Novum Alpha – Daily Analysis 14 January 2021 (10-Minute Read)

Terrific Thursday to you as the markets trudge along, the weekend beckons! 

In brief (TL:DR)

  • U.S. stocks recovered slightly with the S&P 500 (+0.23%) and tech-centric Nasdaq Composite (+0.43%) up slightly while the blue-chip Dow Jones Industrial Average (-0.03%), was down marginally as markets in general drifted. 
  • Asian stocks opened higher on Thursday as the U.S. decided against an investment ban on major Chinese tech stocks. 
  • The U.S. 10-year Treasury yield was little changed at 1.08% as traders sat on the sidelines awaiting clearer guidance from the U.S. Federal Reserve (yields fall when bond prices rise). 
  • The dollar held most of its advance from Wednesday. 
  • Oil held was mostly flat with February 2021 contracts for WTI Crude Oil (Nymex) (-0.08%) at US$52.87 from US$52.91 as the dollar was steady. 
  • Gold fell with February 2021 contracts for Gold (Comex) (-0.24%) at US$1,850.40 from US$1,854.90 as the dollar held on to gains. 
  • Bitcoin (+14.59%) rebounded sharply to US$37,728 on news that retail inflows look set to see another rally in the bellwether cryptocurrency (inflows typically suggest that traders are looking to sell Bitcoin in anticipation of lower prices). 

In today’s issue…

  1. That Container Costs How Much to Ship?
  2. Intel-e-gent – Could a new man at the helm change the chipmaker’s fortunes?
  3. Batten Down the Hatches, Bitcoin May Bubble Over this Weekend

Market Overview

With less than a week before the end of U.S. President Donald Trump’s term, the House of Representatives has voted to impeach the sitting president for a record second time. 
 
¯\_(ツ)_/¯
 
With Trump’s impeachment now on the floor of the Senate, a two-thirds supermajority of Senators will need to vote to impeach Trump for him to be convicted. 
 
🙄
 
If the vote on the House for impeachment was any indication, the U.S. Capitol is more likely to be stormed by aliens this week than the Senate voting to impeach. 
 
The House voted mostly along party lines, with all Democratic House members and 10 Republicans voting to impeach Trump, 223 to 205. 
 
And while Senate majority leader Mitch McConnell has not indicated which way he would be voting in Trump’s impeachment hearings, it won’t really matter as the most divisive president in U.S. history runs down the clock. 
 
In Asia, investors had moved on, taking note of the recovery, while America fixes its democracy with Tokyo’s Nikkei 225 (+0.94%), Hong Kong’s Hang Seng Index (+0.61%), Sydney’s ASX 200 (+0.42%) and Seoul’s KOSPI (+0.15%) all up.
 

1. That Container Costs How Much to Ship?

  • Spike in shipping rates may disrupt already stretched global supply chains and put a dent on any nascent global economic recovery 
  • Corornavirus restrictions and robust demand have seen freight rates skyrocket 
 
In countries like Singapore, where the island is so small you can drive from end-to-end in under an hour, residents visit the airport just to get a whiff of what travel must feel like and attempt some semblance at wanderlust.
 
But the grounding of travelers from Singapore to Stockholm, Minsk to Mumbai and everywhere in between, has meant that much of the freight that was carried in the belly of passenger jets has had to be hefted onto cargo planes or passenger planes repurposed for the role.
 
And what can’t be flown has ended up being shipped. 
 
The spike in air freight rates has also seen a consequent spike in shipping rates and fresh headwinds are facing businesses struggling to get their goods from manufacture to markets.
 
A resurgent pandemic, is threatening to derail Asia’s trade-led economic recovery and making it harder for businesses grappling with soaring freight costs to weather another year like the last one.
 
While 2020 may have been a year of shortages of basic consumer goods like paper towels and electronics to work from home, this year, the most globally integrated of industries, vehicle manufacture, is starting to experience the strain of highly optimized global supply chains.
 
“Just in time” production systems, which are optimized to reduce the amount of time that essential parts are stored in warehouses, has meant that even the slightest delay can see production lines halted.
 
Honda Motor (-0.14%) has already reduced output at five of its North American factories as it struggles to procure chips used to make cars, while Volkswagen (-0.66%) was forced to cut production plans at the world’s largest car factory in Germany.
 
Meanwhile shipping containers are scarce and standard container shipping rates on transpacific shipping routes are as much as four times what they were a year ago.
 
And with the Lunar New Year just round the corner, which typically marks a seasonal uptick in Asian exports and freight rates typically drop 15% to 20%, the backlog might see freight rates spike and continue on their uptrend.
 
Firms for whose manufacturing is far from their markets will suffer the most and ultimately need to pass some of those increased costs on to either consumers or from profits.
 
And with the global economic recovery hinging on manufacturing, as hospitality and tourism remain ravaged by the pandemic, over-stretched supply chains could temper the pace of such recovery, according to the World Bank. 
 
 

2. Intel-e-gent – Could a new man at the helm change the chipmaker’s fortunes?

  • Intel (+6.97%) gets a new boss but faces myriad challenges in refocusing its energies 
  • Best bet is that a new CEO could steer the company to double down on the things that it is good at and regain market share from rivals 
When Satya Nadella took the helm of Microsoft (+0.66%) in 2014, the software giant was languishing.
 
Although Microsoft’s ubiquitous Windows operating software could still be found on over 75% of computers globally in 2014, Nadella was set to steer the company in a different direction, embracing cloud computing and mobile technology.
 
And that refocus of energies saw Nadella sign partnerships with some of Microsoft’s biggest competitors, including Red Hat, Salesforce (+1.23%) and even Amazon (+1.44%).
 
But the risks undertaken by Nadella paid off and Wall Street rewarded shareholders by tripling Microsoft’s stock price in just over four years.
 
Could a new CEO for embattled chipmaker Intel do the same?
 
For years, Intel enjoyed a monopoly on the x86-based chipsets that dominated Windows-based computers, but a series of manufacturing setbacks and competitive blunders have seen rival AMD (-3.75%) eat up Intel’s market share.
 
Nvidia (+0.35%) meanwhile, a graphics chipmaker whose bets on data centers and artificial intelligence paid off, has since overtaken Intel as the world’s most valuable chipmaker.
 
As Intel looks to retool its strategy, it’s brought in fresh leadership, replacing CEO Bob Swan, a former finance chief who was at the helm of Intel for just over two years, replaced by Pat Gelsinger, currently the CEO of cloud infrastructure software group VMware (-6.79%), and a former Intel veteran.
 
Intel’s shares jumped over 12% on the announcement, as the firm now has to decide whether it wants to double down on chip making, or outsource more production to rivals TSMC (-3.06%) and Samsung (-0.56%).
 
Chipmaking is an expensive and tricky business, with missteps on the production floor extremely costly.
 
Intel has struggled in developing the new process technology needed to manufacture its latest generation of chips and saw its shares drop by 17% in a day last July, when it revealed that it was 1 year behind its schedule in developing those production processes.
 
And Apple’s (+1.62%) announcement that it would be shifting its Macs away from Intel to Arm-based processors, just as Nvidia plans to acquire Arm for US$40 billion, will put added pressure on Gelsinger. 
 
While outgoing Intel CEO Swan had pledged to make data, rather than personal computers, Intel’s strategic focus, it may have to play substantial catch-up with Nvidia, which has a significant lead in data center chips.
 
But it would be too early to write off Intel just yet.
 
In the mid-range, Intel’s CPUs continue to outperform rival AMD’s offerings and Intel is also moving into the budget-sensitive discrete GPU market, offering entry-level graphics capabilities at the lower end.
 
Intel is also looking to expand its GPU offering, including a data center GPU called Ponte Vecchio that will complement its powerful Xeon CPUs.
 
Whether that re-entry into the graphics processing market, where Nvidia and AMD hold substantial leads, remains less clear.
 
And whether Gelsinger can stage the sort of dramatic comeback for Intel the way Nadella did for Microsoft remains to be seen, but there are at least some investors taking a bet that the company can. 
 
 

3. Batten Down the Hatches, Bitcoin May Bubble Over this Weekend

  • Surge in retail demand for Bitcoin has seen eToro warn of disruptions heading into the weekend, with clients potentially limited in their buying orders  
  • Weekend surge in Bitcoin trading volumes could see another sharp rally into next week
Any seasoned Bitcoin trader will attest that weekends are when Bitcoin trading volumes typically tend to slough off, but the upcoming weekend may be a bit of a bender for Bitcoin bulls.
 
According to eToro, which recently offered as much as US$500 to lure investors to open US$5,000 cryptocurrency trading accounts, the platform is fielding so much demand for Bitcoin and other cryptocurrencies that it warned customers they may encounter “possible limitations” filling orders.
 
In an email to customers, eToro wrote,
 
“The unprecedented demand for crypto, coupled with limited liquidity, presents challenges to our ability to support BUY orders over the weekend.”
 
“In light of this, it may be necessary for us to place limitations on crypto BUY orders over the weekend.”
 
And that could be the spark that lights another Bitcoin rally, with the bellwether cryptocurrency already recovering off its lows in as many days and now trading around US$37,500.
 
But eToro’s difficulties coping with retail demand for Bitcoin also underscores how trading platforms are struggling to manage the surging volatility in the cryptocurrency market, even as Bitcoin skyrocketed to an all-time-high of over US$41,000 last week.
 
And while it pulled back to as low as US$33,000 at one stage, Bitcoin has since rebounded, demonstrating just how volatile this asset class is. 
 
Right up till last year, Bitcoin trading volumes tended to slow down going into the weekend, as institutional traders stepped away from their desks, but a resurgence in retail interest has mean that volume has surged recently on weekends.
 
As the only show in town on the weekends (Bitcoin trades 24/7 unlike other traditional financial assets), investors, particularly retail, have been drawn to trade Bitcoin in their free time.
 
And this weekend, any slowdown in eToro’s ability to facilitate buying activity for Bitcoin may see Bitcoin surge in other cryptocurrency exchanges as demand spills over.
 
That could be a double-edged sword because knowledge of an upcoming surge in demand for Bitcoin might lead some traders to take the opportunity to lock-in some profit.
 

The current flows for Bitcoin however still seem to suggest that a weekend rally may be imminent and retail investors, in sufficient numbers, do have the capability to push Bitcoin far higher than its most recent rally. 

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

Exclusive access to Novum Digital Asset Alpha’s Daily Analysis is made in conjunction with Bitcoin Malaysia.

The information and thoughts laid out in this analysis are strictly for information purposes only and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws.

It does not constitute a recommendation or take into account the particular allocation objectives, financial conditions, or needs of specific individuals.

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