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Novum Alpha - Daily Analysis 12 August 2021 (10-Minute Read)

Inflation data had its Goldilocks moment, suggesting that the U.S. economy is continuing to recover, but not at such a pace that it threatens to trigger runaway inflation.

A terrific Thursday to you as markets continue to trend sideways. 

In brief (TL:DR)

  • U.S. stocks inched up on Wednesday with the Dow Jones Industrial Average (+0.62%) and S&P 500 (+0.25%) both up modestly, while the tech-centric Nasdaq Composite (-0.16%) pulled back lower than expected as investors bet on continuing Fed intervention in the economy. 
  • Asian stocks were mixed Thursday as China’s regulatory push sapped sentiment, overshadowing a Wall Street record on easing inflation that reduced concerns about an imminent pullback in Federal Reserve stimulus. 
  • Benchmark U.S. 10-year Treasuries climbed one basis point to 1.34% (yields rise when bond prices fall).
  • The dollar held a drop.
  • Oil held a climb with September 2021 contracts for WTI Crude Oil (Nymex) (+0.07%) at US$69.30 as a weaker dollar offset a smaller-than-expected decline in crude stockpiles.
  • Gold was higher December 2021 contracts for Gold (Comex) (-0.13%) at US$1,751.10 as slowing inflation data saw less demand. 
  • Bitcoin (+0.57%) was higher at US$46,025 with outflows leading inflows  (outflows suggest that investors are looking to hold Bitcoin in anticipation of higher prices). 

In today's issue...

  1. Inflation is High, But at Least It's Slowing Down
  2. Red Hot Property Sector in Sunny Singapore
  3. The Cryptocurrency Pick & Shovel Play is Working Out

Market Overview

Inflation data had its Goldilocks moment, suggesting that the U.S. economy is continuing to recover, but not at such a pace that it threatens to trigger runaway inflation. 
Investors crept into economically more sensitive stocks, while tech was mostly flat as the prospect of a Fed taper diminished. 
In Asia, China released a 5-year plan which calls for greater business regulation as Beijing continues a crackdown on some of its biggest industries and companies that has shaken investor sentiment. 
Asian stocks were mostly higher on Thursday morning with Tokyo's Nikkei 225 (+0.17%), Sydney’s ASX 200 (+0.01%) and Seoul's Kospi Index (+0.07%) up, while Hong Kong's Hang Seng (-0.15%) was lower thanks in large part to Beijing's continued purge. 

Did you miss us at the Super Crypto Conference 2021? Watch it here...



1. Inflation is High, But at Least It's Slowing Down

  • Inflation data from the CPI saw prices continue to rise, but the pace of increases is starting to slow
  • U.S. economy may be starting to feel the early effects of the delta variant and that could put a damper on the recovery 
As widely anticipated, the rapid pace of U.S. consumer price increases has slowed, even though the Consumer Price Index topped a 13-year high, last seen prior to the 2008 Financial Crisis.
Month-on-month gains moderated slightly to 0.5% from 0.9% a month earlier, as supply chain constraints eased and the CPI, coming off a low base last year, rose 5.4% year-on-year.
Of greater interest to investors however is whether these price increases will translate into more persistent inflation.
The U.S. Federal Reserve has broadly taken the view that rising costs will abate over time, as pandemic-related shortages, pent-up demand and supply chain constraints ease.
Rising prices have spilled over into other sectors outside of airfare and other travel-related expenses such as hotels, raising the specter that inflation could be more durable.
Housing costs saw a year-on-year increase to 2.4%, while dining out was 4.6% higher, as the increased cost of service staff wages started being translated to diners.
While an increasing number of policymakers are calling for the Fed to scale back its US$120 billion-a-month asset purchases of mortgage-backed securities and U.S. Treasuries, the central bank has maintained that it will keep up the pace until it sees “substantial further progress” on its policy objectives of 2% average inflation and maximum employment.
And while there are signs that the economy recovering, the slowing pace of price increases could also portend to signs the delta variant is starting to bite.
The far more virulent delta variant that is rippling across the United States is causing infection numbers to spike dramatically, by as much as tenfold, putting pressure on healthcare infrastructure once again.
Which is why the Fed is understandably cautious about withdrawing support to fast, too soon and that should help the investment case for equities in the medium term.

Did you miss us at the Super Crypto Conference 2021? Watch it here...



2. Red Hot Property Sector in Sunny Singapore

  • Real estate market in Singapore is glowing red hot thanks to overseas money pouring into the city-state's condos 
  • Government may be forced to take action to reign in prices to prevent social discontent as inequality rises 
Singapore can sometimes seem a record-obsessed city-state and perhaps this may be due in no small part to its geographically small size and desire to punch well above its own weight.
Nowhere has this been more apparent than its increasingly frothy real estate market where a local tech billionaire plunked down US$95 million for a mansion while near an upscale shopping district, a Taiwanese grocery empire spent US$216 million to snap up all the units in an exclusive condominium development.
As the pandemic raged across much of the rest of the world, Singapore’s strict rules and largely compliant population helped to ensure that life in the city-state of some 5.7 million people was kept as normal as possible.
And that helped to attract massive funds into Singapore’s red-hot residential market, with US$24 billion spent in the first half of this year alone, the most in over a decade and double what was recorded in Manhattan over the same period.
But inflation is just one of the drivers that is leading the ranks of the superrich to stuff their cash into luxury properties across the globe, with Singapore being on trend, rich Asians are also quietly shifting funds out of Hong Kong, for fear of further political turmoil,
Real estate prices in Singapore have surged by a record 4.1% in the first half of this year alone, as tycoons from across the region plonk down some serious change in the city-state that prides itself on safety, security and efficiency – key factors during uncertain times.
Singapore can also pride itself in achieving an enviable vaccination rate of over 68%, which has helped lift pandemic restrictions and will facilitate a path to normalcy for the country.
But real estate is an emotionally and politically-charged sector in an island that is just 0.11% the size of Texas.
And the flood of rich people snapping up trophy properties coupled with the close proximity that everyone lives in can accentuate inequality and foster resentment.
Which is why lawmakers in Singapore are keeping a close eye on prices, because if the core Singapore citizenry feel they’ve been priced out of the market, it could put pressure on the incumbent People’s Action Party, which suffered its worst parliamentary results last July.
Establishment figures like Managing Director of the Monetary Authority of Singapore Ravi Menon have warned that a prolonged divergence between real estate prices and income is both unsustainable and undesirable, and his comments could signal an appetite for further cooling measures from the government.
In 2018, the Singapore government rolled out property curbs to try and reign in prices, and there is every possibility it may tweak the rules yet again, especially if there are signs that the real estate market is continuing on an unsustainable trajectory.

3. The Cryptocurrency Pick & Shovel Play is Working Out

  • Coinbase Global records 1,000% jump in revenues over the past quarter 
  • Increasing institutional interest in cryptocurrencies bodes well for Coinbase, a U.S.-regulated cryptocurrency exchange 
When Coinbase Global (+3.24%) went public this year, it presented an interesting proposition – why bet on volatile cryptocurrencies when you can bet on the company that provides the platform to trade in them – the pick and shovel play.
The pick and shovel play is basically betting on companies which provide services to the more speculative underlying asset, taking a small fee for their service, but assuring a steady revenue stream.
Made popular by Levi Strauss, the plucky entrepreneur who had gone to San Francisco to search for gold, only to strike gold by supplying miners with equipment and cotton denim jeans, the pick and shovel play seemed like a sensible way for investors to dip their toe into the cryptocurrency waters.
And that pick and shovel play has paid off in spades for Coinbase Global which recorded a whopping 1,000% revenue increase from a year ago, thanks to wild cryptocurrency price swings in the second quarter of this year.
In only its second quarterly results since listing in April, Coinbase Global posted net revenue of US$2.03 billion, up 27% from the previous quarter and up 1,042% from a year earlier, while net income rose to US$1.6 billion from US$32 million in the same period last year.
To put Coinbase Global’s profits in perspective, over the same period, established exchange operator CME Group (+0.067%) reported just US$510 million in net income on US$1.2 billion in revenue, while Intercontinental Exchange (-0.74%) earned just US$1.3 billion, some of which was derived from divesting its stake in Coinbase.
And with the world’s largest cryptocurrency exchange by traded volume Binance coming under increasing pressure from regulators globally, the regulated Coinbase Global is taking the opportunity to list more digital assets, after having been initially hesitant because of regulatory concerns, adding 22 new cryptocurrencies for traders.
Coinbase Global rose to US$274.59 in after-hours trading yesterday but is still well off its debut on Nasdaq of US$328.28.

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Aug 12, 2021

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