We finally see some relief in the global equity markets; a good rebound in European indices yesterday followed by a decent progress led by tech stocks in New York hint that the worries over inflation are easing for now, although these inflation worries will be re-heated and re-served to the market often from now on, unless we see a sustainable deceleration in the commodity rally, or soft, but not too ugly economic data that would hint at stabilizing inflation without necessarily hinting at bad economic recovery. That’s a fine line to walk for the Federal Reserve (Fed).
The US dollar softens, again, and the US 10-year yield eased back below the 1.65% handle.
For those who are willing to explain the positive vibes in the US stock markets, we have the choice. Bloomberg choses to put the emphasis on the better-than-expected weekly jobless claims in the US, which came in below the half-a-million mark for the third week in a row: that’s a sign that the Fed’s policy is working, and if the Fed is forced to start tapering its bond purchases in a couple of months, at least a stronger economic recovery will be here to cover investors’ backs. But for those who like the bad news is good news theory, we are also served a soft Philly Fed manufacturing index yesterday; employment, new orders and business conditions were all softer-than-expected, except from prices paid, meaning that despite the rising inflation, the Fed would push its boundaries to stay as accommodative as possible.
Today, the flash PMI figures across the globe should confirm the pickup in the economic activity in May, especially in Europe where most countries eased the restriction measures and are getting back to a normal-like life. Also, there are reports that businesses which have a greater exposure to Europe and European stocks should outperform their peers in the coming weeks and months given that the vaccination efforts are paying off and the reflation period should help increasing appetite in the region as well. I still believe that the enthusiasm and euphoria in European stocks should remain subdued compared to the one we see in the US stocks. Europe is always more contained in terms of growth spurts, whether it’s due to the strict market regulations, or the old continent’s more conservative set of mind.
In the crypto-space, Bitcoin which got shattered after Elon Musk voiced his environmental concerns on Bitcoin’s high-energy-consuming mining process, Janet Yellen’s Treasury department gave another punch to the crypto-investors yesterday, saying that businesses receiving digital tokens worth more than $10’000 should report it to the IRS. In one sense, it’s normal. The idea is to have a financial revolution, not to have a broad tax evasion tool. Therefore, in theory, this kind of news should not dent the long-term investor appetite. But alas, Bitcoin is struggling a touch below the $40K. Technically, we are in the bearish consolidation zone, and a further bearish consolidation could be on the menu this weekend.
Coinbase’s struggle, on the other hand, justifies the theory that the good volatility – when people rush to cryptocurrencies doesn’t have the same impact than the bad volatility – when people rush to the exit. That’s not too surprising, yet in terms of transaction fees, all volatility is supposed to be good for a company business like Coinbase’s, if the sell-off remains temporary. The next important test in Coinbase price is the $200 per share, a slip below this level could keep the downside pressure intact on the quite unlucky new member of Nasdaq.
Finally, Oatly Group’s shares also made their debut at Nasdaq yesterday and saw a warm welcome from investors as the company offers a revolutionary range of products that fits perfectly in the actual vegan and pro-environment trend and will likely attract the attention of ESG funds. However, at the current valuation, the price stands somewhere near 24 times last year’s sales, relatively high compared to Beyond Meat’s 16 times, and Danone’s miserable 2 times. The latter should apply a certain downside pressure on the current prices given that the competition in no-cow dairy will be tough, as big, traditional names such as Nestle and Danone are not twiddling their thumbs.