Rivian, an American electric vehicle (EV) start-up, has made a big splash onto the automotive scene after listing on the Nasdaq last week. The market, it appears, is jumping in feet first when it comes to ‘EV mania’.
Key themes for the week include:
- South Africa’s Reserve Bank raises rates.
- United States (US) retail sales rise above expectations.
- Equity markets process inflation news.
- Turkey lowers interest rates in the face of soaring inflation.
RIVIAN BECOMES OVERNIGHT SENSATION
It has been a week since Rivian listed on the Nasdaq and already the electric vehicle automaker is one of the world’s most valuable car manufacturers. Its market capitalisation hit $153 billion during Tuesday’s trade, which is almost twice its listing value. This sees Rivian coming in only behind Tesla and Toyota Motor in value. Its value exceeds that of household names such as Volkswagen and Ford. What makes Rivian’s meteoric rise more interesting is the fact that the automaker has not sold any vehicles since its inception in 2009. Rivian follows hot on the heels of EV producer, Lucid Motors. Valued at $86 billion, Lucid has also barely delivered any cars to customers.
Rivian is in its infancy and only expects to reach an annual production of 150 000 vehicles per annum in late 2023. For context, Volkswagen is targeting one million EV sales this year, while Lucid expects to produce just 20 000 cars in 2022. With these sort of production numbers, it is safe to assume that ‘EV Mania’ is being driven by sentiment rather than fundamentals, as retail investors show significant risk appetite, as they have for Tesla shares in recent years. Amazon owns 20% of Rivian while also being one of its key customers. The e-commerce giant has contracted the company to design and build an electric delivery van exclusively for it. Amazon’s scale could be one reason to get excited about Rivian’s potential.
The rally in EV companies comes soon after the conclusion of the COP26 conference which called for higher scrutiny on emissions reporting by countries, and for the removal of fossil fuel-related subsidies. Policy shifts that subsidise the cost of buying and running EVs could make them more compelling to consumers and fleet managers.
DATA IN A NUTSHELL
Despite the deterioration in consumer sentiment, US retail sales rose in October for the third month, signaling that households are continuing to spend. Retail sales, excluding autos, increased by 1.7% for the month, compared with 0.8% in September.
The United Kingdom’s (UK’s) Inflation exceeded expectations, as it climbed to its highest level in a decade, putting pressure on the Bank of England to raise interest rates. Consumer prices increased by 4.2% from a year ago in October, driven largely by energy prices and the impact of supply chain issues across the economy.
South African Reserve Bank (SARB) governor, Lesetja Kganyago, announced on Thursday that the repo rate will increase by 25 basis points to 3.75%, which is the first rate-hike in three years. Three members of the Monetary Policy committee voted for an increase, with the two remaining voters electing for rates to remain unchanged. This hike implies that the prime lending rate of commercial banks will increase to 7.25%. The rationale behind the rate hike was concern around the country’s increasing inflation.
EQUITY MARKETS STILL CAUTIOUS OVER INFLATION CONCERNS
US Stock futures rose by 0.3% ahead of Thursday night’s unemployment data that will give some insights into the pace of the economic recovery. The S&P 500 Index was flat for the week, returning 0.2%. Stocks wavered as earnings rolled in and concerns about rising inflation continued. Although results have generally been strong, there have been companies which have been significantly challenged by supply chain issues and rising costs. Macy’s released a positive set of earnings and gained 8%, premarket, after their earnings per share of $1.23 beat markets expectation of 31 cents. Another retailer, Kohl’s, also reported strongly adjusted quarterly earnings as their profits of $1.65 per share were well ahead of the market’s expectations of 64 cents. Kohl’s also reported better than expected revenue and comparable store sales while raising its full-year revenue forecast.
Emerging market equities were under pressure on Wednesday and Thursday, as concerns over global inflation added to worries about the Chinese slowdown and tighter financing conditions rippling out from the US. Hong Kong’s Hang Seng was up 1% for the week to Wednesday but gave all of that back by losing 1.3% on Thursday. Chinese e-commerce giant Alibaba slid 8% as its earnings plunged due to China’s slowdown. The company has also slashed its forward earnings guidance. Alibaba has been a victim of China’s crackdown on technology companies which has resulted in new regulations ranging from antitrust to data protection. Another Chinese e-commerce player, JD.com, fared much better, beating estimates on both revenue and profit as the company continues to benefit from sustained and elevated demand for online shopping.
Locally, the JSE All Share Index gained 1.5%, led by the industrials index, which was up 2.4%. Financials, also performed well, gaining 1.2%, while the resource index had a muted week, returning just 0.8%. Earnings results continued to roll in on the JSE this week. Woolworths’ share price plunged as much as 10% on the back of a poor performance from the South African fashion, beauty and home business which saw like-for-like volume growth of only 1.3% year-on-year, off a very depressed base last year due to Covid-related lockdowns. SA’s second largest listed supermarket group, Spar, shared a similar fate as the share price fell more than 7% on Wednesday after the company released a weak 2021 financial performance with turnover growth at only 2.9%. Spar results were in contrast with one of their main peers, the Shoprite group, which reported double digit sales growth, which included a strong performance in its core SA market, despite the impact of the riots in KwaZulu-Natal and parts of Gauteng earlier this year. Shoprite’s update helped boost its share price to over R200 for the first time since late 2018.
The West Texas Intermediate (WTI) oil futures fell below $78 for the first time since early October, as the market digested news that the US and China are discussing the possibility of a coordinated release of their respective strategic petroleum reserves to cool soaring energy prices. This week Germany’s energy regulator placed the Nord Stream 2 pipeline certification process on ice, citing the pipeline company’s non-compliance with German laws. The news sent UK and European Union natural gas prices higher and raised concerns of further inflationary pressures in the region.
Gold traded at $1 862 per fine ounce on Thursday, having held on to its strength since breaching the $1 800 per fine ounce barrier in early November. The precious metal’s resilience reflects ongoing concerns around global inflation and the resulting monetary policy actions of central banks.
Copper futures plunged below their 200-day moving average, to a six-week low, on the back of continued US dollar strength. Copper futures exchanged hands at $4.27 per pound on Thursday, down 3% for the week. While copper prices remain elevated, relative to history, the market believes that China’s property market strain could affect demand.
TURKISH LIRA WEAKENS ON INTEREST RATE CUTS
The US Dollar Index dipped below its 16-month high on Thursday following a strong month in which it gained more than 1.6%.
The Turkish Lira fell to its weakest level against the US dollar, at just under TL11/$, as the Turkish Monetary Policy Committee caved into the president’s push for lower borrowing costs. The committee reduced the one-week repo rate by 1%, to 15%, despite Turkey’s soaring inflation. The central bank cut its key interest rate for a third month in a row, on Thursday, but stated it will consider easing the cycle from December, amid a weakening currency and worsening inflation outlook. The decision has rattled markets and frustrated investors who are complaining that the country’s monetary policy is becoming increasingly erratic and unpredictable.
The South African rand weakened by as much as 1.7% to R15.77/$, the lowest since November last year, despite an increase in short term interest rates by the SARB on Thursday. While the Bank delivered on market expectations, its policy makers’ comments were perceived to be dovish, as they stated that further tightening would be gradual.
The rand is trading at R15.64/$, R17.76/€ and R21.09/£.