Tue, May 18, 2021 @ 10:02 GMT
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Stars Are Aligned For Roblox, Biden Wins The Fiscal Aid Battle And ECB In Focus

The world’s largest user-generated games site Roblox is freshly out of the oven and it smells delicious. The company went public through a direct listing, and not through a traditional IPO after a couple of most expected IPOs including the well-known AirBnB prices jumped after going public, a sign that they unfortunately sold their shares much cheaper than the market valuation. Roblox preferred taking the risk to go public directly and the decision wasn’t so bad. The price of a share soared to $74, some 64% higher than the reference price of $45, which has been paid by investors through the direct listing. So Roblox made a good deal.

There is of course the fact that it is certainly a good time to go public nowadays, when there is appetite for anything in the market. But in the case of Roblox, it’s certainly not just the opportune time but the right business model that excites investors, as much as it excites gamers. So Roblox is, and partly by choice, in the right place, at the right time and with the right business model.

In January this year, the platform counted near 200 million active users, up from 113 million in December 2020. And it is not surprising. First, no one can deny that online gaming industry has been booming since decades now; from children to adults, everybody plays online. Second, the pandemic gave a huge hand to the gaming industry, of course, which has certainly been one of the luckiest sectors as lockdown measures nailed people to their houses, and sometimes to their room. What do you do when you are alone and stuck at home. You can read a book, but more realistically, you go on Facebook, you watch a film on Netflix and you play games online. Apparently, the average amount of time spent on the platform is about 2.5 hours. We have a winner here.

The end of the pandemic will brush off a layer of demand in game industry, but it will hardly reverse the very clear positive trend. Pandemic or not, there is a sizeable organic growth in this business and the online game demand won’t disappear overnight, on the contrary, it will continue rising. And the fact that the platform offers the opportunity to be on each side of the table, as a gamer or a developer is just the rightest business model that we could possibly think of right now.

On other gaming news, GameStop shares saw a jaw-dropping volatility yesterday. The price hit $348, then fell to negative when finally trading was halted, then stabilized around $260 per share. We are at the heart of the second speculative bubble, and there is potential for more upside and huge downside in the coming days for traders who love navigating through extreme agitated waters.

Now, back to our macro theme of the moment, the US inflation came in slightly less than analyst estimates. The headline inflation came in line with the consensus of 1.7% year-on-year, but the core inflation unexpectedly eased to 1.3% from 1.4% printed a month earlier.

On the other hand, the US 10-year auction went fine, avoiding a feared nightmare of seeing too little demand for the 10-year notes at a time the US is preparing to add another $1.9 trillion to its debt burden as Joe Biden’s latest fiscal aid package got the congressional agreement and should arrive to Biden’s desk shortly. The bill is expected to be signed and sealed by Friday. Therefore, happily, the tame inflation report and the smooth 10-year action are here to keep the 10-year yield in control. Of course, the Biden’s package is nothing new and is mostly priced in the markets. Therefore, the reflation trade is what prevails, with the exception of tech binges here and there. The Dow rose 1.46% on Wednesday, while Nasdaq closed the session 0.04 lower.

Activity in European and US futures hint at a reasonably positive session.

Gold is up for the third consecutive session. Stabilizing sovereign yields should back a further recovery in the yellow metal. Yet, near $1750 per oz, investors should decide whether the gold deserves to break above its medium-term down-trending channel, or it should continue giving back the pandemic gains.

Finally, today’s key economic highlight is the European Central Bank meeting and investors are curious to hear the European policymakers’ take on the rising sovereign yields. We know that the fast-rising yields triggered some serious discomfort bringing up the possibility of a policy response from the ECB including further negative rates and faster bond purchases. At this stage of the game, I believe that the most likely policy readjustment, if any, would be front-loading bond purchases in the context of the PEPP program and leave the rates alone. Yet of course, increased PEPP purchases today means a shorter life for the PEPP program unless the bank decides to puff it up due a slow recovery calendar on delayed vaccine deliveries, slower-than-hoped vaccinations and extended lockdown measures. In this respect, the ECB could revise down its economic outlook and stay cautious to give itself more flexibility to act further down the road. Each dovish adjustment to the ECB policy is a pain due to the discrepancies in health and economic conditions across the member states. Periphery wants more, core agrees less.

On the inflation front, even though the inflation expectations in the EZ have rallied along with yields, oil and commodity prices, the Eurozone remains a low-inflation zone and there is perhaps more room for accommodative monetary policy before we start worrying about inflation topping the ECB’s 2% target. In this context, the EUR bears will certainly remain in charge of the market, and we shall see some solid top-selling interest at and above the 1.20 mark.

 

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