This week’s financial news digest features several noteworthy events. The UK inflation rate is of particular focus as it has the potential to impact the global credit environment. While the tech sector is experiencing ongoing layoffs, Hong Kong has recognized cryptocurrencies, and Bitcoin is experiencing volatile movements this week. What’s more, Tesla’s earnings have surprised its investors.
UK inflation rates are still in double digits
UK inflation remained above 10% in March, which increases the likelihood of the Bank of England raising interest rates in the coming month.
Despite falling petrol and diesel prices, the costs of food, recreation, and culture continued to rise sharply, resulting in an unexpectedly high inflation index. Food prices alone rose by 19.1% in the year to March, which may fuel demands for increased pay by striking public sector unions in 2023-24.
A wage-price spiral may happen: higher wages lead to higher prices
Striking for a wage rise—that can be a signal for a wage-price spiral. Wage increases will push the cost of service, which at the end contributes to the rise in general prices, and that may trigger another round of wage increases. That’s the last thing you want to have in an economy.
The high inflation rate dashes hopes for a pause in rate hikes
The Bank of England closely monitors the price indexes as they are the last significant data release before its May meeting. Officials had hoped to see the first signs of a significant drop in inflationary pressure, but core inflation, which excludes food and energy prices, remained unchanged at 6.2%.
The consulting group Capital Economics forecasts that the persistence of high inflation increases the likelihood of a rise in interest rates to 4.5% at the May meeting, and it may not be the last increase.
Tech layoffs continue with Meta downsizing in 2023
The tech industry is experiencing ongoing layoffs in 2023, with Meta expected to announce more job cuts in a full-scale downsizing of the whole brand, including Facebook, Instagram, WhatsApp, and Reality Lab, according to Bloomberg. The aim is to restructure teams for greater efficiency, with the layoff number expected to reach around 21,000 based on the downsizing speed. So far, Meta has cut about 13% of its workforce, or a total of 11,000 jobs.
Downsizing shows no signs of slowing down
The trend of downsizing in the tech industry shows no signs of slowing down, with over 170,000 jobs cut since the beginning of 2023, exceeding the total number of job cuts in 2022 of just over 150,000. These layoffs directly impact the U.S. unemployment rate, and if it increases for three consecutive months, the U.S. economy will be confirmed to be in a recession. Therefore, it’s important to keep an eye on the U.S. unemployment rate.
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Hong Kong court recognizes cryptocurrencies as property
In a recent court ruling involving the now-defunct crypto exchange Gatecoin, the Hong Kong court recognized cryptocurrencies as property, signifying a significant milestone in the adoption of crypto in the region.
What does this mean for cryptocurrency?
This recognition puts cryptocurrencies on par with other intangible assets like stocks and shares as “property”. It also has the potential to create a tipping point where trust funds may start including cryptocurrencies in their portfolios, driving up demand for such crypto assets.
Moreover, the recent crypto exchange regulation move from the Hong Kong authority indicates that Hong Kong is taking a big step to embrace cryptocurrencies and has plans to position itself as a cryptocurrency hub.
Bitcoin slid below $30,000 on Wednesday this week
Bitcoin, the largest cryptocurrency, rose above the $30,000 level last week but experienced a sudden sell-off this week, falling back below the $30,000 mark. The reason for the sell-off is not immediately clear, but the unexpectedly high U.K. March inflation figure of over 10% may have affected market sentiment, with investors anticipating a rate hike in May, as reported by Coindesk.
Liquidations fuel the sharp drop
Another possible explanation for the slide is the liquidation of nearly $100 million in “long rekt” (crypto jargon for long position liquidation) according to CEC Capital. Despite this, there is strong support for BTC below the price level of $29,200, which could serve as the consolidation zone for the cryptocurrency.
Tesla Q1 earnings were lower than expected, hinting at further price cuts
Tesla’s Q1 earnings report fell short of investors’ expectations, causing the company’s stock to drop by 9.75%, the lowest level in almost three months. The company’s profitability was impacted by markdowns on its electric vehicles, resulting in a gross profit margin below 20%, the lowest reported since the end of 2020.
Tesla market growth strategy: cut price to sell more
Tesla’s market growth strategy involves cutting prices to sell more electric cars, even if it means lower profit margins. This long-term strategy is aimed at building a loyal customer base within the broader Tesla ecosystem, allowing Tesla to cash in later by selling Tesla-connected services and growing its energy business.
Investors aren’t really buying the company’s narrative
However, some investors are skeptical of this strategy, believing that Tesla’s price cuts are indicative of a serious demand problem. Tesla has cut prices twice in April, which are not reflected in this earnings report, and has hinted at more price cuts to come. These factors raise concerns about the company’s future earnings performance and paint a negative picture of its growth prospects.
Investors are also skeptical of Tesla’s upcoming plans, such as:
- Building a lithium refinery in Texas to reduce costs.
- Releasing the Cybertruck in Q3 of this year.
- Achieving full autonomy for its self-driving cars by the end of this year. (With the self-driving beta having already covered about 150 million miles as of this point in the beta phase.)
- The growth of stationary storage is expected to surpass vehicle growth in the future, but it still only represents a small portion of Tesla’s overall revenue.
Some investors view these plans as overly ambitious, which undermines their confidence in the company.
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