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Novum Alpha - Daily Analysis 28 September 2021 (10-Minute Read)

The spike in U.S. Treasury yields has added to concerns about lofty equity valuations, particularly in the tech industry, which has powered the bull-market rally from the beginning of the pandemic.

 
A terrific Tuesday to you as markets tread water as risks increase across the board. 
 

In brief (TL:DR)

 
  • U.S. stocks were mostly lower at the open on Monday with the Dow Jones Industrial Average (+0.21%) lending support to the reflation trade, while the S&P 500 (-0.28%) and the tech-centric Nasdaq Composite (-0.52%) were lower on concerns of excessively high valuations.
  • Asian stocks fell on Tuesday after a jump in U.S. Treasury yields as investors priced in the start of a U.S. Federal Reserve tapering of asset purchases and elevated energy prices headed into the winter months. 
  • Benchmark U.S. 10-year Treasury yields fell one basis point to 1.48% (yields fall when bond prices rise).
  • The dollar edged up.
  • Oil continued to gain with November 2021 contracts for WTI Crude Oil (Nymex) (+0.19%) at US$75.59 on fears of a global energy crunch.
  • Gold rose with December 2021 contracts for Gold (Comex) (+0.09%) at US$1,753.50.
  • Bitcoin (-3.80%) fell to US$42,525 as risk sentiment soured and with inflows rising against outflows (inflows suggest that traders are looking to sell Bitcoin in expectation of lower prices). 

 

In today's issue...

 
  1. Jobs Everywhere But No One to Do Them
  2. Another Day, Another China Crisis
  3. Binance Curbs Singapore User Activity on Cryptocurrency Exchange
 

Market Overview

 
The spike in U.S. Treasury yields has added to concerns about lofty equity valuations, particularly in the tech industry, which has powered the bull-market rally from the beginning of the pandemic.
 
Investors have had to contend with a series of risks in recent weeks, including cracks in the Chinese property sector and worries about the impact of skyrocketing energy costs on inflation in the world's second largest economy.
 
In Asia, markets fell on Tuesday after a jump in U.S. Treasury yields and growing concerns over energy prices, with Tokyo's Nikkei 225 (-0.33%), Seoul's Kospi Index (-0.75%) and Sydney’s ASX 200 (-0.91%) down while Hong Kong's Hang Seng (+1.78%) was higher in the morning session.
 

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1. Jobs Everywhere But No One to Do Them?

 
  • From Brexit to the pandemic, a labor shortage is plaguing the developed markets of the U.S. and Europe even as unemployment levels in the U.S. are increasing
  • The labor shortage is confounding experts who had predicted that once job support schemes ended, would see a surge in labor supply
 
Jobs, jobs, everywhere, but hardly anyone to do them.
 
If you want to get your strawberries picked, you may have to do it yourself.
 
From Brexit to the pandemic, a labor shortage is plaguing the developed markets of the U.S. and Europe even as unemployment levels in the U.S. are increasing.
 
The labor shortage is particularly problematic in the U.K. as Romanians, Lithuanians, Poles and Czechs and practically everyone else from continental Europe had to leave the British Isles after Brexit.
 
U.K. residents are having to turn to YouTube to figure out how to fix their own plumbing or mend their own pavements.
 
The labor shortage is confounding experts who had predicted that once job support schemes ended, companies would see a surge in labor supply.
 
That surge has failed to materialize and the labor shortage is compounding supply chain problems, trimmed growth forecasts and boosted wages, which some economists fear could spark higher inflation.
 
One explanation offered is that the pandemic has exacerbated a skills mismatch, where demand for IT and logistics skills has soared, but many workers lack the capabilities to perform those jobs.
 
Another possibility is that many workers appear to have dropped out of the labor force altogether.
 
Demographics may also have a hand to play as the ageing populations of Europe are now starting to undermine the economic recovery.
 
The prospect of stronger wage pressure could result in U.S. inflation remaining elevated for longer, according to the OECD, and that may force the U.S. Federal Reserve’s hand to accelerate the schedule for rate hikes as well as tapering of asset purchases.
 

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2. Another Day, Another China Crisis

 
  • A crackdown on power consumption in China has seen cryptocurrency miners forced offshore and energy hungry industries tighten their belts against a backdrop of surging coal and gas prices
  • The end result could be snarling supply chain backlogs, eating into the profits of a host of multinational companies that rely on China for components
 
China is not a country you’d typically associate with power shortages.
 
With an abundance of coal and the willingness to burn it, fresh off the Evergrande Group’s debt crisis, the world’s second largest economy is teetering on the brink of an energy crisis that threatens to derail its economy.
 
A crackdown on power consumption in China has seen cryptocurrency miners forced offshore and energy hungry industries tighten their belts against a backdrop of surging coal and gas prices.
 
From aluminum smelters to textile producers and soybean processing plants, factories are being ordered to curb activity, or in some instances, shut altogether, moves that will ripple through supply chains across the world, ahead of the northern hemisphere’s peak shopping season.
 
Investors may be keeping their eye on Evergrande Group (+3.53%) but may find themselves blindsided by supply chain disruptions as the world’s factory winds down.
 
Yet China’s energy crisis is (like so many other crises in that country) one of its own making, as President Xi Jinping aims to manufacture blue skies ahead of the Winter Olympics in Beijing next year and demonstrate to the international community that he’s serious about cutting emissions.
 
Contributing to China’s energy crisis is its ongoing ban on shipments of coal from its top supplier Australia, in retaliation to insinuations from Canberra that Beijing has been less than forthcoming on the origins of the Covid-19 pandemic and should submit to a full WHO inspection.
 
Meanwhile, fast-depleting supplies of natural gas has seen prices from Europe to Asia soar to seasonal highs as countries outbid each other to stock up for the winter months.
 
China’s crackdown on energy consumption will have implications beyond its shores with suppliers to Apple (-1.05%) and Tesla (+2.19%) said to have halted production at some sites on Sunday, that could hurt sales of the two American companies ahead of the holidays.
 
The end result could be snarling supply chain backlogs, eating into the profits of a host of multinational companies that rely on China for components.
 
Beijing’s Communist apparatchiks are embarking on one of the biggest socio-economic experiments ever conducted, attempting to balance the need for growth, while reigning in “undesirable” sectors such as excessive video gaming, afterschool education and soaring property prices.
 
Mistakes will almost inevitably be made as Communist Party sycophants fall over each other to demonstrate their loyalty to the Party as well as President Xi Jinping as he attempts to cement his grip on power for an unprecedented third term after next year.
 
That much has been witnessed already as the crackdown on tech companies earlier this year saw senior Chinese officials quickly reassure jittery investors that the Communist Party had no intention to “sweep away the private sector.”
 
Part of the problem with investors looking at China today is that too many things are happening too quickly and with almost no warning. 
 

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3. Binance Curbs Singapore User Activity on Cryptocurrency Exchange

 
  • Binance.com, the world’s biggest cryptocurrency exchange by traded volume has unilaterally decided to restrict Singapore users from a broad range of trading functions that essentially mean they need to leave the platform
  • The move is not known to have been mandated by MAS or any other regulator, but is likely in response to Binance’s attempt to beef up compliance with local regulations and regulatory scrutiny of the exchange increases globally
 
Although Singapore is home to Binance’s founder Changpeng Zhao, or “CZ” as he’s known, the world’s biggest cryptocurrency exchange by traded volume has unilaterally decided to restrict Singapore users from a broad range of trading functions that essentially mean they need to leave the platform.
 
Not to be confused with Binance’s Singapore entity, Binance.com, which is registered in the Cayman Islands, has long served Singapore’s users, the country being a hotbed for cryptocurrency companies.
 
But last Friday, as Chinese authorities announced their most sweeping crackdown on cryptocurrencies, exchanges which have long served Chinese users from offshore locations have had to reign in their service provision to their Chinese user base.
 
Last month, the Monetary Authority of Singapore (MAS) warned that Binance Holdings Ltd., owner of Binance.com, had to stop offering services regulated in Singapore, after a potential breach of local payment rules.
 
Binance was ordered by the MAS to stop providing payment services to, and soliciting business from Singapore residents without an appropriate license and the latest move by the cryptocurrency exchange may be in response to that.
 
From October 26, users in Singapore will no longer be able to access certain functions on Binance.com, including fiat currency deposit services, spot trading and the purchase of cryptocurrencies through fiat channels and liquid swap.
 
The move is not known to have been mandated by MAS or any other regulator, but is likely in response to Binance’s attempt to beef up compliance with local regulations as regulatory scrutiny of the exchange increases globally.
 
Users in Singapore were advised on Binance.com to cease all related trades, withdraw fiat assets and redeem any tokens by the October deadline to avoid “potential trading disputes.”
 
 

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Sep 28, 2021

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