BTC gathering the bulls, but is inflation really under control?

2022年6月1日

INVESTMENT CONTEXT

• President Joe Biden said America's goal is a "democratic, independent" Ukraine with the means to "defend itself against further aggression"
  
• In a move to counter EU's partial embargo on crude oil, Russia cut off more gas supplies to companies in Denmark, Germany and the Netherlands, stating they failed to make payments in RUB
  
• U.S. housing market witnessed a dramatic +20.6% surge in prices in March, as buyers rushed to close deals before higher interest rates hit mortgages. More recent data showed a slowdown in real estate activity
  
• German inflation hit 8.7% in May, above EU average, while retail sales plunged 5.4% on a monthly basis, vs. negative 0.2% expectation
  
• China unveiled a fiscal, monetary and industrial stimulus package to rev up its virus-hit economy
  
• Retail gas prices in the U.S. reached a new all-time high, clocking +52% year-on-year
  

PROFZERO'S TAKE

• ProfZero's calls for caution were followed by an underwhelming first day of trading after the long Memorial Day weekend, with all major U.S. indexes closing the day in red mostly due to profit-taking after last week's relief bounce. Traders are showing unease at mixed macro data, with still tight job market triggering wage rises, thus putting prospective pressure on either consumer prices or corporate margins. ProfZero long warned about who's going to pick up the tab on inflation; we may already see that the next earning season
  
• China's manufacturing, as captured by the Caixin China General Manufacturing index, rose 48.1 in May, as compared to 46 in April. ProfZero is now awaiting data on Chinese consumption, in the hope to see some bright signs as the country slowly lifts COVID restrictive measures
  
• Despite giving back part of the gains, blockchain assets still trade at 2-week highs, led by BTC confidently holding above USD 31.5k. In fact, zooming out to 2021, we clearly see a double head-and-shoulders pattern just closing, marking leg (4) of a 2-year Elliott wave that could pave the wave to a sustained medium-term bull run
  

PROFONE'S TAKE

• While appreciating the possible reopening of Ukrainian ports, and the ensuing unhindered distribution of cereals, ProfOne reminds that the fertilizers market is still in a deadlock. Western sanctions hit supply from Russia and Belarus, that combined account for 41% of global fertilizer exports. Output losses can’t be made up for in the short term due to the industrial lead time needed to bring new production assets online (average time to develop a new potash ore mine is between 5 and 7 years), with direct negative consequences on the availability of fertilizer, hence crops yield. Whilst a food and humanitarian crisis has been averted - soft commodity prices may not be expected to cool in the short term, even in developed countries
  

PROFTHREE'S TAKE

• Extending on ProfZero's concerns that inflation is largely rooted in the energy space, ProfThree sees thermal coal as yet another commodity were prices are poised to stay at record highs. Breaking a 2-year bear market caused by calls for decarbonization, Newcastle FOB Australia benchmark now trades at USD 430/ton - 4.5x the 5-year average. The trend is not expected to buck anytime soon, especially after the EU imposed an embargo on Russian effective from August 2022, to be trailed by Japan. With the EU now also foreclosing two-thirds of crude oil imports from Russia; and natural gas curtailments being extended, it is hard to understand how exactly the EU intends to ensure energy security at yet affordable prices - now that it has to face Chinese competition on the demand side - while at the same time meeting carbon reduction goals