BTC trying to bounce back but a hurricane set to cool optimism

3 ביוני 2022

INVESTMENT CONTEXT

• While OPEC+ agreed to boost crude oil production in the coming months, in a gesture of reconciliation to the U.S., it still remains unclear whether Saudi Arabia, the cartel's largest producer, will agree to further isolate economically Russia
  
• BlackRock's CEO, Larry Fink, sees inflation to remain high for "years" due to the persisting effects of supply shocks
  
• After raising interest rates on April 29, the Fed is now about to kick-off the plan to shrink its USD 8.9tn balance sheet
  
• U.S. corporate profits fell the most in two years in Q1 2022; in the past year, earnings at 620 companies (of the 3,000 listed entities) fell short of interest payments — well above pre-pandemic 2019 levels
  
• President Volodymyr Zelensky said Russian forces have seized a fifth of Ukraine, as the war passed the 100-day milestone
  
• Russia missed a USD 1.9mln payment, inching closer to a default that would trigger billions of CDS insurance contracts
  

PROFZERO'S TAKE

• In a rollercoaster trading day, equities shook off pre-market losses to close deep into green territory. Traders are mildly attempting to restore risk-on attitude, even in the wake of Microsoft (MSFT) lowering fourth-quarter guidance for both revenue and earnings, citing unfavorable foreign exchange rates. ProfZero maintains its cool aplomb: while welcoming the prospective second straight green weekly candle, the overarching narrative still hasn't found sufficient grounding for a rebound to be called - war in Ukraine still has no clearly defined endgame, China has but started softly lifting COVID restrictions and this week showed inflation in Europe has not peaked yet. Hot summer ahead? Cruel summer, rather
  
• ProfZero is awaiting today's nonfarm payrolls and unemployment rate data to see whether the real economy is keeping the upbeat tone much needed to absorb inflation; earlier indications point to slowing hiring activity coupled with companies vying for talent, even at considerably heftier wages. As shared on Step99 podcast on June 2, ProfZero reminds that the inflation equation simply can't be escaped: it's going to be paid either by companies in case they'll opt to internalize higher costs (including salaries), or by households through higher retail prices (United Nations, U.N., food price index surged 73.9% in May 2022 as compared to 2020)
  
• On June 2 Italy's natural gas distributor Snam announced it took over a 5-bcm strong regasification vessel from Golar LNG, as attempts to diversify energy supply in Europe gather pace. Other than the cost of energy itself, ProfZero is attentively looking at the freight market as a new source of possible bottlenecks: while pipelines from Russia allowed for seamless, low-cost primary transportation, the construction of brand-new seaborne supply chains will shift much market power into the hands of traders (Trafigura, Gunvor) and logistics middlemen. Speak of inflation - think of trading routes and supply-chain nodes, and you'll see who's behind it
  
• BTC testing again the high USD 30k bracket - or simply draining liquidity from altcoins?
  

PROFONE's TAKE

• Following yesterday’s thoughts on lithium, ProfOne’s sees the very same pressures on nickel. The price of the metal used in stainless steel and electric-vehicle batteries gained more than 50% since the beginning of 2022, including a one-day market rout on March 8 that sent prices up 250% intraday, and had the London Metals Exchange shut trading to contain credit risk . Some stainless steel factories in Europe already had to cut production (Acerinox) on stable supply concerns. Countries are looking for ways to substitute supplies from Russia, which produces a fifth of the world’s purest-grade nickel. Thus again on de-globalization talks: around 80% of the world’s nickel processing is based in China and 60% of the world’s nickel mines are Chinese owned. ProfZero and ProfOne are starting to wonder what actually was on the agenda at Davos just 10 days ago...