle to Produce and Deliver Volume of EVs

Tesla rival Nio  (NIO) - Get NIO Inc. American depositary shares each representing one Class A 蔚来汽车 Report on July 1 said that it had delivered 12,961 vehicles in June for a 60.3% year-over-year increase and its highest number of monthly deliveries ever. The company also reported 25,059 EVs delivered in the three months ending June 2022, increasing by 14.4% year-over-year. Nio has delivered a cumulative 217,897 EVs as of June 30.

NIO on June 15 rolled out its ES7, a new mid-large five-seat smart electric SUV, which is the first SUV product based on NIO's latest technology platform Technology 2.0. NIO also launched the 2022 ES8, ES6 and EC6 equipped with the upgraded digital cockpit domain controller and sensing suite, enhancing the computing and perception capabilities as well as digital experience of the vehicles. The company expects to start deliveries of the ES7 and the ES8, ES6 and EC6 in August.

Chinese EV maker XPeng  (XPEV) - Get XPeng Inc. American depositary shares each representing two Class A 小鹏汽车 Report on July 1 said it delivered 15,295 vehicles in June, a 133% increase year-over-year; 34,422 in the second quarter ending June 30 for a 98% increase year-over-year and 68,983 in the first six months of the year for a 124% increase year-over year.

The Guangzhou, China-based company said in August it will begin accepting orders for its new G9 SUV with an official launch in September.

Beijing-based Li Auto  (LI) - Get Li Auto Inc. Report on July 1 said it delivered 13,024 EVs in June, a 68.9% increase year-over-year and 28,687 in the second quarter ending June 30 for a 63.2% increase year-over-year. The company on June 21 began taking orders for its Li L9 SUV and recorded 30,000 orders as of June 24, according to a statement. Test drives will begin July 16 with deliveries beginning by the end of August.

GM Follows Behind Tesla and Other Rivals

General Motors  (GM) - Get General Motors Company Report had 7,300 EV sales in the second quarter, according to a July 1 statement. The Detroit automaker's sales included deliveries of the BrightDrop Zevo 600 delivery van, GMC Hummer EV pickup, and the resumption of the Chevrolet Bolt EV and Bolt EUV production.

GM said the Cadillac Lyriq production is accelerating, with initial deliveries in process. Orders for the 2023 model year sold out within hours and preorders for the 2024 model opened on June 22.

The company said it will gradually increase production of the Cadillac Lyriq and GMC Hummer EV Pickup in the second half of 2022. 

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Spread & Containment

Tesla EV deliveries fall nearly 18% in second quarter following China factory shutdown

Tesla delivered 254,695 electric vehicles globally in the second quarter, a nearly 18% drop from the previous period as supply chain constraints, China’s…

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Tesla delivered 254,695 electric vehicles globally in the second quarter, a nearly 18% drop from the previous period as supply chain constraints, China’s extended COVID-19 lockdown and challenges around opening factories in Berlin and Austin took their toll on the company.

This is the first time in two years that Tesla deliveries, which were 310,048 in the first period this year, have fallen quarter over quarter. Tesla deliveries were up 26.5% from the second quarter last year.

The quarter-over-quarter reduction is in line with a broader supply chain problem in the industry. It also illustrates the importance of Tesla’s Shanghai factory to its business. Tesla shuttered its Shanghai factory multiple times in March due to rising COVID-19 cases that prompted a government shutdown.

Image Credits: Tesla/screenshot

The company said Saturday it produced 258,580 EVs, a 15% reduction from the previous quarter when it made 305,407 vehicles.

Like in other quarters over the past two years, most of the produced and delivered vehicles were Model 3 and Model Ys. Only 16,411 of the produced vehicles were the older Model S and Model X vehicles.

Tesla said in its released that June 2022 was the highest vehicle production month in Tesla’s history. Despite that milestone, the EV maker as well as other companies in the industry, have struggled to keep apace with demand as supply chain problems persist.

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International

If You’re A Saudi Cocaine-User, Move To Uruguay

If You’re A Saudi Cocaine-User, Move To Uruguay

According to the latest edition of the United Nations World Drug Report, 284 million people…

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If You're A Saudi Cocaine-User, Move To Uruguay

According to the latest edition of the United Nations World Drug Report, 284 million people used illegal drugs in the last year, while around 21 million of them used cocaine.

The use of the drug has risen in the past decade, according to the report, but slowed somewhat in the Covid-19 pandemic. However, as Statista's Katharina Buchholz details below, with global cocaine production reaching new highs, cocaine supply chains to Europe have been diversifying, which is driving prices down and pushing quality up, potentially increasing the level of harm caused by use of the drug in the region.

You will find more infographics at Statista

In the United Kingdom, for example, cocaine prices fell from the equivalent of $178 to $103 between 2019 and 2020. The country continues to have a high cocaine retail street price in a global comparison, however, with prices lower in most European countries.

In developed economies outside of Europe, a higher premium is usually charged for cocaine, like in Hong Kong ($145 per gram), Japan ($188 per gram), Israel ($205 per gram) or Australia ($242 per gram). For the United States, no 2020 numbers were reported, but in 2019, the price for a gram of cocaine stood at $200 per gram.

Prices were even higher in Arab countries, which have strict laws forbidding drug use and trade.

A gram of cocaine can be found for a fraction of its price on the Persian Gulf in some parts of Europe, such as in the Netherlands and Portugal where UNODC states it has a retail street price of $58 and $38 per gram, respectively. The later country has recently radically decriminalized the use of even class A drugs.

Uruguay, one of the few Latin American countries for which data was available, came in at the very bottom of the list.

Cocaine is expensive in the only African country on the list, Algeria. India was included in the report for the first time this year, with the price of cocaine set at an average $67 per gram. While this is rather low by international standards, attainability is likely lower than in Europe due to the differences in purchasing power in the country.

Tyler Durden Sat, 07/02/2022 - 07:35

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