Jun. 26 Markets Report: Gas, Grains, and Hikes

Jun. 26 Markets Report: Gas, Grains, and Hikes

Commodity shortages mount as the Russia-Ukraine war drags on and economic recession rears its ugly head.

Jun. 26 Markets Report: Gas, Grains, and Hikes
Guy Ovadia

Published Jul 26, 2022Updated Jul 26, 2022

In This Article

Past Year

Macro

What's up, Fed?

  • Federal Reserve leaders are expected to implement another 75 basis-point interest rate hike in next Wednesday's meeting. If implemented, this would be the Fed's fourth rate increase in five months.
  • U.S. Department of Commerce will disclose last quarter's economic output in the GDP reports set to release on Thursday. If the economic output shrank in Q2 as it did in Q1, then that's a strong indicator of a recession.
  • According to data released by the U.S. Department of Labor, unemployment claims hit their highest weekly levels since November. This runs counter to Treasury Secretary Janet Yellen's statement about how “we’ve got a very strong labor market.”

US Economics

  • Interest Rates: 1.75%
  • Unemployment Rate: 3.6%
  • GDP YoY: -1.6%
  • CPI YoY: 9.1%

Russia's war on grain 

  • The UN and Turkey brokered a deal between Russia and Ukraine to enable grain exports from Ukraine's black sea ports, but Russia launched missiles at Odesa a day later. Ukraine's President Zelenskyy denounced the attack and stated that it proved that Moscow couldn't be trusted to honor deals. 
  • Russia's foreign minister is campaigning across Africa to strengthen nations' ties with Moscow and fight Western sanctions.
  • Russia's gas company Gazprom further curtails Europe's gas supply, presumably punishing the West for imposing sanctions.
  • The BRICS—an association of Brazil, Russia, India, China, and South Africa—discuss the creation of a new global reserve currency to compete against the U.S. dollar and undermine the IMF. Russian exports of sanctioned crude oil to China and India at a discount allures Turkey, Saudi Arabia, and Egypt to join the group of emerging economies.

Stocks & Bonds

  • Amazon pens deal to acquire One Medical for $18 per share—totaling $3.9 billion. This signals the e-commerce giant's aggressive expansion into the healthcare industry despite a Q1 net loss of over $90 million. The company's past acquisitions include Whole Foods for $13.7 billion and MGM Studios for $8.5 billion.
  • Rates on 2-year treasury bonds continue to outpace 10-year bond yields, which is a strong recession indicator. Some central bank researchers argue that the Fed's quantitative tightening and reduction of its beefed-up balance sheet could have the same effect as raising interest rates, thus amplifying the looming recession.

Bond Yields

  • US3M: 2.501%
  • US2Y: 3.016%
  • US10Y: 2.810%
  • US30Y: 3.036%

Stock Market Performance

  • Dow: 3.05%
  • S&P: 3.56%
  • Nasdaq: 3.94%

Sector Performance

  • Telecom: -0.07%
  • Utilities: 0.96%
  • Consumer Discretionary: 6.56%
  • Industrials: 4.74%

Real Estate 

  • S&P Global reported that U.S. housing affordability has reached its lowest point since the Great Financial Crisis in 2007. This accounts for both real estate prices and mortgage rates.
  • Three-quarters of middle-income ($30,000-$100,000) households are falling behind the cost of living, according to the Primerica Middle-Income Financial Security Monitor survey for Q2 2022.
  • The National Association of Realtors reported that $59 billion in U.S. residential properties were sold to international buyers between April 2021 and March 2022, an 8.5% rise from the same period one year prior. This indicates a growing interest in U.S. real estate from overseas; China in particular accounted for over 10% of international real estate investors.
  • Despite lumber prices being down 60% from their height in March, new home construction in the U.S. is dropping. Housing starts dropped 2% last month to an annualized rate of 1.559 million units according to U.S. Census Bureau statistics.

Crypto Roundup

  • Elon Musk's Tesla sold $936 million of Bitcoin, which had accounted for three-quarters of the company's BTC holdings. Musk stated this move was meant to generate liquidity in response to the company facing shutdowns in China.
  • Polygon Technology announced the introduction of Polygon zkEVM. This scaling solution will use zero-knowledge proofs to make Ethereum smart contracts faster and cheaper to interact with. zkEVM could be the tool developers need to optimize Ethereum smart contracts without sacrificing security or decentralization.
  • Ethereum Foundation member Tim Beiko suggested that the expected date for Ethereum's proof of stake merge is September 19, 2022. This news comes as the total ETH held on exchanges reaches a four-year low while the amount of staked ETH rises to over 13.15 million.

Crypto crackdowns

  • South Korean authorities are taking action against employees of Terraform Labs, the company behind the failed Luna stablecoin project. Prosecutors raided the home of Terraform Labs co-founder Daniel Shin as well as the offices of crypto businesses connected to the company. Dozens of individuals connected to Terraform Labs are restricted from leaving the country.
  • U.S. prosecutors in Manhattan charged former Coinbase product manager Ishan Wahi and his brother Nikhil Wahi with wire fraud in the first crypto insider trading case. Also, the SEC identified nine of the 25 assets sold with insider information from Coinbase as unregistered securities.
  • After filing for bankruptcy, failed cryptocurrency lender Celsius revealed its plan to use crypto mining to recoup users' lost funds in a bankruptcy hearing. The judge overseeing the bankruptcy case approved, on an interim basis, the construction of a $5 million mining facility in Texas, but it's unclear whether the U.S. Trustee, the office in charge of administering bankruptcy cases, thinks it's viable.
  • The co-founders of failed crypto hedge fund Three Arrows Capital reappeared in an interview with Bloomberg. Su Zhu and Kyle Davies confirmed that the fund's collapse was due to risky leveraged trades gone wrong and that they would cooperate with authorities while maintaining a low profile.

NFTs & Metaverse

  • Gamestop, which launched its NFT marketplace last February, removed an NFT mimicking a famous falling man photo from September 11, 2001 terror attacks. The 9-11 NFT sold for as much as $749 on July 22 before getting removed from the marketplace.
  • Minecraft creator Mojang banned integrations of third-party NFTs with the video game. Mojang cited speculation and scams as reasons for the game's NFT ban, but players are skeptical that the ban isn't protecting them as much as it's protecting Mojang's bottom line. 
  • Yuga Labs, the company behind Bored Ape Yacht Club, is potentially facing a class action lawsuit for artificially inflating the price of BYAC NFTs and ApeCoin. Lawyers claim the company "fraudulently promoted NFTs" and created ApeCoin to "fleece investors," causing them to incur losses.

Commodities

  • Lumber prices swooned this past week as CME Group announced a new lumber futures contract that offers flexible delivery options in smaller quantities. Launching on August 8, these new lumber futures could smooth out prices by attracting more small buyers.
  • Russia's state-owned energy corporation Gazprom stated that it would reduce gas flow to Germany via the Nord Stream 1 pipeline to 20% capacity. The Kremlin claims that gas shortfalls are the result of Western sanctions causing maintenance issues, but the EU accused Russia of energy blackmail.
  • Russian missiles attacked the port of Odesa, Ukraine one day after striking a deal to free up grain exports from Ukraine's Black Sea ports. Ukraine's Infrastructure Minister Oleksandr Kubrakov wrote in a Facebook post that the country could export 60 million tonnes of grain over the next nine months if the deal holds. Kyiv is reportedly still preparing grain shipments to address a mounting global shortage.

Wine & whiskey

  • Two bottles, one of Springbank 1919 50-year-old Whiskey and one of Malt Mill 10 year old were sold for $8,871 and $8,039, respectively. This may seem minuscule compared to the biggest whisky deals, but each bottle held a measly 50 milliliters. This means that this month's sales were for record sums for both the Springbank and Malt Mill distilleries, proportionally speaking. 
  • Champagne outperformed most other wine categories as the top champagnes saw 1.6% month-over-month appreciation according to Live-ex indices. The only wine index to outperform the Champagne 50 was the Port 50, with 4.1% month-over-month growth.
  • The Champagne regional wine council revealed a 13.8% increase in shipments during the first half of 2022. This contrasts starkly with the low yields and drops in Champagne sales over the past two years.

Sneakers

  • Jordan is releasing a new pair of sneakers to commemorate the brand's 25th year of business in China. The Jordan Zion 2 "25 Years in China" is a collaboration with NBA player Zion Williamson and is set to release later this year.

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