Bumps in the road, Volkswagen vs Tesla, Chinese tech clampdown

Bumps in the road, Volkswagen vs Tesla, Chinese tech clampdown

Equities 7 minutes to read
Picture of Peter Garnry
Peter Garnry

Chief Investment Strategist

Summary:  Today is another trading session highlighting the interest rate sensitivity of technology stocks with the segment underperforming the broader equity market. This divergence could continue until the US 10-year yield stabilises in the area 2-2.5% over the coming quarters as the US output gap is closed. Long-term we are still positive on equities and also technology stocks. We are also focusing on the strong performance of Volkswagen this year and how the German carmaker is gaining on Tesla. Finally we talk a bit about the ongoing Chinese technology regulation and how it signals what to expect in other jurisdictions going forward.


We promised on today’s podcast that we would launch our new equity theme basket on travel companies today, but the underlying calculations on the basket is not done, and as a result it will be on Monday. We are excited about launching this basket as there is no good ETFs out there on the travel theme, and specially not a broad approach to it, so we truly believe we are bringing a unique basket to the marketplace like our green transformation and commodity sector baskets. In today’s equity update we will instead go through various interesting developments in the equity market.

Rising interest rates create divergence

Regularly readers of our equity notes will know that we have talked a lot about interest rate sensitivity, even before it become a visible thing in the equity market, and today we are seeing this on full display with technology stocks underperforming the overall equity market. Our view is that the divergence between technology stocks and the rest of the market could continue to be a theme as US interest rates continue to rise in a repeat of the same underlying divergence during the peak of the dot-com bubble in 2000. We are significantly more upbeat on US interest rates than consensus and believe we will hit 2.5% by year-end driven inflationary pressures caused by overstimulating the economy. The chart below shows that the US economy is currently having a 3% GDP output gap with 16.2% fiscal deficit. As the US economy reopens after vaccination over the summer the output gap will quickly be closed and the $1.9trn stimulus bill just passed will accelerate and stimulate a US economy already operating at full speed.

12_PG_1

Volkswagen vs Tesla

The past year, Tesla has stolen the limelight from all the other carmakers as the market has celebrated the continued penetration of electric vehicles despite the pandemic. As we have pointed out in several equity notes the past three months, Tesla is losing market share in Europe, the world’s largest EV market, and is experiencing pricing pressure in China. Even in its home market the new Ford Mustang Mach-E is doing quite well. Everywhere you look Tesla sees increased competition and in our view their advantage as a first mover is fading and their lead in battery technology is also diminishing as the car industry catches up. Even more importantly, the existing car industry has larger production facilities, more experience in building cars, and a larger distribution and service network which is particularly important in the European car market. Whether it is that the market is beginning to price in, we do not know, but it is interesting to see Volkswagen shares up 26% this year with Tesla shares flat. This is a signal that should not be ignored and something we will continue to track going forward.

12_PG_2
Source: Bloomberg

China is serious on technology regulation

Hang Seng futures are down 2.3% as Chinese regulators today have moved aggressively against Chinese technology companies including Tencent saying that there will be increased oversight and regulation applied to FinTech subsidiaries. China’s government is serious when it comes to protecting the existing banking industry, in all fairness just leveling the playing field, but also enforce more competition by clamping down on monopolistic behaviour and especially around acquisitions. The developments in China, EU’s continued fight with US technology giants, France’s technology tax, and Biden’s latest appointments to the FTC of people very vocal against big technology companies are all signs that investors in large quasi-monopolies within the technology sector should prepare for more negative headlines on regulation and potentially headwinds on profit growth.

12_PG_3
Source: Saxo Group

Stimulus checks to prop demand next week?

Many Americans will receive their stimulus checks from the government over the weekend. In a recent survey from Deutsche Bank many retail investors say they plan to spend the money in the equity market. This fresh buying power among a growing importance of retail investors could support technology stocks next week despite rising interest rates. As we discussed on today’s podcast next week is going to be eventful and potentially adding a lot of volatility to markets.

The 5-year chart below on Tesla and Volkswagen is for regulatory purposes

12_PG_4
Source: Bloomberg

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.