Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we’re looking at the future of stablecoins, Starmer’s Labour revolt, and Tesla’s robotaxi rollout. 

But first, our number of the week…

$1 billion

That’s the estimated cost to Nike as a result of new tariff measures this year, according to the company’s recent earnings call. That’s a significant hit for a company currently worth about $105 billion. 

Sidekick Takeaway: Judging by the market’s recovery, tariff concerns have begun to fade for many investors. However, while tariff rates may end up lower than initially feared, even moderately sized levies will likely have a sizable impact on corporate earnings.

Now to our main stories…

Only have a minute to read? Here’s the TL;DR:

• Stablecoins have drawn increased interest following Circle’s IPO and new regulatory legislation in the US. However, a recent warning from the BIS highlights the continued risks of this novel asset class, including their uncertain value proposition. 
• UK PM Keir Starmer faced an internal revolt this week from a group of Labour PMs over his planned benefit cuts. Starmer’s reversal shows that the party may have reached its tolerance for austerity, which could result in a shift in the government’s fiscal plans.
• Although investors may have hoped that Tesla’s robotaxi rollout would herald a turnaround for the company, the unveiling came with fresh challenges. Safety concerns have already drawn regulatory interest, showing that a recovery could take time.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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Squaring the Circle: BIS Warns on Stablecoin Risks

Crypto assets are well-known for their volatility. Even major tokens like Bitcoin can feature wild price swings.

But ‘stablecoins’ try to do just the opposite. These tokens aim to maintain a one-for-one peg with traditional currencies like the dollar, pound, or euro.

While that may sound like a simple approach, stablecoin technology is starting to draw huge interest.

Just weeks after the company’s IPO, stablecoin issuer Circle’s shares soared 750%. 

That excitement follows landmark stablecoin legislation in the US. If enacted, the law is expected to create a regulatory framework for the new asset class.

However, not everyone is so enthused about stablecoins. 

In a stark warning, the Bank for International Settlements (BIS) cautioned governments that stablecoins could introduce major risks fostered by poor transparency and untested technology.

How stable are stablecoins?

Although stablecoins are designed to provide stability, the BIS’s warning highlights that these tokens don’t have a perfect track record:

• In 2022, the Terra Luna ‘algorithmic’ stablecoin suffered an infamous collapse, wiping out over $50 billion in market value.
• Tether, the world’s largest stablecoin, has had numerous run-ins with regulators and declines to disclose its specific asset holdings. 
• BIS economic adviser Hyun Song Shin likened stablecoins to the ‘free banking’ era in the United States when banks issued their own notes of questionable reliability. 

Risks aside, it’s also not clear what value stablecoins can offer consumers in their current form.

As a payment mechanism, stablecoins will struggle to compete with credit cards since they don’t offer rewards.

And as an investment, stablecoins will struggle to compete with money market funds since they don’t pay interest. 

Sidekick Takeaway: Stablecoins may ultimately prove to be most beneficial for consumers in emerging markets looking to access a dollar-based financial system. Regardless, stablecoins still have some ways to go to demonstrate both their value and reliability. 

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Labour Revolt: Starmer Folds on Benefit Cuts

Prime Minister Keir Starmer has long floated benefit cuts as part of his fiscal reforms in the UK.

According to the PM, these cuts aren’t just necessary from a budgetary perspective. There is a ‘clear moral case’ for reforming the UK’s welfare system.

But this week, a major revolt within the Labour party forced Starmer to reverse course on about £5 billion in annual cuts.

Over 120 Labour MPs signed an amendment that would allow Parliament to reject a proposal to reduce disability and sickness-related benefits.

Starmer was initially defiant, arguing that the cuts would not be changed. But just days later, he offered significant concessions to the MPs.

It remains to be seen whether the concessions will be sufficient to fully appease the rebels.

However, this episode highlights Labour’s internal discontent over Starmer’s approach to public finances, indicating a tough road ahead for the PM.

Labour appetite for austerity may have reached its limit

For the time being, Starmer has effectively tied himself to an austerity-lite approach to the UK’s budget.

That’s an inevitable result of the government’s self-imposed fiscal constraints. In the current environment, balancing day-to-day expenses obligates spending cuts or tax increases.

Chancellor Rachel Reeves has asserted that these rules are ‘non negotiable.’ However, Labour MPs are showing an increased unwillingness to go along with the required cuts.

Starmer’s benefits U-turn follows a similar reversal on winter fuel payments sparked by rebellious MPs.

Looking toward the future, this rejection of spending cuts does not seem compatible with the government’s fiscal rules. Eventually, one side will likely have to fold. 

Sidekick Takeaway: While the Labour revolt is an embarrassing loss for Starmer, it doesn’t bode well for Reeves either. If Starmer decides that a new fiscal course is necessary due to intransigent MPs, he may decide that a new Chancellor is necessary as well.

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Tesla’s Turnaround? Robotaxi Rollout Hits Speedbumps 

Tesla has faced an uphill battle in recent months.

Following CEO Elon Musk’s controversial roundtrip in the US government, sales have dipped and the Tesla brand has taken a hit.

In a bid to reverse the company’s fortunes, Tesla unveiled the long-awaited ‘robotaxi’ this week.

Tesla’s robotaxi fleet will provide driverless taxi services, competing with companies like Waymo (Google) and Zoox (Amazon).

Following the unveiling, Tesla shares jumped about 8% in hopes of a turnaround. 

Unfortunately, investor enthusiasm quickly faded as reports of safety challenges began to appear.

Robotaxi mistakes invite regulatory scrutiny

Tesla’s robotaxis are currently undergoing public testing in Austin, Texas. 

However, initial reports indicated that the autonomous cars are already making dangerous mistakes:

• One video shared on social media showed a robotaxi driving into a lane meant for oncoming traffic for about six seconds.
• In another video, a robotaxi abruptly stopped twice in the middle of the road while passing emergency vehicles.
• These incidents have already drawn scrutiny from government officials, including from America’s main automotive safety regulator.

The robotaxi’s challenging rollout underscores the difficulty Tesla has had in achieving truly autonomous driving.

Flagship Tesla models have been marketed as ‘full self-driving.’ However, these vehicles still require human oversight and intervention, a discrepancy that has also drawn regulatory action.

Sidekick Takeaway: Following Tesla’s recent challenges, investors may have been hopeful that the robotaxi rollout could herald an inflection point. However, safety concerns show that this view could be too optimistic, overlooking the regulatory and engineering hurdles still to come.

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Notices

Sidekick Money Ltd is a company registered in England and Wales (No. 13882980). Sidekick Money Ltd is authorised and regulated by the Financial Conduct Authority (FRN 984829). Our address is 21-33 Great Eastern St, London, EC2A 3EJ.

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