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Morning Update

Word of the week Wednesday, rebound in share price for Tesla, forecasts for the price of oil slashed by Russian Ministry of Economic Development, and what's happening today.

Word of the Week Wednesday 

Blue Chip: A stock issue of high investment quality. Usually pertaining to a substantial and well-established company.

In US corporate news

Tesla has seen a rebound in its share price following news that they are bringing forward new model releases. The stock had been the worst performing stock on the S&P, but this lift draws them pretty much level with Boeing, at the bottom of the table. The news of new cars (but no substance on what and exactly when) overcame what would no doubt have been a different market reaction to a 9% drop in revenues and confirmation that 2,700 jobs are going in Texas and 3,300 in Austin.

This headline is really the preface to the bigger decision that shareholders and the wider market need to make about Tesla, which is whether Elon Musk should get his pay award, which was valued at around $55bn!  – which for context would be somewhere between the annual GDP of Latvia and Slovenia!

The pay award was approved by the board, but then overruled by a judge who said the board were not acting as responsible fiduciaries for doing so. As such, the shareholders now get the vote.

Staying with Elon Musk, he’s picking a fight with Australia (or vice versa) over an injunction that the Australian government placed on content showing a stabbing during a church service. The injunction was served to Meta and X (twitter) but only Meta complied, and X said they’d be challenging it, with Musk saying “our concern is that if ANY country is allowed to censor content for ALL countries, what is to stop any country from controlling the entire internet?”.

Australia has previous experience when it comes to holding tech companies to account and in 2021 got Facebook to pay content fees to news outlets for material that was on the site after temporarily banning the platform in the country! Interestingly, that deal is now close to expiring and Meta are warning that they will not renew it and will instead take news off the platforms.

So, the Australian government has definitely got a fight with X on its hands and probably one with Meta to come, but what will be interesting is whether other governments now decide to join them in their belief that the internet and social media is of an age, size and influence that it needs to be regulated.

Moving on:  Last year Microsoft invested more than $20bn in AI, which is more than every other venture capital firm in the world, combined – between them and Amazon they made up around two thirds of the total global investment in the technology. This clearly shows the pace at which it’s developing, but with Microsoft gobbling up AI companies, or taking stakes that involve board seats, there’s definitely suggestion that the AI world will be formed around Microsoft’s thinking.

Lastly on the tech space, Donald Trump’s ‘Trump Media and Technology Group’ is the latest meme stock, having halved in value since the rally at the end of last month when it bought Truth Social and made the Donald its largest shareholder. The stock price makes the company worth around $4.45bn and Trump has just been awarded share options that are worth a bout a billion dollars at current prices. Interestingly, the revised valuation still means the company is still trading at a thousand times Truth Social’s earnings from last year, which are $4m!

Russian Oil

The Russian Ministry of Economic Development has slashed its forecasts for the price of its oil exports according to a paper seen by Reuters. Over the next three years the Ministry put a figure of $65 per barrel, a considerable downgrade from existing forecasts of $71.3 per barrel for 2024. Such forecasts are used in calculations for the Kremlin’s federal budget and comes at a time when Russia missed their initial budget deficit target for 2023.

Russia continues to face a number of Western sanctions which has hampered its ability export oil at the market rate. More specifically, Russian oil is subject to a price cap of $60 per barrel for exports going to the G7 and Australia. Moreover, the coalition which set the price cap recently said that they would ramp up measures to ensure such price caps were not being evaded.

Nevertheless, Russia continues to pump oil to countries including China at record levels (often at a discount). For example, earlier this year Russia overtook Saudi Arabia as China’s largest source of oil with Beijing importing Urals crude from Moscow at a rate 25% higher than the previous year. According to Bloomberg, China’s oil imports from Russia during 2023 were worth “$60.6 billion, which equates to an average price of about $77 a barrel”.

As the Kremlin’s war against Ukraine continues, the Russian military budget is expected to account for around 40% of the total federal budget this year. Hence any shortfall in oil revenues is likely to directly impact Russia’s military operations in Ukraine.  Earlier in February of this year the Pentagon estimated that the full-scale Russian invasion of Ukraine had cost Moscow “up to $211 billion”.

Today’s Data

Following yesterday’s string of PMI releases which broadly speaking saw the Eurozone and UK surpass expectations while the US came in marginally lower than forecast, attention today will centre on US Durable Goods Orders. This comes alongside Canadian retail sales also released at 1330 this afternoon. These follow Australian CPI figures which came in marginally higher than expected this morning, hitting 3.5% on an annual basis for March.

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