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  • Risk-on rally driven by reflation trade
  • Bitcoin fresh record high, sterling heading for $1.40
  • UK assets in favour, Deliveroo IPO eyed

Twenty-five-year-old security guard Salvador Vergara took out a $20,000 personal loan at 11% to buy GameStop shares at $234. He still owns the shares – now worth 52.40 – and the debt on the loan. It’s not a pretty story and underlines why it is so important not to get carried away by fads, social media and the madness of crowds. It could be worse: Vergara lives at home, has plenty of time to pay off the loan and hasn’t touched his $50,000 in index funds. And GME could yet moon.

Yesterday I read an article saying Elon Musk now controls a quarter of all satellites orbiting our planet. Now amid all the zany crypto tweeting and market subversiveness – and running the world’s most valuable car company – there surely needs to be a question or two asked about whether it make sense to allow a marijuana-smoking, Mars-colonising maverick to have custody of such an important geostrategic asset. By next year Musk could control half the satellites in space, such is the number of Starlink missions planned. Musk’s SpaceX has already said it won’t recognise international laws when it settles Mars, but is there not some kind of law here on Earth against a giant private monopoly controlling the skies? Investing in space is starting to get really interesting.

Bitcoin – of which Tesla owns a little north of $1.5bn but has little to do with space except it will probably become the currency of Musk’s Martian settlements- rose to hit a new all-time high overnight, flirting with the $50k marker. Growing corporate support for the crypto makes this a very different market to what it was in 2017. Money printing and dollar debasement is also a factor.

London may be set for a boom time for cannabis listings with Kanabo the latest to IPO today after MGC Pharmaceuticals last week. It follows the FCA’s decision last year to allow medical marijuana companies to list in the UK, which could create a major European trading hub for cannabis companies which is currently dominated by Toronto and New York.

The FTSE and sterling had a stonker of a day as UK assets found favour thanks largely to Britain’s successful vaccination rollout, which has handsomely boosted sentiment towards the UK economy. Vaccinations are already reducing hospitalisations and deaths. The pound was one of the main beneficiaries as vaccines look set to kickstart the economy in Q2 – we hope. GBPUSD broke through 1.39 before kicking on to mark a new 3-year high overnight at 1.3950 and now looks set to take out 1.40 as expected. EURGBP slipped further towards 0.870, levels not seen since May last year. The FTSE 100 meanwhile broke free from its 100pt February range to rally over 2.5% and hit its highest in almost a month, closing north of 6,750 for its best finish since Jan 14th. Shares in London traded higher again in early trade on Tuesday with the apparent success of the vaccination programme supporting sentiment.

US futures trade higher as equity markets play catch up to the broad risk rally in Europe and Asia following Monday’s Presidents’ Day break, with the Dow around 200pts higher and S&P 500 called to open at a record high. Vix futures for March have also popped higher to above 25 – as previously warned, Vix and stocks moving higher together is a potential red flag for a coming reversal.

Vix futures for March have also popped higher to above 25

Market participants are once more betting on a reflationary trade – steeper yield curve, higher rates and higher inflation. US 10-year Treasury yields are at almost year highs above 1.2%, whilst 5-year breakevens are at levels not seen in almost a decade. The 2s10s spread rose to 1.12%, its highest in 4 years. This ought to be a major tailwind for cyclical stocks. Jefferies Macro Team point to a number of big cyclical winners from a vaccine-led recovery which will deliver the strongest rebound in 40 years for the US economy, including Analog Devices, Boeing, Deere & Co, Nvidia, and JPMorgan.

5-year breakeven inflation keeps surging

5-year breakeven inflation keeps surging 

In the UK this trade played out on Monday with National Express, WH Smith, Hammerson, Cineworld, TUI, FirstGroup, SSP and easyJet leading the charge on the FTSE 350. Banks also had a good day with Lloyds +5%. I think we need to be careful grouping all ‘reopening’stocks into one basket – IAG is a different beast to Lloyds.

Amazon-backed Deliveroo is said to be planning to launch its much-awaited IPO process as early as March 8th. The company is sure to garner a lot of attention from investors on both the institutional and retail side. And it will mark another strong tech listing for the London market. Deliveroo was last valued at around $7bn after completing a $180m fundraise last month.  As restaurants have been forced to close their doors, Deliveroo has emerged as one of the winners from the pandemic. It has also struck a number of deals with supermarkets to branch out into groceries, widening its footprint and reaching new demographics. Lord Wolfson, the Next boss, has recently joined the board, which can only be a positive. It might also point to Deliveroo seeing its partnerships with Waitrose, M&S, WM Morrison etc as something more than just for the lockdown era. Whilst the backdrop is structurally positive for delivery apps, competition is fierce. recently announced plans for much more investment in London and its own courier network as it seeks to take on Deliveroo and other rivals. Valuations will look stretched, but for good reason: we know investors continue to pay a premium for growth and Deliveroo can deliver this along with your lunch. As the recent stock market debuts of The Hut Group and Moonpig prove, the UK market is hungry for new offerings, for growth and for tech – Deliveroo ticks all three boxes.

Platinum prices hit a 6-year peak as traders bet on growing industrial demand this year as the global economy recovers from the pandemic. Spot prices took out $1,300, a level not seen since September 2014, albeit it still trades at a discount to palladium and gold. It marks a remarkable turnaround from the depth of the market panic last year when prices touched on $550, with prices now +20% YTD. Platinum prices should continue to nudge higher through 2021 and whilst seasonally this is usually good time for the metal, it ought to hold onto the gains made in the last 6 weeks. Crucially for platinum it’s the shift to green energy (boosted by the Biden presidency) and its role in the future hydrogen economy that ought to deliver ongoing support for the price. Meanwhile, rising industrial and investment demand is coming to the market which is a little short of supply right now, which adds further upside pressure in the near-term. Although the industrial demand is well supplied, interest from investors is pushing the balance back into deficit. Platinum is something of a canary in the coalmine for commodity prices, which many believe are set for a long-term bull cycle.

Chart: Oil rose again with WTI above $60 and Brent at $63. Relative strength index points to significantly overbought condition and price action is suggestive of a phase of consolidation in progress, but it’s still too early to call the end of the long-term uptrend sparked by the Nov 2nd outside day bullish engulfing candle.

Oil rose again with WTI above $60 and Brent at $63

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