Investing.com - Here’s a look at three things that were under the radar this past week.
1. Tesla Capital Timing a Hint on Demand?
Tesla (NASDAQ:TSLA) announced in a regulatory filing last week that it now plans to raise about $2.7 billion in capital through equity and convertible bonds.
For some, it looked good that Tesla got the details out of the way and can get any cash it might need in the near term. But for Morgan Stanley (NYSE:MS) it raises some questions about the demand for Tesla vehicles.
“Some question whether the timing so early in the quarter sends a less confident message around the (second-quarter) pace of deliveries, which some sources suggest is off to a sluggish start,” Morgan Stanley analysts wrote in a research note on Monday.
But they also said Tesla had affirmed its guidance for second-quarter vehicle sales in the range of 90,000 to 100,000.
Still, the investment bank thinks those long the stock should be prepared for the possibility of 2019 deliveries coming in well below target.
“Tesla reiterated its full year 2019 target of 360k to 400k deliveries. Our forecast is 348k units,” Morgan Stanley said. In our opinion, an investor in Tesla shares must be comfortable with full year unit volume that could test the 300k to 320k mark as a realistic downside scenario.”
The electric automaker can gain share in China, but Morgan Stanley does “not anticipate significant Model 3 deliveries in China until 1Q 2020 at the earliest.”
2. Credit Caution
The latest findings from the Federal Reserve loan survey indicates worrisome signs on credit markets and the economic outlook.
Demand for commercial and industrial loans tumbled to levels not seen since the financial crisis.
Worryingly for stocks, the long-awaited capital expenditure boom, courtesy of President Donald Trump's tax cuts last year are not closer to being realized.
Major net shares of banks that reported reasons for experiencing reduced commercial and industrial loan demand mentioned "decreases in customers' investment in plant or equipment, decreases in customers' merger or acquisition financing needs, and customers shifting their borrowing to other sources of credit as important reasons for the weaker demand," according to the survey.
The survey also showed banks had tightened standards across all three major commercial real estate (CRE) loan categories - construction and land development loans, nonfarm nonresidential loans, and multifamily loans - over the past three months, underscoring the fragile U.S. housing market.
But some on Wall Street suggest its too early to start sounding the alarm bells on the economy, insisting that the latest survey is consistent with guidance from banks over the past several months.
"Some tightening noted in CRE and cards that is generally consistent with bank guidance over the past 12-18 months, there is no broad-based tightening of underwriting standards in C&I, which is a key positive driver for economic growth," UBS said in a note. "On the other hand, loan demand appears to be softer across most major categories. With the exception of auto loans, lower demand noted across C&I, CRE, and other consumer loans could lead to lower overall bank loan growth in the period ahead."
Are financial conditions tight or loose?
According to the latest National Financial Conditions Index (NFCI) they couldn't be looser.
The definition of tight financial conditions is it is “associated with increasing risk and decreasing credit and leverage.”
“We use this pattern as the basis for the overall index’s interpretation: Positive values of the NFCI have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions,” the Chicago Fed, which runs the NFCI, said.
In the latest index, of the 105 indicators used on the index 104 indicated looser than average conditions. Of those indicators, 67 loosened from the last reading, and 38 tightened.