Category: zerohedge

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

Bitcoin: It’s Not A “Real” Truck

I just bought a new truck. My 2013 Ford Focus (with requisite 5 speed Millennial Anti-Theft Device) couldn’t keep up with the rigors of my 3/4 mile trek to pavement multiple times a day.

It was time to get something out of it before it began costing me real money, as much as I loved that car.

No matter what I did I was going to buy as little car as I could because vehicle prices are scandalous, a by-product of the Fed’s insane policies creating cost-push inflation for everything people actually need while denying it’s having any ‘real’ effects.

That ‘real’ thing is important and I’ll keep coming back to it.

I live back a dirt road that gets ugly in the wet Florida summer. I have a small farm and a teenage daughter. Goats, Ducks, Dogs and a wife earning a Bachelor’s in food foresting and permaculture.

I need a pickup truck and one that hauled three people in reasonable comfort. I have a farm truck I no longer want, a true 2005 piece of hot garbage made by Chevy called a Colorado that has negative value. Plates and insurance alone are more than the truck is worth to me.

Cheap paid-for vehicles that cost you time are not an asset, they are a liability that only compounds as they age. Getting rid of both the Focus and the Colorado and combining them into one vehicle was a good value proposition.

And at these financing rates and the state of my business I could more than afford to treat myself after years of fiscal discipline.

So, what did I buy?

I bought the Honda Ridgeline pictured above. All the truck I needed, none of the truck I didn’t.

Did I want something more manly or more aspirational? Sure.

Did I lust over the $56,000 RAM Rebel (in blue!) with the Hemi at the local Church of Mopar? Absolutely.

But I don’t buy cars that way. Never have. For me it’s all about the value proposition because I know myself well enough to know that I’m hard on my cars. My trade-ins are never good. Where I live they just can’t be.

That said, since I generally just love cars I can cross shop everything from a Mini to a muscle truck. So, when the right value deal presents itself, I buy that car not feeling a moment of buyer’s remorse knowing I pre-paid and didn’t finance part of that accelerated depreciation curve.

Needless to say, I’m a nightmare for car salesmen.

But here’s the thing about the Honda Ridgeline. It’s not a ‘real truck. ‘

It looks like a truck, performs most tasks like a truck, but it’s not a full box ladder frame, solid axle spine breaker with a foot of ground clearance. It’s a mid-sized light duty truck, built like a car underneath. It will haul me and 500 lbs of hay and feed home from town and take my daughter to school regardless of how sloppy the road is. And it’s more agile than the Colorado or any other mid-sized truck other than the Ford Ranger on the market (2021 model) and that’s important to me.

Did I mention my wife and the permaculture? The yard and parking areas are tight. The RAM simply wouldn’t fit.

This isn’t meant to be an advertisement for the Ridgeline. It’s meant to remind everyone that to all things there is a purpose and consumers make choices not based on others’ perceptions.

Because no matter what you say to ‘real truck’ guys. The Ridgeline isn’t a ‘real truck.’

Scroll through the comments on any YouTube video comparing the Ridgeline to a ‘real truck’ like the aging and over-priced Toyota Tacoma and you’ll see exactly what I’m talking about.

And fair enough. But, you know what?

More people are finally coming to the realization that they don’t need a ‘real truck.’ They need something that does the work they need it to do and still do everything else well enough. And mostly that’s haul ourselves around and navigate parking lots and traffic.

That’s why Hyundai’s new Santa Cruz is going to sell like mad, FYI.

The Ridgeline is almost too much truck for me. Almost.

Even my wife gave me a little grief for buying the Ridgeline, since she drives a 2015 Xterra, what she calls her “Animus Chariot.”

So what does this have to do with Bitcoin?

A lot. Because the market doesn’t care about the wishes of those who can’t update their definitions. The definitions of a ‘real truck’ have changed a lot over the years. No one today would say a Ram 1500 with coil springs isn’t a ‘real truck’ because it doesn’t have leaf springs.

The mini-pickups of the 80’s and 90’s — the early Rangers and precursors to today’s Tacomas, one of which I built my house with — weren’t considered ‘real trucks’ back then either because they had 4-bangers. I get it. But the market decides what works and what doesn’t.

And if Honda can make a unibody truck platform work well enough for 85% of truck operations in the real world is it any different than what Subaru did with the Outback and Forester for SUVs? Up until their introduction SUVs were just ‘trucks with trunks,’

And it means that calling the Ridgeline ‘minivan with a bed’ is exactly what it looks like (aside from being funny), people disparaging what someone else chose to validate their own choices.

Jungian’s call that ‘projection,’ by the way.

So, as I navigate the hate for the Ridgeline I’m getting the same vibe there as I do from the gold community about bitcoin.

It’s not ‘real money,’ they say. “Good luck having money when the lights go out.”

“It can’t climb over rocks or tow a big load.” Well, of course not, it wasn’t designed for that.

And, last I checked, when the lights go out, doesn’t the definition of money change again? You know to lead, copper, a primer and some smokeless powder, but I digress.

I don’t think at this point those protests about bitcoin are about their lack of understanding it. It’s something much deeper, much darker. It is that sinking feeling that the image they have of the world they thought they knew isn’t valid anymore.

That technology has altered the structure of the market for both trucks and money in a way that isn’t coming back to their way of thinking.

Their projection is not based on rational analysis of the situation but an inability to cope with what amounts to a sub-optimal series of choices made out of stubbornness and loyalty to a worldview which is no longer valid.

Now for those gold guys who, unlike me, are unconvinced of bitcoin’s future but used it to buy more gold, all I have to say to them is, “Huzzah! You are smarter than even the above average bear.”

The gold investment community is still stuck in 2008 (to protect their businesses), using the canard that if just 1% of retail investors put 5% of their wealth into gold they could break the central banks and the COMEX/LBMA and gold could finally get properly priced.

But here we are after 20 years and we have the Fed expanding its balance sheet at a furious rate trying to keep up with asset deflation and retail investors continue to not do this very simple thing. Why?

Because gold can’t do all that needs to be done. There are tasks bitcoin does better. Gold’s network is tiny. Bitcoin’s is growing exponentially. Which one, in a world where people reject the central banks, is going to outcompete the other for marketshare?

Gold has its place in this but it isn’t the only place.

Just like the Ridgeline does some things better than a Tacoma. And to deny that simple truth is insecurity becoming projection. And hating the Ridgeline is hating your own choices for having overspent on the compromises of owning a ‘real truck.’

Over time our perceptions of what is and is not real change. They change with age and experience. So too, do gold guys have to get on board with crypto to help all of us navigate a very uncertain future, become part of the powerful network effect of Bitcoin. At the same time the ‘have fun being poor’ crypto guys have to get out there, take some profit off the table, get ‘real’ and buy some gold.

During my car buying process we went out for a quick dinner while waiting for my Mopar salesman to come back to the office. We stopped at a local Chinese buffet. Not my first choice but it was a bit of nostalgia from my Type-2 diabetes days.

Now, I have three rules when I go to the Chinese buffet. Never go between lunch and dinner when the food is old, never get seafood and always chase dinner with ice cream. Like I said, Type-2 diabetes.

That day we had 30 minutes. We ate at 4:30, I had shrimp and didn’t have any ice cream. And nothing bad happened.

When I went back to the dealership, I was still considering a ‘real’ man’s car, a Jeep Wrangler. I could have compromised and made my utility trailer my truck bed for all farm tasks.

Now I also have three rules about Jeeps. Only two doors, only manual transmissions, just enough options to make them livable. I owned a 1993 Wrangler. I’m 53 now.

And after driving one with the current stick I knew if I bought a Jeep it would be the mild hybrid one with a slush box, because it was just better.

But was it worth $40,000? Remember, my other rule, find the value proposition. Because to make it livable that would have been the price tag. I could compromise on the first two rules but not the third. I really was at a crossroads.

The next day, a Sunday, only two dealerships were open, Honda and the Church of Mopar. I stopped into Honda, drove the Ridgeline and all of my dithering vanished.

It fit my needs for today perfectly. Bitcoin (really all cryptos) is the right tool today to call bullshit on the central banks.

Because as I said in a recent article, they control the gold, so they control its price. We control bitcoin, so we control its price.

That’s today. Today I drive a Ridgeline. When my daughter graduates high school, however, you can bet there’ll an F-150 or RAM 1500 with two seats and a V-8 in my driveway after getting shrimp at the Chinese restaurant.

*  *  *

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After ADP’s disappointing gains in employment, all eyes are on this morning’s initial jobless claims print for any signal for Friday’s big payrolls data. For the first time since the pandemic, the number of first-time filers for jobless ebenfits dropped below 500k (498k to be specific)

 

Source: Bloomberg

California saw the biggest increase in first-time filers…

And while continuing claims ticked up very modestly last week (at 3.69mm from 3.65mm), the number of Americans on some form of government jobless benefit remains above 16 million…

Source: Bloomberg

Is that enough to keep the taper tantrum fears away a little longer?

Authored by Jesse Felder via TheFelderReport.com,

The Buffett Yardstick, or total market capitalization of the U.S. equity market relative to the overall size of the economy, now stands at a gaudy 270%.

For reference, at the peak of the Dotcom Mania, this measure only reached 188% so we are now over 40% more expensive than the most expensive stock market peak in history! Another way to think about this is to understand that, at today’s valuation, the stock market would need to fall 30% overnight in order to match the peak of what is widely considered the greatest bubble in modern history.

And not only is the current stock market bubble that much bigger than the previous record, it is also far broader. The median price-to-sales ratio of S&P 500 Index components is now almost 75% higher than it was at the peak of the Dotcom Mania just over 20 years ago. In other words, unlike that previous bubble which was confined to just a subset, the current bubble encompasses a much greater proportion of the overall stock market.

The breadth of the extreme in valuations can also be seen in the number of components trading over 10-times revenues. In March of 2000, 45 of the 500 components traded above this hurdle which Sun Microsystems CEO, Scott McNealy, would later call, “ridiculous.” As of April 2021, 65 components of the index had overcome this level, a testament to the extent of the ridiculousness in the market at present.

All that can be said about all of this is, ‘Congrats, Jay! You’ve officially blown the biggest stock market bubble in history.’

In all seriousness, however, there will undoubtedly come a time when concerns regarding financial stability will outweigh those regarding too-low inflation. Policies inspired by the latter may even precipitate the shift to the former. As a wise trader once said, “nothing like price to change sentiment.” For the moment, though, investors would appear to be applauding Jerome Powell’s historic accomplishment.

For the fourth morning in a row, futures are barely changed – a stark reversal to the previous euphoria that would see a big jump in risk sentiment in the overnight session – with Emini futures flat ahead of data that is expected to show a decline in weekly jobless claims, while shares of vaccine makers tumbled further after President Joe Biden’s plan to back intellectual property waivers on COVID-19 shots. The dollar weakened amid unchanged Treasury yields even as Japan and China returned from holiday.

Among the premarket movers, Tesla shares gained on a report from its quasi-PR publication Electrek, that its second-quarter production capacity is already sold out.

• Shares in Pfizer, Moderna, Johnson & Johnson and Novavax all involved in the making of COVID-19 vaccines, fell between 0.6% and 5.4% in premarket trading, after Biden said on Wednesday that he had backed a World Trade Organization waiver for vaccine intellectual property to enhance the fight against the pandemic.
• FAAMG stocks rose on Thursday, with Microsoft, Apple, Alphabet and Amazon.com gaining between 0.1% and 0.3%.
• In commodities, the surge continued with iron ore climbing to a record above $200/ton and steel futures hit fresh records amid renewed demand from China.
• IBM rose 0.4% as it introduced what it says is the world’s first 2-nanonmeter chipmaking technology for faster computing.
• Uber fell 3.6% as it signaled it would pay drivers more to get cars back on the road and disclosed a $600 million charge to provide UK drivers with benefits.

In Europe, the Stoxx 600 Index swung from a gain to a loss on a mixed batch of corporate results. Europe’s vaccine makers also plunged after the European Union backed a plan to discuss waiving vaccine-patent protections. The pound gained after the Bank of England slowed the pace of its bond buying and left rates unchanged. Here are some of the biggest European movers today:

• AB InBev shares climb as much as 5.3% to a more than 2-month high after the world’s largest brewer reported 1Q results that impressed analysts and said it picked internal candidate Michel Doukeris to replace long-standing CEO Carlos Brito.
• SES jumps as much as 11%, the most since November, after results, with Goldman Sachs saying that the satellite firm reiterating all of its full-year guidance should be taken positively.
• UniCredit climbs as much as 5.5%, most since Feb. 3, after the Italian lender beat estimates, with analysts pointing to strong capital, earnings driven by trading income, low provisions.
• Vitec gains as much as 11% to a record after the company forecast FY adjusted pretax profit to be materially above current market expectations. Jefferies sees double-digit upgrades to consensus analyst estimates following the update.
• Nel shares fall as much as 10%, extending losing streak to a seventh day. Norne says the “volatile ride” is continuing, however, sees more and bigger green hydrogen news in the pipeline.
• Shop Apotheke drops as much as 11%, to the lowest since Jan. 7, after 1Q results that analysts say missed expectations.
• LeoVegas drops as much as 18%, most since November 2018, after a 1Q report that Pareto said was somewhat below expectations, both regarding reported numbers and the trading update.

Earlier in the session, Asian stocks gained as much of the region reopened, with a rally in Japan driven by cyclical shares helping offset a selloff in China as both markets reopened after an extended holiday break. The MSCI Asia Pacific Index rose as much as 0.9%, with some earlier of that earlier gain trimmed after China said it was suspending a regular economic dialogue with Australia. Drugmakers were the biggest losers on the CSI 300 Index on news that the U.S. will support a proposal to waive intellectual-property protections for Covid-19 vaccines. Still, the broader Asian stock gauge was set to halt a four-day losing streak, its longest since March 25, thanks also to gains in Thailand and South Korea. Japan’s Topix index rose to its two-week high as traders returned following Golden Week holidays. That’s even as the nation was reportedly looking to extend a state of emergency for Tokyo, Osaka and the prefectures of Kyoto and Hyogo amid a continued rise in virus cases. “A softer yen vs the yuan, ongoing commodity reflation, blossoming global trade and a latent capex boom have masked the stumbling vaccine roll-out,”

Jefferies strategists including Sean Darby wrote in a note published Thursday. “Despite the sawtooth GDP trajectory Japan’s economic indicators are still holding up.” Sector-wise, reflation trades remained the focus in Asia, with cyclical stocks like Japanese automakers and financials contributing heavily to the gains. Technology and the communication-services sectors were laggards. In the U.S., the Russell 2000 Value Index has risen 1.1% this week, compared with a drop of 3.4% for its growth counterpart. In a surprising escalation, China officials announced a formal suspension of an economic dialogue with Australia, a further deterioration of relations between the two countries.

Amid mounting evidence of inflation, with even permabull JPMorgan warning that investors are not prepared for the coming non-transitory inflation shock, markets are increasingly focused on when the Federal Reserve might start throttling back its emergency support. Economists surveyed by Bloomberg expect the Fed will announce a reduction in the pace of bond purchases in the fourth quarter although today’s BOE tapering may push that forward.

While Chair Jerome Powell hasn’t yet shifted from his message that it’s too soon to discuss such a move, policy makers have begun to address the issue more directly. Overnight, Boston Fed President Eric Rosengren suggested that the U.S. mortgage market no longer needs as much support, advancing the debate on when the central bank might start tapering its monthly bond purchases. Meanwhile, the U.S. Treasury’s auction schedule suggested the government’s financing needs may have peaked.

At the same time, with Covid-19 cases starting to roll over, “reopening prospects should improve again, and the reflation trade should gather steam again over the coming months,” Esty Dwek, head of global market strategy at Natixis Investment Managers Solutions, said in a note. “The medium-term supports for equities remain unchanged.”

In FX, the Bloomberg Dollar Spot Index edged 0.1% lower, swinging from a 0.1% advance in the Asian session and the greenback was weaker against mosts of its Group-of-10 peers. European currencies dominated G-10 gains while the yen fell out of favor as risk sentiment was bolstered. The pound dropped after the BOE announced a dovish taper, while local and national elections also loomed on the radar. Norway’s krone held on to an early European session gain after the nation’s central bank sticked to its earlier communication that it will most likely raise rates in the second half of the year.  The Australian dollar recovered most of its losses that followed after China’s indefinite suspension of economic dialogue with the nation; the currency was helped by stronger iron ore prices.

In rates, treasury futures retreated from session highs, following a drop in gilts after Bank of England in policy announcement said it will slow the pace of weekly bond buying to GBP3.4b. Total Asset Purchase Plan was unchanged at GBP875b. U.S. yields, little changed before the announcement, cheapened by ~1bp across long-end of the curve. 10-Year yields moved higher by ~1bp to 1.57% as gilts weakened following Bank of England policy decision, with U.K. 10-year yield flipping to cheaper on the day. Cash trading of Treasuries was done during Asia session for the first time this week following Japanese holiday. The dollar issuance slate includes BOC Aviation 3Y, Nordic Investment Bank 5Y FRN SOFR and EIB $1.5b 10Y; five borrowers raised $4.9b Wednesday, and next week is expected to be active with potential for a $10b+ jumbo deal.

Of note after today’s BOE taper announcement, which kept sovereign and corporate sizes unchanged despite hawkish dissent from outgoing MPC member Haldane who voted to reduce the Gilt remit by Gbp 50 bn to Gbp 875 bn instead, we have seen very volatile trade in UK debt and Sterling. The 10 year benchmark ticked up gradually initially before a spike to 128.51 and abrupt reversal to 127.78 where underlying bids have contained further losses, while the Pound dumped further below 1.3900 vs the Dollar to circa 1.3859 before reversing all and more of its decline to trade up around 1.3941. In short, a hawkish net reaction and perhaps more in recognition of 2021 growth and inflation forecast upgrades along with downward revisions to jobless rates from this year through 2023 rather than QE tapering within the existing framework.

A Labor Department report will likely show initial jobless claims fell to 540,000 last week from 553,000 in the previous week. Investors are awaiting the Labor Department’s more comprehensive non-farm payrolls data on Friday, which is expected to show accelerating job growth in April.

Looking at the day ahead now, we get the weekly initial jobless claims, and the preliminary Q1 reading of nonfarm productivity and unit labour costs. Finally, earnings releases include Moderna, Linde, Rio Tinto and AIG. We also get comments from the Fed’s Williams, Kaplan and Mester.

 

Market Snapshot

• S&P 500 futures up 0.17% to 4,167.00
• STOXX Europe 600 fell 0.14% to 440.93
• MXAP up 0.7% to 206.23
• MXAPJ up 0.3% to 690.73
• Nikkei up 1.8% to 29,331.37
• Topix up 1.5% to 1,927.40
• Hang Seng Index up 0.8% to 28,637.46
• Shanghai Composite down 0.2% to 3,441.28
• Sensex up 0.5% to 48,917.26
• Australia S&P/ASX 200 down 0.5% to 7,061.69
• Kospi up 1.0% to 3,178.74
• Brent Futures down 0.19% at $68.83/bbl
• Gold spot up 0.39% to $1,793.90
• U.S. Dollar Index down 0.23% to 91.094
• German 10Y yield fell 0.3 bps to -0.231%
• Euro up 0.27% to $1.2038

Top Overnight News from Bloomberg

• Treasury Secretary Janet Yellen faces the challenge of speeding a debt-ceiling increase through Congress without shaking investor confidence, a potentially difficult task even with Democrats controlling both chambers and the White House
• JPMorgan Chase & Co. is further expanding its balance sheet in Frankfurt as it adapts to a post-Brexit Europe. The U.S. bank expects to add a similar amount to its European hub in 2021 as it did last year, according to its annual report for J.P. Morgan AG
• China announced that it was suspending a ministerial economic dialogue with Australia, in a largely symbolic move showing Beijing’s growing frustration with Canberra
• India reported its highest-ever daily tally of 412,262 new virus cases and also a record 3,980 deaths

A quick look at global markets courtesy of Newsquawk

A mixed picture was observed in Asia-Pac stocks as the region took its cue from the indecision stateside where sentiment was clouded by disappointing data releases and the Nasdaq was dragged by weakness in tech and growth, although S&P 500 and DJIA remained afloat in which the latter posted a fresh intraday record with outperformance in the energy sector after Brent crude printed a fresh COVID-era high just shy of the USD 70/bbl level. ASX 200 (-0.5%) lagged after a couple of new COVID-19 cases were reported in NSW and with tech leading the declines across nearly all sectors aside from mining-related industries as underlying commodity prices benefitted from China’s return to the market. Furthermore, strong earnings from NAB failed to provide an uplift to the big 4 banks despite almost doubling its H1 cash profit, whereby its shares retreated from a yearly high, while Nikkei 225 (+1.8%) was boosted on reopen from the extended weekend on a foray above the 29,000 level and with the index underpinned by favourable currency flows. Hang Seng (+0.8%) and Shanghai Comp. (-0.2%) were both initially positive as China reopened from the Labour Day holidays with notable gains in the blue-chip energy names and Budweiser APAC front-running the advances post-earnings, although the risk appetite then soured amid weakness in the ChiNext which slumped over 3% due to pressure across biological stocks after the US administration voiced support for a waiver of COVID-19 vaccine patents and following an announcement by the NDRC to suspend all activities under the China-Australia strategic economic dialogue mechanism indefinitely, citing Australia’s disruption of cooperation with China. Finally, 10yr JGBs were marginally higher as they tracked the recent gains in T-notes which had been supported after the continued dovish Fed rhetoric and after the Treasury Quarterly Refunding hinted at auction size cuts in H2, while the presence of the BoJ in the market for JPY 650bln of JGBs in 5yr-25yr maturities also provided a tailwind for prices.

Top Asian News

• China Halts Australia Economic Dialogue in New Retaliation
• Mitsui Said to Mull Buyout of $12 Billion Hospital Chain IHH
• Nintendo Warns Chip Crunch May Hit Switch Despite Gaming Boom
• Apollo Bids A$4 Billion for Tabcorp Units in Australia

Major bourses in Europe see a choppy session and mixed trade with the earlier modest upside bias reversing (Euro Stoxx 50 -0.2%), this follows on from a similarly mixed APAC session which saw the return of Chinese and Japanese participants following their respective holidays. US equity futures meanwhile eke mild gains with no clear standout performer. The tone across the market is rather tentative heading into the BoE policy decision and US jobless claims, with participants also likely to keep some powder dry for tomorrow’s NFP release. Europe sees varying performances across the majors and peripheries, with Italy’s FTSE MIB (+0.3%) narrowly outperforming as banks are lifted in unison with a post-earnings UniCredit (+5.0%) and SocGen (+3.7%), although ING (-1.9%) bucks the trend. Sectors in Europe are mixed with no clear theme, albeit sectors have attained a downside bias in recent trade, and again distorted by earnings. Food & Beverage leads the gains and AB InBev (+5%) pulls up the sectors after topping revenue and volume growth forecast, whilst the Co’s Budweiser unit also saw a strong performance in Hong Kong. Autos also remain supported but have lost momentum in recent trade, though the sector was initially underpinned by Volkswagen’s (-2.0%) stellar earnings which also prompted a guidance upgrade. That being said, the group noted that the chip shortage is expected to be more significant in Q2 vs Q1. Elsewhere, Tech and Basic resources reside as the laggards following yesterday’s firmer performances. In terms of individual movers, Telecom Italia (-5%) opened lower a much as 9% amid rumours that the Italian government could ditch plans for a single broadband network. Meanwhile, Curevac (-18%) and BioNTech (-18%) plumb the depths in German trade after US President Biden stated that he will back a WTO waiver and the USTR also announced support for the waiver of vaccine-patent protections at the WTO – seen as a hindrance on companies’ profits.

Top European News

• Alphawave, Holders Seek $1.1 Billion in London Tech Listing
• SocGen Posts Rebound With Best Equities Revenue Since 2015
• UniCredit CEO Orcel Signals Interest in M&A to Boost Growth
• Telecom Italia Slumps on Report Single Network Loses Support

In FX, the Buck continues to meander ahead of Friday’s potentially pivotal US jobs data, with the DXY encountering offers and resistance on approaches towards 91.500, but finding underlying bids for support into and around 91.000. However, the index and Greenback in general have been undermined by another sub-consensus ISM and mainly dovish Fed speak that have prompted renewed bull-flattening in US Treasuries alongside what appears to be a largely technical recovery in several major and EM counterparts. Ahead, another pre-NFP proxy in the form of Challenger lay-offs, latest weekly and continuing jobless claims, Q1 labour costs and productivity plus more Fed commentary from an array of officials. Meanwhile, the Euro may have derived some comfort or momentum from better than expected Eurozone data as retail sales and German industrial orders both beat expectations, but the rebound in Eur/Usd from just below 1.2000 to around 1.2045 looks more chart-based and positional after the headline pair found a base above a Fib retracement level yesterday and managed to close a few pips above the round number. Nevertheless, the 100 DMA remains a formidable hurdle and the Euro could yet be hampered by option expiries totalling 2.7 bn between 1.2025-15 and the 1.2000 strike, not to mention the fact that 200 and 50 DMAs have crossed in deathly fashion. Similarly, the Franc has clawed back losses vs the Dollar to retest 0.9100+ levels compared to circa 0.9165 at worst so far this week and is also firmer against the Euro as the cross eyes 1.0950 in the ongoing absence of visible intervention.

• CAD/GBP/JPY/AUD/NZD – All rangebound vs their US rival, though mildly divergent as the Loonie extends to new 3 year peaks of 1.2240 before Friday’s Canadian labour report showdown with its NA neighbour, while the Pound remains perky either side of 1.3900 (and 0.8650 against the Euro) awaiting the BoE from midday and in wake of an unexpected upgrade to the final UK services PMI. Elsewhere, the Yen is still contained inside 109.50-00 with option expiry interest from 109.00-05 (1.1 bn) perhaps keeping Usd/Jpy underpinned on return of Japanese markets following Golden Week, and the Aussie is well off overnight lows with assistance from upbeat RBA remarks (Deputy Governor Debelle noting that the economic recovery has been significantly better than even the most optimistic expectations – see 10.00BST post on Headline Feed for more) to counter further deterioration in relations with China. Note, the latter has suspended Strategic Economic Dialogue measures indefinitely, pushing Aud/Usd back to 0.7700 at one stage and Aud/Nzd down further below 1.0750 as the Kiwi gleaned some support from improvements in ANZ’s preliminary April business survey to keep Nzd/Usd on the 0.7200 handle.
• SCANDI/EM – A hawkish hold from the Norges Bank, but no material change in policy guidance (details available on Headline Feed at 9.00BST) has left the Nok weaker for choice and sub-10.0000 vs the Eur again, as crude prices ease back from fresh cycle highs, but the Brl could continue to outperform after the BCB matched market expectations with another 75 bp hike and signalled 3 in a row for the key Selic rate at the next convene. Turning to the Try, no change is anticipated from the CBRT at noon, though the tone of the accompanying will be the defining factor as the new Governor attempts to walk a tightrope between keeping President Erdogan on side and returning runaway inflation back to target.

In commodities, WTI and Brent front-month futures remain choppy within tight with the former retreating to sub-65.50bbl levels after failing to top USD 66/bbl, whilst Brent July dips back under USD 69/bbl from a high of around USD 69.40/bbl. News flow for the complex has again remained light in early European hours and in the run-up to key risk events including the BoE decision alongside the US IJC and a slew of central bank speakers, which could see some sentiment-driven oil action in the absence of oil-specific catalysts. Elsewhere, spot gold and silver have been tracking the waning Dollar and yields with the yellow metal reaching levels close to USD 1,800/oz before encountering barriers, whilst spot silver trades on either side of USD 26.75/oz. On the topic of precious metals, Shanghai gold exchange said it is to lower margin requirement from May 7th on gold contracts to 8% from 12%, and will also lower trading limit on gold contracts to 7% from 12% from 10th May. Base metals meanwhile were bolstered overnight upon China’s return to the markets – although sentiment was dented as China announced the indefinite suspension of the Sino-Aussie economic dialogue. LME copper is back under USD 10,000/t whilst the Shanghai contract played catch-up. Dalian iron ore futures continued to surge in APAC trade to reach an intraday record high. Shanghai aluminium hit an 11yr high with traders citing the Chinese/Aussie spat stoking supply concerns.

US Event Calendar

• 8:30am: May Initial Jobless Claims, est. 538,000, prior 553,000; Continuing Claims, est. 3.62m, prior 3.66m
• 8:30am: 1Q Nonfarm Productivity, est. 4.3%, prior -4.2%; Unit Labor Costs, est. -1.0%, prior 6.0%
• 9:45am: May Langer Consumer Comfort, prior 55.0

DB’s Jim Reid concludes the overnight wrap

US equities faded into the close last night after an earlier global rebound from Tuesday’s falls. Although investors took heart from dovish comments from Fed officials ahead of tomorrow’s US jobs report, the news later on that the US favoured waiving intellectual property protections on vaccines sent a number of pharmaceutical companies lower late in the session. Overall, the S&P 500 had only edged up +0.08% by the close, but with cyclicals outperforming strongly for a second straight day as energy (+3.33%), materials (+1.32%) and banks (+1.02%) saw solid gains. Tech shares rebounded early in trading, with the NASDAQ gaining nearly +0.9% intraday, before paring those gains and finishing down -0.37% on the day. It was the seventh straight losing session for the index as software (-0.70%) and media (-0.41%) shares were among the industries that fell yesterday. Meanwhile in Europe, the rebound was much stronger, with the STOXX 600 (+1.82%) more than erasing the previous day’s declines as the index similarly closed just shy of its all-time record, and the DAX rose +2.12% to recoup nearly all of Tuesday’s -2.5% loss.

In terms of those Fed speakers, the tone struck was a pretty dovish one that didn’t signal concern about inflation, helping yields on 10yr Treasuries to end the day down -2.6bps at 1.566%. Fed Governor Bowman said that “The risk that inflation remains persistently above our long-run target of 2% still appears small”, while Chicago Fed President Evans said he worried that inflation expectations were a bit below the 2% target, and that the risk of an inflation outbreak was “remote”. Boston Fed President Rosengren was another to strike a relaxed tone on the issue, saying he thought that an acceleration in inflation “is likely to prove temporary”. Fed President Mester added that given the low levels of inflation for a long period, “some increase in inflation expectations and actual inflation would be a welcome development.” She also wouldn’t consider any increase “to be the type of sustainable increase needed to meet the forward guidance on our policy rate.” Lastly, Vice Chair Clarida echoed Chair Powell’s comments that it was not yet time to talk about tapering and that the base case remains that the economy will not overheat. Paradoxically however, the lack of concern on the inflation front came as breakevens rose to fresh multi-year highs, with those on 10yr breakevens up +4.4bps to 2.47%, their highest level since 2014. And 5yr breakevens hit even higher levels, climbing another +3.9bps to 2.71%, marking their highest level since 2008.

One important factor in the inflation debate has been the major rise in a number of key commodities recently, with yesterday seeing another move higher. WTI oil prices were up +0.62%, as Brent crude also rose +0.30%, while copper advanced +0.07% to a fresh high for the decade just ahead of me needing to buy a load for my final (hopefully) renovation project of my life. US Lumber futures meanwhile topped $1,500 for the first time and have risen over 50% in just the last month. Corn prices continued their ascent of late with another +1.14% rise of their own. Overall, this helped the Bloomberg commodity index (+0.62%) to advance for a 4th day running, bringing its gains over the last year to +48.01% and +18.15% YTD. And in case you think this is just a pandemic rebound, we’ve now moved beyond that with the 2-year change for the index at +15.51%.

Overnight in Asia, markets are seeing a pretty mixed performance as a number reopen again after recent public holidays. Japanese equities have strongly outperformed, with the Nikkei up +1.70%, while the Hang Seng (+0.15%) and the KOSPI (+0.38%) have seen modest gains of their own. However, the Shanghai Comp has fallen -0.22% this morning and S&P 500 futures (-0.07%) are also pointing slightly lower. One story developing overnight is that China announced they were indefinitely suspending activities under their Strategic Economic Dialogue with Australia, which has sent the Australian Dollar lower this morning. This comes after the Australian government suspended agreements between the Belt and Road Initiative and Victoria State, and amidst deteriorating relations between the two sides of late.

Looking ahead to today, the UK will be at the centre of attention once again as an array of local and regional elections take place, along with the Bank of England’s latest policy decision. Starting on the politics, the Covid-19 pandemic meant that all of last year’s scheduled elections were pushed forward a year, meaning that today’s round of elections are probably going to be the biggest and most important electoral test for the political parties this side of the next general election. That will include elections to the Scottish and Welsh Parliaments, mayoral elections in key regions such as London, the West Midlands and Greater Manchester, a House of Commons by-election in Hartlepool, as well as a range of other contests.

For markets, the vote that will probably be of most interest is the Scottish Parliamentary elections, where a majority for pro-independence parties would lead to fresh calls for another referendum on independence from the UK. So definitely one to watch, though longer counts this year means we won’t be able to bring you any fresh info on that tomorrow. Nevertheless, something we might know the result of in 24 hours’ time is the other major contest of interest, which is the by-election in Hartlepool for the House of Commons seat, and also the first by-election since the last general election. This is highly significant since Hartlepool is one of the pro-Brexit ‘Red Wall’ seats in northern England that the governing Conservatives won in significant numbers from the opposition Labour Party at the last election. And although Hartlepool was actually won by Labour in 2019, a poll from Survation that came out earlier this week suggested that the Conservatives would gain the seat off Labour by 50%-33%, which would be another setback to Labour’s electoral prospects. Those wanting more info you can find our UK economists’ preview on the whole electoral day here.

As mentioned the BoE are also making their latest decision today, though our economists are not expecting any changes in the policy settings. That said, they think it’s a close call between May and June on when they’ll begin to taper their QE operations, even if they expect them to wait until next month on balance. A growth upgrade would give the MPC enough ammunition to taper QE, but our economists’ base case is that they’ll wait a little longer for the hard data to align with the strong soft data. Again, you can find the full preview here.

Ahead of the BoE, sovereign bond yields moved higher across Europe, with those on 10yr bunds (+1.0bps), OATs (+1.5ps) and BTPs (+3.7bps) all rising. Something of note was that the Italian-German spread continued to inch wider, reaching a 3-month high yesterday of 113bps.

On the pandemic, there are increasing signs that the rate of case growth has begun to slow again at the global level, with the numbers from John Hopkins showing that the week-over-week change in global cases has begun to fall from its peak last week. Furthermore, there were some promising trial results from Moderna’s booster shot, which was found to boost antibodies against the Brazilian and South African variants. Otherwise, the other main vaccine news was regarding its likely extension to younger age groups, with Canada becoming the first country to authorise the Pfizer vaccine for use in 12-15 year olds. Meanwhile in the US, Dr Fauci said that he expected an emergency authorisation from the FDA “within several days”. As mentioned above, there was also the news that the US would support a proposal to waive intellectual-property protections for Covid-19 vaccines. US Trade Representative Tai acknowledged that any resolution will take time to implement and that the other member states would have to be on board. Lastly, at a G20 meeting on Tuesday the members all supported vaccination passports as a way of boosting confidence in the global tourism and travel industries.

Looking at yesterday’s data, US releases slightly surprised to the downside, with the ISM services index unexpectedly falling to 62.7 in April (vs. 64.1 expected). Furthermore, the ADP’s report of private payrolls came in at +742k (vs. +850k expected) ahead of tomorrow’s jobs report. Over in Europe meanwhile, the final composite PMI for the Euro Area was revised up a tenth from the flash reading to 53.8, and the services number was revised up two-tenths to 50.5.

To the day ahead now, and the main highlight will be the aforementioned Bank of England decision, as well as the array of elections taking place in the UK. Other central bank events include the publication of the ECB’s Economic Bulletin, a monetary policy decision from the Central Bank of Turkey, and remarks from ECB President Lagarde, Vice President de Guindos and the Executive Board’s Schnabel, along with the Fed’s Williams, Kaplan and Mester. Data releases include Euro Area retail sales for March, German factory orders for March and the April construction PMI, as well as the UK’s final services and composite PMIs for April. From the US, there’s also the weekly initial jobless claims, and the preliminary Q1 reading of nonfarm productivity and unit labour costs. Finally, earnings releases include Moderna, Linde, Rio Tinto and AIG.

Authored by Paul Joseph Watson via Summit News,

The head of the German Police Union has called for a total ban on all anti-lockdown protests because participants are not wearing masks or practicing social distancing.

Well, duh.

After numerous hugely attended protests across Germany in recent months, Rainer Wendt has had enough and wants the government to criminalize them before they can begin.

“In these demonstrations, the violation of the law is preprogrammed and takes place permanently and thousands of times because the participants do not wear masks and do not keep the minimum distance,” Wendt told the Neue Osnabrücker Zeitung.

“You have to act much more rigorously against it,” he added.

According to Wendt, the intention of demonstrators to disobey lockdown rules (despite them literally being anti-lockdown protesters), should give authorities all the justification they need to ban the events in advance.

“It is completely incomprehensible why such demos are even still approved,” said Wendt.

Does Wendt really expect the thousands who attend the demonstrations to be concerned about masks and social distancing when a majority of them firmly believe that the government has massively overexaggerated the threat of the virus?

Many of the anti-lockdown protests in Germany have been organized by the Querdenker (lateral thinkers) movement, with authorities responding by characterizing the collective as a violent extremist group.

As we previously highlighted, Germany’s domestic BfV spy agency is monitoring anti-lockdown protesters, claiming they are potentially involved in a plot to subvert the country.

“Authorities fear that far-right extremists and conspiracy theorists who either deny the existence of Covid or downplay its threat to public health are exploiting lockdown frustrations to stir anger against politicians and state institutions five months before a general election,” reported Reuters.

Maybe members of the Querdenker movement all end up in detainment camps that have been set up to incarcerate persistent COVID-19 rulebreakers.

Because as anyone knows, German authorities putting dissidents in camps having treated them as second class citizens who don’t deserve basic rights always ends well.

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First it was the Bank of Canada, now Bank of England has also joined the taper bandwagon, announcing that it would cut its weekly bond buying (i.e. QE) from GBP4.44BN per week to 3.441BN, while keeping its overall rate and quantiative easing policy unchanged, in a 8-1 split vote with chief economist Andy Haldane voting to cut the BOE’s Gilt purchases by GBP50BN to GBP825BN (however, since this is his last month at the BOE, his view is being discounted by the market).

The Monetary Policy Committee voted unanimously to keep interest rates at 0.1% and by a majority of 8-1 to maintain the amount of quantitative easing at £895bn.https://t.co/QWJDoHlg4v #MonetaryPolicyReport #BankRate pic.twitter.com/9LenVPxvpe

— Bank of England (@bankofengland) May 6, 2021

The bank also drastically upgraded its GDP outlook and now sees 2021 growth at 7.25% and 5.75% in 2022, while predicting that the economy will return to pre-Covid levels over the course of this year, and that inflation will accelerate above target before easing to 2%.

🚨 BoE will slow weekly pace of bond buying. Haldane wanted to stop buying much earlier (strange but will be ignored as he’s leaving). Big upgrade to 2021 GDP as well (7.25%). This is on the more hawkish end of the spectrum but given what’s priced into UK rates seems fair $GBP pic.twitter.com/BJ1ZSHSFYr

— Viraj Patel (@VPatelFX) May 6, 2021

Looking at the monetary policy committee statement, the BOE was kind enough to provide a breakdown of its key considerations for dummies:

Some more details:

• MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit.
• Does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.
• In the central projections of the MPC’s May Report, the economy experiences a temporary period of strong GDP growth and a temporary period of modestly above-target CPI inflation, after which growth and inflation fall back, with inflation around the target two and three years ahead.

GDP growth:

• 2021 GDP: 7.25% (prev. 5.00%)
• 2022 GDP: 5.75% (prev. 7.25%)
• 2023 GDP: 1.25% (prev. 1.25%)

CPI Inflation:

• 2021 CPI: 2.5% (prev. 2.00%)
• 2022 CPI: 2.0% (prev. 2.25%)
• 2023 CPI: 2.0% (prev. 2.00%)
• BOE Sees Consumer Spending Rising 5.25% in 2021, 9.25% in 2022
• BOE Says Projected Inflation Rise Likely to Be Temporary
• Inflation Likely Above Target Before Easing to 2%

Unemployment Rate:

• 2021 Unemployment : 5.00% (prev. 6.50%)
• 2022 Unemployment 4.50% (prev. 5.00%)
• 2023 Unemployment 4.25% (prev. 4.50%)

But the most notable highlight of today’s meeting is that the BOE has also jumped on the taper train by cutting the pace of QE to 4.4 billion pounds a week at which rate the program would reach its overall target at the start of November. Now it will buy 3.4 billion pounds a week, meaning purchases will finish around the end of the year.  Today’s taper will run to the next quarterly assessment in August, when it is likely to trim again if growth lives up to raised expectations.

Paradoxically, despite tightening (because that’s what a taper is), the BOE said it does not intend to tighten until there’s clear evidence of rebound. Ok then.

Here is a look at the sole vote holdout, Andy Haldane who voted to reduce the stock of asset purchases to 825 billion pounds, and who is set to leave the bank and buy a boatload of bitcoin as soon as he is out:

Haldane as he leaves the BoE pic.twitter.com/HUiejZx7FD

— Adam Linton (@Adamlinton1) May 6, 2021

In response to the announcement, assets were jittery with cable first jumping then sliding, in a 80 pip range.

Commenting ont he move, Bloombergv notes that the pound’s round trip seems to be another case of algo trading on the headlines. The slowing of the pace of asset buying and Haldane’s vote to reduce the total amount of target stock made a case to reverse the dip. We could yet see fading interest on the opposite side as the pound hits fresh day highs around $1.3940. Gilts are little changed for the day.

And now the question is whether the Fed will join the BOC and BOE in announcing a taper next month.

Just after Pfizer reported blockbuster quarterly profits, US trade rep Katherine Tai spilled the beans to Bloomberg that the White House had decided to back a WTO proposal to waive vaccine IP. Bill Gates, the world’s de facto vaccine czar, was probably less than thrilled to hear the news.

Gates has vigorously opposed the waiver, and by backing it, the White House has effectively helped to validate Gates’s critics, like the New Republic, who have accused him of putting profits before people’s lives.

Now, European Commission President Ursula von der Leyen has announced that the EU is considering joining the US in supporting the waiver proposal, which was put forth by India and South Africa.

The head of the EU’s unelected executive body said the bloc’s vaccination effort was accelerating, with 30 Europeans inoculated per second as of Wednesday, while exporting more than 200MM vaccine doses to the rest of the world. She added that the bloc is “ready to discuss” supporting the waiver – though of course no final decision of support has been made.

“The EU is also ready to discuss any proposals that addresses the crisis in an effective and pragmatic manner,” von der Leyen said in a speech to the European University Institute in Florence.

“That’s why we are ready to discuss how the US proposal for a waiver on intellectual property protections for Covid-19 vaccines could help achieve that objective.”

South Africa and India made the initial vaccine waiver proposal at the WTO last October, and since then it has gathered support from a large number of developing countries, who say it is a vital step to make vaccines more widely available. At this rate, the entire world is effectively left to negotiated shipments of vaccines with the major producers, who have a monopoly on supply.

The news will likely delight the WHO, which complained last month that out of 700MM vaccines doses globally administered, only 0.2% had been in low-income countries.

Tedros Adhanom Ghebreyesus told the FT that Biden’s decision was a “monumental moment” in the fight against Covid-19. “I am not surprised by this announcement. This is what I expected from the administration of President Biden.”

Until now, the EU has been with a group of countries – many of them home to large pharmaceutical companies, including Britain and Switzerland – that has opposed the waiver.

On Thursday, India welcomed the Biden Administration’s support for the waiver.

“We are appreciative of US support,” foreign ministry spokesman Arindam Bagchi said.

Pharmaceutical company stocks extended yesterday’s declines on the news that the EU could also break away and the support the waiver. Two notable decliners on Thursday were Chinese pharmaceutical stocks Fosun Pharma, CanSino Biologics and Waivax Biotech.

“Chinese vaccine makers Fosun and Walvax will suffer a direct impact on the news, it will hurt profits and the R&D expenses will make no sense. If approved, other vaccine producers’ market share may decrease,” said Wang Ruizhe, analyst atCapital Securities.

In other vaccine news, France on Thursday announced it would soon make vaccines available to all those over the age of 50, while Germany just announced that the AstraZeneca vaccine will soon be made available to all adults.

To be sure, many other developed countries must also change sides and back the waiver for it to have a hope of passing. These include Japan, Switzerland, Norway, Brazil and others.

Authored by Paul Joseph Watson via Summit News,

‘The Who’ legend Roger Daltrey says the ‘woke’ generation is creating a miserable world that serves to stifle the kind of creative freedom he enjoyed in the 60s.

The iconic frontman made the comments during a recent appearance on Zane Lowe’s Apple Music 1 podcast.

“I don’t know, we might get somewhere because it’s becoming so absurd now with AI, all the tricks it can do, and the woke generation,” said Daltrey.

“It’s terrifying, the miserable world they’re going to create for themselves. I mean, anyone who’s lived a life and you see what they’re doing, you just know that it’s a route to nowhere,” he added.

The singer noted how he was lucky to have lived through an era where freedom of speech was encouraged, not silenced.

“Especially when you’ve lived through the periods of a life that we’ve had the privilege to. I mean, we’ve had the golden era. There’s no doubt about that,” he said.

Daltrey also slammed the negative impact that social media has had on the world, saying it has undermined truth.

“It’s just getting harder to disseminate the truth. It’s almost like, now we should turn the whole thing off. Go back to newsprint, go back to word of mouth and start to read books again,” he said.

While Daltrey’s comments may not be mind-blowing, any celebrity speaking out against the mob that has cannibalized culture is something to be applauded.

Once again, this only tends to happen with older celebrities who have already passed their peak of fame and entered icon status. They are beyond cancellation.

For any up and coming celebrity, or even one who is at the top of their game, to question ‘generation woke’ is career suicide.

Which makes it all the more ludicrous to continue to see identitarians, notably the LGBT movement, continue to claim they are ‘fighting oppression’ when their mantras are echoed by every cultural institution, media outlet and corporate entity in the west, while anyone who utters a whimper of dissent is swiftly cancelled.

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China’s dominance in green energy technologies are rare earth metal production is very concerning to the International Energy Agency (IEA), who posted a stark warning Wednesday advising western governments to stockpile critical battery metals such as cobalt and lithium.

IEA’s warning comes as the next chapter in US-China tensions will be climate wars as energy transition investment ramps up with peak oil around 2030. Many Western countries and China have estimated net-zero carbon emission economies somewhere around 2040-2060. The need for western economies to become less reliant on China for rare earth metals, such as lithium and cobalt, is a necessity for independence from the East. 

China has arguably been faster in adopting green technologies than western countries. Climate wars are much more than climate action and saving the planet – it’s about the superpower race between the US and China and who can deliver climate change solutions and clean-tech.

IEA said leading industrial nations should begin to develop stockpiles of metals and minerals. 

“Meeting our climate change goals will turbocharge demand for mineral resources,” Fatih Birol, the head of the IEA, told Bloomberg by phone. “Voluntary strategic stockpiling can in some cases help countries weather short-term supply disruptions.”

The problem with rare earth metals is that only a handful of countries control more than 75% of the global supply. So if disruptions, for any reason, were seen, they would immediately ripple throughout the world, seizing the production of green technologies. 

Bloomberg data shows demand for rare earth metals will soar this decade as countries decarbonizing their economies. 

Bank of America lists the metals that go into clean technologies.

After decades of advising governments on oil and gas markets, the agency focuses on supply chain risks of rare earth metals. 

Already, China has strategic inventories of metals, but such stockpiles are not widely held in western countries. China is also the world’s largest processer and producer of such metals. 

The US has a stockpiling program through the defense department of rare earth metals, but that’s not enough. There needs to be more stockpiling, mining, and production domestically or in ally countries to break the dependence on China. 

US Department of Energy recently warned that the nation lacked “sufficient domestic resources to meet expected demand for certain critical materials, such as cobalt and gallium.” The US and its allies need to construct supply chains and develop robust mining facilities for such metals, or China will remain the dominant power for climate change solutions and clean-tech.

“Today’s supply and investment plans for many critical minerals fall well short of what is needed,” the IEA said. “The response from policymakers and companies will determine whether critical minerals remain a vital enabler for clean energy transitions or become a bottleneck in the process.”

In layman’s terms, IEA warns about competition for scarce resources heavily used in decarbonizing technologies as the green transition is underway. Currently, only a handful of countries control supply, and western countries need to step up their game or be displaced by China.

Authored by Bill Blain via MorningPorridge.com,

“Kids, you tried your best and failed miserably. The lesson is, never try..”

Forget fears of rising interest rates – the big threat is how the global economy will cope with supply chain bottlenecks and the coming commodities supercycle. These will create all kinds of friction. The West is particularly vulnerable to microchip supply instability – which could take years to resolve. 

There is an enormous difference between savouring a “Eureka” experience when one gains a realisation of how the universe works, and a “D’oh” moment when something so blindly obvious finally becomes clear – hitting one between the eyes like the swing of the proverbial sledgehammer.

Yesterday was one of my “D’oh” moments when the criticality of global chip supply was nailed to my forehead by my colleagues in Shard’s asset management business. The importance of semiconductor Foundries has gone to the top of my “D’oh” list of heroic market misses. (The top semiconductor designers don’t “fabricate” their own chips (hence they are described as “fabless”), but source their production – typically to Taiwan.)

If you are a Tech investor you will no doubt be giggling manically at how a “bond strategist” like myself missed the basics of the chip revolution: It’s not actually about how inventive and innovative entrepreneurs are in launching new tech products: it’s all about the supply of microchips that make them work. Without chips… nothing happens.

For years I’ve been vaguely uneasy about supply chains. Their importance was highlighted by the pandemic as demand shifted towards swifter adoption of new digital tech, and by supply gaps appearing in industries like Electric Vehicles/Batteries where the reliance on China for lithium and rare earths (vital for phones) is causing strategic concerns. The blockage of the Suez Canal by a rogue container ship emphasised the vulnerabilities of global trade.

When it comes to Chips, the automotive industry is the Canary in the Coal Mine. Even though automotive chips are relatively unsophisticated (coming in a massive 30 nanometer size), the little yellow manufacturing bird is asphyxiating at the bottom of the cage as the current chip bottlenecks cut production of cars across the globe.

It won’t just be the auto sector that struggles. Replacing global reliance on Taiwan’s geopolitically vulnerable chip foundries isn’t a 3 or 4 month supply interruption, but is going to require a massive and time consuming tech shift and transfer, which, unsurprisingly the Taiwanese may be unwilling to share. It could be years before new chip foundries are successfully established and up to speed.

Funnily enough, its Taiwan’s dominance of chip production that is perhaps its best defence against China. The Middle Kingdom can’t afford the risk of a slow- down in chip supply any more than the west.

Like everyone else I’ve been following how governments have been looking to set up “strategic” micro superconductors production. European Industy Kommisar Thiery Breton got it right when he recently said: “without an autonomous European Capacity on micro-electrics, there will be no European digital sovereignty.” Europe accounts for less than 10% of micro processors. The USA produces 12% – 88% of semiconductors used by US industry is fabricated externally!

State-of-the art microchips from 10 nanomenters down to 5 nm run everything from 5G to autonomous driving, computing to your smart toaster. (How did we ever get along before the average toaster was smarter than a space shuttle in terms of its computing power….?) Chips are going to get even smaller – 3 nm is the next target, with 2 nm in sight.

I’ve been following the evolution of semiconductors since my youth – how the design of chips has enabled the growth of new tech and driven Moore’s Law (the one about transistors on a chip doubling as the cost of computers halves.) I’ve embraced the “technologicalification” (a new word I’ve just patented for this paragraph) of the Internet-of-things (IoT).

It’s not design that’s the supply problem – it’s that chip designers outsource their production to the giants, like TSMC, other Taiwanese firms, and to a lesser extent Samsung (which is the second largest maker of chips, but also the second largest consumer for its phone business, and can’t currently source enough for its planned new phone launches!)

The Taiwanese have no intention of giving up their current 4-year manufacturing tech lead over the rest of the foundry business.  TSMC (the imaginatively named Taiwan Semiconductor Manufacturing Company), plans to invest $100 bln over the next three years to meet rising chip demand including hedging its China-proximity risk by building 5 US plants. That dwarfs the $20bln Intel plans to spend on new plants in Arizona.

Meanwhile, there is no shortage of analysts calling for the beginning of a new global commodities Supercycle. These occur when something fundamental happens that resets global demand for raw materials. Commodities analysts have successfully called 16 of the 4 historical supercycles… (ahem…)

In the case of copper, which is up to near $10k from $4300 a year ago, it’s the (re)-electrification of the economy that matters as nations seek to rebuild state power-grid infrastructure to enable EV charging and to facilitate unreliable renewable power sources. Grids built in the 1930s simply we’re designed for the digital and home-charging age.

You can’t have electric on tap without copper pipes! While the average internal combustion engine car has some 27 kg of copper, EVs apparently require 87 kg. It’s no wonder banks like Goldman predict new record prices are coming as EV demand goes stratospheric, we have to rebuild the electric supply network, and that then triggers a host of other supply blips from platinum, lithium and even gold old Iron ore, at which point I shall simply remind you:Perversely, the climate-change emergency and the need to swiftly green the planet is perhaps the best ever argument to invest in mining. There is nothing we can make on this planet that doesn’t first demand we hew the materials out the ground.

Every offshore wind-turbine requires some 450 tonnes of Steel, which requires an enormous amount of metallurgical coal to produce… and the UK government, in its infinite wisdom, just put the only UK source of met coal – the new West Cumbria mine – on hold so it wouldn’t be embarrassed at the COP26 climate conference in the Autumn. D’oh!

Global Supply Chains, Semiconductors and the New Commodities Supercycle – all things to be thinking about….