Bitcoin trades above $23.000 for the first time in history

Posted on December 17, 2020December 17, 2020 by Vrasidas Neofytou

Bitcoin, which is the flagship cryptocurrency broke above the psychological level of $20.000 on Wednesday for the first time in history. The upside momentum continued also during Thursday’s European trading hours where the price hit a new record high of $23.700.

The pioneer digital currency price has surged by more than 100% since the September lows of $10.000 amid robust demand based on its unique crypto characteristics and the continuing devaluation of the world’s major fiat currencies (especially the US dollar).

Positive long-term fundamentals

The ballistic-style rally was supported by Bitcoin’s positive long-term fundamentals such as its scarcity (the total supply of bitcoins that will ever be “mined” is capped at 21 million) and the devaluation of the US dollar amid the massive monetary policies by the Federal Reserve and other Central banks around the world.

The portfolio managers have started using Bitcoins to diversify-hedge their investment portfolios against market risks and inflation, instead of Gold and inflation-linked Treasuries-Bonds. Bitcoin acts as a “store of value” asset and it is ideal for hedging some of the monetary and fiscal risks.

Hence, the crypto market has seen strong demand from institutional investors who invest billions into digital assets and blockchain technology. Many traditional banks and asset houses such as BBVA in Spain and Fidelity will start using bitcoins in their financial operations. Also, the S&P Dow Jones Indices recently announced plans to launch crypto indices in 2021, while Cboe has tapped New York-based trading software firm Coinroutes’ crypto market data capabilities.

The recent development in the digital markets provides further evidence that the crypto market is transforming from a retail place for speculation into a sophisticated and tech-savvy part of a global financial industry.

Crude oil rises to 8-month highs on vaccine and stimulus optimism

Posted on December 17, 2020 by Vrasidas Neofytou

Optimism over COVID-19 vaccine developments led investors to rotate their funds into the growth-related energy market, sending the prices of Brent and WTI crude oil contracts to 8-month highs.

Brent crude oil price moved back above $51 per barrel for the first time since the start of the pandemic in early March, while the WTI crude hovers at $48 per barrel.

The rally in oil prices has been supported by the growing optimism that the start of the COVID-19 vaccine rollout will drive a recovery in the global demand and consumption of petroleum products in 2021. The bullish trend has also backed from the willingness of OPEC and its non-OPEC allies (led by Russia) to keep their crude production at low levels until the full recovery of the global demand in 2021-2022.

The UK and USA were the first countries in the world to approve and roll-out this week the COVID-19 vaccine developed by Pfizer Inc and German partner BioNTech SE. Both countries have already started vaccinating thousands of health-essential workers and elderly people. Health officials have said that the vaccinations for groups that are not at a high risk (people aged under 65) expect to take place in the spring of 2021, to achieve herd immunity.

The energy sector receives additional support and demand from the growth momentum from Asia since the economic and industrial activity in China has already recovered to pre-Covid levels.

Hence, the massive fiscal and monetary stimulus around the world has also boosted energy prices. The US lawmakers are near to agree the $908 billion fiscal stimulus bill needed to prop up the US economic activity.

The European Central Bank-ECB together with the US Federal Reserve has promised to keep the interest rates at low for another 1-2 years, to support the global economies rebound from the financial and health recession.

Demand risks from fresh Covid-led lockdowns:

The recent vaccine-led rally in crude oil prices has lost some steam amid the resurgence of Covid-19 in the USA and Europe, affecting oil consumption in the near-term.

The rising virus infections has forced the local governments to apply tighter restrictions-lockdowns over the Christmas holidays to limit the spread of the virus.

Copper vs Gold: An investment rotation in commodities

Posted on December 16, 2020December 28, 2020 by Vrasidas Neofytou

Copper is a primary industrial metal and a leading indicator of global economic health, while Gold is the exact opposite, recognized as a traditional safe-haven asset and a store of value during economic recessions.

Vaccine euphoria has been the biggest driver for commodities in the final quarter of 2020, as the market expects that an effective vaccine could stimulate a global economic rebound next year.

Since the vaccine announcements last month, the commodity market has seen an investment rotation, with investors moving away from the safety of Gold and Silver and jumping into riskier metals such as Copper, Iron Ore, and Aluminium which could benefit from the recovery of the industrial activity.

The price of Copper climbed to the highest level since March 2013, touching 3.50 dollars per pound and getting support from the recovered industrial demand from China and supply disruptions from South America.

After touching a record high of 2.075 dollars per ounce on August 07, Gold has retreated by more than 10% on risk appetite and outflows from Gold ETFs. However, Gold holds the support level of 1.800 dollars per ounce, getting support from the lower US dollar and the risk for higher inflation from the massive fiscal and monetary policies.

Euro rises above $1.21 on fresh PEPP stimulus by European Central Bank

Posted on December 11, 2020December 11, 2020 by Vrasidas Neofytou

The European Central Bank (ECB) eased its policy once again on Thursday by increasing the overall size of its Pandemic Emergency Purchase Program (PEPP) by €500 billion to a total of €1,850 billion.

The main goal of the Central Bank is to help the Eurozone economy to manage the new implications of the second wave of the pandemic, while it also lowered its EU growth forecast and inflation rates for 2021.

The ECB surprised the market by extending the quantitative easing (QE) program by 9 months to March 2022, to keep government and corporate borrowing costs at record lows. The Central Bank decided to leave its benchmark interest rates unchanged at record lows of -0.50% while the main refinancing rate is unchanged at 0%.

In the post-meeting press conference, the ECB President Christine Lagarde said that the bank is monitoring the euro “very carefully”, while the increase in PEPP reflects fallout in economic activity.

Among other positive developments for the Eurozone, EU leaders in Brussels seemed close to unblocking a stalled 1.8 trillion euro package to help revive their pandemic-ravaged economies, after Poland and Hungary opposed the package.

Market Reaction:

When a Central Bank prints money, it usually causes a devaluation of its currency. However, this is not the case for Euro as investors see the ECB actions with a positive-supporting view. The common currency jumped by 50 points to a session high at $1.2150 after the ECB announcement on Thursday afternoon together with the US dollar weakness and declining Covid-19 infections in the EU.

The common currency received additional support on the downward pressure to the US dollar following the unexpected large surge in U.S Initial Weekly Jobless Claims. The number of Americans filing for unemployment-related benefits jumped to 853K during the week ending Dec. 5, up sharply from the previous month’s upwardly revised reading of 716K. This is the highest level since Sept. 19 and reflects the effects of recent pandemic-related restrictions or lockdowns in some States.

Brexit talks stalled:

The latest developments from the Brexit front have stalled the rise of the Euro beyond 1.2150, as the talks between European Commission President Ursula von der Leyen and U.K. Prime Minister Boris Johnson at the beginning of this week have ended without a breakthrough.

British Prime Minister Boris Johnson said on Thursday there was “a strong possibility” Britain and the EU would fail to strike a trade deal. The two teams of negotiators are continuing to meet ahead of the Sunday deadline, with analysts expecting little chance of success without fresh political compromise.

All roads lead to equities

Posted on December 11, 2020December 11, 2020 by George Kessarios

Do record low junk bond yields mean this asset class is overpriced?
Record low yields are making a case for higher equity valuations.
In a world where all roads lead to equities, don’t expect valuations to come down soon (if at all).

The chart below depicts the yield of the Bloomberg Barclays Junk bond index. As you can see, the current yield is slightly above 4%, a record low mark.

The question is, is the search for yield pushing yields in artificially low territory, and does this mean Junk Bonds are in a bubble? This is a very difficult question to answer. On the one hand lower bond yields will lead to lower debt rollovers in the future, which will might fix many balance sheets, and on the other, with yields nowhere to be found in sovereign paper, getting 4% might be worth the risk.

However insofar as equities, this means that a higher PE multiple is justified, and that a PE of around 25 might be the new norm, as we have said several times over the past several months.

In addition, there are so many stocks that offer a higher dividend yield than most sovereign bonds these days, it makes us wonder that if investors who must have yield, might be forced to buy stocks, and take on the inherit risk embedded in equities.

The bottom line is that anyway one looks at bond yields, be it sovereign or corporate bonds, the case for equities is magnified. In other words, in a post COVID world, all roads lead to equities. And in my opinion, don’t expect the record high multiple of the S&P 500 Index to come down soon, if at all.

Vrasidas Neofytou analysis on vaccine optimism featured in “Economy Today” December’s issue

Posted on December 11, 2020December 11, 2020 by Vrasidas Neofytou

The long-awaited development of an effective and widely available coronavirus vaccine has boosted the expectations for a return to normalcy in 2021, sparking an explosive rally in the global financial markets.

Read our Head of Investment Research Vrasidas Neofytou detailed analysis on the hot topic in “Economy Today” magazines December’s issue*.

*Article available in Greek.