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Novum Alpha - Daily Analysis 3 November 2021 (10-Minute Read)

The gyrations in short-term yields extend a period of heightened bond-market volatility as investors try to anticipate how hawkish central banks might become to quell inflationary pressures.

 
A wonderful Wednesday to you as markets continue to wind upwards.
 

In brief (TL:DR)

 
  • U.S. stocks continued to rise Tuesday with the Dow Jones Industrial Average (+0.39%), the S&P 500 (+0.37%) and tech-centric Nasdaq Composite (+0.34%) all higher while feeding into the bullishness behind robust corporate earnings. 
  • Asian stocks were steady Wednesday as traders mulled another all-time high for U.S. equities and a retreat in short-term sovereign yields ahead of a U.S. Federal Reserve policy meeting.
  • Benchmark U.S. 10-year Treasury yields were little changed at 1.55% Tuesday (yields rise when bond prices fall).
  • The dollar held a climb.  
  • Oil fell with December 2021 contracts for WTI Crude Oil (Nymex) (-1.82%) at US$82.38 on expectations that supply will increase. 
  • Gold was lower with December 2021 contracts for Gold (Comex) (-0.49%) at US$1,780.70. 
  • Bitcoin (+3.78%) rose to US$63,240 in line with stocks which chased fresh all-time highs as outflows lead inflows (outflows suggest that traders are looking to hold bitcoin in anticipation of higher prices).  

 

In today's issue...

 
  1. Finally, a Microsoft for your Metaverse
  2. Yahoo (What’s that?) Quits
  3. Singapore Positions Itself as Global Cryptocurrency Hub
 

Market Overview

 
The gyrations in short-term yields extend a period of heightened bond-market volatility as investors try to anticipate how hawkish central banks might become to quell inflationary pressures.
 
The Fed is expected to announce that it will start tapering its massive bond purchases, but economists are divided on whether a rate liftoff will be next year or in early 2023.
 
In China, Premier Li Keqiang said the economy is facing new downward pressure even as a coronavirus outbreak in the world’s second-largest economy that has already sparked mobility curbs.
 
In Asia, markets were mixed Tuesday with Tokyo's Nikkei 225 (-0.43%), Seoul's Kospi Index (-1.20%) and Hong Kong's Hang Seng (-0.81%) down, while Sydney’s ASX 200 (+0.89%) was up in the morning trading session.
 

 

1. Finally, a Microsoft for your Metaverse

 
  • Microsoft (+1.14%) is now introducing the metaverse into office life, allowing video call participants to appear as their digital avatars.
  • Whereas Facebook’s (-0.58%) metaverse may be a solution looking for a problem, Microsoft’s approach to virtual reality at least envisages an existing productivity need – the ability for coworkers to interact in a meaningful way via virtual reality.
 
For millions of people around the world, the pandemic would have been a lot tougher had it not been for video communications, which have facilitated a durable shift towards remote work.
 
And while Zoom Video Communications (+0.48%) has become so ubiquitous that “zoom” has become a verb, other traditional vendors of productivity tools haven’t been terribly far behind, including Microsoft’s Teams product.
 
To be sure, Teams is far more clunky than its archrival Zoom, but given that many companies already use Microsoft’s productivity suite and perceived stronger security, has become the de facto communications tool of choice for anything from financial institutions to governments.
 
But just when you thought video communications couldn’t get any more awkward, Microsoft is now introducing the metaverse into office life, allowing video call participants to appear as their digital avatars.
 
From next year, Team users can use their avatars not just for communication, but also to visit virtual workspaces which would eventually include digital replicas of offices.
 
Although Microsoft’s push into the metaverse is far more conservative than the company formerly known as Facebook’s move into virtual and augmented reality, it’s based at least on existing technologies which should make it more robust and implementable.
 
With over 250 million people globally using Teams, its existing integration with Microsoft’s productivity suite could be the clincher for the differing approaches into what could be an important trend in computing.
 
Whilst being in a virtual space with someone halfway across the world on Facebook’s metaverse could be seen as a novelty, working together on a spreadsheet or PowerPoint is a real gamechanger as the nature of work becomes increasingly removed from the office and could provide a ready solution for companies struggling to retain talent who want to continue working remotely.
 
And while the use of an avatar may seem gimmicky, it could also alleviate some of the stresses that office workers face having to stare at a camera for extended periods of time.
 
Whereas Facebook’s metaverse may be a solution looking for a problem, Microsoft’s approach to virtual reality at least envisages an existing productivity need – the ability for coworkers to interact in a meaningful way via virtual reality.
 

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2. Yahoo (What's that?) Quits China

 
  • Yahoo Inc. said Tuesday it has pulled out of China, citing an increasingly challenging operating environment.
  • Tech companies are facing increasingly tough choices when it comes to China, which represents a huge potential market, but where Beijing requires content which it deems politically sensitive or inappropriate to be censored.
 
Chinese economists often note that policy cycles follow a familiar pattern, “Decentralization leads to disorder, disorder leads to centralization, centralization leads to stagnation and stagnation leads to decentralization.”
 
Such is the economic life of the Middle Kingdom since time immemorial.
 
Observers of the world’s second largest economy will no doubt notice that China is now in a period of increasing centralization.
 
Gone are the halcyon days on unbridled capitalism and back are the days of central planning, where it is said that not even the smallest policy decision avoids the scrutiny of the powerful politburo and more significantly, Chinese President Xi Jinping.
 
And while companies like Google (+1.35%) pulled out of China eons ago, it was only recently that Microsoft’s LinkedIn threw in the towel.
 
Yahoo, it seems, was the next shoe to fall, but will unlikely be the last.
 
Tech companies are facing increasingly tough choices when it comes to China, which represents a huge potential market, but where Beijing requires content which it deems politically sensitive or inappropriate to be censored.
 
Some will recall how “Winnie the Pooh” was censored in China following internet memes which likened Chinese President Xi Jinping to the rotund, honey-loving cartoon bear.
 
And while Chinese tech companies have risen up to fill the void left by the absence of overseas tech firms, they too are feeling Beijing’s pressure both in terms of data management and perceived monopolistic characteristics. 
 
Citing an increasingly challenging operating environment, Yahoo announced yesterday that it was withdrawing from China, in what was a largely symbolic move as many of the company’s services were already blocked by China’s formidable firewall.
 
Although the vast majority of Yahoo’s services were inaccessible in China anyway, the withdrawal from the world’s second largest economy does not bode well for other U.S. firms still engaged in the Middle Kingdom and comes against a backdrop of heightened Sino-American tensions.
 
Beijing and Washington continue to feud over a multitude of issues, including technology and trade, with the U.S. slapping restrictions on Chinese telcos operating in the U.S. alleging national security concerns over their cozy relationship with the Communist Party.
 
China on its part alleges that the U.S. is unfairly suppressing competition and attempting to block China’s technological rise.
 

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3. Singapore Positions Itself as Global Cryptocurrency Hub

 
  • Singapore is adopting a pragmatic approach – adapt to the nascent asset or risk becoming increasingly irrelevant.
  • The Singapore approach would set it apart from most other jurisdictions which have swung from banning cryptocurrencies outright, like China, to embracing them completely, like El Salvador, which declared bitcoin legal tender.
 
Even as governments around the world struggle to reign in the relentless pace of innovation in the cryptocurrency space, Singapore is adopting a pragmatic approach – adapt to the nascent asset or risk becoming increasingly irrelevant.
 
Speaking with Bloomberg ahead of the Singapore Fintech Festival, Managing Director of the Monetary Authority of Singapore Ravi Menon echoed his counterparts Gary Gensler, Chairman of the U.S. Securities and Exchange Commission, and U.S. Federal Reserve Chairman Jerome Powell by noting,
 
“We think the best approach is not to clamp down or ban these things.”
 
Last month, and in the wake of the People’s Bank of China declaring that all cryptocurrency transactions were illegal, both Powell and Gensler responded by saying that neither of their federal agencies were looking to ban the nascent asset class.
 
According to Menon, the Monetary Authority of Singapore or MAS, is putting in place “strong regulation” so firms that meet its requirements and address the plethora of risks in the cryptocurrency space can operate.
 
The Singapore approach would set it apart from most other jurisdictions which have swung from banning cryptocurrencies outright, like China, to embracing them completely, like El Salvador, which declared bitcoin legal tender.
 
Although the U.S. has adopted a piecemeal approach to regulating cryptocurrencies, using the threat of enforcement action where federal agencies deemed necessary, such an effort could result in a “chilling effect” on innovation.
 
Several months ago, U.S.-listed cryptocurrency exchange Coinbase Global abandoned plans to launch its “Lend” product, which would pay out interest on cryptocurrency deposits, after the U.S. SEC threatened litigation should it proceed to do so.
 
A lack of clear regulation has the potential to stymie innovation in the cryptocurrency sector as stakeholders are unsure of whether their developments would raise the ire of regulators and attract enforcement action.
 
The Singapore view though is that by setting clear regulations and guidelines, cryptocurrency firms and innovators will have the certainty when their products or services encroach on existing laws.
 
According to Menon,
 
“With crypto-based activities, it is basically an investment in a prospective future, the shape of which is not clear at this point.”
 
“But not to get into this game, I think risks Singapore being left behind. Getting early into that game means we can have a head start, and better understand its potential benefits as well as its risks.”
 
Singapore has a strong global reputation as a wealth hub, and as demand for cryptocurrency services and investments has grown, so has the number of crypto-native companies which have landed and established themselves on the island nation.
 
From Binance to Gemini, the number of major cryptocurrency companies setting up shop in Singapore has grown exponentially, many of which are applying for licenses under the country’s prescient Payment Services Act that came into force last January.
 
Menon notes that licenses under the Payment Services Act aren’t just being handed out willy-nilly,
 
“We don’t need 160 of them to set up shop here. Half of them can do so, but with very high standards, that I think is a better outcome.”
 
 

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Nov 03, 2021

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