Surprise? What surprise?

13 cze 2022

INVESTMENT CONTEXT

• S&P 500 and Nasdaq recorded their worst week since January, sliding 5.1% and 5.6%, respectively; Nasdaq compounded losses close just shy of 7% in 2 days (June 9-10)
  
• ECB plans to stop its bond-buying program to cool record-high inflation (8.1% reading in May). The gap between Italian and German 10-year bond yields hit 227bps, the highest since May 2020
  
• At a security summit in Singapore, China’s defense minister Wei Fenghe accused the U.S. of interfering in Chinese internal affairs and confirmed that annexation of the “China’s Taiwan” is a historic mission
  
• Fuel prices in U.S. hit 40-years max and keep rising while shale production remains sluggish to heed calls to hike volumes
  
• Blockchain assets collapsed under U.S. inflation data and EU monetary policy. On June 13, BTC entered USD 25k area (18-month low), ETH plunged to 13-months low, and all Layer-1 altcoins lost about 20% value during the weekend in a sector-wide rout
  

PROFZERO'S TAKE

• As anticipated on our June 8 Parlay, there are still significant pockets of volatility on the market to call the bottom. In particular, we reiterated that the uncertainty that then permeated the ECB monetary policy could disrupt the feeble sidelining trade engaged by equities in the previous weeks - and so it happened. ProfZero does not share the surprise of many operators - neither for U.S. inflation at 8.6%, nor for ECB potentially raising interest rates by 50bps in September. Instead, it may now be the time to appreciate greater clarity from the regulatory side; definitely not a Buy signal, but a better environment to express investment strategies
  
• Rout in blockchain assets called by ProfZero as early as May 11 - and potential for more falls. No time to play
  

PROFONE'S TAKE

• On June 9, along with the 25bps interest rate hike scheduled for July, the ECB declared the end of bond-buying era ("whatever it takes", anyone?), thus intensifying the pressure on Southern European countries (Italy, Greece, Spain, Portugal) by sending their prospective borrowing costs higher. The gap between the Italian and German 10-year bond yields (considered as benchmark of eurozone market stress) reached 227bps, the highest level since May 2020, confirming the general market trend of investors avoiding risk assets in favor of safe havens. ProfOne argues Christine Lagarde's calls to avoid “fragmentation” in the continent's monetary policy is shaky, at best. For on one side it’s inherently contradictory to prevent non-homogeneity among the economies inside of EU, while on the other pursuing "selective quantitative tightening" would disparage the safety net around the continent's most virtuous economies.
  In yet another head-scratcher for traders, the debt crisis of November 2011-July 2012 looks set to resurface
  

PROFTHREE'S TAKE

• Following ProfOne’s comments on the metals of the future, ProfThree has a lot to say on copper which is considered the key component on the road towards de-carbonisation. A recent 18% y-o-y plunge in copper exports from Chile (the world's largest producer) in May spooked traders given an already undersupplied market, judging by the critically low level of stocks at both LME and SHFE. In the fundamentals equation, ProfThree sees supply as fixed, since there is zero greenfield projects coming online for the foreseeable future, while those under discussion or development are mainly located in risky jurisdictions (Chile, Peru, Congo), putting even future supply under threat. At the same time, on the demand side there is ever growing demand from EV makers, as well as solar and wind mills producers. With that in mind, Profs are in full agreement about copper joining semiconductors and battery minerals (cobalt, nickel, lithium) in the list of the commodities of the future - each remarkable tainted by yet new supply-chain uncertainties