Bitcoin falls 5.2% to $33,849, Ether down 6.3%

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BofA: Demand for Safe Heavens Grows as Inflation Fears Persist

Investors boosted exposure to safe heaven assets in the week ended on Wednesday, including cash and gold funds, showed BofA flow data on Friday. The move could indicate growing concerns about early asset purchase tapering by global central banks and runaway inflation.Money market funds saw inflows of $68 billion - the highest weekly inflow since April 2020, BofA reports, citing EPFR data. Gold inflows totaled $2.6 billion which is the highest in 16 weeks.Nevertheless, equity demand remained relatively high as respective funds saw inflows of $17.9 billion. However, BofA warns that peak positioning, monetary policy and financial performance of companies could lead to low or negative stock returns in the next 3-6 months.Equity funds have raised about half a trillion dollars since the beginning of the year - more than the aggregate over the previous 12 years, BofA added.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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The charts that matter: gold back on the rise as the dollar continues to slide

Welcome back. 

This week, we’re looking at renewable energy. It’s all the rage – and that, perhaps, is the problem. It might be the future of power generation, but right now, it’s getting expensive to invest in, says John.  Nevertheless, “cleantech” is not something that’s going away. And whatever type of green energy prevails, it’s going to be built on metal – lots of metal, with lithium and copper chief among them. And that bodes well for Latin America. James McKeigue looks at how you can buy in.

This week’s podcast sees Merryn joined by Simon French of Panmure Gordon. He’s got a bit of a contrarian take on inflation. As you may be aware, we’re pretty much of the view that we’re likely to be seeing some sustained inflation coming our way. Simon, however, thinks it will just be a short-term phenomenon as we recover from lockdowns. He tells Merryn why – listen to the podcast here. 

This week’s “Too Embarrassed To Ask” looks at “gearing” – also known as leverage. It’s another of those complicated-sounding terms which describes a very simple concept – and one that is very important in investing. Find out more here.

Here are the links for this week’s editions of Money Morning and other web stories you may have missed.

• Monday Money Morning: Bitcoin’s crash wasn’t about Elon or China – it was about inflation
• Web article: How rising Covid cases in Asia spell higher inflation in the US
• Tuesday Money Morning: Why we’ll all be better off when the commodities curse is dispelled
• Merryn’s blog: Why an ageing population is not necessarily the disaster many people think it is
• Web article: Elon Musk brings some joy to bitcoin hodlers, but will it last?
• Wednesday Money Morning: Bitcoin is in a bear market. So what should hodlers do now?
• Web article: Is Marks & Spencer finally starting to turn around?
• Thursday Money Morning: Central banks are starting to raise rates – what does that mean for your money?
• Friday Money Morning: Big oil is under pressure to cut production – what does that mean for investors?

Now for the charts of the week. 

The charts that matter 

Gold kept on climbing. It’s still a long way off its peak, but it’s pretty much back where it started the year.

Gold price chart

(Gold: three months)

The US dollar index (DXY – a measure of the strength of the dollar against a basket of the currencies of its major trading partners) just keeps on falling.

US dollar index chart

(DXY: three months)

While the Chinese yuan (or renminbi) is getting stronger (when the red line is rising, the dollar is strengthening while the yuan is weakening). 

USD/CNY currency chart

(Chinese yuan to the US dollar: since 25 Jun 2019)

The yield on the ten-year US government bond is treading water.

US Treasury bond yield chart

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year bond seems to be drifting down after looking like it might perk up last week.

Japanese government bond yield chart

(Ten-year Japanese government bond yield: three months)

And the yield on the ten-year German Bund, dropped suddenly, after a couple of months of solid rises.

German bond yield chart

(Ten-year Bund yield: three months)

Copper paused for breath, but it’s still in demand.

Copper price chart

(Copper: nine months)

The closely-related Aussie dollar continued its volatile sideways drift.

AUD/USD currency chart

(Aussie dollar vs US dollar exchange rate: three months)

And bitcoin failed to immediately bounce back from its huge selloff the previous week. It stabilised a little, but where it goes next is anyone’s guess, says Dominic.

Bitcoin price chart

(Bitcoin: three months)

US weekly initial jobless claims continued to fall, down 38,000 to 406,000, compared to 444,000 last week. The four-week moving average fell to 458,750, down 46,000 from 504,750 the week before. 

Weekly US jobless claims chart

(US initial jobless claims, four-week moving average: since Jan 2020)

The oil price recovered from its previous week’s drop.

Brent crude oil price chart

(Brent crude oil: three months)

Amazon is trading sideways.

Amazon share price chart

(Amazon: three months)

And Tesla made something of a recovery.

Tesla share price chart

(Tesla: three months)

Have a great weekend. 

Ben

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Weekly Live Market & Trade Analysis

Weekly Live Market & Trade AnalysisIn this week's live market and trade analysis session, we assessed the technical price patterns of over 20 charts including the DXY, FX majors, global equity Indices, Commodities, Bitcoin. We discussed the potential for a position shakeout in a number of risk sentiment instruments XXXJPY and equity Indices in the early part of June You can watch the recording here.If you are available 1pm UK time join us every Thursday for actionable market analysis, register here!Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/weekly-live-market-and-trade-analysis2805"
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FOMO Friday: NZDJPY Breaks Out

NZDJPY Looks Upward Another week comes to an end and it’s been a much quieter week in all. However, despite the lack of volatility, especially when compared with the moves seen over recent weeks, there have still be some great opportunities. Unfortunately for some, these opportunities might not have been realised and chatting with other traders this week it seems the trade that people are focusing most on in FX is the break higher in NZDJPY, which has rallied almost 3% this week (over 200 pips). So, let’s take a look at what happened and why this was a great trade.What Caused the Move? As we’ve seen with other XXXJPY pairs recently (specifically CADJPY), the main driver behind the break higher is the growing central bank divergence. The BOJ has consistently reaffirmed its commitment to keeping easing in place while the country continues to battle the fourth wave of the virus and has said that it remains willing to increase easing if necessary. With the country still caught in the grip of the pandemic and still having to use lockdowns and travel restrictions, the near-term outlook remains fraught with downside risks, keeping the BOJ’s policy outlook firmly tilted towards maintaining easing.Hawkish RBNZ Statement On the other hand, the RBNZ this week came out with a much more hawkish statement in which it now projects lifting rates as early as next year. Along with the BOC, the RBNZ is now forecasting one of the earlier rates increases among G10 central banks. While the RBNZ notes that uncertainty and risks remain it said the economy if rebounding steadily and is expecting much faster growth over the remainder of the year.Better Risk Appetite So, a simple case of central bank monetary policy divergence once again. The move has also been helped by the much better risk appetite this week. With equities trading back to highs, JPY has seen reduced buying as a result of weaker safe haven inflows while the higher yielding NZD, which tends to track risk assets, has been lifted. As always, if you caught the move, well done! And if not? There’s always next week. Let’s now take a look at the technical picture.Technical Views NZDJPYThe breakout in NZDJPY has seen price move above the 79.19 level, as per a recent Market Spotlight. While above here, with MACD and RSI both bullish, the focus is on a continued push higher towards the 81.53 level. Should price slip back below the level, the rising trend line will be the first main support to note.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/fomo-friday-nzdjpy-breaks-out"
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Simon French: why post-pandemic inflation will be short-lived

Merryn talks to Simon French, chief economist with Panmure Gordon, about why he believes inflation will be transitory and the world will be back to the old normal more quickly than many people think; plus the value in the UK market.

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Latin America leads the way in the raw materials for clean tech – here's how to invest

Many analysts think that the pandemic is accelerating the shift from fossil fuels to clean energy. It’s too early to say if that’s true, but it has certainly increased the green grandstanding from politicians and CEOs. BP aims to be “carbon neutral” by 2050, while Toyota, the world’s biggest carmaker, will no longer make internal combustion engines from 2040. The UK was the first major economy to make a legally binding commitment to “net-zero” greenhouse gas emissions and similar pledges are now being announced by governments across the world. With Glasgow hosting COP 26 – the World Cup of environmental shindigs – this November, expect plenty more ambitious green commitments. 

The problem? Most of these promises are impossible to deliver. Take electric vehicles (EVs). Replacing today’s global fleet of internal combustion engines with EVs would require mining every single pound of copper in all of the world’s copper mines (EVs use four times as much copper as traditional cars).

Another solution could be biofuels. Yet even in BP’s most optimistic scenario, bioenergy will only make up 10% of demand for primary energy (natural resources that have not been converted into other forms of energy) by 2050. And that’s with billions of dollars of investment and massive increases in biofuel production. It’s a similar story for hydrogen, which under BP’s most radical assumption would provide just 18% of primary energy supply in 2050. 

I am not belittling the efforts to fight climate change, just highlighting how difficult it will be to wean ourselves off oil. Simply meeting the legally binding pledges already made will radically upend natural commodity markets. Still, the energy transition will continue to pick up speed. For politicians, fighting climate change helps to win votes, while touting a company’s green credentials helps CEOs boost the stock. The energy transition bodes well for one part of the world in particular: Latin America. The region is home to the world’s largest reserves of copper and lithium. It is the biggest biofuel producer and is also emerging as a leader in green hydrogen (hydrogen created with renewable energy, not fossil fuels).  

Commodities are still cheap

Clean energy is already a crowded trade. Copper is at record highs, while shares of EV manufacturer Tesla have tripled in the last year. Yet despite all the talk of a commodities supercycle, the prices of key natural resources are still well below previous peaks. The Commodity Research Bureau index, which tracks 19 raw materials, is currently at less than half of its 2008 peak – lower than at any point during the last supercycle, from 2004 to 2014. Rising inflation should also boost natural-resource prices. Last month’s 3% rise in US core consumer prices was the highest monthly increase since the mid-1990s. With the Federal Reserve seemingly unperturbed by rising prices, we’re likely to see higher inflation. Commodities are one of the few asset classes to thrive in an inflationary environment. 

Michael Scherb, the founder and CEO of Appian Capital Advisory, a private-equity mining investor that owns mines in Latin America, believes clean-technology metals will go higher. “Mining companies are classic ‘lag’ businesses with long lead times for mines to get into production, so they were slow off the mark in responding to demand for clean tech. That’s reflected in the current prices for copper and nickel. People realise that there is going to be a supply and demand mismatch. However, I don’t think that even current prices reflect the full extent of the gap between supply and demand, which will become more apparent in the future.” Another factor is the declining quality of ore, says Scherb. Companies will have to “mine deeper for poorer-quality ore, which will increase costs. That will feed into the industrial production chain, which will push inflation in the sector”.

So the world will need immense amounts of copper. And that’s where Latin America comes in. Chile and Peru are the world’s largest copper producers, accounting for 44% of global output. Yet their neighbours have more exciting exploration potential. Miners up and down the Andes believe that Ecuador and Argentina have as much copper as Chile and Peru. Wojtek Wodzicki is the CEO of junior explorer NGEx Minerals and has overseen three massive copper discoveries in Chile and Argentina. “All along the Andes you see incredible deposits. Chile and Peru have exploited that, with their long history in mining, whereas Ecuador, Argentina and Colombia probably have much more to be found. An area with promising geology but little exploration equals opportunity.”

Nickel, cobalt, manganese and lithium are also clean-tech metals used in EV batteries. All four are abundant in the region, but Latin America is particularly dominant in lithium, where the “lithium triangle” of Bolivia, Argentina and Chile holds 55% of global reserves. Latin America also has advantages above the ground. The forces calling for the energy transition are part of a wider move to improve environmental and social governance (ESG). The money in global funds targeting ESG-friendly investments grew by 50% in 2020 to $1.7trn. So new mining projects will henceforth have to explain their social and environmental impact. 

And that will favour Latin America. For example, its main competitor in cobalt production is the Democratic Republic of the Congo, where child labour is rife. Another advantage is electricity. Thanks mainly to massive hydroelectric plants, Latin America has the greenest power grid in the world, with around 60% of the region’s electricity coming from clean sources. Being able to hook up to a green grid improves the environmental profile of Latin American mining projects, which will help them attract more investment.

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Share tips of the week

Six to buy

Coca-Cola HBC 

(Shares) Coca-Cola HBC has lagged the wider stockmarket this year. But there is plenty of upside for the soft-drink bottling group as the global economy reopens. A first-quarter trading update showed that despite Covid-19 restrictions continuing, sales were up by 6.1% year-on-year. The company’s “geographic diversity” also allowed it to benefit from “accelerating sales in emerging markets”, with Russia and Nigeria both posting double-digit growth. 2,509p

Marks & Spencer 

(The Sunday Telegraph) Marks & Spencer (M&S) has had a series of “turnaround” executives who have failed to tackle the “deep-seated decline in its fortunes”. Its record pre-tax profit of £1.2bn was achieved in 1998. Last year’s figure was just £67.2m. But new executives Archie Norman and Steve Rowe could turn that around. Norman grasps what customers want: “a clearly understandable product range that offers reliable quality and value”. Concentrating on a smaller range of products is easier to manage and costs less. M&S is also renewing its online presence better to compete with rivals. The group could soon be “materially more profitable, and the shares could be materially higher”. 153p 

AT&T 

(Barron’s) AT&T has now slashed its payout to $8bn from $15bn. Investors are understandably concerned, but over time the smaller dividend is a “reasonable price to pay for a company that has less debt and more cash to spend on its core mission around 5G and broadband”. That business could enter a whole new growth phase as the 5G-rollout gains momentum. The firm is also “reversing course” on its $106bn purchase of Time Warner. The latter’s spin-off and merger with Discovery should help AT&T regain its “telecom leadership”. The stock is “a sound investment”. $29.93

Card Factory 

(The Times) Card Factory has been profitable since its flotation in 2014. It began offering personalised cards last year to compete with newer online rival Moonpig, which benefited from shop closures while Card Factory “lost out” on Valentine’s Day and Mothers’ Day sales. The group has announced a £225m refinancing and will raise £70m to repay debt early. Recent sales were “a touch below” those in April and May 2019. But Card Factory is “well-run with a profitable business model… it may be a long road ahead, but there is optimism”. 73p

BT 

(The Mail on Sunday) BT’s share-price performance has been “execrable” recently; “even the dividend gravy train dried up last year”. There was no final payment for 2020 or for the year to March 2021, when turnover fell by 7% to £21bn and profits slumped by 23% to £1.8bn. The group is spending billions on upgrading its fibre-cable network. But CEO Philip Jansen is optimistic:  he purchased £2m worth of BT’s shares last week. Although turnover for the year will be flat, profits should rise and dividend payments will resume. Over the next few years they “may increase substantially”. 178p 

Experian 

(Investors’ Chronicle) Data-services specialist Experian’s organic revenue increased by 4% for the year to 31 March, thanks to a 17% increase in consumer services, which helped offset a “flat performance” from its business-to-business arm. For the current year the company is expecting sales to grow by between 7% and 9%. “Experian’s record of growth through adversity, with a notable acceleration as economies emerge from the pandemic, sets it apart.” It is currently trading at 31 times consensus 2022 earnings, but the valuation isn’t unreasonable when considering its high margins and the “long-term structural demand” for its services. 2,544p

...and the rest

The Daily Telegraph 

The pandemic has boosted online shopping and hence Royal Mail, with parcels’ revenue eclipsing sales from letters for the first time. The shares look cheap. Nonetheless, it is not yet clear if those earnings can be sustained as the pandemic winds down. Avoid for now (519p). 

Shares 

UDG Healthcare’s shares have gained nearly 50% since we tipped it in July 2020 and the latest surge has come following a bid from a private-equity group; “others have noted the value we saw” in the company. Sell now to lock in a “handsome profit” (1,023p). Alcoholic drinks giant Diageo has continued to perform well, and it is now benefiting from the reopening of bars, clubs and restaurants in Europe. A positive recent trading update makes the stock a buy (3,365p).

Investors’ Chronicle 

Housebuilder Countryside Properties has been “lifted by a booming housing market”, but its partnerships division, which works with local authorities to deliver a mix of private and affordable housing, has been hampered by pandemic-related costs. But there are reasons for optimism: the forward order book is 16% ahead of March 2019’s level. Hold (469p). 

Motley Fool

Cloud business Zuora’s revenue growth has “decelerated sharply for three consecutive fiscal years” and despite high hopes for a recovery “it will be hard [for the stock] to keep defying gravity after another uninspiring quarter this week”. Avoid ($15.25). Grayscale Digital Large Cap Fund, a cryptocurrency investment vehicle, lost a third of its value last week as digital currencies plunged. There could be a long-term opportunity here, but for now avoid it ($27.23).

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The bitcoin market is refusing to mature

There comes a time “in the life of every cryptocurrency investor… when they watch a significant amount of their money disappear in the span of a few hours”, says Jen Wieczner in New York magazine. 

Bitcoin fell by 30% last week and is down by more than 40% from its mid-April highs. The past week has seen a stomach-churning series of rallies and reverses, including a 30% fall in a single day on 19 May. 

Bitcoin is a poor store of value

At the time of writing bitcoin was still well short of $40,000; it traded as low as $31,970 at the weekend. The price has been hit by news from China, where regulators last week banned banks and payment companies from accepting cryptocurrencies. Elon Musk’s Tesla also says it will no longer accept payments in bitcoin because of the environmental impact of bitcoin mining. 

Even after this fall, a person who bought the cryptocurrency five years ago is still “sitting on gains of over 6,000%”, says Aaron Back in The Wall Street Journal. The “libertarian cryptoevangelists” hope digital currencies will one day replace government-issued money. But this bout of extreme volatility is a reminder that bitcoin is a lousy store of value or means of exchange. 

If bitcoin isn’t a currency, then what is it? asks John Authers on Bloomberg. Perhaps the best analogy is with big tech stocks such as Facebook or Google. At a market capitalisation of more than $800bn, bitcoin is comparable in size to some of these firms. Bitcoin often mirrors their price movements too. If anything, the cryptocurrency resembles an early-stage tech company, with “promising but unproven technology that people are prepared to buy”. 

Blue-chip bitcoin?

The bitcoin market is refusing to mature. As Avi Salzman notes in Barron’s, the market capitalisation of bitcoin has risen almost 100 times since 2016, but it “is just as volatile as it was five years ago”. That is “almost unheard of in other markets”. Usually “an asset becomes less volatile as its value grows and its investor base widens”. 

Big institutional investors had driven much of the enthusiasm about cryptocurrencies this year, but they could be getting cold feet. JPMorgan reports that “professional investors have been shifting their crypto assets to gold”, the first time that has happened for several months. Long reluctant to dive into unregulated assets, the big investment banks have been forced into the crypto market by “obsessive interest from some customers”, says The Economist. Goldman Sachs recently relaunched its crypto desk, while BNY Mellon is working on rolling out bitcoin exchange-traded funds. Wall Street’s financial “muscle” will be vital if bitcoin is to flourish, but a “prolonged rout could…scare off prospective converts and trigger a regulatory crackdown”. 

Bitcoin has been declared dead after previous crashes only to “pick itself up and start again”, says Authers. It helps that it inspires “cultish devotion”, with buyers resembling “believers rather than investors… was this the top of the bubble? It might be, but it probably isn’t”. 

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Look beyond Japan’s Olympic omnishambles

Welcoming “90,000 visitors from all over the world during a pandemic” to a “densely populated city where vaccinations trail Bangladesh… gee, what could go wrong?” asks William Pesek in Nikkei Asia. Japan insists that it can safely hold the Olympic games in July, but opinion polls show that more than 80% of the country’s citizens are opposed. Pressure is growing on the prime minister, Yoshihide Suga, who has backed the games. The head of e-commerce giant Rakuten, Hiroshi Mikitani, has dubbed the Olympics a “suicide mission”. 

 Japan has so far done a relatively good job at containing the virus, but was forced to declare a state of emergency last month in response to a new wave of cases. Uncertainty about the Olympics has weighed on markets. The Topix index has gained 7% so far this year, making it a global laggard. 

Overseas investors dumped a net  ¥1trn (£6.5bn) in local stocks during the second week of May, says Hideyuki Sano on Reuters, the biggest outflow since March 2020. The economic costs of cancelling the Olympics would be limited as Japan has already barred foreign tourists from attending. The games look set to deliver a stimulus equivalent to just 0.3% of GDP. That is a poor return given the risk of importing “multiple Covid-19 variants”. 

Still, the long-term case for Japan is encouraging, says Simon Constable in The Wall Street Journal. The market was once shunned for its poor corporate governance, but reforms have forced Japan’s boardrooms to take shareholder value seriously. Schroders reports that the market’s average return on equity, a key gauge of profitability, has risen from 5% in 2013 to 6%-7% in 2019. That should spark more interest from global investors once the Olympics omnishambles has been sorted out.

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Look for bargains in European stockmarkets

The euro area is “nearing escape velocity”, says Christopher Graham of Standard Chartered. Economies have been gradually easing restrictions. France and Austria reopened restaurants last week, while Portugal and Italy are welcoming tourists from certain countries. The continent should enjoy a “robust recovery” now.

European vaccination rates picked up rapidly in April, says Ian Shepherdson of Pantheon Macroeconomics. More than half of the population should have had at least one jab by the end of June, only a month behind the US. Data from Israel suggests that “cases plummet… when vaccination rates exceed about 50%”.

Analysts turn positive

Germany’s Dax hit a new all-time high this week. Wall Street analysts are growing positive, says Sam Meredith for CNBC. Morgan Stanley thinks “Europe is well-placed to outperform all major regions this year for the first time in more than two decades”. With inflation anxiety affecting US markets, more US money managers are looking to the old continent. 

The MSCI EMU index has outperformed the MSCI USA index since “vaccine Monday” on 9 November 2020 (the date when news of the Pfizer jab broke), says Franziska Palmas of Capital Economics. While Europe’s recovery will be weaker than America’s, its shares should keep outperforming. 

US earnings forecasts are already very bullish, so a lot of good news is already priced in. In Europe a slower reopening has made analysts much more conservative, leaving room for positive surprises. 

European markets are also far cheaper than their US counterparts. As of the start of this quarter the US market was trading on a cyclically adjusted price/earnings (Cape) ratio of 36.1. By contrast, Germany was on 19.9, France on 22.6 and Spain on just 14.7, according to Mebane Faber of Cambria Investment Management. That discount partly reflects compositional differences. The US has more fast-growing tech firms, while Europe has more value shares, such as banks and industrial firms.  

Yet composition doesn’t explain the whole story. As Simon Edelsten notes in the Financial Times, even firms operating in similar industries are cheaper in Europe. Shares in German sportswear giant Adidas trade for “35 times this year’s earnings, but Nike in the US is on an eye-watering 42 times earnings”. The same is true of banks. 

But “before dashing across the Channel like an excited shopper hunting for duty-free Gitanes and Château Plonque”, remember that cheap shares are sometimes cheap for a reason. Europe’s very best businesses – those that operate in sectors such as luxury goods and green energy – are rarely the cheapest. “Don’t be afraid to compromise on price in favour of prospects.” 

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The stockmarket's Spac frenzy is cooling

• SEE MORE Too embarrassed to ask: what is a SPAC?

The special purpose acquisition company (Spac) boom is cooling. Spacs are shell firms that list on the stockmarket in order to raise cash. They then use the money to merge with another company.

For start-up founders, Spacs offer a route to a public stockmarket listing that is less bureaucratic than the traditional initial public offering (IPO). They have been used to launch everything from electric-vehicle (EV) makers to space tourism business Virgin Galactic.

Around 250 Spacs launched in America last year, raising $83bn. Between February and March, 69 companies agreed to merge with Spacs, but that number has fallen to just 30 since the start of April, say Echo Wang and Anirban Sen on Reuters. Dozens of firms have ditched merger plans of late. 

No wonder, says Heather Somerville in The Wall Street Journal. Flotations have started to flop. An analysis of tech firms that have gone public with Spacs since the start of 2020 found that share prices have since fallen by an average of 12.6%. Public markets demand quarterly updates and ask tougher questions than venture capitalists, who are more willing to take a punt.

These signs of “market discipline” are welcome, says The Economist. Some Spac deals have been driven by “extreme delusion”. Five EV firms that went public via Spacs last year say they can go from “making no [sales] to $10bn... in under five years… Not even Google [did] that”.

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Curtain up at Cineworld as lockdown ends, but threats remain

Cineworld’s shares, which have already more than tripled from a low of 25p last October, jumped by another 4% early this week, says Naomi Ackerman in the Evening Standard: box-office receipts for the first weekend after cinemas were allowed to reopen in the UK “smashed expectations”. Not only has attendance “soared”, but revenues were increased further by punters “splashing out on popcorn and other treats”. All this raises hopes that the chain can recover from a disastrous 2020, when it suffered an “eye-watering” £1.7bn loss and was forced to seek a £900m bailout from investors. 

It’s not just the UK powering Cineworld’s recovery, says James Warrington in CityAM. The reopening of 167 cinemas in the US means that 97% of its screens are now active, while restrictions are due to be relaxed in Poland and Israel. CEO Mooky Greidinger expects a “good recovery in attendance over the coming months” thanks to a “full slate of films” including action-thriller F9, which has already had “record breaking” success in Asia. While cinemas face intensifying competition from the rise of streaming services, Cineworld has signed an “exclusive deal” with Warner Bros securing a 45-day window of exclusivity following films’ release from next year.

The streamers strike back

Still, the threat from Amazon and Netflix isn’t going away, says The Wall Street Journal. Amazon is nearing a deal to buy the Hollywood studio MGM Holdings for almost $9bn. If the tie-up goes ahead it “would mark Amazon’s second-largest acquisition in history after its $13.7bn purchase of Whole Foods in 2017”. It would also highlight “the premium that content is commanding” as streaming wars “force consolidation and drive bigger players to bulk up with assets that help them compete”.

Amazon’s shareholders should beware, says Nils Pratley in The Guardian. It’s true that any Amazon takeover of MGM will “probably get a regulatory thumbs up”, as owning the film studio behind the James Bond franchise “does not create a licence to kill when the competition includes beasts the size of Comcast, AT&T and Disney”. However, Amazon now runs an “astonishing” span of businesses, including computing and supermarkets, so there is a very real risk that its “many adventures in unrelated fields” means that it “ties itself into knots” and ends up as a “confused conglomerate”.

The size of Amazon’s $9bn offer for MGM has “astonished” many rival studios, say Brent Lang and Cynthia Littleton in Variety. The problem for Amazon is that while MGM has an “extensive library of over 4,000 film titles”, including classics such as Four Weddings and a Funeral and The Silence of the Lambs, many of the most popular ones have already been heavily “exploited”. Worse, MGM’s deal with Barbara Broccoli and Michael Wilson gives them “final say” over marketing and distribution decisions related to the Bond franchise, complicating any plans to debut Bond films on Amazon Prime or create spin-off series. 

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Nvidia – The Earnings Preview

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