Global lockdowns ease, but is a credit crisis looming? And Bitcoin’s halving is just around the corner

By Jonathan Jackson. Published at May 8, 2020, in Features

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There has been a lot of talk about Bitcoin this year and once again flying high.

We opened the year with Iran/US tensions driving up the price of the cryptocurrency by 5%.

Nigel Green, the chief executive and founder of deVere Group said at the time, “We’ve seen Bitcoin price surges before during times of heightened geopolitical tensions. For instance, in August it jumped as global stocks were rocked by the devaluation of China’s yuan during the trade war with the US.

“This latest Bitcoin price increase underscores a mounting consensus that Bitcoin is becoming a flight-to-safety asset.

“Bitcoin is living up to its reputation as ‘digital gold’. Bitcoin - which shares gold’s characteristics of being a store of value and scarcity and of being perceived as being resistant to inflation – could potentially dethrone gold in the future as the world becomes increasingly digitalised.”

That could be a long way off as scepticism (rightly or wrongly) is still pervasive when robust discussions about its merits hit the chat rooms.

Bitcoin was one of the best performing assets of 2019, so perhaps there is something there for investors.

The coming halving, which sounds to me like some cultish ceremony, is expected to boost the price further. The halving will take place on 12 May and is the third since bitcoin was created just over a decade ago.

The halving refers to the number of bitcoin rewarded to the so-called miners that maintain the bitcoin network. It will drop from 12.5 bitcoin per block to 6.25.

How the price reacts really is anyone’s guess, but Bitcoin traders and investors are confident, the halving will only have a minor impact on price.

A senior analyst at e-Toro said “the upcoming halving announcement has attracted investors' focus, and we can expect the price to rise on the halving day or post-halving day.

“There is a chance that the price may exceed the psychological barrier of $10,000 overnight, but I expect the market to adjust; falling back to around the $8,000-$9,000 level after the halving event.”

Interestingly, the price did exceed $10,000 this week, yet Lennard Neo, head of research at Singapore-based institutional-grade bitcoin index fund Stack, also believes the price will drop before picking up by the end of 2020 and the early part of 2021.

Neo said, "In the longer-term we can expect bitcoin to register significant price appreciation towards the end of 2020 and early 2021. Further turmoil in the broader economies ‘could’ accelerate [bitcoin's] upward trajectory."

The broader markets are less exciting, but there’s plenty happening.

The global market

The lockdown is easing. Not ending by any stretch of the imagination, but easing nonetheless.

Prime Minister Scott Morrison’s Friday announcement that a three stage easement is in place will hopefully have a positive impact on the market as businesses slowly restart operations.

Time will tell.

As for the global market, eToro analyst Leo Xiong says, “As individual states within the US begin to reopen, the market has shown signs of recovery. Analysts are concerned, however, that this rebound may not be able to maintain its current trajectory. The FED's strong intervention continues to pull the market slightly higher, despite fundamentals not improving.

“In March, over two trillion grocery orders were cancelled, and nearly 100 of the S&P500 companies have withdrawn earnings for the next quarter. The FED's purchase of low credit rating bonds are concentrated in the energy industry which accounts for only 5% of companies in the S&P500. 70 of these companies have announced they will cease share buybacks of stock to better save cash in 2020.

“After the resumption of work around the world as lockdowns ease, the market is likely to face a new credit crisis. According to Moody's latest figures, the number of low-rated companies has already surpassed the levels of the 2009 credit crisis, taking us to an all-time high. Fiscal stimulus is not risk-free, and the sharp rebound at this stage may offset future growth potential.”

That doesn’t mean there aren’t well performed stocks.

Lyft, Inc. (LYFT)

Lyft Q1 earnings reported at $956M, surpassing the consensus estimate of $885M. Its share price soared more than 20%. Xiong says investors should still need to be vigilant as active user numbers have declined considerably during lockdown and LYFT must further lower operating costs to mitigate the effects of COVID-19.

Moderna, Inc. (MRNA)

MRNA announced its rapid COVID-19 test is due to be in the last testing stages before the end of summer. These announcements led to a the price soaring nearly 14%.

Fidelity (FIS)

FIS Q1 sales increased by 49.64% YoY, reaching $3.078 billion. Its share price maintained a level around $130.

Twilio (TWLO)

Twilio shares were up as much as 25% in extended trading on Wednesday after the company reported first-quarter results and quarterly guidance that surpassed analysts' estimates. The 57% YoY growth has elevated the company's share price to exceed the previous high of $149.95 in July 2019.

ASX small caps up and about

  • Alligator Energy (ASX:AGE) was up 67% this week and was issued a speeding ticket. The company is focused on uranium which is making waves in the energy sector. You may remember last week’s performance by GTi Resources.
  • Impact Minerals Limited (ASX: IPT) was up 67% after announcing high grades of the rare platinum group elements rhodium, iridium, osmium and ruthenium.
  • Alt Resources Limited (ASX:ARS) was up 45% following their announcement they had received a proposal from Aurenne Group Holdings to take them over for a bit over 5c a share (cash).
  • Elixir Energy (ASX:EXR) was up 36% following strong support for an over-subscribed placement of new shares.

An overall look at the best and worst performing sectors
Information Technology was the best performing sector this week up 10 percent. Materials was up over 3 per cent and the Energy and Healthcare sectors were also in positive territory up just under 3 per cent.

The worst sectors include Industrials, which is just in the green, while Financials are up around 1 per cent and Consumer Discretionary is up just over 1 per cent so far this week.

As for the ASX top 100 stocks, Evolution Mining and Qube are currently up over 13 per cent followed by Newcrest and Magellan, both up over 10 per cent. The worst performers include Unibail-Rodamco-Westfield, which is down over 6 per cent, and Sydney Airport, IAG and Incitec Pivot are all down over 5 per cent so far for the week.

What's next for the Australian stock market?

“Last week I indicated that I did not believe we were out of the woods just yet and that the current move up may just be a sucker’s rally,” says Wealth Within founder Dale Gillham.

“As of Thursday, the market was trading below where it closed 17 trading days earlier. In between this period, the market has traded both higher and lower, which indicates uncertainty.

“If we look a little closer, in the 25 trading days since the 1st of April, the Australian stock market has only risen 6 per cent to the close on Thursday (7 May). Unfortunately, none of this points to the market being bullish, so the chances that we are living on borrowed time is getting higher.

“For the market to prove it is bullish, it needs to rise above 5,623 points and move to rise above 5,800 points over the next month. If it cannot do that in the next week or so, it will signal that the market is weak and will most likely fall away. Again, I continue to recommend investors be on their guard and if you do invest, only buy quality stocks.”

Where to invest $1,000 right now

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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