Welcome back to our weekend reading,
Some distinctly bullish news out this week, primarily focussed on continued U.S stimulus and cryptocurrency news sparking further rallies in everyone’s favourite form of monopoly money.
Despite this, there are some points to cover off, which offer mixed messages on the market.
A reminder that Earth Hour is tomorrow from 8:30-9:30pm (AEDT), for those of you who aren’t afraid of banging your shins on the coffee table in the dark.
And to any of our readers with friends or family in Colorado, our thoughts are with you after Monday’s tragic events.
Let’s look back on the week.
Bullish in America – Unemployment, Stimulus and More Stimulus
This will be the longest and most macro of this reading – For those who follow macro indicators in the U.S economy, state jobless claims fell to a ‘pandemic-era’ low last week – falling below 700,000 for the first time since the COVID-19 pandemic began in Q1 2020.
Initial claims in regular state programs fell to 684,000, almost 50,000 below the market consensus.
On the face value of this result, this is a bullish indicator for the U.S labour market – if jobless claims are declining, the expectation is that job cuts are easing, and the real economy is able to re-open more and more as the vaccine rollout continues throughout the country.
Keep in mind this uses what is called the U3 method of unemployment tracking – pre 1991 the U.S used an alternate unemployment method which captured ‘long term discouraged workers’, a term we call ‘hidden unemployment’ for workers who have simply left the labour force.
The blue line above shows that alternative figure, which represents a deficit of circa 20 million Americans (thanks Jesse). So, a mixed message on the true recovery of the labour force here.
Speaking of Jesse, a brief word on stimulus and cynicism from my co-contributor:
“This week the US Democrats advanced another spending proposal of $3 trillion USD for substantial infrastructure spending. They only just passed a $1.9 trillion USD spending bill a few weeks ago.
If this passes, it’s $4.9 trillion USD in 3 months.
All of World War II spending amounted to $4 trillion, using 2020 USDs.
In 2009, the USA passed its last major spending bill under Obama and they managed to pave the same roads and bridges over and over again, building very little new infrastructure.
Call me cynical, but I can foresee this happening all over again…
This week we had some US bond auction indigestion where the bid/cover ratio has weakened, similar to the disastrous 7y auction 3 weeks ago. Now, the US is proposing more bonds where Fed Chair Powell is already hinting at tapering purchases when employment gets back to target.
This is why I can’t see the Fed tapering any time soon, they can’t, who else is going to buy all the bonds?
There will be a market-clearing price level, but will it be a level the Fed and Treasury can justify and still hold credibility?“
To add final context to the mixed sentiment of this section, Powell came out yesterday to say that the Fed would not pull back monetary support until the economy has “all but fully recovered”.
An exact level which represents “full recovery” is yet to be named.
The Mona Tweeter
The CEO of Malaysian blockchain miner Bridge Oracle, Sina Estavi, paid USD $2.9 million for a non-fungible token of Jack Dorsey’s first tweet. Estavi exclaimed that “it’s not just a tweet!” and likened it to a piece of art to be appreciated in the coming years just like the Mona Lisa.
At 20 characters, that’s USD $145,000 per letter.
This comes as the latest in a string of record-breaking NFT purchases of everything from music albums to digital artworks, as the world seems to only be teasing out the very edges of the potential NFT’s have.
Dorsey later converted the proceeds of the sale into Bitcoin, which he donated to GiveDirectly, a non-profit which lends aid to the needy, particularly Africa at the moment – so a story of hope that some of these high-profile NFT’s can go to benefitting the world as a whole.
A slight anecdote on NFTs
To help my grandparents set up a new lease for their investment property, I used an online legal service which will generate a full commercial lease based on a questionnaire about the property you fill out at the start.
Services like this, where the same product is amended automatically based on user-defined parameters, are an absolute no-brainer for NFT adoption.
More attention has not Ever (been) Given to the Suez Canal
The traffic jam of international oil tankers continues to build around the Suez Canal.
The Ever Given vessel remains lodged 5m into the canal wall, which has been described as “one of the main obstacles to re-floating” – just like a car crashed half-way into a suburban lounge room faces the main obstacle of being lodged into a house to being back on the road…
Around USD $10 billion of oil and consumer goods is sitting on the oceangoing freighters blocked on either side of the Egyptian waterway, with around 12% of all global trade going through the canal every year.
*All numbers in USD from BofA Securities
Equities:$4.1bn into equities (smallest since Dec 2020)
Bonds: $10.0bn into bonds
Precious Metals: $0.6bn out of gold
Flows to Know
$45.6bn went into cash (largest inflows since April 2020)
1st outflow out of technology stocks since September 2020
Largest outflows from financial stocks since September 2020
After breaching levels seen in the ‘Dot-Com Bubble’, the NASDAQ 100 has pulled back relative to the S&P 500:
Although this is not included in inflation… Food prices are up 27% in the past 9 months
Rapid Fire Round
This reading is already quite lengthy, so how convenient that we introduced the Rapid Fire Round last week:
- Major retail brands including Nike and H&M are facing boycotts over use of cotton from Xinjiang; if they use the cotton they face social and economic backlash in the West over the use of potential slave labour to produce the materials, if they reject the source then they risk a boycott by the Chinese market. Stuck between a rock and a forced labour camp indeed.
- Tesla has announced that you can now buy one of their cars using cryptocurrency (specifically Bitcoin, being the one that Musk owns). Musk also asserted that any Bitcoin used to pay for the cars will not be converted back to Fiat currency on Tesla’s balance sheet
- The Bank of England has unveiled a new 50 pound note honouring the father of modern computing, Alan Turing. This new note rounds off the latest series of bank notes which the BOE calls its “most secure” set of notes yet. This will also be the final note requiring conversion to polymer as opposed to the old paper form of currency.
- Turkey’s President Edrogan has ousted the latest central-bank governor, the third person to hold position in that office in the last two years. The dismissal comes two days after now former Governor Naci Agbal enacted a set of ‘bigger than expected’ increases in interest rates. Since being appointed in November, Agbal raised the one-week repo rate in Turkey by 8.75%.
Our morning calls continue, please do tune in for a daily dose of market insights and access to some leading experts in the funds management field.
Please note there’ll be no speaker next Friday due to the public holiday.
Have a safe and enjoyable weekend.
Max and the Mason Stevens team.
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The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.