Mine Digital April Update - Mine Digital
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Mine Digital April Update

May 1, 2020 • 
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April was a huge month in the world of financial assets and we cover it in here. Covid-19, Oil, Stocks, US Fed Stimulus, Gold and a Crypto update.

Today marks the end of April 2020 and March was certainly a hard act to follow. April gave it a good nudge however…

The Numbers

Without doubt the main talking point in April is Crude Oil which, given COVID-19 has seen supply build, traded to -$37 a barrel on the 20th before recovering to sit *only* 18% lower MTD but -72% YTD.

Bitcoin has rallied an astonishing 44% in April and is now +27% YTD after surging over the past 2 days. Ethereum outdid the boss, up 64% in April with XRP +28% a surprise inclusion rounding out the podium.

VIX has been smacked down 30% in April but remains some 120% higher YTD.

Gold (+8%) and Silver (+11%) climbed but the former has perhaps peaked for now.

The Events

Despite climbing death tolls and emergency departments in many countries being swamped, it appears COVID-19 may have reached a peak concern from a health perspective. That has seen a collective of nations turn their attention to blame, and a focus squarely on China:

*TRUMP SAYS HE’S SEEN EVIDENCE THAT WUHAN LAB ORIGIN OF VIRUS

*TRUMP SAYS THE CHINA TRADE DEAL NOW IS SECONDARY TO WHAT CHINA DID WITH THE VIRUS

China has responded in different forms, attempting to stymy investigations into the origins of the disease with political sway. Or, if you’re in a more Sino-reliant economy such as Australia, outright threats of trade sanctions have seen the Morrison Government in the crosshairs of the CCP.

Right from the start of this health issue the smart money was on a re-wiring of supply chains away from China. Many countries have found themselves wanting on the home front by way of replacing essential goods within their own domestic economy. Countries are now asking themselves various questions like: Can we afford to move away from such heavy reliance on China? Or can we afford not to?

Like many businesses around the world whose employees have had to work remotely or very occasionally from the office, Sovereign risk has become a question eerily similar to Business Continuity Plans companies have in place. China has looked down the barrel of the dismantling of their fabled resurrection of the Silk Road in their Belt and Road initiative, and they do not like what they see.

A world where they can’t dominate trade logistics means a world where they can’t use soft power to coerce. This would unravel nearly two decades of pay to play economics which saw the rest of the world bow to the Yuan because of the prosperity it bought to their lands, and many politicians back pockets.

But when your nations’ people are dying horrible and ghastly deaths in hospitals, isolated from friends and family, and without any better reason than someone ate a bat in Wuhan, the people rise up and want answers, which is the basis for a global push to investigate the origins of COVID-19.

Spoiler Alert – it was China. And that’s exactly what China doesn’t want their own people finding out. Why else would you threaten travel restrictions to countries like Australia who feed, educate and amaze them with natural beauty when those very people who may arrive find out the truth?

And so Western countries may look inside for answers to supply chains and product, whilst China subverts, trying to create sufficient noise such that the truth may become a murky Western Whisper. No one will ever care if China copies trademarked design going forward, so long as they don’t originate death with little care or consequence.

Oil in Focus

Already supply shock is front and centre, no more so that Oil:

Oil is important because it touches so many parts of the global economy, but none more than transport. And when everyone in the world is under instruction to stay indoors unless it is absolutely necessary, a domino effect pours into the crevices of every storage plant in the world. Right now, storage capacity is being massively upgraded to accommodate what may be a long process of recovery for black gold.

And of course, if you were, say, an oil producing nation like Saudi Arabia, what would the logical thing be to do? “Pump MOAR oil for $500 please Johnny”. Well of course you do. If your economy is pegged largely to one commodity which is in high demand, then that demand suddenly goes to ~0, the laws of supply and demand dictate flooding the market is the only thing to do!

Stocks in Focus

Met with unprecedented Monetary Stimulus from most major economies, stocks rallied from the tumult of March back to, in some cases, largely unchanged from February.

S&P on a daily looking to reclaim 3000 and 200dma:

On a monthly it has recovered a great deal of the losses:

US Federal Reserve Stimulus

In some ways, the coronavirus occurred at the worst possible time. 12 years after the GFC, capital markets have become warped, with equity markets at an extreme, fixed interest markets at an extreme with extreme interest rates, with the USD perpetually bid despite trillions in liquidity given, and in Dec 2019 hundreds of billions required, with the velocity of money (USD) collapsing into a global financial system that was increasingly exclusionary to anybody besides institutional banks and disconnected relationships across asset classes.

Into this environment came an expected recession in 2020, with demand slowing since the trade war became a feature of the global economy in 2018.

With real geo-political risk also increasing around the world, the Coronavirus came along to slap growth down but also severely restrict expected cash-flows in 2020 in an environment of extreme levels of credit. In addition, Saudi and Russian actions in the oil markets have led to a further risk of extreme bad debt in oil markets.

The US response has been to make plans to inject upto $6 trillion USD into the economy with the US Federal Reserve under pressure from the US President Trump to do so.   The word unlimited was used to describe what the Fed was able to do.  

And this on a global backdrop of similar action, where Australia had an incredibly high level of stimulus compared to GDP – as they also did during the GFC. Similarly to the GFC, Australia is remarkably safe from the actual threat, but its technocrats still manifest an extreme response.  

So if the cash-flow issue becomes one of debt contagion in a couple of months time it is going to be very interesting to see what the Fed does – potentially multiples of what they have already done, a hard back-stop of the entire global financial system with no risk, anywhere, ever again.

Crypto in Focus

BTC:

As the Fed and others melt stocks higher with free money galore, Bitcoin crept higher until late April with an eye-watering rally to close out the month. Blasting through 8k and the 200dma without breaking a sweat, it almost touched $9500 before retracing a little to sit at 8700 as I type.

ETH:

The star in crypto land this month and more than doubling since mid-March. ETH took out the 200dma early in the month, failed before bursting through and has continued this corrective behaviour for most of the month.  ETH eased against BTC in the last 2 days of BTC strength.

XRP:

A surprise push higher after a very subdued April which saw small gains to 0.198 before an explosion higher in the final days of the month, similar to the rest of the space. Interestingly for Ripple, it kissed the 200dma, unable to close above it and backed away overnight

Gold in Focus

Up for the month, like most safety assets, but Gold is showing worrying signs of a near term high with a bearish chart structure.

Gold on a daily:

Gold on a monthly:

Looking at the monthly there, what a lot of people will be thinking with the GFC the only recent marker for some people, is now worse than the GFC and does it warrant these prices? And what to make of Gold in context with the USD Dollar, below:

The Conclusion

As always, taking on month in isolation is a dangerous habit, and we’ve seen two out of the box months in terms of price action, Fed stimulus and business activity shutdowns. It helps to remind people in light of the YTD gains below, where the crypto world sits in comparison.

ETHUSD: 60.36%

BCHUSD: 22.45%

BTCUSD: 20.54%

LTCUSD: 12.13%

XRPUSD: 10.48%

USD: 3.1%

That’s all from us for the monthly update, good luck out there clients and friends.

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