Month: March 2021

The global shipping industry has been disrupted after a giant containership blocked Egypt’s Suez Canal on March 24, halting traffic on the shortest shipping route between Europe and Asia.

The Suez Canal is an artificial sea-level waterway connecting the Mediterranean Sea to the Red Sea which handles 12% of global seaborne trade.

The blockage has disrupted the transit of more than 400 vessels, including oil tankers, liquefied natural gas vessels, bulk carriers, and container ships.

Crude oil prices gained more than 5%, while the shipping freights for crude oil tankers nearly doubled as dozens of tankers are still waiting to pass through the Suez Canal.

Each day of blockage disrupts $10 billion worth of goods, adding concerns over the global supply chain which had already been impacted by the coronavirus pandemic. Ikea announced its supply chain could be disrupted while Amazon and Alibaba are also facing disruptions.

Even though the ship refloated on Monday, it will take many weeks for the whole supply chain to get back to normal, impacting manufacturers in Europe and retailers across the world.

The temporary closure of the Suez Canal highlights how the world is connected to the global supply chain, and the importance of strategic maritime waterways such as the Straits of Hormuz, and the Panama Canal.

The prices of Gold and Silver have been under pressure since the start of 2021, losing more than 15% of their value amid the recovering US dollar and the ongoing rally in the US Treasury yields, despite the inflation-hedge appeal of the bullions.

The sell-off in the US Treasuries continued without having a break, with the yields of the 10-year Treasury climbing to as high as 1.77% this morning, pushing the price of Gold below $1.700/oz and the Silver near $24.50/oz.

The price of the yellow metal is heading towards $1.670/oz which was its lowest level this year, while the price of Silver is approaching the $24/oz support level.

Gold is trading almost $375/oz or nearly 18% below its record high of $2.075/oz posted on August 07, 2020, as the appetite for riskier assets and the prospects for faster-than-expected economic recovery from the pandemic reduces the need for the safe-haven bullions.

Bullion’s prices received additional downward pressure on Monday after the risk sentiment improved from the comments of US President Joe Baiden saying that the 90% of US adults will be eligible for Covid-19 vaccines by April 19. Hence, Biden is expected to unveil his infrastructure plan on Wednesday focusing on items like health-care reforms, and rebuilding roads-railways, which it is expected to cost more than $3 trillion.

Rising US dollar and Treasury yields pressure bullions:

The upward movements in Treasury yields and the US dollar have been a bearish catalyst for the precious metals as they raise the opportunity cost of holding the non-yielding gold and silver.

The ongoing recovery rally in the bond yields and US dollar is getting support from the improved economic growth outlook for the US and global markets amid successful vaccination programs, and the massive fiscal and monetary pandemic-relief packages.

Extending its recent gains across the board, the DXY-US dollar index climbs above the 93 mark for the first time since March 2020, posting its best month since 2016. The greenback rises to a 1-year high against the Japanese Yen, trading above 110 yen, while the EUR/USD dropped below $1.1750, its lowest since November 2020.

The US dollar and gold share an inverse relationship. The higher US dollar is making the dollar-denominated gold less attractive for buyers with other currencies.

As we have said many times over the past several months, while the market as a whole is not in bubble territory, many parts of the market are. In particular, the technology sector is as expensive as I have ever seen.

In fact, one of my worries has been that when the technology sector did correct, it might bring down the entire market. The good news is that this has not happened, and the market overall is holding up.

This in my mind means two things. The first is that the bull market is still intact. The second is that the rotation we have been seeing over the past several months seems to be enough (at least for now) to prevent a general market correction, even as many of the high-flying technology names correct or do nothing.

Also, the fact that the high PE and High Price/Sales stocks are correcting , should also bring down the market multiple over the next few quarters, which is a good thing.

This in turn should be good for active managed portfolios and less for passive portfolios or passive investment instruments.

Finally, this also means the liquidity wave we have been riding since the beginning of the pandemic is alive and well, but investors have to change strategy and find new winners.

Like the old wall street saying goes, never fight the Fed or never fight the central bank as I say. And with the Fed still purchasing 120 billion in assets every month, this liquidity wave is still alive and well.

The Turkish Lira opened the week with a gap of over 15% against major currencies after the removal of the Turkish central bank governor by President Erdogan over the weekend, leading the country to a new monetary crisis.

The currency collapsed in the very early hours of Asian Monday trading, hitting a low of 8.50 against the US dollar and 10 against the Euro before pared back some losses.

The governor hiked the country’s main interest rate by 200 basis points to 19% last week, which was necessary to fight the 15% inflation level, restore some policy credibility, increase the foreign reserves, and bring stability to the lira.

However, President Erdogan shocked the financial markets for a third time since 2019, removing the hawkish governor, and replacing him with an opponent of higher interest rates, and tight monetary policy.

The Istanbul stock exchange lost 10%, while the government’s bonds suffered their biggest daily drop on record as investors expect prolonged market volatility, risk of debt default, and rate cuts.

The surprised removal had a brief ripple effect on the financial markets, with investors rotating away from companies exposed to the Turkish economy, and reduced some positions from the risky emerging markets, and their high-yielding currencies.

The safe-havens US dollar and Japanese Yen led the gains across the board amid a general risk aversion sentiment as investors worry over a possible contagion in the global markets.