Newsletter - May 30, 2022
Oil / Commodities
- Oil held steady at the week’s open as China made progress toward easing anti virus lockdowns and the EU continued to work on a plan to ban imports of Russian crude ahead of a leaders’ summit. Global benchmark Brent traded above $119 a barrel after jumping more than 6% last week to post the highest close in two months. The commercial hub of Shanghai allowed all manufacturers to resume operations from June, while officials said Beijing’s COVID outbreak is under control. While EU nations failed to agree on a deal Sunday on a revised sanction package that may include a ban on Russian crude to punish Moscow for its invasion of Ukraine, talks will continue during the week. Hungary is so far refusing to back a compromise despite proposals aimed at ensuring its oil supplies. Brent crude is on course for a sixth consecutive monthly climb that would be the longest such run in more than a decade. Oil markets remain in backwardation. Brent’s prompt spread was $3.67 a barrel on Monday, up from $1.34 a barrel three weeks ago.
- Goldman Sachs said the price of three key battery metals – cobalt, lithium and nickel – will drop over the next two years after investors wanting exposure to the green energy transition piled in too quickly. Despite the exponential demand profile, the battery metals bull market may be over for now. The long-term prospects for the metals remain strong, not least because of the rapid adoption of EVs. But investor exuberance might lead to an oversupply. Goldman Sachs predicts a sharp correction in lithium prices, with the metal averaging under $54,000 a ton this year, down from a spot price of over $60,000. It will fall further to an average of just over $16,000 in 2023. Cobalt will likely drop to an average $59,500 a ton next year from roughly $80,000 right now. Nickel will likely rise almost 20% over the rest of the year to $36,500 a ton before fundamental pressures drive it lower again. Still, prices could soar again after 2024 – the phase of oversupply will ultimately sow the seeds of the battery materials super cycle over the second half of the decade, then demand will surge more sustainably to overcome the current supply growth.
o https://www.bloomberg.com/news/articles/2022-05-29/goldman-says-bull-market-in-battery-metals-is-finished-for-now?srnd=premium-asia
Tech
- MoneyGram is preparing to launch a service in partnership with the Stellar blockchain that would allow users to send stablecoins and easily convert them to hard currency. The move comes as remittances become more popular in emerging markets but also as stablecoins come under heightened scrutiny. Once the service fully launches, users with digital wallets on the Stellar blockchain will be able to convert their holdings into Circle Internet Financials’ USDC stablecoin, which can then be cashed out through MoneyGram’s network. Despite the recent UST stablecoin crash, MoneyGram sees confidence in digital currencies. MoneyGram’s new service with Stellar could also help spread crypto usage in emerging markets. Remittances to low- and middle-income countries grew to $589 billion last year and are projected to increase this year. For countries like El Salvador, which made Bitcoin legal tender last year, remittances account for more than 20% of GDP.
- The upcoming iOS 16 is likely to upgrade the lock screen, messaging and health features. Apple’s annual WWDC keynote event is just about a week away. The newest operating system, codenamed Sydney, is a fairly significant upgrade that will likely be introduced at WWDC. It will be chock full of changes across the operating system, including updates to notifications, iPad multitasking, and the Messages and Health apps. The makeover also includes a part of the interface that is often an afterthought – the lock screen. The iOS 16 and iPhone 14 will likely include wallpapers that have widget-like capabilities. The iOS 16 likely builds in future support for an always-on lock screen. This would allow the iPhone to turn down the frame rate significantly on the lock screen and display quickly glanceable information – similar to the newer Apple Watches.
- Luna, the new token distributed to investors who saw the value of their cryptocurrencies tied to the Terra blockchain wiped out, has begun trading on digital asset exchanges. TerraForm Labs, the developer of the failed blockchain, awarded the tokens in a process referred to as an airdrop to previous holders of Luna and UST tokens. The new Luna was trading at about $6.28 per coin. The original blockchain was split off and designated as Terra Classic, while Luna, which plunged close to zero this month, was renamed Luna Classic with the ticker LUNC. The new Terra blockchain will not include a stablecoin. Despite billions of dollars lost, Terra has once again generated a buzz in the crypto market with the new Luna 2.0 token giveaway. Before the airdrop, Luna 2.0 already started trending on social media platforms like Twitter, but it has also brought criticism.
o https://www.bloomberg.com/news/articles/2022-05-28/rechristened-luna-trades-after-airdop-to-terra-investors?srnd=premium-asia
Electric Vehicles
Consumer / Retail
China Market
- Chinese authorities are easing COVID restrictions as cases in Beijing and Shanghai fall. The easing caseload has softened concerns that Beijing could have been headed for a lockdown when it was reporting several dozen cases a day earlier in the outbreak despite increasingly strict restrictions. Shanghai is also accelerating approvals for property projects and the quota for car ownership this year will increase by 40,000 units. A purchase tax for some passenger vehicles will be reduced and subsidies for EVs will be extended. COVID test requirements will be loosened for people entering public places from June 1 as the city tries to restore a sense of normalcy. In Beijing, most public transport including buses, subways and taxis will resume in three districts including Chaoyang. Shopping centers outside of controlled areas in the city will also be allowed to reopen with capacity limits. Workers who had previously worked from home will now be allowed to return to their offices.
- Shanghai offered tax rebates for companies and allowed all manufacturers to resume operations from June as authorities rolled out scores of policies to revitalize an economy impacted by recent COVID lockdowns. The financial hub will accelerate approvals for property projects and supply new residential developments. The quota for car ownership this year will also increase by 40,000 units, a purchase tax for some passenger vehicles will be reduced, and subsidies will be given to EV buyers. These were part of 50 measures in eight categories aimed at stabilizing the city’s economy. Shanghai will loosen COVID test requirements for people who enter public places from June 1 as the city tries to restore normalcy.
o https://www.bloomberg.com/news/articles/2022-05-29/shanghai-unveils-fresh-policies-to-support-economy-hit-by-covid
Russia-Ukraine Development
- Ukraine President Zelenskiy visited front-line troops in the Kharkiv region in his first trip away from Kyiv since Russia’s invasion. He earlier called conditions in the Donbas region to the east as indescribably difficult as Russia presses to take more ground approaching the invasion’s 100th day. President Zelenskiy also confirmed that he had fired the head of Ukraine’s security service in the Kharkiv region, as he had not been trying to protect the city’s best interests. Meanwhile, EU nations failed to reach an agreement on Sunday regarding a revised package of sanctions over Moscow that included a ban on Russian crude.
o https://www.bloomberg.com/news/articles/2022-05-29/ukraine-latest-eu-sanctions-plan-would-spare-key-crude-pipeline
- Ukraine President Zelenskiy visited troops in the Kharkiv region, his first publicly known trip outside the Kyiv area since before Russia’s invasion, in a show of confidence for the nation’s defenders. He handed out state awards and valuable gifts to servicemen and servicewomen, and had briefings on the operational situation. President Zelenskiy most recently visited Ukrainian defensive positions in the eastern Donbas region on February 17th, a week before Russia’s invasion. In early March, he made an unannounced visit to the edges of Kyiv while fighting was still going on nearby. Most of President Zelenskiy’s recent travels have been in Bucha on the outskirts of the capital, where Russian troops have been accused of atrocities against the civilian population. During his visit, head of Kharkiv Regional Military Association Oleg Synegubov told President Zelenskiy that 31% of the region’s territory remains temporarily occupied and that 5% had been liberated from Russia.
o https://www.bloomberg.com/news/articles/2022-05-29/zelenskiy-visits-troops-near-kharkiv-in-rare-foray-from-capital
Market Update
- It has been an awful start to 2022 by almost every measure. The S&P 500’s 13% drop so far this year is its biggest since 1970, fuelled by recessions fears as the Fed embarks on its most aggressive tightening of monetary policy since 2000 to fight inflation. Rising interest rates dented the allure of technology and growth shares, with the Nasdaq 100 plunging 22%. The selloff interrupted a two-year bull run in stocks that began in the depths of the pandemic. But less hawkish remarks from Fed officials, a resilient American consumer and upbeat corporate earnings have offered investors a ray of hope. The S&P 500 climbed 2.5%, snapping its longest weekly losing streak since 2001. The Nasdaq is still down 23% from its November 19th closing record after Friday’s rally. investors have been whiplashed at a pace that has not been seen since 2008. The S&P 500 has moved in a daily range of at least 1% in 89% of the trading sessions in 2022. Analysts say there may be more head fakes before stocks hit a final low. But cheaper valuations have started to lure buyers back. Historically, the five previous worst starts to a year for the S&P 500 saw the index higher for the remainder of the year each time, rising on average 19.1% over the ensuing seven months.
- U.S. equity futures advanced in Asia trading Monday after China eased some virus curbs and Wall Street had its best week since November 2020; the S&P 500 wiped out its May losses and snapped a string of seven weekly declines as institutional investors rebalanced portfolios into the end of the month
- Traders are pondering whether the bottom of the 2022 selloff is near as investors have been buying the dip after one of the worst starts to the year for equities; however, worries remain from hawkish central banks underscoring fears of a recession, escalating food inflation from the war in Ukraine and China’s lockdowns stunting economic activity
- U.S. payroll data releasing later this week will likely shed light on the Fed’s tightening path as it strives to rein in inflation; the Fed is set to start shrinking its $8.9 trillion balance sheet starting Wednesday
- S&P 500 futures rose 0.3%, while the S&P 500 rose 2.5% on Friday to 4,158.24
- Nasdaq 100 futures increased 0.5%, while the Nasdaq 100 rose 3.3% on Friday to 12,681.42
- 10 year Treasury yield declined one basis point to 2.74%
- WTI crude rose 0.4% to $115.56 a barrel
- Gold was at $1,852.22 an ounce