BTC negating breakout could mean impending correction

7 cze 2022

INVESTMENT CONTEXT

• The epicenter of the Ukraine conflict is now Severodonetsk, where 70% of the strategically important eastern city had been captured by Russia, until a Ukrainian counterattack claimed it back
  
• The World Health Organisation (WHO) reported that there have been 780 confirmed monkeypox cases over the past three weeks in countries where the disease is not endemic The WTO dubbed the global risk for monkeypox as "moderate"
  
• U.K. sales in May fell 1.1% on a yearly basis, as consumers cut down on big-ticket items like furniture and electronics
  
• A global rush to secure lithium, nickel, cobalt and other key battery minerals from a handful of nations is sending commodity and battery prices to all-time highs
  
• Goldman Sachs senior chairman Lloyd Blankfein urged investors to "dial back" on negativity, seeing a rather possible "soft landing" for the economy
  

PROFZERO'S TAKE

• ECB policy makers are clashing about when to stop reinvesting into the continent's government bonds, with some positing to act as early as this week. ProfZero keeps ECB - and now also Bank of England, BoE - policy making high on its radar, as but parts of the impending quantitative tightening have been priced by market
  
• In a rather choppy session, equities gave up much of the earlier gains on June 6 as bear momentum persisted. ProfZero concurs with The Economist on a recession in the making for 2023 or even 2024, as higher interest rates trickle down into costlier mortgages and liquidity dry-up for "zombie" corporates (i.e. firms that can't generate sufficient cash flow to make up for interest payments). Yet near-term breathers like China's reopening and the resilience of U.S. economy point to a rather mild crash. Will that be enough to absorb also the surge in commodity prices? Much of the answer lies in China, where Goldman Sachs just boosted forecasts
  
• May 20, June 1 and June 6: ProfZero called all BTC sell-offs indicating insufficient buy-side pressure. Now that the triangle trade is restored, a potential correction is brewing - a new call on leg (C) of short-term Elliott wave
  

PROFONE'S TAKE

• ProfOne’s sees it about time to dig into container shipments, given that 90% of the world's goods are seaborne. Port bottlenecks, shortage of empty containers and land transport delays, worsened by Ukraine-Russia war and Chinese lockdowns, caused the well-known supply chains disruptions of 2021. Freight rates are in average five time higher now compared to pre-pandemic levels. While global carriers are enjoying the sixth straight quarter of record-high profits, prices do not see signs of abating. ProfOne agrees that China reopening and decline of consumer demand like in the U.K. could ease the situation, but there is no optimism about steep freight rates reduction just ahead of peak delivery season and ports congestion still at historically high levels
  

PROFTHREE'S TAKE

• Building on China's Premier Li Keqiang warning in May that the economy is now facing bigger difficulties than those in 2020, ProfThree points out a contraction of China’s services activity for the third month in a row. In May, the Caixin gauge rose to 41.1 points after plunging to 36.2 in April, yet remained well below the 50.0 points level which separates growth from contraction. Referring to ProfZero’s recent reflection on the deflationary nature of services consumption, ProfThree is worried about the growing unemployment the sector is facing due to COVID-induced restrictions, and its effect on the economy. Profs are awaiting Chinese data on inflation due June 10, both PPI and CPI (Producers’ and Consumers’ Price Index, respectively). The print is considered one of the key factors in the People's Bank of China's decision on interest rates expected by the third week of June