Cash Crunch Drives Wild Commodity Action

• 3 min read
Cash Crunch Drives Wild Commodity Action

MARKET MOVERS

  • Gas prices upend small businesses. Rising fuel prices are taking a toll on small businesses, prompting owners of everything from furniture retailers to swimming-pool service companies to trim services and revise contracts as they try to soften the financial hit. 52% of small-business owners said that higher energy prices were affecting their businesses, according to a March survey of more than 780 small businesses.

  • Saudi’s Aramco pledges to increase investment in oil production to meet growing demand. The world’s largest oil exporter said its net profit increased by 124 percent to $110 billion in 2021, compared with $49 billion a year prior. In an effort to boost production and meet growing demand, Aramco said it would ramp up capital expenditure to $40–50 billion. Read more here.

  • Cash crunch drives wild moves in commodities. Commodity traders are being hit by huge cash requests from banks and exchanges, propelling whipsaw moves in markets and hindering the movement of materials beyond Russia and Ukraine. That has fed into wild swings in the price of oil. Escalating margin calls are making it difficult for traders to manage the financial risks involved in moving physical commodities.

  • Investors are seeking refuge in long-term Treasuries. They are pouring $2 billion into the ETF $TLT last week, the second-highest weekly tally since the fund's 2002 inception. This comes despite talks of a higher terminal Fed rate for this cycle and higher inflation for longer.

  • Terra is pioneering a bitcoin-backed stablecoin. They are becoming a persistent buyer of bitcoin. Terra is undergoing a transition from a dollar-pegged stablecoin to a bitcoin-backed stablecoin There is approximately $3 billion in bitcoin, Tether, and LUNA sitting in the Luna Foundation reserves today. They are slowly converting the majority of this into bitcoin. The Pomp says bitcoin-backed assets are coming.

  • Chipmakers face a two-year shortage of critical equipment. The warning comes from ASML, the company that makes lithography machines that etch circuits onto silicon wafers. It’s critical to the supply chain. ASML’s chief executive just said he won’t be able to ship enough machines to meet rising demand. Meanwhile, Intel, Korean companies, and Taiwan’s TSMC are all investing billions in expanding manufacturing in Europe and the US. Source(9:11)

WHAT TO WATCH

  • First over-the-counter crypto trade announced by Goldman Sachs. The firm traded a bitcoin-linked instrument called a non-deliverable option with crypto merchant bank Galaxy Digital. The move is seen as a notable step in the development of crypto markets for institutional investors, in part because of the nature of OTC trades. Compared to the exchange-based CME Group bitcoin products that Goldman began trading last year. Read more here.

  • Berkshire Hathaway to buy insurer Alleghany for $11.6 billion. Warren Buffett’s investment vehicle expects to complete the cash transaction by end of the year. Alleghany is best known for its core property and casualty insurance businesses but has also accumulated a diverse group of increasingly profitable noninsurance divisions and has been likened to a mini Berkshire. Berkshire said it will pay $848.02 a share in cash for Alleghany.

  • Fed will consider more-aggressive rate increases. Powell says ‘inflation is much too high’ and the Fed will take necessary steps to address it.  Powell said the Fed will continue to hike rates until inflation comes under control, and could get even more aggressive than last week’s increase, which was the first in more than three years. He vowed tough action on inflation, which he said jeopardizes the recovery.

  • Tech continues to displace unnecessary jobs. BowTied Bull says a large number of people will need to retool and learn a new skill entirely. As technology adoption continues to go up, there will be more computer/phone usage, more software usage, and more internet usage. As an investor or professional, you probably want to position yourself in these industries particularly the AR/VR and internet economies.
    Read more here.
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