Weekly View - Bitcoin gets bitten
Markets were rattled by higher-than-expected US inflation numbers last week. Equities sold off following the CPI and core CPI prints and US 10-year rates rose to just under 1.7% at one stage. Growth and tech sectors were hit especially hard. We had previously bought protection on the Nasdaq index in our portfolios. Short-term inflation expectations rose to a multiyear high. Price-rise expectations must be monitored closely as they could encourage consumers to bring forward big purchases, thereby pushing prices even higher, given the current supply shortages many companies are now facing. Because long-term inflation expectations remain well anchored, we think the Federal Reserve will hold off on raising rates. The Fed’s vice chairman reiterated that inflation is just one number among many that are considered when taking interest rate decisions. Markets were calmed after weaker-than-expected retail numbers and nominal interest rates remained stable. Since companies that can pass on higher input prices to consumers should be able to maintain their profit margins, we will stay focused on pricing-power companies.
A cyber attack on the Colonial petroleum pipeline caused temporary fuel shortages in the US, leading to queues at petrol stations and causing the Biden administration to take extraordinary measures. Commodities shortages amidst rising demand as economies reopen make them vulnerable to such attacks and heightening Israel-Palestine aggression could lead to higher oil prices. We are positive on commodities. Meanwhile, new covid cases are appearing in Taiwan and Singapore. Any new lockdown measures in Taiwan could exacerbate the current global shortage of semiconductors, further hitting input supplies across sectors from cars to tech. We are underweight emerging markets, which continue to underperform their developed-market counterparts.
Former bitcoin champion and Tesla founder Elon Musk sent bitcoin’s value down last week following his U-turn on sentiment towards the cryptocurrency. Tesla stopped accepting bitcoin for its electric vehicles after having only recently declared that it would be the first major retailer to accept the cryptocurrency as payment. Mining bitcoins is extremely energy intensive and therefore at odds with the clean platform of electric vehicles. This resonates with our 2021 Green Marshall plan theme.