European Carmakers Are Struggling Amid Historic EV Shift

Energy

Economic

Summary:

European carmakers are struggling with competing interests. Volvo’s about-turn on electric vehicles is an example of how many are now downplaying their EV commitments amid demand and profitability uncertainty. But short-term decisions won’t change the overall direction of EVs.

Competition from new entrants grows, but short-term reality prevails

The European car industry is facing challenging times in keeping up with the historic transition to electric vehicles, while competition from new entrants like BYD mounts. It's fair to say that short-term interests are heavily influencing the course.

You can perhaps see that in the latest news from Volvo. It announced on Thursday that it's U-turned on its heavily promoted targets to produce only electric vehicles by 2030 as demand slows.

The shift to EVs is a non-linear journey with many uncertainties, as we have seen over the last couple of years. But it’s increasingly putting European carmakers under pressure while total new car sales fail to return to pre-pandemic levels in their home markets. Volkswagen’s CEO, Oliver Blume, sees the competitive environment becoming tougher and emphasises the importance of focusing on production costs and competitiveness as the group's global market share has started to erode with the uptake of EVs.

At the same time, Volkswagen, as well as several other European carmakers, including Ford and Mercedes, have announced plans to push back earlier targets to phase out sales of internal combustion engines (ICE-)vehicles in Europe. This is remarkable, so what’s going on? Well, there are a number of considerations behind this:

Due to production costs and severe competition, margins on BEVs are still poor and much lower than on plug-in hybrids, PHEVs, conventional hybrids HEVs or petrol cars. Pushing too hard would hurt profitability in the short run.

Demand for EVs is currently stagnating in Europe as middle-class drivers are hesitant to make the shift, and lease and rental companies struggle with low residual values.

The European EV supply chain still needs time to develop, while lower lithium-ion battery prices, and Chinese levels dropping below $100 per kWh challenging new local facilities. Meanwhile, carmakers still depend on China, which entails risks.

Carmakers made their ICE phase-out pledges prior to the final decision by the European Union and UK to enforce 2035 as the deadline to make the shift. This gave manufacturers more spare time compared to the initial proposal (2030).

Carmakers also seek flexibility in the current uncertain (fiscal support and trade) policy environment, with government changes potentially having a significant impact.

Electrification temporarily decelerates in Europe, but continues globally

Share of electric vehicles (BEV*) in total new car registrations per region

European Carmakers Are Struggling Amid Historic EV Shift_1

Source: BNEF, ACEA, ING Research *forecast

EV product shift still requires speed to avoid missing out on long-term performance

Amid all the short-term interests and uncertainties, carmakers realise they can't afford to miss out on EVs, and the direction of travel remains clear. The EU is not expected to soften its CO2 targets for production either. This means EV investment programmes and new model development still require speed.

The decision to temporise the shift is very much intended to maintain profitability and preserve flexibility in a highly uncertain environment. Western EV sales are slowing for several reasons, but this is a temporary development. The direction of travel has not changed, and investments in the makeover of product portfolios still need to continue to secure long-term positions in the market over the next decade.

To stay updated on all economic events of today, please check out our Economic calendar

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Samantha Luan

Economic

Tech stocks have dominated US stock markets this year. Nvidia is the best performing stock on the S&P 500 YTD, rising 115%, and the semiconductor index is the best performing sector, rising more than 50%, as AI has been the main trading theme in financial markets. Even amongst US mega cap tech stocks, Nvidia was by far and away the best performer for most of this year. However, there has been a major shift in the leadership of US tech stocks as volatility has risen and the stock market rally in the US has broadened out.

Apple’s resurgence

Earlier this year, Apple was one of the weakest performing stocks in the Magnificent 7. However, times have changed. Apple is now outperforming Nvidia. Nvidia has been plagued by volatility, concerns that its stellar earnings growth cannot be maintained, and worries about the uptake of AI. Apple has been able to take advantage of the decline in global inflation rates, which is good news for the consumer, along with falling interest rates. Its stock price has also risen on the back of its tie up with Open AI.

But the question now is, can this outperformance last? After underperforming other big tech firms in recent years, Apple is hoping that its latest product launch, the Apple 16, will help to sustain interest in its stock. However, the market is not that impressed. The new Apple iPhone offers new AI features, but it is hardly groundbreaking. It does not look particularly different: there are new colours and a few new camera features.

Added to this, Apple’s rally also looks intriguing because it is a lot less profitable than Nvidia, as you can see below. This suggests that Apple is rallying due to defensive qualities that Nvidia does not have, perhaps because of Apple’s qualities as a consumer stock and its long track record of generating huge cash piles.

Apple and Nvidia, EPS growth

US Round Up: What Next For Tech?_1

Source: XTB and Bloomberg

Another development to note, is that Tesla has also seen its share price outperform. It had been the weakest performer in the Magnificent 7 in the first half of the year, but in recent months it has outperformed Google, Amazon and Microsoft, even though its revenue growth has sunk along with earnings per share.

Why has Nvidia fallen from the top spot

The shift in performance among the Magnificent 7 suggests two things about investor behavior: 1, they are favouring stocks that are linked to the consumer. Nvidia is not a consumer tech firm yet, it is an AI software wholesaler to industry as companies build up their AI infrastructure. Also, the rise of Tesla suggests that investors are looking for bargains and are now willing to buy stocks that have sold off sharply this year. Tesla’s share price is up nearly 10% in the past month, but it is still down 13% YTD.

Nvidia’s volatility surges

Tech market leadership is changing, and there is no denying that Nvidia has become more volatile in recent weeks. The 3-month implied volatility rate for Nvidia is nearly 55%, compared with less than 20 for the Vix, which measures volatility for the overall S&P 500, so it is no wonder that investors are staying away. Investors are also wary of the potential legal wrangles Nvidia may face due to US regulators probing anti-trust accusations against the chip maker.

Apple is also facing challenges of its own, including losing a legal battle in the EU, which means that it will have to pay $13bn to the Irish government.

The future for big tech

As we enter the final months of the year, price action tells us that investors’ attitudes towards tech are shifting. Apple and Tesla are outperforming Nvidia, Google and Microsoft. This suggests that AI is falling out of favour, investors are worried about Nvidia’s potential legal woes (Apple is an old hand at dealing with complicated legal situations) and investors are also happy to pick up unloved Magnificent 7 stocks like Tesla. However, if the AI darlings see their price fall further, maybe investors will once again warm to the AI theme.

Source: FXSTREET

To stay updated on all economic events of today, please check out our Economic calendar

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Central Bank

Let the Fed cuts begin

Since the July US employment report, which sparked fears of recession, investors have been trying to figure out the size of the potential rate cut the Fed will deliver at its September gathering, and the moment of truth has finally come.

On Wednesday, the Fed announces its decision, and it seems that it is not a matter of whether officials will press the rate cut button, but how strongly. In other words, by how many basis points will they lower the Fed funds target rate.

Following Chair Powell’s speech at Jackson Hole, where he noted that they will not tolerate further weakness in the labor market, investors locked their gaze on employment-related data, adding to their rate cut bets on any sign of softness. Even the NFP report for August was not as encouraging as expected, with investors seeing then a 30% chance of a 50bps rate cut at next week’s gathering.

That percentage came down to around 15% after the CPI data for August revealed that underlying inflation remained elevated well above the Fed’s objective of 2%, but it climbed back to 45% after media reports from the Financial Times and the Wall Street Journal said that next week’s decision would be a close call.

Week Ahead – Fed to Cut Interest Rates, BoE and BoJ to Remain on Hold_1

Having said all that though, with the Atlanta Fed GDPNow model projecting a solid 2.5% growth rate for Q3, it seems that there is no concrete reason for policymakers to start this easing cycle with an aggressive move. A 25bps cut seems the more sensible move.

If this is the case, the dollar could gain as those expecting a bigger one may get disappointed, but whether it could hold onto its gains may depend on the updated dot plot and Powell’s remarks about the Committee’s future course of action.

If the dot plot and Powell suggest fewer basis points worth of reductions this year than the 115 currently expected by the market, the dollar’s engines may receive more fuel. As for Wall Street, confidence that the world’s largest economy is not headed for a recession may keep risk appetite elevated, even if this means fewer-than-expected rate cuts.

Week Ahead – Fed to Cut Interest Rates, BoE and BoJ to Remain on Hold_2

US retail sales are due out on Tuesday, but given the importance of the Fed meeting, they are unlikely to hugely impact investors’ positioning.

Will the BoE confirm November cut bets?

On Thursday, the central bank torch will be passed to the BoE. At its latest decision, this Bank cut interest rates by 25bps, but the decision was a close call, with officials signaling that they will be careful about future reductions.

Since then, data has been mostly corroborating the officials’ stance. The PMIs beat expectations in both July and August, while the labor market continued to improve. Although average weekly earnings continued to slow, they’ve been proving stickier than expected, with the y/y rate for July resting at an elevated 5.1%. What’s more, the headline CPI rebounded somewhat in July, with services inflation remaining stubbornly high. The August inflation numbers are coming out on Wednesday, while on Friday, retail sales are scheduled to be released.

Week Ahead – Fed to Cut Interest Rates, BoE and BoJ to Remain on Hold_3

Even BoE Governor Bailey himself said at Jackson Hole that they are not in a rush to cut again, prompting market participants to factor in a strong 80% chance for no action at this meeting. The remaining 20% favoring a rate cut may be the result of some concerns after the monthly GDP for July pointed to stagnation.

Week Ahead – Fed to Cut Interest Rates, BoE and BoJ to Remain on Hold_4

Should officials indeed keep their hands off the rate cut button, investors will turn their attention to the Bank’s communication about their future plans. According to the UK Overnight Index Swaps (OIS), investors expect another two quarter-point reductions at the November and December gatherings. Thus, if policymakers maintain a no-rush mindset, the pound may extend its latest rebound.

Strong yen awaits BoJ decision

On Friday, it will be the turn of the BoJ. In July, Japanese policymakers raised interest rates by 15bps and have been since signaling that more hikes are looming. This allowed investors to pencil in an 85% chance for another 10bps worth of increase by the end of the year.

Although BoJ officials have been repeatedly noting that the pace of rate hikes will be slow, the divergence in monetary policy strategies between this Bank and the rest of the world has led to a surging yen as traders decided to abandon a previously overcrowded carry trade.

Week Ahead – Fed to Cut Interest Rates, BoE and BoJ to Remain on Hold_5

Yet, no policy action is expected at this gathering and thus, the focus will be on whether Ueda and his colleagues will continue to signal more hikes down the road. Anything corroborating the market’s view that another increase could be delivered before year-end, may allow the yen to continue marching north.

A few hours ahead of the decision, the Nationwide CPI numbers for August will be published.

Canadian inflation and BoC Summary of Deliberations

Canada is also releasing its CPI inflation data for August on Tuesday. At last week’s meeting, the BoC cut interest rates for a third time in a row, opening the door to bigger cuts if the economy slows more sharply ahead. On Wednesday, the Bank’s Summary of Deliberations may provide more clarity on that front, but further cooling in consumer prices the day before could very well encourage market participants to add to their rate cut bets. Currently, they are expecting another 60bps worth of cuts by the end of the year. The nation’s retail sales are on Friday’s agenda.

Week Ahead – Fed to Cut Interest Rates, BoE and BoJ to Remain on Hold_6

In Australia, the employment report for August is due out on Thursday.

Source:XM

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Samantha Luan

Cryptocurrency

Donald Trump’s crypto project World Liberty Financial will launch on Monday, Sept. 16, former President and Republican presidential bidder announced.

In a Sept. 12 video posted to X, Trump said he would be going live on the platform on Monday to launch the project controlled by his sons, Donald Jr. and Eric Trump.

“We’re embracing the future with crypto and leaving the slow and outdated big banks behind,” he said.

Trump has previously made several cryptic posts concerning World Liberty Financial, vaguely positioning it as a decentralized finance (DeFi) platform for borrowing and lending.

A reported white paper said the project will allow users to store money in a digital wallet, offer a credit account system, borrow or lend cash to others, and use tokens to invest in assets like crypto.

A nontransferable governance token has also been mentioned as part of the platform.

Statements from World Liberty Financial have also suggested it wants to spread the use of United States dollar-pegged stablecoins in DeFi.

Along with bullish comments about stablecoins, the project has teased a partnership and collaboration with DeFi protocol Aave, possibly indicating World Liberty Financial will be built on the Ethereum blockchain.

Trump has secured strong support within the crypto community since promising to support the industry if again elected president in November.

He’s pledged clearer regulations and said he’d fire Securities and Exchange Commission chair Gary Gensler, who has undertaken enforcement actions against multiple large crypto firms.

Sentiment around World Liberty Financial has been mixed, with some questioning Trump’s decision to launch the project while also running for president, with World Liberty Financial set to go live 50 days out from the election.

Nic Carter, a Trump supporter and Castle Island Ventures partner, told Politico on Sept. 6 that the project was a “huge mistake.”

“It looks like Trump’s inner circle is just cashing in on his recent embrace of crypto in a kind of naive way,” he said. “Frankly it looks like they’re burning a lot of the goodwill that’s been built with the industry so far.”

Those linked to the venture have faced an onslaught from hackers and scammers.

Scammers also managed to hack Donald’s daughter-in-law Lara and his daughter Tiffany Trump’s X accounts on Sept. 4, posting sham links claiming to be connected to World Liberty Financial.

On Aug. 30, the official World Liberty Financial Telegram group had to denounce a series of fake ads and giveaways attempting to profit from hype around the project.

While Aug. 8, Eric Trump had to clarify that a Restore the Republic (RTR) memecoin was not affiliated with World Liberty Financial after it surged $155 million within hours of its debut.

Source: COINTELEGRAPH

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Thomas

Russia’s communications watchdog Roskomnadzor plans to spend 59 billion rubles (RM2.8 billion) over the next five years to upgrade its internet traffic-filtering capabilities, the Russian edition of Forbes reported on Tuesday.

The money will be used to upgrade hardware used to filter internet traffic, as well as block or slow down certain resources, Forbes reported, citing documents.

Russia passed a law in 2019 to enable the country to cut itself off entirely from the internet, in what it calls a campaign to maintain its digital sovereignty. Following the full-scale invasion of Ukraine, the Kremlin forced out several foreign social media and internet companies, although many services remain accessible via virtual private networks, or VPNs.

The system upgrades will allow Russian authorities to better restrict access to VPNs, according to the document.

New equipment has been purchased yearly since 2020 as traffic volumes grow, Roskomnadzor’s press service said, according to Forbes.

The Biden administration recently hosted representatives of several major tech companies, including Amazon.com Inc, Alphabet Inc’s Google and Microsoft Corp, to discuss government-funded internet censorship evasion tools, Reuters reported last week.

Source: The edge markets

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ACY

Economic

Forex

The US dollar has experienced a slight decline, dropping by around 1.0% since its peak earlier last week. Recent economic data and signals from the Federal Reserve have increased the likelihood of a more significant interest rate cut at the Federal Open Market Committee (FOMC) meeting scheduled for September 18th. While the market remains divided on whether the rate cut will be 25 or 50 basis points, the odds of a larger 50bps cut have strengthened, driven by weaker-than-expected labour market data.

More Weakness for the USD to Come as the FED Cuts 25bps_1

Midweek reports, including the JOLTS job openings and the ADP employment figures, both indicated a slowdown in the labour market. Additionally, the ISM Employment Index came in below expectations, reinforcing concerns about economic weakness. These developments have raised questions about how aggressively the Fed will move to address the changing economic conditions.

Federal Reserve officials have weighed in on this issue, suggesting that they are open to the possibility of a larger rate cut if the labour market continues to deteriorate. For example, San Francisco Fed President Mary Daly emphasized in a recent interview that a worsening labour market would be concerning, although the pace of any rate cuts remains uncertain. Similarly, Chicago Fed President has noted that inflation is steadily decreasing, but the growing signs of weakness in the job market could justify multiple rate cuts to support the economy.

The Fed’s Summary of Economic Projections (SEP), which currently estimates the unemployment rate at 4.0% and core PCE inflation at 2.8% by the end of the year, may undergo significant revisions depending on the results of the upcoming payroll report. This report is crucial as it could spark substantial movements in bond yields and the US dollar, particularly the 2-year Treasury note, which has already seen its yield decline by 23 basis points this week.

From a foreign exchange perspective, the dollar’s future performance will likely hinge on the health of the labour market. A weaker-than-expected jobs report could drive further dollar weakness, especially if equity markets react negatively. In contrast, a strong report might trigger a rebound in short-term yields and provide some support for the dollar. Among G10 currencies, the yen, Swiss franc, and euro have all outperformed the dollar this week, reflecting market positioning for a potentially weak jobs report.

Looking ahead, the yen stands to gain the most if expectations for a 50bps rate cut solidify, with USD/JPY possibly retreating into the 130s. This could continue to unwind the dollar’s strong rally against the yen seen in recent years.

To stay updated on all economic events of today, please check out our Economic calendar

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Samantha Luan

Commodity

Energy

Tropical Storm Francine forced some oil drillers to halt production and evacuate crews as it barreled through the Gulf of Mexico and was expected to strengthen to a Category 2 hurricane as it heads toward the coast of Louisiana.

Strong winds and a dangerous storm surge are expected along the state’s shoreline, the National Hurricane Center said in an advisory issued at 1am in Houston on Tuesday. Francine is “anticipated to be just offshore of the coasts of northern Mexico and southern Texas through Tuesday and make landfall in Louisiana on Wednesday,” the centre said.

The system, located 690km south-southwest of Cameron, Louisiana, saw winds accelerate to 105kph from 80kph on Monday. A hurricane watch is in effect for communities along part of the Louisiana coast.

Chevron Corp, Exxon Mobil Corp and Shell plc are among the companies taking measures like evacuating workers from vulnerable installations, suspending drilling activities and shutting in some wells. The storm’s forecast path intersects with fields that account for roughly 125,000 barrels of crude and 300 million cubic feet of natural gas on a daily basis, according to Bloomberg calculations using government data.

Gas supply to Cameron LNG also fell about 41% from the previous day, according to data compiled by BloombergNEF.

On its expected track, Francine may rake nine major platforms, including Enchilada, Cerveza, Perdido and Hoover. That said, the storm probably won’t have a large impact on overall energy production, Chuck Watson, a disaster modeller with Enki Research, said in a social media post.

Meanwhile, the US Coast Guard declared Port Condition X-Ray at Houston, Galveston and other key Texas harbours, a warning that rough weather is expected within 48 hours. One upside to Francine as it moves ashore is that it will bring much-needed water to the parched Mississippi River, temporarily raising the fortune of shippers before dry conditions set in again.

This will be the third storm to hit the US mainland this year. As Francine nears the coastline, it could encounter cross winds, or wind shear, that would threaten to weaken it. Still, the storm is currently forecast to make landfall with 100mph winds, which would make it a Category 2 storm on the five-step Saffir-Simpson scale.

The hurricane centre is tracking two other disturbances in the central Atlantic Ocean with the potential to become tropical storms. Both are hundreds of miles or more from populated areas.

Source: Theedgemarkets

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European Carmakers Are Struggling Amid Historic EV Shift

Competition from new entrants grows, but short-term reality prevails

Electrification temporarily decelerates in Europe, but continues globally

Source: BNEF, ACEA, ING Research *forecast

EV product shift still requires speed to avoid missing out on long-term performance

US Round Up: What Next For Tech?

Apple’s resurgence

Apple and Nvidia, EPS growth

Source: XTB and Bloomberg

Why has Nvidia fallen from the top spot

Nvidia’s volatility surges

The future for big tech

Source: FXSTREET

Week Ahead – Fed to Cut Interest Rates, BoE and BoJ to Remain on Hold

Let the Fed cuts begin

Will the BoE confirm November cut bets?

Strong yen awaits BoJ decision

Canadian inflation and BoC Summary of Deliberations

Source:XM

Trump to Launch World Liberty Financial Crypto Platform on Monday

Source: COINTELEGRAPH

Russia To Spend Us$646 Mil To Block Vpns, Forbes Reports

Source: The edge markets

More Weakness for the USD to Come as the FED Cuts 25bps

Tropical Storm Francine Disrupts Gulf Coast Oil, Gas Output

Source: Theedgemarkets

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