India Pulls the World into the Abyss, Bank of Canada and ECBIndia keeps on churning out anti-records literally every day. Yesterday, they crossed the mark of 300K cases per day (more than a third of the global number of cases), and the number of deaths per day confidently exceeded 2K. And this despite the fact that we see only the tip of the iceberg, since the level of testing is insufficient to form any objective picture. But even what is seen is enough to panic.
Tellingly, financial markets largely ignore what is happening in India. The only one who somehow tries to take into account in prices the deepest crisis in the country's economy, which has been the driver of the growth of the entire world economy in the last 10 years, is oil. But even there, the decline is more than moderate. The Indian stock market has not moved away from the highs even by 10%, which is fundamentally at odds with any logic and common sense. Or the markets are hoping for a miracle and decided to wait for it. We believe that there are no miracles, which means that the same SENSEX can and should be sold.
In general, the stratification of realities has been seen more precisely. Let us recall the recent reports by OPEC and IEA, which raised their forecasts for the growth rate of oil demand amid a sharp deterioration in the pandemic situation in the world. Despite the fact that the same organizations in the previous months lowered their forecasts against the background of an improvement in the epidemiological situation.
Also, consider the results of yesterday's meeting of the Bank of Canada. The rate was expectedly left unchanged, but at the same time the Central Bank revised its forecast for GDP growth in 2021 from 4% to 6.5%. The steps are clearly premature, since only a few countries in the world were able to more or less stabilize the pandemic situation. And in the modern globalized world, the problems of the world are necessarily transformed into the problems of a single country.
The ECB will announce the results of its meeting today. Most likely, the monetary policy parameters will not be changed, but economic forecasts may be revised. In addition, you should pay attention to the data on jobless claims in the United States.
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CoinBase IPO Nuances, UK Labor Market, Palladium RecordsOne of the main events of the last week, and maybe of the first half of 2021, was CoinBase IPO. We wrote about it in detail last week. But over the weekend, a number of interesting details emerged that present the situation in a slightly different vector. The point is that a number of leaders of the crypto exchange (at the level of CEO, CFO, COO), were very actively selling CoinBase shares.
There's nothing criminal in this, but the scale of the sales, to put it mildly, is alarming. The head of the company sold 70% (!) of his block of shares. The chief accountant got rid of 86% of the shares. CPO (Chief Product Officer) sold 97%. The chief financier of the company (CFO) went further than all, who sold 100% of the shares (!). Draw your own conclusions, although they are obvious.
DogeCoin, meanwhile, for some time became the 5th cryptocurrency in the world in terms of capitalization. The coin, created for fun during 3 hours, which does not even pretend to be a full-fledged financial instrument (unlike the same Bitcoin or Ether), since it was created "for fun", was estimated at $50 billion. That's all you need to know about the cryptocurrency market and what is happening on it: common sense left it...
Yesterday's statistics on the UK labor market was formally quite optimistic: the number of applications for unemployment benefits fell, as well as unemployment rates did. But at the same time, the number of new jobs in the country has decreased. Let us recall that despite Britain breaking out of the economic impasse over the success of the vaccination campaign, this is an issue that has not yet been fully resolved. Brexit dramatically slows down the process. Breaking EU pots is very costly for Britain, especially in the area of international trade. Exports to the EU fell by 40% and imports from the EU - by 20%. As a result, the trade balance with its largest partners - the EU - went into the deepest minus. All in all, selling the pound at current prices continues to seem like a great medium-term trading idea to us.
The purchase of palladium may turn out to be another promising undertaking. Despite its new all-time highs and a general feeling of overbought, the permanent shortage in the market is an ideal environment for a constant price increase in the future. And according to analysts, 2021 should be the 10th consecutive year of palladium deficit in the market.
Why Bitcoin Was Beaten on Sunday, India's Tailspin and NetflixOn Sunday, the cryptocurrency market experienced another record... or rather... an anti-record. According to Bybt, a new record was put for the liquidation of positions in the cryptocurrency market. More than a million positions totaling $10 billion were liquidated. The maximum loss on a single position was $68.73 million.
Since the event is not ordinary even for such a volatile market, it would be nice to understand its causes in order to foresee where a new blow may follow in the future.
The main versions are as follows: a sharp decrease in the hash rate of cryptocurrency mining due to a power outage in one of the key mining centers of the world, Xinjiang; rumors that the US Treasury wants to fine several financial institutions for money laundering using cryptocurrencies; The central bank of Turkey has banned the use of cryptocurrencies and cryptoassets for the purchase of goods and services. It is difficult to say which of these reasons caused the fall of Bitcoin by more than 15%. Most likely this is a complex of reasons, multiplied by the fact that the cryptocurrency market bubble has inflated incredibly, which means that the pressure is growing.
The US earnings season is gaining momentum. Companies continue to beat analysts' forecasts with ease and ease. Today, along with others, Netflix reports. Considering that the pandemic has breathed a second life into the company's development, the markets are in a positive mood, and if the growth in the number of subscribers does not shake, then the next upward leap in shares is practically guaranteed.
As much as everything is optimistic for the US stock market now, everything is pessimistic for India. The number of daily cases of diseases is approaching 300K and the situation is rapidly spiraling out of control. Just in case, let us remind that India is the third largest oil importer in the world. And judging by the current oil prices, the asset did not even try to take into account the pandemic dynamics in India in oil prices.
Week in a Glance: CoinBase's IPO, US and China Data, ReportingThe past week was marked by heightened optimism in the financial markets. The reason was both excellent data on the US and China economies, and the Fed's head's comments. U.S. retail sales are up nearly 10% (yes, mostly due to the $1,400 lump sum from the pandemic relief package, but still impressive), and jobless claims fell to 576,000, which is the best week since the start of the pandemic. China, on the other hand, reported that its GDP grew by 18% against the same period last year, with retail sales growing by 34%.
Fed Chairman, Jerome Powell, once again (already at the mantra level) noted that the Fed doesn't plan any rate hike in the foreseeable future (till 2023).
The start of the earnings season turned out to be extremely successful: banks beat analysts' forecasts. The reasons for their strength are a sharp increase in income from investment and trading areas, as well as write-off of reserves.
As a result, US stock indices were updating their historic highs almost on a daily basis. The cryptocurrency market also felt great amid growing demand for risky assets. An additional reason for optimism was the CoinBase IPO. As a result, Bitcoin became the 5th largest currency in the world, even ahead of the British pound. Well, CoinBase has confidently surpassed Nasdaq in terms of capitalization, which it's quoted on.
Bank of Turkey surprised by leaving the monetary policy parameters unchanged. Although it'd seem that Erdogan dismissed the previous head because of his unwillingness to lower the rate. And take the new chapter, and leave the rate unchanged. So the question arises: was it worth the dismissal of the previous chapter and provoke the exodus of investors and the fall of the lira?
OPEC and the International Energy Agency last week simultaneously raised their forecasts for the growth rate of demand in 2021, which provoked a jump in oil prices. Oil on the fire was added by data on oil reserves in the United States, which showed their decline.
The coming week will be rich in data on the UK economy: labor market, inflation, retail sales, business activity indices. In addition, the reporting season will gain momentum. It is also worth paying attention to the announcement of the results of the meetings of the Bank of Canada and the ECB, although no surprises should be expected from them.
Data from the USA and China, New Records, LiraYesterday and the start of today were marked by some important macroeconomic stats publication. US retail sales rose 9.8% in March. The impressive result (analysts expected a 6.1% increase) is due to the fact that Americans, having received checks of $1,400 from the Government, rushed to spend them, bars and restaurants included. That is, growth is rather a local anomaly, since no one plans to distribute new checks in the foreseeable future.
Nonetheless, the retail sales data were excellent and the impact was amplified by the jobless claims data. Initial jobless claims fell to 576,000, the best week since the start of the pandemic.
In the morning, data on China's GDP, industrial production and retail sales were published. The first two indicators came out slightly below analysts' expectations, but still the growth figures in relation to the situation a year earlier are impressive: GDP added 18.3%, and industrial production - 14.1%. Well, retail sales soared by 34.2%.
Against such a background, risk assets continue to be in high demand, and the US stock markets renew historical highs every day. Moreover, the start of the earnings season turned out to be extremely successful. Banks report a sharp increase in financial performance (albeit mainly due to write-off of reserves and investment and trading activities). It feeds the markets' optimism.
The Bank of Turkey yesterday quite unexpectedly left the monetary policy parameters unchanged. Against this background, lyra continued its local strengthening. And the dumb question still there is: why was it necessary to dismiss the previous head of the Central Bank, sow panic in the ranks of investors and ruin the lira?
And finally, the fact of the day: Bitcoin is now the 5th largest currency in the world, even larger than the British pound. However, the news is in line with the fact that CoinBase is more capitalized than Nasdaq, on which it is quoted. The world finally went crazy and everything turned upside down.
Controversial CoinBase's IPO, Reporting Season Start, Oil GrowthThe CoinBase's IPO was the main event of yesterday. Overall, it is ideal for the formation of the peak of the bubble. But so far, according to its results, the bubble is starting to collapse. On the stock exchange, Nasdaq decided to play it safe and instead of the average price of recent transactions of about $380, it set a reference price of $250 per share. As a result, the market opened at around $380. It can be considered a super success, because a 50% increase relative to the conditionally starting price.
In relation to the prices of previous deals, the growth was, in fact, zero. Well, the day ended at $328. That is, on the one hand, 33% growth relative to the starting price. On the other hand, it is 20% below the maximum levels during the trading session.
The US reporting season began in full yesterday. Banks reported: JPMorgan Chase, Goldman Sachs and Wells Fargo. Overall, the results came out excellent and significantly exceeded analysts' forecasts. The focus was on the issue of reserves. If a year ago banks accrued them in billions and because of this sagged heavily in profits, now everything is happening exactly the opposite: the expectation of a recovery in the US economy unties the banks' hands, and they massively reduce reserves, thus increasing your financial results.
Oil showed a steady growth yesterday. The reasons are official data on oil reserves in the United States (decreased by almost 6 million barrels), as well as updated forecasts for oil demand in 2021 from OPEC and EIA.
OPEC raised its forecast for global oil demand growth in 2021 by 70,000 barrels per day more, and the International Energy Agency - by 230,000 barrels per day, compared with March forecasts. Motivation was based on the success in combating the pandemic will lead to a rapid recovery of the economies of the countries, and the demand for oil will rise. It should be noted how strange and untimely this explanation looks against the background of what is happening in the world.
Today, the world as a whole can update the historical maximum in the number of new cases of diseases, despite the fact that the mark of 750K (!) per day has already been exceeded.
In general, the recent rise in oil is a derivative of expectations, not facts. And the facts, by the way, are such that OPEC Plus will increase production, Iran is already doing this, since it is not constrained by obligations due to sanctions. By the way, the issue of lifting the sanctions is open, and this could add up to 2 million bpd to the oil market. In the USA, the number of active oil rigs has grown by almost 50% over the past six months. In general, everything is far from being as unambiguous as it might seem based on the dynamics of oil prices yesterday.
Reporting Season, CoinBase IPO and Crypto Market RecordsYesterday was quite rich in all sorts of macroeconomic stats. China's trade balance data showed a sharp rise in imports (up 38.1% year-on-year) and exports (up 30%). At the same time, exports grew much less than analysts' expectations, while imports showed an opposite tendency. This is a clear sign that China's economy is recovering faster than the rest of the world. On the one hand, this is a cause for joy. On the other hand, the rest of the world is alarming.
The UK data came out rather mixed. GDP in February grew by 0.4%, which is lower than analysts' forecasts (they had expected an increase of 0.6%). Along with this, industrial production grew by 1%, which is two times higher than experts' expectations.
The US inflation turned out slightly higher than forecasted and reminded the markets that prices are going up. On an annualized basis, growth was 2.6% with the Fed inflation target of about 2%. Yes, this does not mean that the FedReserve will drop everything and start raising the rate. But there is definitely a reason to think.
CoinBase IPO is due today. The preliminary capitalization estimates are approximately $100 billion, which means this IPO will become one of the largest in history. The cryptocurrency market did not wait for the rise in prices for CoinBase shares following the IPO and rushed to new heights. Well, the background for the IPO is just perfect, one can only rejoice at such a good choice of the moment by the organizers of the public offering.
The reporting season in the USA begins in full today. Banks traditionally open it. In general, the current environment (ultra-soft monetary policy) is quite toxic for banks and is essentially killing the traditional banking business along with its margins. But most of the large banks have long since moved into the category of investment banks with large trading divisions. So investment income and trading income will almost certainly pull the big picture. The greater the scale of this kind of activity a bank has, the better financial results can be expected from it.
Alibaba's Fines, CoinBase IPO and the Fall of IndiaThe week started with a number of negative news for individual countries and companies. India has suffered the most at the country level. Indian stocks tumbled on Monday (Sensex fell 3.4%) as rising Covid-19 cases continue to weigh on investor sentiment. India has registered 168,912 new Covid cases in the past 24 hours, the sixth record increase in seven days. That does not stop religious pilgrims from mass bathing in the Ganges with all that it implies. In general, there is enough reason to expect the continuation of the sell-off in the Indian stock market.
Although the presence of the grounds does not at all guarantee the fact of movement in the direction of the grounds. Consider Alibaba for example. China imposed a record $2.8 billion fine on Alibaba Group Holding Ltd. (nearly double the previous record high in 2015 when US chipmaker Qualcomm Inc. was hit) after antitrust investigations revealed Alibaba was abusing its market dominance. The penalty itself is a record one, and for the company itself the amount is quite significant, since it is 12% of net profit. It would seem worthwhile to expect sales. Instead, the stock rallied nearly 10%.
In general, market sentiment continues to be in the zone of heightened optimism. The US stock market continues to churn out records. And in the cryptocurrency market, everyone is at a low start and is waiting for the go-ahead from CoinBase for a new leap up. We are talking about the much-hyped and long-awaited IPO of the largest cryptocurrency exchange in the United States (it will be listed on Nasdaq on April 14 under the ticker “COIN”). Preliminary capitalization estimates are around $100 billion, making this IPO one of the largest in history.
The most likely scenario for the development of events is a sharp rise in prices. The cryptocurrency market in general feels too good (doubled in the last couple of months) and CoinBase in particular (as expected, by the end of the first quarter, revenues will be almost twice as high as in THE WHOLE OF 2020). But if the IPO fails, it could be a signal for a bubble to burst in the cryptocurrency market. In the end, behind all this growth, one should not forget that the cryptocurrency market is a big price bubble that will invariably burst - it's only a matter of time.
Week in a Glance: Pandemic, Biden, Taxes and the US Economy 3DsThe past week was marked by a number of records for the US stock market. Markets worked out some excellent NFP figures, as well as Biden's infrastructure plan, coupled with the Fed dovish stance (which, incidentally, was confirmed by the minutes of the last FOMC meeting, published on Wednesday).
At the same time, the markets completely ignored threats, both current (pandemic) and promising (the US tax increase). But the situation with the pandemic in the world is rapidly approaching new absolute highs in terms of new cases of diseases and deaths. And if the US and UK somehow control the situation thanks to the success of the vaccination campaign, then the third world countries are rapidly sliding into the abyss.
The Biden administration unveiled its plan to revise its Corporate Tax Code on Wednesday. Its key element is an increase in the corporate tax rate from 21% to 28%, as well as amendments to the Code that will make it more difficult for companies to avoid paying taxes.
An analysis of 13 episodes of the US fiscal policy tightening over the past 100 years showed that the stock market perceives it very painfully and with losses. But once again we note that last week the markets did not think about it at all.
Nor did they think about the record US trade deficit, the record US budget deficit, or new records of US government debt. But not thinking about something does not mean that it does not exist. So sooner or later the markets will focus on the "3Ds" of the US economy, and then buyers in the stock market will remember a lot.
The coming week will be more eventful in news terms than the previous one. Reporting season kicks off this week (according to Refinitiv, S&P 500 earnings in the first quarter are expected to rise 24.2%), so the markets are preparing for the positive in advance. In addition, on Tuesday, the IPO of the largest US cryptocurrency exchange Coinbase is to take place, data on retail sales in the US, the Eurozone and China, as well as the growth rate of GDP and industrial production in Britain will be published. Also, the attention of the markets will be focused on the numbers on the USA consumer inflation and China's GDP. In general, it will not be boring - that's for sure.
US Budget Deficit, Reporting Season, IndiaThe earnings season starts off next week when major banks and several other companies release their first quarter results. According to Refinitiv, S&P 500 earnings in the first quarter are expected to rise up to 24.2%. And although analysts expect excellent financial data, it is far from certain that stock prices will rise. The fact is that in the last quarter, a number of companies, against the backdrop of good financial data, lost in capitalization on the reporting day.
The markets are now focusing on the positive and expectations of a bright future. However, at any time they can switch to one of the three Achilles heels of the US economy, the so-called triple "D": national debt , budget deficit , and trade balance deficit .
Markets faced at least two of those Ds this week. The US trade deficit showed a new all-time high. And just yesterday, the Congressional Budget Committee noted that the federal budget deficit has already reached $1.7 trillion in the first six months of FY 2021. And it's higher than any full annual deficit until 2020. Moreover, in March, the deficit amounted to $658 billion (this is the same as the entire deficit in 2016).
So if analysts and the markets in general decide to remember these issues, then they will have plenty of reasons for concern.
India, meanwhile, is sinking deeper into pandemic hell. The number of new infections rose up to more than 126,700 per day. Considering that India is one of the most densely populated countries with the least ability to organize social distancing, there is every reason to expect further deterioration of the situation. In fact, investment bank Goldman Sachs has already cut its forecast for India's growth for the April-June quarter.
IMF Forecasts, FOMC Protocols and PandemicThis week the IMF revised its own 2021 forecasts for the growth rates of the world economy and individual countries. The IMF expects the global economy to grow by 6% in 2021, compared to its January forecast of 5.5%. For advanced economies, growth will be 5.1%, while the US growth is expected to be 6.4%. Emerging market and developing economies are growing by 6.7% for 2021, with India's growth expected to increase by 12.5%.
The basic motivation for revising the forecast is the latest round of the US fiscal stimulus, multiplied by the rollout of the vaccination campaign around the world.
In general, such optimism by the IMF seems somewhat premature not in relation to the USA, but to other countries and India in particular. The fact is that a new wave of the pandemic is covering the world more and more. And India appears to be the hardest hit in this regard, with 115K new cases per day.
Although it is not joyful for other countries, as well. Argentina has the highest number of daily coronavirus cases since the start of the pandemic. Bangladesh is seeing a new high in daily COVID-19 infections and deaths. Brazil has the deadliest day of the pandemic. And this list, unfortunately, can be continued for a very long time. The economic consequences of this news are obvious, since there is no need to go deep, we went through all this a year ago. So the optimism of the IMF against this background looks a little strange.
The main event of yesterday can formally be considered the Fed's FOMC meeting protocol publication. And the point is not even that something revolutionary was expected, but that the role of the Fed in the modern financial world is very great, and the stakes are higher than ever. The Fed noted the progress in the economy, but continued to insist on current monetary policy, as significant progress in the recovery is likely to take "some time." The futures market now expects interest rates to rise in 2022 from 2024 a year earlier amid rising inflation.
Crypto Market Records, Kimchi Premium and Credit Suisse LossesThe week started with the highest possible note for the cryptocurrency market. First, the XRP token added several tens of percent per day, then Ether showed new all-time highs, added 180% since the beginning of the year. As a result, the capitalization of the cryptocurrency market exceeded the $2 trillion mark. And while this is still a drop in the sea of financial markets, this drop has doubled in size over the past two months.
One of the options for making money on the cryptocurrency market is spatial arbitrage, that is, buying and selling cryptocurrency at the same time on different exchanges due to the difference in quotes. How does it seem to be possible in the 21st century. But the reasons for price discrepancies can be quite specific.
One of the examples of such arbitration today is the so-called "kimchi premium". The bottom line is that if on Coinbase the price of bitcoins was around $59,000 yesterday, then on the Korean crypto exchange Bithumb, Bitcoin was sold at $69,000. How is it there? The closed nature of the South Korean crypto exchanges for non-residents, multiplied by the problems of converting Korean won into dollars, and we have the opportunity to earn $10,000 with almost one click on each bitcoin.
Credit Suisse apparently wanted easy money, but it turned out exactly the opposite. Credit Suisse Group AG lost about $4.7 billion thanks to the collapse of Archegos Capital Management.
In the oil market, meanwhile, India has decided to take revenge on Saudi Arabia. India's state-owned refineries will buy 36% less oil from Saudi Arabia than usual. The reason is that India is very unhappy with the moves of Saudi Arabia to artificially reduce the supply of oil, which provoked a sharp rise in oil prices. Because of this, already vulnerable Indian economy is negatively influenced by the pandemic.
Oil Prices Falling amid US Stock Market RecordsOn Monday, the markets worked out the last week events. As a reminder, on Thursday, OPEC Plus agreed to increase production by 350,000 barrels per day in May and June and by 400,000 barrels per day in July. On Friday the NFP figures showed an increase in new jobs outside agriculture by almost a million.
We noted that the OPEC Plus decision is definitely bearish. The fact that oil did not fall immediately on Thursday in no way canceled the basic economic laws: an increase in the supply of an asset is a reason for a decrease in its price with constant demand. So the 5% drop in oil yesterday was no surprise to us. But rather, on the contrary, it became a logical and natural reaction. Moreover, there were enough problems on the demand side lately. The number of new cases in India per day has exceeded 100K and the situation is rapidly deteriorating.
And then Iran is trying to negotiate with the United States on the nuclear deal and lifting of sanctions. If the negotiations are successful, then an additional 2 million b/d from Iran could pour into the market. In general, everything looks rather gloomy for oil.
In contrast to the oil market, optimism continues to reign in the US stock market. The Dow and SP500 have renewed their all-time highs again. The reason is the excellent figures for the US labor market. According to official figures, 42% of US firms opened vacancies in the past month, and 56% of owners said they hired workers or tried to hire them in March. These are record values in the entire history of observations. Nearly a quarter of those surveyed plan to create jobs in the next three months, the second highest since 2018.
In general, the next month or two will most likely be accompanied by new growth records for the US economy. So the bubble in the US stock market has every chance to continue to inflate.
But don't forget about the clouds on the horizon. According to research results, tax increases have an extremely negative impact on the dynamics of the US stock market. There have been 13 episodes of tax increases in the United States over the past 100 years (with the most recent in 1993). During these periods, key US stock indices added 2.4% on average in the year of tax increases, and declined 0.9% on average the following year. At the same time, the average historical growth rate of the US stock market was 7.7% per year.
Week in a Glance: Biden's plan, OPEC +, NFP, Archegos ScandalThe past week was extremely eventful with the fundamental events of exceptional importance. These aren't only the Biden plan or the OPEC Plus decision, but also the Suez Canal unblocking. Besides, the world was almost covered by a wave of panic due to the scandal with the hedge fund Archegos, and the data on the US NPF surprised even optimists. But first things first.
Belief in a fast US economic recovery received significant support last week. First from Biden and his more than $2 trillion infrastructure plan. And then from the almost millionth value of the NFP indicator. Republicans have already said they will never support Biden's plan. And it means that it may have to be split into parts and its individual components must be dragged through the Congress, which will greatly delay the process (at least until autumn).
The main event of the week for the oil market yesterday was the results announcement of the OPEC Plus meeting. OPEC Plus members have agreed to increase production by 350,000 bpd in May and June and 400,000 bpd in July. Given the full third wave of the pandemic in Europe and the world, this is a bearish signal for the oil market. And the unblocking of the Suez Canal is also a sales reason.
The news that rocked the financial markets in the last week was the default of the hedge fund Archegos. Archegos' total losses may have exceeded $50 billion. As a result, some well-known banks suffered. Credit Suisse and Nomura reported significant losses. But a full-fledged financial contamination was avoided. At least for now. But it was a good reminder to the markets of leveraged trading The past week turned out to be extremely eventful with all sorts of fundamental events of exceptional importance. What is only the Biden plan or the OPEC + decision, and after all, the Suez Canal was unblocked this week, the world was almost covered by a wave of panic due to the scandal with the hedge fund Archegos, and the data on the US NPF surprised even optimists. But first things first.
Belief in a fast US economic recovery has received significant support last week. First from Biden and his more than $ 2 trillion infrastructure plan. And then from the almost millionth value of the NPP indicator. And although everything, as usual, is not as unambiguous as it seems at first glance. Republicans have already said they will never support Biden's plan. And this means that it may have to be split into parts and its individual components must be dragged through the Congress, which will greatly delay the process (at least until autumn).
The main event of the week for the oil market yesterday was the announcement of the results of the OPEC + meeting. OPEC + members have agreed to increase production by 350,000 bpd in May and June and 400,000 bpd in July. Given the full third wave of the pandemic in Europe and the world, this is a bearish signal for the oil market. And the unblocking of the Suez Canal is also a sales reason.
The news that rocked the financial markets in the last week was the default of the hedge fund Archegos. Archegos' total losses may have exceeded $ 50 billion. As a result, some well-known banks suffered. Credit Suisse, Nomura reported significant losses. But a full-fledged financial contamination was avoided. At least for now. But it was a good reminder to the markets of the price of leveraged trading price.
After such a busy previous week, the current one promises to be much calmer. It means you can focus on existing trends and their development.
OPEC Plus Results, Problems of the Biden Plan, Preparing for NFPThe main event of the week for the oil market was the OPEC Plus meeting results announcement. Despite the growth in oil prices, the OPEC Plus decision can hardly be called bullish. OPEC Plus members have agreed to increase production by 350,000 bpd in May and June and by 400,000 bpd in July. Yes, this is less than the initial 500K bpd, but this is not a preservation of the status quo, but an increase in supply. If we consider that the USA, apparently, is coming out of hibernation (the US crude oil exports jumped to 3.2 million barrels per day, production last week increased to 11.1 million barrels per day), and the third wave of the pandemic becoming more confident covers the world, we have such a bearish combo for oil. All in all, current oil prices are an excellent selling opportunity.
One of the reasons for the rise in oil prices is the belief in a fast US economic recovery and a sharp jump in oil demand. Biden, with his infrastructure plan, fits perfectly into this concept. The problem with Biden and his plan is that it can take months or even quarters from idea to adoption. The Republicans have already said they will never support the plan. And this means that it may have to be split into parts and separate components to be dragged through Congress. In general, experts do not expect anything before autumn starts.
Today will be a day off for many developed countries, so some markets will be closed. It’s a partial day off today in the United States, but this will not prevent the publication of official statistics on the US labor market. Much is expected from NFP figures. Maybe, even too much. That is, we are waiting for good data, but whether they will reach the 650K expected by the markets is a question. Yesterday's data on jobless claims came out relatively weak and rather gave rise to the idea of some premature over-positive expectations.
Biden's Plan and Its Price, Numbers from ADP and OPEC + MeetingYesterday Biden presented the US development plan for the next 8 years. It will cost taxpayers more than $2 trillion. Considering the price of the issue, the key question is where to get the money from for its implementation. Biden's answer: the tax hike will "fully pay off" the plan, a corporate income tax that will rise from 21% to 28%.
So, on the one hand, the news is undoubtedly positive for the stock market. On the other hand, it's very negative.
Economic data from the US also aroused mixed feelings yesterday. The numbers from ADP seem to be great: 517K. But below the forecast of 550K. But the numbers for home sales in the USA were frankly not encouraging. At the end of February 2021, only 1.03 million homes were listed for sale, which is 29.5% less than in February 2020. This is the largest annual decline on record and the lowest supply on record.
But yesterday there was a reason for joy in the cryptocurrency market. Goldman Sachs said the bank is close to offering bitcoin and other digital assets to its asset management clients.
The main event for today, and for the oil market - for the whole week - is the OPEC Plus meeting results announcement. The current consensus is that nothing will change this month. At least the situation in the world hints at this (the next round of the pandemic again hits demand and in such conditions it's more than strange to increase production). This is indirectly evidenced by the decline in forecasts for the growth rate of oil demand in 2021 by OPEC. Such a decision is unlikely to provoke a strong rise in oil prices. But if, suddenly, they decide to increase production, sales in the oil market cannot be avoided today.
Treasuries records, Biden's plans, Britain's problemsThe current quarter has been the worst for US Treasuries since 2016. And yesterday, the 10-year bonds yield exceeded 1.75%. Against this background the stock markets didn't show any big grow, and gold is being sold for the second day.
And this is despite there being something to get hold of in terms of positive. That's at least the Biden infrastructure plan to be divided into two parts and the first can be presented today. Importantly, they plan to finance this feast by raising the US corporate tax. So everything is not as straightforward as it might seem at first glance.
There are plenty of other reasons for concern. The scandal surrounding the hedge fund Archegos Capital Management yesterday continued the ripple impact, albeit of a smaller diameter. The banks were divided into those that suffered (Credit Suisse and Nomura) from the failure of the fund and those that got off with a slight fright (Goldman Sachs Group Inc. and Deutsche Bank AG). But judging by the fact that the hype is dying down, this event will not be a full-fledged crisis. A local problem, which is nevertheless a warning for all other lovers to buy at the tops of bubbles, and even with a leverage.
By the way, there's an interesting fact: institutional investors have been net sellers of stocks since December. And instead of buying shares, for some reason, they saved up cash (increased its volume by $128 billion).
In the UK, meanwhile, a survey of 1,500 firms was conducted on how they are doing after Brexit. As it turned out, not very much. We already wrote that UK exports to the EU fell 41% in January. So the survey showed that 23% of exporters temporarily suspended sales to customers from the EU, and another 4% decided to permanently stop sales there. It is perhaps unnecessary to comment on this somehow. The only thing to note is that the survey data are strongly discordant with the dynamics of the pound. It means someone is wrong: either firms that believe they have stopped selling, or the pound, which has climbed unreasonably high.
Things about Archegos, Suez Canal unlockedThere was only talk about the scandal related to the hedge fund Archegos Capital Management on Monday on the world stock markets. The closure of fund's margin call positions triggered a chain reaction that affected more than eminent players: Goldman (-3% premarket), Credit Suisse (-11%), Nomura (-14%).
What happened? By and large, there was nothing fundamentally unknown to science. We have already written several times about the so-called “Minsky moment”. We can say that this was its visual demonstration: the hedge fund Archegos Capital Management (founded by former Tiger Management stock analyst Bill Hwang) played too long with borrowed funds. For which it paid off, since it was forced to liquidate positions due to lack of their security.
The reason for the margin call was the events of last week: the SEC dealt a powerful blow to the shares of Chinese companies with double listing. Those, apparently, were quite a few on the balance sheet of Archegos. And then the fund had to close other positions such as purchases of ViacomCBS and Discovery shares, which fell by more than 27% on Friday. At the same time Viacom sank more than 50% in a week, while Discovery fell 45%.
Why is this event important, in general, even though it concerns a separate hedge fund, and some collateral damage to a number of banks? By and large, this is a reminder of how volatile price bubbles are. Their design can collapse literally at any moment, and without any particular reason.
And now a couple of positive words. The Suez Canal is unblocked. So you can sleep peacefully - there is enough toilet paper for everyone.
Week in a Glance: Biden's plans, Powell & Yellen, Suez BlockedAccording to the news, the main event of the week is the Suez Canal blockage, the most important arteries of world trade. On Tuesday, a massive container ship crashed into its walls due to strong winds. The Canal hasn't been unblocked, yet, and, according to experts, it may “take weeks”.
The consequences of blocking largely depend on downtime, but in general, local shortages can arise in individual markets, ranging from robusta and oil to toilet paper.
More important news on a global scale was the information that Biden was serious to implement plans for the infrastructure development of the US economy with volumes, according to various estimates, from $3 to $4 trillion.
Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell gave two-day testimony at the US Congress this week. Both said they're confident in the financial sector's stability as the US economy recovers from the Covid-19 pandemic.
It'd seem that Biden's plans, coupled with Yellen and Powell's assurances in a bright future, should've provoked a powerful rise in the US stock market. But in fact, there was confusion and vacillation - traditional indices like the Down and the S&P500 did rise, but the high-tech Nasdaq was under pressure.
As a result, this year, the three major US stock indexes ( S&P 500 , Down Jones Industrial and Nasdaq Composite ) show the second worst correlation since 2001: it's only 64% versus the historical quarterly average of 78%.
Powell & Yellen in Congress, Typical Crypto Investor's portraitThe speeches of the head of the Treasury Department Jannette Yellen and the head of the Federal Reserve System Jerome Powell in Congress were main events of yesterday. Although there was no need to talk about any intrigue at all, because the texts of the speeches of both were published in the press in advance. And nothing new was there. All the same assurances that a lot of money is great, and the more money is even better.
By the way, about "even more". Biden appears to be serious with his infrastructure plans and the US economy could prepare for another $3 trillion injection of money.
It’s even surprising that against the backdrop of all this abundance, as well as the decline in Treasury yields, the US stock market declined. Although it is actually surprising that anyone is buying at the current sky-high prices.
After all, who are these people who buy Bitcoins at 60K? Almost any professional will say something like “crypto assets are very risky and speculative”, “consumers should be aware of the high risks of buying and / or owning these instruments, including the possibility of losing all their money” (these are quotes from the latest review by the main regulator of European financial markets)... So who, then, and why is buying the crypto at current prices?
FCA (UK Financial Supervision Authority) has compiled a portrait of a typical new generation crypto investor. As it turned out, this is a woman under 40 from the BAME group (black, Asian and ethnic minorities) who use social media for advice and news. Tellingly, the motive for investing in the cryptocurrency market was by no means a balanced decision based on the analysis performed. But the emotional component there is: to have fun and emphasize your status as the owner of the cryptocurrency and, accordingly, a direct participant in what is happening.
This portrait is, in fact, a verdict on the cryptocurrency market. The collapse of Wall Street in the 1920s and a host of other bubbles and crises began precisely when housewives and other householders decided that they were competent enough for investment activity. As a result, prices lost their full connection with reality. History teaches that there is always one end to such stories. So we are waiting.
Erdogan Does the Lyre In, and Europe Covered by 3rd WaveThe main event on Monday to be discussed in the financial markets was the dismissal of the next head of the Central Bank of Turkey. Erdogan has finally found a man who believes that high interest rates are the main reason for inflation and has rushed to appoint him to the post of head of the Central Bank.
The reaction of the Turkish lira (the fall was measured in double digits) and the Turkish stock market suggests that the markets have decided to put a final end to Turkish assets as objects of interest. We wish good luck to Erdogan in the difficult task of finishing off the Turkish economy and will continue to watch the rise in inflation and the fall in Turkey's GDP. With this kind of leadership and managerial moves, it looks almost inevitable.
Europe, meanwhile, is covered by the third wave of the pandemic. The British strain was extremely contagious and punished any attempt to mitigate lockdowns. As a result, we have both the rejection of mitigations and the new restrictions' extension or introduction against the background of the maximum number of cases for all time in a number of countries.
Germany, for example, is preparing to extend the lockdown by May. And they'll do it realizing that a drop in GDP in the first quarter cannot be avoided. The Bundesbank has already said that the German economy is likely to contract sharply this quarter as the response to the pandemic hit the services sector and even slowed growth in the construction industry.
It won't be superfluous to remind that the current prices on the commodity and stock markets have largely taken into account the fact of the rapid recovery of the economy and the exit from lockdowns. And in light of current events, there's a feeling that it is time to admit a mistake and incorporate a new reality into the price.
Week in a Glance: Central Banks, Biden Tax Plans and TurkeyLast week wasn't easy for the financial markets. There were enough reasons for this: the meeting of the Central Banks of the United States, England and Japan. Also, the United States began to master Biden's stimulus package, but they were reminded of the price in the form of future tax initiatives. In addition, the third wave of the pandemic in Europe and the rise in US Treasury yields did not allow stock market buyers to relax and enjoy new all-time highs.
We'll briefly go through the most important points of the events mentioned. At the beginning of the week, plenty of news outlets distributed information that President Joe Biden was planning the first major federal tax hike since 1993. Stock markets growth will be hard, expecting a corporate tax hike to 28%.
Especially, having an alternative in the form of sharply increased yields of US Treasury bonds (reached a 14-month high) and the expectation of rising inflation. The markets were not calmed even more than the dovish results of the Fed meeting. The US Central Bank left the parameters of monetary policy unchanged and signaled that rates will remain close to zero until at least the beginning of 2023.
The Banks of England and Japan didn't change the monetary policy parameters, either. But the Bank of Turkey raised the rate by 2% unexpectedly at once. This was a pretty strong signal in favor of buying Turkish Lira (carry trade, and all). But over the weekend, Erdogan decided that life was too boring and fired the head of the Central Bank. He's long criticized the recent actions of the Central Bank and was very unhappy with the rate hikes. Well, now, it seems, the rate will start to lower. So, the holiday's over, especially considering what will happen to inflation in Turkey after the rate cut in the current conditions.
The coming week promises to be generally simpler. But, in particular, it'll be hot in pound pairs: a lot of macroeconomic statistics, starting with inflation data, ending with retail sales and statistics on the labor market. In addition, we're waiting for quite a lot of comments from the officials of the Fed, including the next Powell's testimony in Congress.
Bank of Turkey Surprise, Treasuries Rise and Weak JoblessRegardless of the formally lesser importance, the Bank of Turkey surprise can be considered as the most interesting yesterday's event. Yesterday we wrote that the Central Bank is likely to raise the rate, and the market consensus was an increase of 1% to 18%. In fact, the Bank of Turkey decided to take preventive measures to combat inflation and immediately raised the rate by 200 basis points to 19%.
This, of course, was the most powerful reason for buying the Turkish lira. By the end of the day it strengthened by almost 3%. Besides, this is far from the end. So those who didn't buy the lyre yesterday or the day before yesterday should not despair and buy it today.
The Bank of England left the monetary policy parameters unchanged as expected by the markets.
Also, yesterday, another notable and significant event was the achievement by the yield of 10-year US Treasury bonds to 14-month lows. Growth against such a background will be increasingly difficult for the US stock market, despite the successful dripping of vaccinations and the US economy imminent full opening.
Although here (economic recovery) yesterday gave cause for reflection. The data on the number of applications for unemployment benefits unexpectedly came out much worse than forecasted (meaning the initial applications). Instead of the expected 700K, the fact was 770K, which cannot but inspire concern. Especially after those optimistic forecasts that the Fed gave to the markets on Wednesday.
Today may well become a day of massive sales in risky asset markets. The fact is that this Friday the mass of options and futures contracts on the US stock market, the so-called "quadruple witching day", expires. On such days, volatility is increased, so in any case, today you should be double careful, or, to be more precise, four times.