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Novum Digital Asset Alpha - Weekend Edition 11-12 July 2020

Ah...the weekend. Time to kick back unwind and relax a little from the madness that is the market. While stocks in Asia took a bit of a beating going into the weekend off of poor showings from Wall Street on Thursday, Friday more than made up for it on the back of positive news about potential coronavirus vaccines and treatments.

In brief (TL:DR)

  • U.S. stocks climbed on Friday, reversing Thursday's losses with the S&P 500 (+1.05%), blue-chip Dow Jones Industrial Average (+1.44%) and tech-heavy Nasdaq Composite (+0.66%) all clocking strong gains. 
  • Asian markets look set to open stronger on Monday on news that a coronavirus treatment can reduce the risk of death. 
  • Investors shrugged off other concerns as they dumped safety, with the 10-year U.S. Treasury Bills slipping, as yields rose to 0.633%, up from 0.605% on Thursday (yields typically rise when bond prices fall). 
  • Oil rose above US$40 on positive news from the stock market with WTI Crude Oil (Nymex) (+2.35%) up sharply to US$40.55 from US$39.71 a day earlier. 
  • Gold slid with Gold (Comex) (-0.11%) slipping to US$1,801.90 from US$1,806.30 a day earlier, as investors poured into risk assets.   
  • Bitcoin (+2.35%) spent most of the weekend unchanged at US$9,220 as Bitcoin outflows from exchanges continued to lead Bitcoin inflows and prevented Bitcoin from breaking out of its trading range. 

In today's issue...

  1. Is Gilead Sciences' Remdesivir Coronavirus Treatment The Silver Bullet We've Been Looking For?   
  2. Politics Pips Pandemic as A Stand-off in Washington Threatens to Undo Months of Stimulus Measures
  3. Who's Buying Bitcoin and Why Should You Care? 

Market Overview

U.S. stocks ticked up significantly heading into the weekend and ended their second consecutive week in the green on the back of positive news of coronavirus drug treatment Redmesivir from Gilead Sciences (+2.15%)
Markets have been largely resilient in part because investors expect further support from the U.S. Federal Reserve and Washington if the pandemic begins to slow the economy again. 
And given that it's an election year in the United States, politicians have added incentive to not be seen dropping the ball just as Americans head to the polls, but partisanship appears to be getting in the way on Capitol Hill. 
As a deadline for a coronavirus stimulus package looms in Washington, Democrats and Republicans are at loggerheads to approve a new plan to replace it, which could set the market up for unforeseen shocks in the coming week. 
Politics it turns out, may be even more deadly for investors than the pandemic. 
1. Is Gilead Sciences' Remdesivir Coronavirus Treatment The Silver Bullet We've Been Looking For?
  • Gilead Sciences published new data on Friday showing that its antiviral Remdesivir reduced the risk of death for severely sick coronavirus patients by 62% versus standard care  
There is more than an outside chance that we're going to have to live with the coronavirus for a lot longer than expected. 
Summer in the northern hemisphere has come and is about to go, in which case the autumn flu season will be upon us again, and contrary to U.S. President Donald Trump's beliefs - the summer heat has not caused the coronavirus to miraculously disappear. 
And while no less than a hundred teams of the world's top researchers are actively experimenting to discover a vaccine for the coronavirus pandemic, it's helpful to remember that throughout human history the only pandemic that we've been able to effectively vaccinate against has been smallpox. 
So the odds are not good. 
In the absence of a vaccine, an effective treatment would work just as well.
Part of the delay in opening up the global economy has been that a surge in coronavirus cases, particularly those which require hospitalization, would overwhelm already stretched healthcare infrastructure. 
But that could be assisted if there was a drug that could potentially reduce the amount of time that coronavirus patients, particularly those whose symptoms are most severe, spend in high dependency wards. 
On Friday, Californian biotech firm Gilead Sciences announced new findings that its antiviral Remdesivir drug reduced the risk of death for severely sick coronavirus patients by as much as 62%. 
And that news sent U.S. stocks soaring. 
But in a world bereft of good news, we may be getting ahead of ourselves slightly. 
While the study did find that 7.6% of patients treated with Redmesivir died versus 12.5% who did not receive the drug - additional trials are still needed. 
More significantly though, if Remdesivir works, it's been shown by the National Institute of Allergy and Infectious Diseases to reduce the recovery in coronavirus patients by as much as 4 days - and this is a much bigger deal. 
And Gilead Sciences is hardly alone in this space.
Researchers at Oxford University released results from a trial last month that showed that dexamethasone, a cheap and widely available steroid, can cut the risk of death from the coronavirus by up to a third for patients on ventilators. 
Because if we can't as yet get a vaccine for the coronavirus pandemic, it helps to know there may be effective treatments and more importantly, any reduction in treatment time means less patients stressing already stretched healthcare systems. 
And that gives economies at least a glimmer of hope for reopening more meaningfully. 
2. Politics Pips Pandemic as A Stand-off in Washington Threatens to Undo Months of Stimulus Measures
  • A political stand-off in Washington could freeze extension of aid at a time when coronavirus infections are surging in the U.S. and economic recovery is at risk 
Politics may turn out to be more deadly for the economy than a pandemic it seems. 
While markets have continued to remain resilient, that's been in large part because investors have labored under the belief that politicians and central bankers have had their backs. 
And while the latter have certainly proved reliable, the former have proved predictably unreliable. 
Politicians on both sides of the chamber are caught in an impasse and the U.S. might rein in fiscal stimulus measures this week, as Democrats and Republicans in Congress disagree on the extension of the US$600 per week emergency jobless benefits that are helping to keep millions of American afloat. 
These payments have been pumping US$18 billion a week into the world's largest economy since the coronavirus crisis first began.
According to a study by economists at the University of Chicago and the National Bureau of Economic Research released last week, Washington's unemployment support has exceeded prior earnings for 68% of workers and doubled them for the lowest-wage workers. 
While House Democrats have pushed to maintain the payments until the economy improves, the White House and House Republicans are resisting on the grounds that they discourage employment and the stand-off risks creating a dangerous economic cliff unless it is resolved soon. 
And time is running out. 
The problem always with stimulus is that it's a bit like taking drugs. 
Your first hit's free, but eventually you need to keep taking bigger doses just to maintain the high. 
Already, the effect of the US$1,200 checks sent by the U.S. Treasury Department to individuals earning less than US$75,000 a year, has dwindled. 
Small businesses that received forgiveable loans as part of a US$520 billion aid program from the Trump administration will already have spent a sizeable chunk of that money. 
The U.S. economy needs another hit of stimulus, and fast. 
In reality, Washington had, going by the experience of other countries, expected that the first round of stimulus would have been sizeable enough to tide the country over until the economy re-opened. 
And that would have been the case if everyone wore a mask and practiced social distancing. 
Unfortunately though, a soaring number of coronavirus infections and a reversal in reopenings threatens to put those assumptions to the test. 
Yet given that this is an election year, a deal could yet be hammered out at the very last minute on Capitol Hill. 
Democrats are pushing for a US$3 trillion package that would be wide-ranging. The Trump administration and Republicans on the other hand are looking to do it with US$1 trillion, that would likely fall short of what is needed. 
As well as hitting consumer spending, withdrawal of fiscal stimulus could also make it harder for low and middle-income families struggling because of the pandemic, to pay rent and mortgages, damaging the housing market.
The Trump administration has extended a moratorium on evictions and foreclosures introduced during the coronavirus crisis that was originally set to end last month, but only until the end of August. 
If history is any teacher though, a failure to cobble together a plan in Washington has led to knee-jerk reactions by the stock market and a scramble to implement a compromise solution soon thereafter. 
For investors, this means even more volatility in the coming weeks. 
3. Who's Buying Bitcoin and Why Should You Care?
  • Bitcoin has moved beyond the tech savvy - Millennials and Boomers alike are cottoning on to the cryptocurrency 
While over 50% of Bitcoin investors are Millennials, Boomers haven't been left out of the digital gold rush either. 
According to a survey of Candian citizens, Bitcoin ownership among Boomers (56-75 years old) has recently tripled and in a recent research paper by the United Kingdom's Financial Conduct Authority, Bitcoin ownership in those above 35 has increased significantly.
However, because both groups of investors are retail investors, they could cause significant volatility in Bitcoin markets in the medium term. 
Leveraging zero-fee trading apps such as SoFi and Robinhood, Millennials have been known to panic in response to sudden changes in the price of their investments and many are also prone to speculation, especially where leverage is easily available. 
Yet, Boomers, which statistically hold on to their investments for longer periods, may act as a counterweight to Bitcoin's more youthful, but fickle investors. 
Combined, the impact of this more balanced demographic in the purchase and ownership of Bitcoin could see a gradual and more sustainable increase in Bitcoin's price over the longer term. 

What can Digital Assets do for you?

While markets are expected to continue to be volatile, Novum Digital Asset Alpha's deep learning, quantitative digital asset trading strategy, has done consistently well and proved resilient.
Our flagship Novum Digital Asset Alpha returned over 20% to clients in May alone, with an annualized return target of 350% well on track. 
Using our proprietary deep learning tools that actively filter out signal noise and maximize digital asset trading opportunities, our market agnostic approach provides one of the most sensible ways to participate in the nascent digital asset sector. 

Jul 12, 2020

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