A daily roundup of research and analysis from what The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley metals and mining analyst Carlos De Alba attempted to uncover the biggest sector winnings from recent U.S. legislation,
“The Inflation Reduction Act (IRA), the largest climate bill ever to pass in the US Senate (it is expected to be voted on by the House of Representatives later this week), includes billions of dollars in subsidies and direct grants for clean energy and electric vehicles. The bill extends an existing tax credit for wind energy from 2022 to 2025. In the electric vehicle space, it expands an existing $7,500 federal tax credit by removing a cap that currently phases out this credit once an automaker sells 200,000 vehicles. Furthermore, based on concerns that China has grown too dominant in the battery supply chain, the bill specifies that OEMs will qualify for the $7,500 tax credit only if they build their clean cars with minerals extracted or processed in the US or a country with which the US has a free trade agreement … On the supply side, the bill includes a 10% production tax credit on the cost of production of critical minerals (NdPr and vanadium are included, MP’s and LGO’s products, respectively)”
“Biggest winners from climate bill (MS)” – (research excerpt) Twitter
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Scotiabank strategist Jean-Michel Gauthier is concerned about the high degree of correlation between crypto currencies and tech stocks,
“Both Bitcoin and Ethereum are up 22% and 66%, respectively, so far in Q3 after having fallen 72% and 79% from their respective peak to the end of Q2. Moreover, flows seem to be timidly coming back in as witnessed by a renewed increased in Total Value Locked in Defi protocols. After seeing close to US$100B in outflows and destroyed value following the collapse of the Terra ecosystem, Defi protocols have seen a US$13B increase in TVL over the last 2 months … Overall, the crypto ecosystem seems to be picking up for now. Yet, correlation with technology remains worryingly high as measured by 3M rolling correlation of daily returns between the Nasdaq and Bitcoin/Ethereum. Moreover, governance issues, fraud, and bad design in different crypto segments continue to drive the news. The sector thus remains vulnerable to another confidence crisis and a renewed Tech downturn. Rising interest rates are another thorn in crypto: unless cryptocurrencies keep appreciating, the opportunity cost of holding crypto vs. interest earning deposits increases”
“Scotiabank: “Crypto Stabilizing This Summer, but High Correlation with Tech Worrying” – (research excerpt) Twitter
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The Financial Times is covering a concerning trend.
The combination of a strong U.S. dollar, high food costs and climate change-related expenses are closing off the world’s credit markets to emerging markets that need it most,
“Investors are on alert for Pakistan to follow Sri Lanka into default as the south Asian country struggles with soaring commodity prices and tighter credit conditions. Pakistan’s foreign bonds due to mature in 2024, 2025 and 2026 are trading firmly in distressed territory, at about 71, 65 and 63 cents on the dollar, respectively, according to Bloomberg data… The surge in global energy and food prices since Russia’s full-scale invasion of Ukraine in February has fed inflation and caused Pakistan’s trade deficit to widen, draining its reserves. With its foreign exchange reserves dwindling to about $9bn, enough to last another two months, a liquidity crisis is looming.”
“Investors shun Pakistani bonds on rising default threat” – Financial Times (paywall)
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Diversion: “Predator Movies, Ranked– Gizmodo
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Scott Barlow