On SpaceX Day, Elon Musk stands on the brink of becoming the world's first trillionaire as the company makes waves in the public markets. This article explores the implications of SpaceX's IPO, market reactions, and the challenges posed by global economic factors.
Image: Trevor Cokley | Wikimeadia
Happy SpaceX Day everyone.
Today may go down in history as the day Elon Musk could become the world's first trillionaire, and the day SpaceX blasted off into the public markets.
The company already made history yesterday by selling 555.6 million shares priced at $135 each, raising the $75 billion that it was looking for and giving the company nearly achieved the $1.8 trillion valuation that it was targeting.
It equals the combined value of the 29 biggest IPOs in US history since 2000 – adjusted for inflation – including Meta, Google, Hilton, Airbnb, DoorDash, Uber, Snowflake and GM.
Yes, it’s huge. So today, everyone will be watching SpaceX leave the launchpad. In yesterday’s note, I discussed in detail what to expect from this IPO today, and in the coming weeks and months, for those who are interested in what the future could hold for the company and for the rest of the market.
On Earth, it was a good old day where US President Donald Trump threatened to hit Iran hard – oil spiked, stocks fell – then he said that the countries were ‘close to a deal’ to extend the ceasefire and reopen the Strait of Hormuz – oil fell, stocks rallied.
What’s unbelievable is that after three months of this nonsense, markets still move on words that have little substance. Alas. This morning, US crude is testing the $85pb level to the downside, its lowest level since the early days of the Iranian conflict. Yet there is no confirmation from Iranian media, and there is nothing to suggest that this time will be the charm.
But US and European futures are in positive territory at the time of writing, before the European open, with European indices leading gains, showing how eagerly European investors await the end of this conflict.
Beneath the market optimism, the euro area was hit by the European Central Bank’s (ECB) first rate hike in almost three years, aimed at fighting inflation that spiked past the 3% mark amid rising energy prices. Lagarde said that inflation is spilling over into the rest of the economy.
Now, note that yesterday’s market action was mostly driven by the fall in oil prices, and not by the ECB decision, as benchmark 10-year European yields fell sharply and equity indices gained on falling energy prices. But the ECB hike is fundamentally bad news for European economies.
A rate hike is obviously never good news. It increases borrowing costs for companies and households and slows growth. And in the particular case of the euro area, growth prospects are already very meagre – I say meagre not to say negative. In Q1, the euro area reported a negative growth figure (-0.2% q-o-q), and the situation has probably deteriorated in Q2 due to the Iran-war-led energy crisis. To make things worse, another hike in September remains very much in play unless energy prices retreat sustainably over the summer.
And worryingly, the ECB hike will probably not make much difference to inflation.
A rate hike is very efficient in the context of an economy facing demand-led inflation. By raising rates and slowing the economy and demand, the central bank can tame inflation. But in today’s context, inflation comes from an external shock. So we know beforehand that ECB rate hikes will likely have a bigger impact on growth than on inflation.
So why does the ECB hike? Because it can’t just sit and watch inflation rise without doing anything. In 2022, the ECB was criticised for reacting too late to the Ukrainian war led energy crisis. But back in 2011, it moved and hiked rates twice to cool rising inflationary pressures, only to reverse course after the economy fell off a cliff.
So what I am trying to say is that monetary policy is not an exact science. There are too many factors at play that make the same decisions echo differently across the economy. And central bankers have little control over the vast majority of those factors.
Today, we know that whatever central banks do, only an end to the Iran war, the reopening of the Strait of Hormuz and a sustained decline in energy prices could ease global inflation worries and push the central bank hawks out of the room.
In summary, the positive reaction in European equity markets yesterday may hit a wall if oil prices spike again.
Next week will be crowded with central bank decisions. The Bank of Japan (BoJ) is now increasingly expected to hike rates to slow the bleeding in the Japanese yen. The USDJPY fell sharply below the 160 mark yesterday after Trump called off attacks on Iran. But the pair rebounded above the 160 mark today. Intervention or not, the only thing that could stop the yen’s bleeding is a rate hike, ideally next week.
Then, the Reserve Bank of Australia (RBA) is broadly expected to hold fire next week after three rate hikes since January. The Bank of England (BoE) is expected to sit tight, too, as softer inflation has bought policymakers some breathing room. But that relief may prove temporary, as inflation will likely readjust to reality when the energy price cap is revised and higher energy costs begin feeding through to household bills.
In Switzerland, well, the Swiss National Bank (SNB) is safe for now. Inflation in Switzerland rose too, but only to 0.6% on an annual basis as a reaction to rising energy prices, thanks to a strong franc that protected Swiss prices from rising too much. As such, low inflation gives the SNB the luxury to wait: wait for other central banks pressured by above-target inflation to raise rates, wait for the global economy to slow under the weight of the coming rate hikes, and wait for weaker demand to pull energy prices lower.
Time is everything in the current context. And in fine, if oil prices come down before Swiss inflation breaches the SNB's 2% target, Switzerland could emerge largely unscathed without lifting a finger.
Holy Switzerland.
Ipek Ozkardeskaya, Senior Analyst at Swissquote.
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