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Novum Alpha - Daily Analysis 29 November 2021 (10-Minute Read)

A magnificent Monday to you as markets look set to rebound from the manic week of the omicron coronavirus variant.

 

In brief (TL:DR)

 
  • U.S. stocks tumbled hard last Friday with equities dumped against slim volumes seeing the Dow Jones Industrial Average (-2.53%), the S&P 500 (-2.27%) and the Nasdaq Composite (-2.23%) all sharply lower. 
  • Asian stocks fell but the moves were modest compared with Friday’s global equity selloff.
  • Benchmark U.S. 10-year Treasury yields rose six basis points to 1.53% (yields rise when bond prices fall) as traders take in more information regarding the new pandemic variant. 
  • The dollar was steady.
  • Oil climbed with January 2022 contracts for WTI Crude Oil (Nymex) (+5.02%) at US$71.57.
  • Gold edged higher with February 2022 contracts for Gold (Comex) (+0.40%) at US$1,795.30.
  • Bitcoin (+6.17%) began to bounce back into the week to US$57,632 with traders taking the opportunity to buy the dip. 
 

In today's issue...

 
  1. The Omicron Conspiracy
  2. Beware the Fall in Oil Prices
  3. The Metaverse is Where Facebook’s Cryptocurrency Could Shine
 

Market Overview

 
Investors are trying to work out if the omicron flareup ends up being a relatively brief scare that markets eventually rebound from, or a bigger blow to the global economic recovery.
 
The prospect of tighter monetary policy to tackle price pressures was already complicating the outlook.
 
U.S. equity futures, crude oil and Treasury yields climbed Monday as investors tried to calibrate economic risks from the omicron coronavirus strain, bringing some calm back to markets.
 
In Asia, markets fell Monday with Tokyo's Nikkei 225 (-0.03%), Hong Kong's Hang Seng (-0.57%), Seoul's Kospi Index (-0.43%) and Sydney’s ASX 200 (-0.15%) all a sea of red headed into the week. 
 
 

1. The Omicron Conspiracy

 
  • Global markets were jolted from their warm baths last Friday when global stock markets tumbled the most in a year, shaken by the discovery of a new coronavirus variant in Botswana that was spreading like wildfire across South Africa.
  • This week will be the true test of market resilience as more information about the Omicron variant comes pouring in.
 
This may come as a surprise to most investors, but wait for it, the coronavirus pandemic is still very much with us.
 
Yet the narrative from the mainstream media has up till days ago been about a “post-Covid” landscape when really the focus should have been on the task at hand, turning the pandemic endemic.
 
Effective vaccines and falling rates of infection have lulled investors into a false sense of security, even as fresh outbreaks and renewed lockdowns in China and Europe threatened to derail the economic recovery.
 
But global markets were jolted from their warm baths last Friday when global stock markets tumbled the most in a year, shaken by the discovery of a new coronavirus variant in Botswana that was spreading like wildfire across South Africa.
 
The MSCI All Country World Index, a benchmark for global equities tumbled by 2.44%, while the FTSE All World index shed 2.2% in its worse day since October 2020, with markets across the U.S., Europe and Asia buckling under a bout of heavy selling pressure.
 
Because investors had been so focused on inflation fears, concerns over the coronavirus were on the backburner and caught many off guard.
 
The timing could not have been worse.
 
Thin markets were easy to run down with most traders in the U.S. away for the Thanksgiving holiday and Friday an abbreviated day on Wall Street.
 
Bond traders who had priced in a sharp increase in yields on anticipated interest rate increases were hit hardest when markets reversed course as sovereign debt rallied strongly and investors sought out haven assets, dialing back expectations on monetary tightening for next year.
 
But not all debt is made equal and corporate bonds were shaken over concerns that a fresh wave of a potentially vaccine-resistant coronavirus could weigh on economic activity and hurt debt servicing ability.
 
This week will be the true test of market resilience as more information about the Omicron variant comes pouring in.
 
Early results indicate that while the new coronavirus variant is allegedly more virulent, symptoms presented in the vast majority of cases in South Africa were mild.
 
Investors pricing in a sharp fall should instead hold fast to their current investment theses as opportunities thanks to continued central bank accommodation on account of the new coronavirus variant.  
 
 

2. Beware the Fall in Oil Prices

 
  • The party at OPEC+ saw an abrupt pause on Friday when the prospect of a fresh coronavirus variant sent oil prices plummeting.
  • Ahead of a crucial OPEC+ meeting this week, the sentiment has gone considerably more cautious, and oil producing countries will need to consider whether now is the time to turn on the taps or to hold back, in a delicate balance between supply and demand.
     
When oil prices (albeit for futures contracts) went negative last year, OPEC+ countries already battered by the pandemic were reeling.
 
But when vaccinations got under way in earnest, the world’s oil producers reveled at the opportunity to make back some of the monies that were lost because of the pandemic and to shore up their embattled national balance sheets.
 
Despite soaring inflation and appeals by the Biden administration for OPEC+ countries, especially Saudi Arabia, to increase their output, producers were too busy enjoying their Dom Perignon to pay much heed to these requests.
 
But the party at OPEC+ saw an abrupt pause on Friday when the prospect of a fresh coronavirus variant sent oil prices plummeting, with the benchmark West Texas Intermediate falling 10% to close below US$70 for the first time since September.
 
Ahead of a crucial OPEC+ meeting this week, the sentiment has gone considerably more cautious, and oil producing countries will need to consider whether now is the time to turn on the taps or to hold back, in a delicate balance between supply and demand.
 
Already there are signs that demand is weakening in some markets in Asian and Europe, going into the winter months.
 
China and Europe are both facing fresh resurgent coronavirus outbreaks, although these may have little or nothing to do with the omicron variant, but the sudden closure of borders will almost certainly dampen travel demand.
 
With the Biden administration and several other countries, including Japan, China and South Korea all dipping into their strategic oil reserves to dampen the price of energy, OPEC+ may be dealing with a problem of oversupply yet again.
 
OPEC+ is faced with a Catch 22, restricting supply, even when prices are plummeting will result in lower absolute revenues, while increasing production will almost certainly send prices lower.
 
For now, some OPEC+ members appear to be leaning towards pausing the monthly production increases of 400,000 barrels a day in an effort to curb the fall in oil prices, but it may have little impact on where the markets will go.
 
The current fall is primarily sentiment driven and traders are pricing in a decreased demand for oil over the winter months (when travel typically slows) and the prospect of cooler temperatures fomenting the ideal conditions for more infections and the reintroduction of pandemic restrictions.
 
Even if existing vaccines are able to provide protection against the new variant, there’s no guarantee that cautious governments or travelers will be in a hurry to start moving across international borders again any time soon.
 

Find out more about Novum Alpha as leading luxury portal Luxuo.com interviews our CEO & General Counsel, Patrick Tan...

 

 

 

3. The Metaverse is Where Facebook's Cryptocurrency Could Shine

 
  • Zuckerberg and friends are going to build their own world where anyone can spend their (hard earned?) meta dollars or whatever it will end up being called.
  • Meta’s push into the metaverse will be a significant step to attempt to standardize the consensus of reality so that value can be harvested from users in even more creative ways.
 
Because financial regulators wouldn’t give the social media company formerly known as Facebook (-2.33%) the blessing to develop their own cryptocurrency that would be backed by government securities and the holding of currencies, Facebook decided to go off and build its own world altogether.
 
So you can’t use a Zuck buck in real life? Screw it, Zuckerberg and friends are going to build their own world where anyone can spend their (hard earned?) meta dollars or whatever it will end up being called.
 
To show how serious Facebook (now called Meta) is about creating its own parallel dimension, the social media giant’ stock ticker FB will from December 1 be changed to MVRS.
 
Long live the metaverse.
 
But what exactly is it?
 
Think of it as a parallel universe, except that right now, it’s many parallel universes, from gaming to virtual meetings, it’s still a work in progress but its closest analogue would be the Second Life platform that although declared a flop, still boasts some 200,000 active daily users.
 
Unlike Second Life though, the metaverse (or at least Facebook’s version of it) will be far more immersive thanks to its acquisition of Oculus, the VR equipment maker and will “expand into three dimensions” that will be “projected into the physical world,” according to Meta’s marketing spiel.
 
Does your real life suck? Then go get a great one in the metaverse?
 
Once there, you won’t ever want to leave, and guess what? Since your existence becomes virtual, so is your spendable money.
 
Given how much of our lives in the digital realm are airbrushed and photoshopped into perfection, it only makes sense that the metaverse would be the next iteration of human existence (at least according to Zuckerberg) – enter the Matrix.
 
With that move, comes the acknowledgement that given how challenging things are in the real world, more people will escape into this virtual, parallel reality, spending more on virtual items using virtual currency and you can bet your last dollar (you might as well) that those items will be paid for with some form of Facebook’s virtual currency.
 
Meta’s push into the metaverse will be a significant step to attempt to standardize the consensus of reality so that value can be harvested from users in even more creative ways.
 
To understand what such a world could look like, just catch up on movies including Ready Player One, Life 2.0, The Matrix, Gamer, Alita: Battle Angel, these and other films may provide some inspiration on what the next investable digital asset could potentially be.
 
 

What can Digital Assets do for you?

 
The flagship Novum Alpha Global Opportunity Digital Asset Fund ("the Fund"), a capital growth fund that offers a regulated and familiar investment vehicle for accredited and institutional investors to participate in the digital asset universe is pleased to announce its second month of trading has seen consistent performance, with a return of +13.22% for October 2021, to add to September 2021's performance of +2.19% 
 
With almost a decade trading both digital assets and financial instruments, the Fund represents a blend of our best quantitative strategies melded with a discretionary overlay that provides investors with the most comprehensive and holistic approach to digital assets on the market today. 
 
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.  

Nov 29, 2021

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