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Novum Alpha - Weekend Edition 15-16 May 2021 (10-Minute Read)

Commodity prices slipped and that's been reason enough for investors to cheer as the supply side of the equation normalizes. 


A wonderful weekend to you as stocks start their rebound on a U.S. economic recovery and as inflation concerns get placed on the back burner. 
 

In brief (TL:DR)

 
  • U.S. stocks continued to gain on Friday, with the S&P 500 (+1.49%)blue-chip Dow Jones Industrial Average (+1.06%) and tech-centric Nasdaq Composite (+2.32%) all up as a pullback in commodity prices helped to allay inflation fears. 
  • Asian stocks finished higher on Friday as inflation fears diminished. 
  • The U.S. 10-year Treasury yield slipped to 1.626% as demand for government debt normalized (yields generally fall when bond prices rise).
  • The dollar slipped against major trading partners. 
  • Oil rallied with June 2021 contracts for WTI Crude Oil (Nymex) (+2.43%) at US$65.37 as traders turned bullish on consumption recovering in line with the broader U.S. economic recovery. 
  • Gold rose as the dollar slipped with June 2021 contracts for Gold (Comex) (+0.77%) at US$1,838.10. 
  • Bitcoin (-0.71%) fell to US$49,439 into the weekend as flows fell off and on thinner volumes suggesting that a rally on Monday in Asian trading is possible while inflows into exchanges slowed against outflows (inflows suggest that investors are looking to sell Bitcoin in anticipation of lower prices). 

 

 

In today's issue...

 
  1. So Many Things to Do in a Day, Trading is Not One of Them
  2. What is happening in Gaza and should you care? 
  3. Cryptocurrency Stocks Rebound

 

 

Market Overview

 
Commodity prices slipped and that's been reason enough for investors to cheer as the supply side of the equation normalizes. 
 
A report showed that U.S. retail sales had stalled in April, after a sharp advance in the previous month and potentially reflecting that the earlier rounds of stimulus checks are starting to fade. 
 
All of which portend that inflation may not be as high a risk as advertised, buoying both stocks and bonds. 
 
In Asia stocks capped off a strong rally into the day and headed up into the weekend with Tokyo's Nikkei 225 (+2.32%)Seoul's Kospi Index (+1.00%) and Sydney’s ASX 200 (+0.45%) and Hong Kong's Hang Seng Index (+1.11%) all higher.
 

Did you miss us at the World Family Office Forum? Watch it here...

 
 

1. So Many Things to Do in a Day, Trading is Not One of Them

 
  • Retail investment volume falls off as the U.S. reopens 
  • Longer term retail flows are likely to be at an elevated level as retail trading habits prove durable 
 
Places to go! People to see! Stocks to trade? Perhaps not. 
 
As the mass vaccination exercise in the U.S. gets underway in earnest, Americans are returning to their regular lives and that life is so busy that it has little time for day trading. 
 
Whilst retail traders propelled meme sticks to lofty heights in the first few months of this year, including the likes of GameStop (-2.91%) and AMC Entertainment (+1.64%), a reopening of the U.S. economy has resulted in a fading appetite for the same type of intense trading that triggered massive levels of volatility in the broader markets. 
 
Options markets, where retail traders cut their teeth using zero-fee trading apps like Robinhood have seen overall volume slide to a 6-month low of 15.5% in early May, from close to 20% in January. 
 
In April, total trading volumes across retail brokerages was down 26% compared to March, according to data analyzed by Piper Sandler, an investment bank. 
 
But retail investors haven’t completely abandoned their appetite for risk as the cooling in equity trading has coincided with a sharp rise in cryptocurrency activity, with volumes at major cryptocurrency exchanges soaring to US$1.7 trillion last month, according to data from CryptoCompare, a data service provider. 
 
Some of the hottest stocks favored by retail traders have lost traction in recent weeks, including a Goldman Sachs (+2.77%) basket of the most popular retail picks like Tesla (+3.16%), Apple (+1.98%) and Zoom Video Communications (+6.11%), which have all seen sharp falls from highs clocked earlier this year.
 
And while trading volumes have come down, as would be expected as more Americans return to the office and head out to restaurants and bars, they continue to remain elevated from a longer-term standpoint, due in part at least to changes in retail broking. 
 
For starters, zero-fee trading and the gamification of investing through apps like Robinhood, mean that the rise of retail investing is likely to be a durable shift. 
 
So long as a market is open, retail investors waiting for a date to show up, or standing in line, are likely to continue opening the trading apps on their phones and placing just one more bet. 
 
And more importantly, trading in general has entered the popular culture, with stocks just as much a topic of conversation at the dinner table as the Kardashians. 
 
 

Did you miss us at the World Family Office Forum? Watch it here...

 

2. What is happening in Gaza and should you care?

 
  • Israeli retaliation in Gaza escalates, with risk of a full scale invasion of the already occupied territories increases as tensions rise
  • Israel may be emboldened to mount at the very least a limited ground offensive, with the election of more hawkish and nationalist forces in Israeli parliament and with the Biden administration folding its arms on the matter 
 
Tariq Al Hillo uses WhatsApp video from Beit Lahia in Gaza to call his extended family members in Yonkers New York, but the signal is too weak to support the call.
 
Al Hillo exchanges Eid greetings when the signal is strong enough and then says goodbye, fully aware that this could be his last goodbye.
 
Over the past week, Israeli warplanes roared overhead Gaza, bombarding alleged Hamas targets as the militant group launches crude homemade rockets at Israel.
 
And while the Israeli Defense Force or IDF states that there are no ground troops inside the Gaza Strip, some 7,000 Israeli army reservists have been called up and forces are building up along the Gaza border.
 
While conflict in Gaza, Jerusalem and the West Bank is not new, things have escalated most recently because of a pending Israeli Supreme Court decision that would evict dozens of Palestinians from the majority Arab East Jerusalem neighborhood of Sheikh Jarrah, giving their homes to Jewish settlers.
 
On the day of the scheduled ruling, which has since been postponed, thousands of flag-waving Israeli nationalists were due to march through Muslim neighborhoods in the Old City in a provocative parade that celebrated Israel’s capture of the city in 1967.
 
With tensions running high, the militant wing of Hamas, the organization that has become the de facto government of the Gaza Strip, launched rockets into Israel, striking targets as far as Tel Aviv.  
 
Israel’s retaliation this time has been far more deadly than in past conflicts.
 
Emboldened by the election of pro-nationalist hawks into the Israeli parliament, the government of Benjamin Netanyahu has used the recent tensions as an opportunity to bring down an iron fist on the Palestinians and provide the necessary pretext to gain greater control over the disputed territories in the region.
 
While there has never been a period of peace between Israel and Palestine, the most recent flare up measures most closely to a previous episode in 2017, when a decision to install metal detectors outside the al-Aqsa mosque triggered weeks of bloodshed.
 
But even then, the response by the Israelis was far more muted compared to the most recent round, which has seen heavy artillery bombardment, airstrikes and the amassing of ground forces on the border with the disputed Palestinian territories.
 
The United Nations has warned that the current conflict is quickly escalating into a full-scale war and has stressed that de-esclation is a “an absolute must.”
 
But with U.S. President Joe Biden saying that he doesn’t think Israel is overreacting in response to the Gaza rockets, the likelihood of de-escalation, is slim.
 
Israel has enjoyed better relations with its Arab neighbors in the past few years, with many Arab states normalizing relations with their Jewish neighbor and with Egypt working together with Israel to blockade the Gaza Strip.
 
Both Israel and the Arab world have grown increasingly impatient with Palestine, and the Arabs will not necessarily shed blood to defend Palestine, which many countries in the Middle East see as closely aligned with their arch-nemesis Iran.
 
And that could help prevent any Israeli invasion of Palestinian territory from embroiling the region into a wider conflict. 
 
 

3. Cryptocurrency Stocks Rebound

 
  • Stocks associated with cryptocurrencies, in particular Bitcoin, stage a staggering rebound as Bitcoin clears US$50,000 
  • Coinbase Global (-2.54%), the largest cryptocurrency exchange in the U.S. still languishes, despite strong quarterly earnings 
 
Proof that the cryptocurrency industry is bigger than a single tweet, investors bought the dip and hurled Bitcoin past US$50,000, a move that helped to buoy cryptocurrency-exposed stocks higher.
 
After being bloodied by a four-day slide that wiped out some US$6.1 billion in value from a basket of companies whose fortunes are tied closely with Bitcoin, the rebound in the world’s largest cryptocurrency also saw a reversal in these stocks.
 
Marathon Digital Holdings (+17.40%) halted a nine-day losing streak, while MicroStrategy (+6.81%) rebounded on Friday.
 
Even as more retail investors gravitated towards the speculative Dogecoin, companies dealing with or in Bitcoin, recovered hard, including Riot Blockchain (+17.05%).
 
Left out in the cold however was Coinbase Global, the largest U.S. cryptocurrency exchange, where even strong quarterly earnings failed to excite traders.
 
And while cryptocurrency bulls cheered Friday’s recovery, another company has soured on Bitcoin.
 
On Friday, Jack Dorsey, long a Bitcoin advocate, has said Square (+5.43%) is not planning to buy any more Bitcoin for its corporate treasuries after losing US$20 million on a US$220 million investment in the past quarter, according to a Financial News report.
 
In Square’s most recent quarterly earnings, published on 6 May, the company said it had lost US$20 million on its Bitcoin investment despite its fair value rising to US$472 million based on market prices.
 
But what Square lost on its investment in Bitcoin, it more than made up for by providing users access to Bitcoin.
 
Square’s first quarter revenue rose 266% year-on-year in March to US$5.06 billion, thanks to a major boost in Bitcoin revenue from its Cash App, which offers trading in the cryptocurrency to consumers.
 
And the payment services provider also reported US$3.5 billion in Bitcoin revenue, 11 times what Square made in the previous year.
 
While Square only makes a small margin on each Bitcoin transaction, the gross profit of US$75 million should more than cover its investment losses on Bitcoin itself.
 
Dorsey may also be responding to the fact that Tesla CEO Elon Musk has an enormous amount of influence on Bitcoin’s price, something which the company may not want to get involved with in the interim. 
 
While Tesla made around US$110 million in the past quarter by selling some of its Bitcoin, Square lost US$20 million, in a reflection of just how volatile the nascent asset class is and serving as additional food for thought for financial executives and CFOs who may have considered putting in with the cryptocurrency.  
 

What can Digital Assets do for you?

 
While markets are expected to continue to be volatile, Novum Alpha's quantitative digital asset trading strategies have done well and proved resilient.
 
Using our proprietary deep learning and machine learning tools that actively filter out signal noise, our market agnostic approach provides one of the most sensible ways to participate in the nascent digital asset sector. 
 
If this is something of interest to you, or if you'd like to know how digital assets can fundamentally improve your portfolio, please feel free to reach out to me by clicking here.  
 
 
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Patrick Tan

Level 3, 40A Orchard Road, Macdonald HouseSingapore[Sender_State] 238838

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May 15, 2021

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