Stuck between a Block and a hard place
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Hi All,
This week we take a look at the speculation surrounding payments company Block Inc, the recent interest rate adjustments from the major central banks, important forecasts in copper demand, and development in Microsoft’s takeover of Activision Blizzard.
Enjoy!
Hindenburg Strike Again
Hindenburg Research, a firm known for short-selling companies and recently focusing on India's Adani Group (mentioned previously in our Market Wrap), has claimed that payments company Block Inc (SQ) has artificially inflated its user numbers and facilitated fraudulent transactions. The accusation, made in a statement on Thursday, is the result of a two-year investigation by Hindenburg, which has taken a short position in Block's shares.
Hindenburg's claims are based on interviews with former employees, partners, and industry experts, as well as regulatory and litigation records, and Freedom of Information Act and public records requests. Block, which is led by Twitter co-founder Jack Dorsey, has denied the allegations and plans to work with the Securities and Exchange Commission to explore legal action against Hindenburg.
Hindenburg alleges that Block "obfuscates" the actual number of people on its Cash App platform by reporting "misleading...metrics filled with fake and duplicate accounts". It also claims that Block's approach has made it a popular service for criminals to process transactions. The market appears to be on Hindenburg’s side as Block's shares have plunged more than 20% since Thursday.
Source: StockCharts.com
The hiking trip goes on
Despite recent turmoil in the banking sector, the Federal Reserve went ahead with a quarter-point rate rise on Wednesday to a new target range of 4.75% to 5%, the highest level since 2007, but hinted that it may soon end its monetary tightening campaign. While the US banking system was deemed "sound and resilient," uncertainty remains as to the extent to which the fallout from the failure of Silicon Valley Bank would impact the economy.
The recent bank failures have altered the Fed's calculus and the debate among officials centred on whether the central bank should accelerate the pace of its rate rises by opting for a half-point increase. The banking turmoil had prompted the Fed committee to "consider" a pause, but its members ultimately decided to press ahead with a quarter-point increase with a "very strong consensus."
Most policymakers expect the core personal consumption expenditures price index to hover around 3.6% by the end of 2023, before falling to 2.6% in 2024.
The Bank of England followed suit, raising its interest rates to 4.25 per cent by a quarter of a percentage point, which is its 11th consecutive increase since December 2021. Their decision was influenced by the recent increase in the annual rate of inflation to 10.4 per cent in February, but the bank has kept its options open regarding future rate increases, depending on emerging evidence and the economic outlook.
The bank believes that UK banks are "resilient" and can support the economy, even in a period of higher interest rates. They expect consumer price inflation to fall significantly in the second quarter due to declines in energy prices and the government's support scheme to reduce household energy bills. The bank also expects GDP to increase slightly in the second quarter, compared to a 0.4 per cent decline expected a month ago.
Despite the recent fall from grace of Swiss banking giant Credit Suisse, the European Central Bank has also raised interest rates in the past week (50bps).
Copper Consumption on the up
The world's largest private metals trader has predicted that copper prices will reach a record high this year due to a rebound in Chinese demand and depleted stockpiles of the metal. Inventories have fallen to their lowest seasonal level since 2008, leaving little buffer if China's demand continues to surge ahead. The benchmark three-month copper contract has gained 30% since falling sharply in the three months after Russia's invasion of Ukraine. Trafigura has said that copper prices could even hit $12,000 a tonne, surpassing the peak achieved in March 2022.
Goldman Sachs expects that if China's demand continues to rise, the world will run out of visible copper inventories by the third quarter of this year. Copper has been the best-performing industrial metal this year, gaining 6% while other metals such as zinc and nickel have fallen.
However, several strategists and traders believe that commodity prices are failing to reflect market expectations of supply deficits. Copper is crucial to decarbonisation because vast amounts of Copper are needed to distribute electricity from renewable power sources. Some market participants expect the copper shortages and price surge to be felt later this decade as new supply from Peru, Chile, and the DRC comes online.
Source: tradingeconomics.com
CMA comes in from the Blizzard
The Competition and Markets Authority (CMA) announced on Friday that it no longer believes there would be a "substantial lessening of competition" in the console market if Microsoft acquires the publisher of the Call of Duty franchise. This is a significant change from the provisional findings released last month, which suggested that Microsoft would need to sell the Call of Duty business for the deal to go through.
The CMA said that it had received "new evidence" that any move by Microsoft to make Call of Duty exclusively available on Xbox would be "significantly lossmaking under any plausible scenario". The acquisition is still being investigated by the US Federal Trade Commission and the CMA for its potential impact on competition in cloud gaming.
Source: StockCharts.com
That’s all for this week, thanks for reading!
Patrick
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.