AM Notes: Tesla 'proves Bitcoin liquidity'

Asian shares fell and U.S. stock futures were steady on Tuesday as caution ahead of a U.S. Federal Reserve meeting and a slew of corporate earnings offset growing optimism about the global economic recovery from the COVID-19 blow.

Oil rebounded in Asian trading after major oil producers stood by their demand forecasts, but there are still downside risks due to surging COVID-19 cases in India, the world's third-biggest oil importer.

"The global economy is likely to continue to strengthen and many advanced economies are heading for a reopening due to progress in vaccinations."

However, despite the hopeful signs, a bullish session on Wall Street failed to inspire Asian markets.

Many investors stuck to the sidelines ahead of a Fed meeting ending Wednesday, where the U.S. central bank is expected to confirm that it will maintain with its easy monetary policy to bolster the economy.

Bond traders are also closely watching an auction of $62-billion of seven-year U.S. Treasuries later on Tuesday.

The Treasury saw very weak demand at a seven-year debt auction in February, which sparked a brutal market selloff across the globe. ‌‌The notes also saw tepid, albeit improved, demand in March.

Ahead of the auction results, seven-year yields edged up to 1.2689%, while benchmark 10-year yields rose slightly to 1.5755%.

Many Japanese life insurers, major investors in global bonds, plan to increase their m holdings of yen bonds as their yields have recovered from lows while some of them are more cautious about foreign bonds, their comments from Reuters interview and at press conferences showed.

As widely expected, the BOJ maintained its short-term interest rate target at -0.1% and that for 10-year government bond yields around 0%.

“The pick-up in consumption is stalling as downward pressure on service spending, such as for dining and accommodation, is strengthening,” the central bank said in a quarterly report on the economic and price outlook.

In its fresh quarterly projections, the BOJ said it expects core consumer inflation to hit 0.1% in the current fiscal year that began in April. ‌‌That was lower than 0.5% projected in January.

The BOJ now expects core consumer inflation to hit 0.8% the following year and 1.0% in fiscal 2023.

Industrial profit growth will likely slow in coming months “as the base becomes more challenging and output starts to peak.”

“Even with a slowdown, profit growth should still remain strong in the coming months -- likely in the double digits. ‌‌This should continue to sustain the industrial sector’s capacity to retain workers and invest -- helping to support the broader recovery.”

“The government may continue to have a high incentive to provide extraordinary support, considering China Huarong’s policy role and the potential contagion risk for the refinancing of similar policy-driven GREs, but Fitch believes timely indication of support has not yet materialized,” the ratings firm said in a statement on Monday. ‌‌There is “increasing uncertainty over the company’s liquidity, particularly its offshore funding,” Fitch added.

 No, you do not. I have not sold any of my Bitcoin. Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.— Elon Musk (@elonmusk) April 26, 2021 

Tesla posted record deliveries in the first quarter despite a global chip shortage that has slammed auto sector rivals, but its profit was not driven by auto sales.

"Higher regulatory credits, lower taxes, and bitcoin sales buoyed financial results. Back these out, and it was a large miss," Roth Capital Partners analyst Craig Irwin said.

Put it all together and a valuation in the region of $140 billion hardly looks a stretch anymore. Granted, at 5.7% last quarter’s operating margin is only in the middle of the pack of more traditional carmakers like Ford Motor and Toyota Motor, which each make several million vehicles a year.

But Tesla is growing fast and is further advanced on both battery and self-driving technology. So ascribing a multiple of 30 times this year’s estimated earnings of $4.8 billion, per Refinitiv, would be defensible.

Trouble is, that was what Tesla was worth 12 months ago. Since then, shareholders have amped up the company’s market capitalisation fivefold to around $700 billion – almost 150 times earnings.

Perhaps Musk can grow into that, too. The uptake of both electric and autonomous vehicles needed to get there makes for a much harder trip.