Novum Alpha - Daily Analysis 23 June 2022 (10-Minute Read)
A terrific Thursday to you as U.S. stocks tick lower while Asian markets were mixed at the open, with increasing concern about global growth.
In brief (TL:DR)
|
In today's issue...
|
Market OverviewSovereign bonds rallied as global investors parsed the economic and monetary policy outlook and grew increasingly concerned about economic growth with U.S. Federal Reserve Chairman Jerome Powell acknowledging the risk of recession on the horizon.
Key industrial commodities took a beating, with crude oil coming its closest to the psychologically-important US$100 level for the first time in weeks on demand concern.
With the U.S. Federal Reserve in full-on inflation-fighting mode, the odds of a "soft landing" for the U.S. economy appear to be unlikely and in a testimony to the Senate on Wednesday, Powell conceded that it was "very challenging" to architect such an outcome.
Asian markets were higher on Thursday's open with Tokyo's Nikkei 225 (+0.39%), Seoul's Kospi Index (+0.21%), Hong Kong's Hang Seng Index (+0.71%), and Sydney’s ASX 200 (+0.40%) all up.
|
|
|
What's the sentiment for cryptocurrencies in Southeast Asia?If you didn't receive the Novum Alpha daily newsletter in your inbox yesterday that wasn't because it went to the spam folder. In fact, our team was busy on the ground at the CryptoExpo Asia 2022 in Singapore, getting a sense of the sentiment for cryptocurrencies in Southeast Asia.
One thing the team had to report, even though prices are flagging for cryptocurrencies, interest has not waned.
Compared to Consensys 2018 in Singapore, where the sense of doom-and-gloom was palpable, attendees thronged the entrance to the in-person event well before gates were open and keynotes and panel discussions were well-attended.
While no one was questioning the obvious bear market in cryptocurrencies, some of the exhibitors were traditional tech companies that recognize the potential of Web3 and cryptocurrencies and are eager to get onboard, including Similarweb (the web traffic analytics firm) and Southeast Asia super app Grab (a ride-hailing app that also serves a variety of other services).
Prices may have been hammered, but the interest is palpable, when that will translate to price, is less clear, but judging from the enthusiasm of attendees, it almost seems eventual.
|
|
|
|
Backtest returns are derived from live-traded proprietary capital but must be interpreted purely as a backtest and not inclusive of fees. The Novum Alpha All Weather Crypto Fund (“the Fund”) will be administered using investment policies, objectives, guidelines and restrictions that are in all material respects equivalent to those used when proprietary capital had been traded. However, because the trading using the proprietary capital was not via a registered mutual fund, such trading was thus not subject to the same investment restrictions as may be applicable to the Fund. If it had been, the performance may have been lower. Past performance is not indicative of future returns. Backtest performance is not indicative of future returns. Please see the Offering Documents for risk disclosures.
|
|
|
|
1. Bank of Japan Pulls Off a Last-Minute Miracle to Cap Bond Yields
Amidst the market madness of recent weeks, some relief was seen as Tokyo’s bond market stabilized thanks in no small part to the Bank of Japan. Traders pondered over unparalleled intervention by the BOJ, which by sheer brute force managed to force benchmark yields off of a keenly watched and psychologically-important ceiling.
The start of the week saw Japanese 10-year yields climbing higher to 0.23% on Monday, in the wake of the BOJ’s record 10.9 trillion-yen (US$81 billion) purchase of bonds last week.
The BOJ mounted bond purchases as benchmark yields shot past its tolerated limit of 0.25% amidst a worldwide debt selloff and for now at least, things appear to have stabilized.
Adopting a bond purchase strategy is integral as it aids in keeping a limit on medium-term costs (also known as yield-curve control) in Japan, that has been in effect from 2016, especially given the slow growth of the economy over the past decade.
But the actions of the BOJ can’t easily be replicated by other economies.
Japan has seen years of negative or slow growth, with things picking up only in recent years and Tokyo is keen to make hay while the sun shines, and Japan’s yen as well as its sovereign debt has been a safe haven in troubled times.
But with yields soaring in the U.S. thanks to central bank tightening and a divergent monetary policy in Japan, pressure is rising on Japanese debt amidst a widespread selloff by investors.
The Bank of Japan remains the biggest buyers of Japanese government debt, but how long this resolve can be maintained before something breaks is unclear.
|
|
|
2. Normalizing Central Bank Policy Hurts Those Who Can Least Afford It
Normalizing central bank policy is hard to do.
Even in the best of times, policymakers have to contend with a myriad of issues and competing policy priorities, but having to juggle all the balls at once while trying to wrestle monetary policy back to more normal times is proving to be one ball too many, at least according to markets and investor sentiment.
After a prolonged interval of resistance, the U.S. Federal Reserve has conceded that it has been pushed to a corner, indicating the fervent need to tackle inflation more aggressively notwithstanding the implications on the market.
While the climate of constricting financial conditions is self-perpetuating – sentiment wanes so demand drops and prices (hopefully) retreat, there is no guarantee of mean-reversion (an assumption that asset prices will converge to the average price over time) under these pressures.
Which explains much of the volatility of late – increasingly, prices are being dictated by narrative as opposed to valuation models and this has been reflected in a surge in tech on one day, only to meet a sharp decline the next.
Instead, central bank policymakers could usher in a secular systemic shift where inequality is worsened, livelihoods are jeopardized, and unintended consequences are rampant.
This ‘wakeup call’ of sorts is imperative in treading through the volatility of the economy.
To be fair, the Fed could not have predicted the Russian invasion of Ukraine nor the effect that would have on commodity markets and in the absence of that Black Swan event, inflation could have been “transient” to use their lingo, but even then, the odds of that were unlikely.
Unprecedented injections of liquidity have inflated every manner of asset and created new ones which otherwise could not have existed – when the money’s free, the consequences are of no matter.
But the ones who really hurt are the middle class and the poor as liquidity injections have almost always tended to favor asset holders and not the working class.
Now as the tide of liquidity recedes, it’s once again the middle and working class, those who are stretched by their mortgages and auto loans, who are being hit hardest.
The onus lies on policymakers to take the initiative to curb the damage across the board, as well as to safeguard the most vulnerable sections of our society.
|
|
|
3. Celsius Network Takes Its Own Temperature
Halting withdrawals and roiling markets, cryptocurrency lender Celsius Network has cautioned that it will require time to regain its footing and normalise its operations.
In a blog post Monday, Celsius indicated that since its company’s establishment, ‘open dialogue with regulators and officials’ has taken precedence, much to the chagrin of depositors desperate to access their assets.
Additionally, Celsius plans to work closely with ‘regulators and officials’ to formulate a solution to restart operations and normalize withdrawals.
The crypto lending firm has also halted its Twitter Spaces and AMAs (Ask Me Anything) allegedly to focus on fixing the issues that it is currently facing.
But restarting normal operations may not even be possible for Celsius.
For starters, once the floodgates open, it’s almost a given that depositors and those with assets on Celsius Network, will flood in with redemption requests, the equivalent of a bank run.
In the wake of the TerraUSD and Luna implosion, counterparties are still wary, unsure of which will be the next shoe to fall.
Three Arrows Capital, which is rumored to be insolvent as well has led to a crisis of confidence in a market that has already struggled amidst tightening monetary policy.
|
|
|
What can Digital Assets do for you?Novum Alpha has a range of regulated cryptocurrency fund products specifically catered to accredited and institutional investors from all over the world.
From our pure-alpha Novum Alpha Global Opportunity Digital Asset Fund that aims to deliver multiples on investment with no leverage, to our market-neutral cash-and-carry spot-futures arbitrage Novum Alpha All Weather Crypto Fund, there's something for all risk appetites and investors profiles.
For sophisticated investors, the Novum Alpha Global Opportunity Digital Asset Fund remains one of the best ways to gain exposure to the digital asset sector, in an unleveraged, institutional vehicle that seeks to return multiples on capital.
To find out more about our products and services, please visit us at:
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.
|
Jun 23, 2022