Tesla's Strategic Error, Natural Gas' Rebound and Oil Targets $85

EU and US futures are stable after the increases in the first half of the month. China and hopes of a mild recession in Europe and the US continue to hold up the markets.

In the fourth quarter, China's GDP increased by +2.9% year on year, slowing down from +3.9% in the third quarter but much higher than expected (+1.6%).

The seasonally adjusted figure is zero growth from the previous +3.9%: the consensus was -1.1%. 2022 closes with a growth of +3%, among the lowest in the last fifty years.

In December, industrial production rose by +3.6% compared to the same period of the previous year, slightly above consensus estimates.

Retail sales fell by 1.8% in the last month of the year, much better than the -9% expected by economists.

Nasdaq 100 Futures, S&P 500 Futures, DAX Futures, FTSE MIB, IBEX 35:

As written in previous articles, the indices are supported by the rise in Chinese stock exchanges due to the reopening after so many months of containment due to the virus.

Furthermore, the latest Chinese macroeconomic data are excellent, well above the analysts' consensus.

In any case, the recession that will lead to a drop in corporate profits will come, and the markets do not yet discount this.

The recession in the US is expected by many, but there are also doubts about a possible recession in Europe.

The recession will also arrive in Europe precisely when the ECB, which has proven very cautious concerning the FED, will raise rates crossing the critical threshold of 3%.

We will, therefore, soon see the actual collapse of the market.

The ideal instrument in these cases is the VIX, also known as the fear index, which uses options on the S&P 500 index as underlying, with which it has a negative correlation: if the S&P 500 goes up, the VIX goes down and vice versa.

The VSTOXX is also very interesting, the twin of the VIX, which has options on the EURO STOXX 50 index as its underlying.

Natural gas: the market is oversupplied

Natural gas recorded a technical rebound after the new annual lows. There is a clear difference between the short and long term-right now.

In the long run, the situation is interesting.

Europe will need even more LNG to replace Russian volumes next summer as the continent reloads storage. Chinese demand recovers from lockdowns and offsets lower imports from other Asian buyers.

In the short term, the situation is pessimistic.

The European danger has vanished, with total inventories in the EU, thanks to deficient demand for gas due to abnormal heat, savings at both the industrial and retail levels, and the green energy transition underway.

However, during summer, the situation could be different, with difficulty filling in the inventories.

In the USA, demand is low due to the weather; this is creating excess domestic supply for prices which adds to the reopening of some export plants, which have been offline for some time and are now contributing to the oversupply.

Freeport will be decisive: one of the most crucial export plants should reopen next week.

Oil: China will boost demand

As expected, oil continues to prove solid mainly for two reasons:

1: The price cap, although not penalizing Russia, could lead to an increase in demand for American oil that is very positive for prices and a collapse in Russian oil production.

2: Chinese oil demand held back by Covid will pick up in 2023, and we have the easing of restrictions at the end of 2022 to support.

All this is combined with the fact that oil stocks are at their lowest in 20 years, with countries like Russia reporting sharply declining production, a factor that is good for prices as there is a shortage of oil.

I remain positive over the long term with an $85 target.

Tesla (NASDAQ:TSLA): Strategic error

The stormy period for the stock is destined to continue.

Sales in Q422 disappointed, with below-expectation deliveries of 405,278 cars, less than the 420,760 units analysts were betting on.

There are problems in China and Europe, with management desperately driving prices down to stimulate demand, which continues to disappoint due to inflation and competition.

It is a wrong move, as it will damage the company's profitability. Behind it, all still linger the distractions of the founder, Musk, who is increasingly involved in other projects.

As written at the beginning of the year with prices in the 300 area, the stock, according to my model, was worth $170 and therefore was very expensive at the beginning of 2022.

In light of the latest data, I am updating my Tesla fair value at 85 dollars, where I will start thinking about buying the stock if the management's strategy changes.

Disclosure: I hold a Buy position in Natural gas, VIX, VSTOXX, and a US stock with significant upside potential.