Earnings continue to impress

Stock markets are marginally lower on Thursday, continuing the trend of choppy trade this week as we await more earnings reports.

The results we’ve seen so far have been very encouraging and that’s continued over the last 24 hours, with Tesla surpassing expectations on the bottom line and Barclays continuing the trend of strong investment banking results and reserve releases that had previously been set aside for potential loan losses.

Tesla may have seen its shares slip a little in early trade but the numbers were encouraging in, what is undoubted, a challenging market due to the global chip shortage, port congestion and rolling blackouts. At a time when demand for electric vehicles is hotting up, difficulty meeting demand is surely a good problem to have.

Barclays kicked off earnings season for UK banks and did so in impressive style, following the lead from its US counterparts and providing investors with some comfort that the economy is in good shape, despite the large list of challenges. Interest rates in the UK are expected to rise significantly over the next 12 months which should provide a further lift to profitability.

Turkish Lira and CBRT credibility in tatters

The CBRT slashed interest rates by 2% on Thursday; a move that massively overshot expectations of a 0.5-1% cut and ended the debate on whether the central bank under Governor Şahap Kavcıoğlu is crumbling under the pressure of President Erdoğan. The lira was crushed, along with Kavcıoğlu’s credibility, and faces a long road back.

From vowing to keep interest rates above inflation to abandoning it in spectacular fashion, the Governor has secured his job in the short-term but will no doubt be thrown overboard when the bill comes due. We’ve seen how this ends before and there’s nothing to suggest this time will be any different.

The argument that inflationary pressures are only transitory just doesn’t cut it. The Governor is taking a gamble in order to appease Erdogan, while the serious central banks that don’t have a history of inflation problems are taking the risks more seriously. The lira has hit a record low after plunging more than 2% and it will take an enormous amount of good fortune for the central bank to improve its fortunes.

What next for Evergrande?

Evergrande shares are trading once more but their fortunes have not improved following the collapsed sale of a 51% stake in the company’s property services unit to Hopson Development. With the company struggling for liquidity as pressure mounts to maintain projects and keep up debt repayments, despite tumbling property sales, it would appear it’s running out of options.

Any hope that the company would find the funds to make an offshore coupon payment by the end of the grace period this weekend is surely now gone which could trigger a default unless the terms are renegotiated. The silence has been deafening in recent weeks though which could make trading later this week rather interesting as we move into the next phase of the saga.

Regulators have sought to shield other developers from the spillover effects, claiming funding needs are being met in an attempt to quell fears in the markets. The comments had the desired effect and if any country can contain this, it’s probably China. At the same time, I always find these soothing tones a little unsettling rather than reassuring.

Where next for bitcoin?

We may be seeing a little profit-taking in bitcoin on Thursday, a day after it jumped to new record highs following the launch of the ProShares ETF. While we may be seeing momentum dipping in the near term, which may lead to a slightly larger pullback, in the longer term it seems there’s plenty of support for the rally. The next test is USD 70,000 but we’re in uncharted territory so I’m sure we’ll see far more ambitious projections in the coming weeks.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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