The Virgin Galactic space tourism company has opened a new ticket window for the public to buy seats on their specialised spacecraft which takes passengers to space and back, on a 90-minute round trip.
Key themes for the week include:
- Tickets open for space travel
- South African retail sales’ positive surprise
- United States (US) equities maintain recovery
- Russia-Ukraine conflict props oil
- Rand below R15.00/$
This week, Virgin Galactic, an American spaceflight company, opened a ticket sales window which offers its signature 90-minute space ride to the public at a rate of $450 000 (R6.8 million) per seat. The experience includes space readiness training and leisure activities to justify the price tag which escalated from $250 000 (R3.8 million) during earlier ticket windows. According to the CEO of Virgin Galactic, Michael Colglazier, earlier ticket sales already attracted 600 customers and the company plans to have its first 1000 customers on board when commercial flights commence in late 2022.
Virgin Galactic is not alone in the promising suborbital space travel industry, but it appears to be ahead of close competitor Blue Origin, which is yet to go public with its pricing structure and the number of bookings it has secured. Space X, which is also in the mix, has already established a strong presence in commercial space launches for satellites and while its retail offering remains underdeveloped, Space X will soon be testing orbital experiences which may include space walks.
Most spaceflight systems, including Blue Origin, use a vertical takeoff. Virgin Galactic’s ‘Air Launch’ system, however, may appear more familiar to potential customers for its runway take-off. To reach space, Virgin Galactic’s spaceplane, the VSS Unity, is attached to a carrier plane and flown to an altitude of 15-kilometer before being released to complete the space flight under its own rocket propulsion system. VSS Unity reaches a maximum altitude of around 85 kilometers before returning to earth. This is shy of Blue Origin’s 100-kilometer altitude capabilities, however, the latter’s trip only lasts 11 minutes from takeoff to landing, much shorter than the Virgin Galactic’s 90-minute experience.
Following Tuesday’s announcement of a new ticket window, and the 80% seat price increase, Virgin Galactic’s share price rallied 32% to close at $10.74, which is still below its initial listing price of $11.75 in October 2019. The company’s share price peaked above $57 per share prior to its first fully crewed flight in July 2021 but subsequently tanked after delays to its commercial flight schedule, along with a temporary grounding order issued by the United States Federal Aviation Authority.
DATA IN A NUTSHELL
In the US, producer price inflation (PPI) advanced 1% month-on-month in January, and reached 9.7% year-on-year. This upside surprise in PPI comes on the back of last week’s record high consumer inflation (CPI) data. The stronger than expected PPI print was led by core services which increased 0.7% month-on-month. The strong advance for services prices was partly attributed to an increase in hospital outpatient services prices, which were up 1.6% month-on-month. This increase may have implications for the upcoming private consumption expenditure inflation report.
US retail sales data came in stronger than expected, advancing 3.8% month-on-month in January compared to the market’s forecast for a 2% increase. The strong print comes after December data, which was downwardly revised by 60 basis points to -2.5% month-on-month growth and leaves headline retail sales 21.3% above its pre-pandemic level. Although the print is positive for growth, it may have negative implications for inflation. On an annual basis, retail sales increased by 13%.
In China, both CPI and PPI continue to ease. Headline CPI slid to 0.9% year-on-year in January compared to 1.5% in December, which was weaker than consensus expectations of a 1% advance. The fall was driven by food inflation, as prices for vegetables, pork and eggs cooled from their high base levels. PPI followed a similar trajectory, falling from the 10.3% year-on-year advance in December to 9.1% in January. The strength of China’s supply chains and weakness in local demand leaves it with a different inflation dynamic compared to the US, United Kingdom and Europe.
In South Africa, consumer inflation eased to 5.7% year-on-year, in January, while core inflation increased marginally to 3.5%. Retail sales for December surprised to the upside, advancing 3.1% year-on-year, compared to expectations of 2.7%. Considering the full year, 2021 retail sales increased 6.4% compared to the 7% pandemic-induced decline in 2020.
MARKETS REACT TO GEO-POLITICAL UNCERTAINTY
US equity markets have seesawed over the past week, as volatility was fueled by sharp reactions around developments concerning Russia and the Ukraine.
US company earnings season is ongoing and this week we saw solid results from Walmart, as the company topped earnings expectations and increased its dividend to 2.3%. The food-delivery company, Doordash, surged 23%, pre-market, after it reported a strong increase of 69% in reported revenue from the previous year. The graphics processor manufacturer, NVIDIA Corporation, posted record quarterly sales of $7.6 billion, which was up 53% from a year ago, as video game consumption increased and more individuals and business started using digital services that run on data centers. Despite the strong sales numbers the stock was down 2% post results.
While the JSE Top 40 Index was relatively subdued this week, gaining a paltry 0.7%, the Financials index continued its strong run this year, gaining another 2.6%. Financials were led by Standard Bank, up 6.3%, and Nedbank which gained 4.8% after releasing a strong trading statement. Nedbank indicated that headline earnings would increase by between 108% and 118%, to around R24 per share, which was well above the market consensus of R21.80. Gold stocks were the best performers of the week on the JSE amid inflation and rising geo-political concerns, with AngloGold gaining 12% and Goldfields up 9%. In contrast, Naspers and Prosus continued to weigh on the performance of the JSE All Share Index, and their share prices were down 6.1% and 5.3% respectively. They were the biggest laggards by Thursday this week.
GLOBAL RISK FACTORS SUPPORT COMMODITIES
The West Texas Intermediate (WTI) futures reached $95/barrel this week amid significant volatility as the Russia-Ukraine conflict continues to inform energy views in the short-term. Oil prices took some pain on Wednesday, as news reports suggested that Russia was withdrawing troops from the Ukraine border. However, this does not seem to have happened yet, and WTI futures recovered to around $92 on Thursday.
Gold was equally volatile, reaching a new annual high of $1 893 per fine ounce this week, after a sharp surge in prices on Thursday. Pricing of the precious metal reflected the ebb and flow of the Russia-Ukraine debacle. In addition to protecting against inflation, gold doubles as a safe-haven asset for investors.
Copper prices returned to above $4.50 per pound this week after a sell-off on Friday last week. The Bloomberg Industrial Metal Subindex which includes copper, aluminum, zinc, and nickel gained 1.5% this week to 186.5, only 2.2% below the 10-year high of 191.5 achieved last week. In addition to anticipated demand support from China, it is likely that elevated commodity prices also reflect investor appetite for inflation hedges, following a series of above-expectations consumer price levels.
RAND FIRMS AGAINST THE DOLLAR
The rand had a strong rally this week and broke below the R15.00/$ mark as the physical demand in commodities and robust commodity prices support the currency.
The Russian ruble slipped on Thursday by 1.2% against the dollar, as weary market participants fled for cover, after Russian-backed rebels and Ukranian solders traded allegations of firing shells across the ceasefire line in eastern Ukraine.
The Turkish central bank maintained its short-term interest rate at 14% for the second consecutive month on Thursday, despite a jump in consumer inflation to nearly 50%, after last year’s monetary policy easing cycle triggered a currency crisis. The Turkish lira held steady after the interest rate decision and was only slightly weaker at TL13.62/dollar.
The rand is trading at R14.99/$, R17.03/€ and R20.40/£.