Daily Analysis 18 October 2022 (10-Minute Read)

A wonderful Tuesday to you as stocks extend their rally as investor angst eases. 


In brief (TL:DR)


  • U.S. stocks closed higher on Monday with the Dow Jones Industrial Average (+1.86), the S&P 500 (+2.65%) and the Nasdaq Composite (+3.43%) all in the green. 

  • Asian stocks rose Tuesday, led by technology stocks in Hong Kong. 

  • Benchmark U.S. 10-year Treasury yields declined one basis point to 4.00% (yields fall when bond prices rise). 

  • The dollar slipped for a second day.

  • Oil rose with November 2022 contracts for WTI Crude Oil (Nymex) (+0.13%) at US$85.57 as investors weighed signs of a tight market against concerns over a global economic slowdown. 

  • Gold was lower with December 2022 contracts for Gold (Comex) (-0.37%) at US$1,657.80.

  • Bitcoin (+1.56) rose to US$19,574 with the amount of Bitcoin held in cold storage or lost has risen to a five-year high, according to Glassnode data.


In today's issue...


  1. For Credit Suisse, White Knights Emerge from the Desert

  2. The Yen is Sinking Like a Rock but what will Tokyo do?

  3. Binance Backs Bitcoin Miners to the Tune of US$500 million


Market Overview


Stocks extended a rebound amid a focus on earnings and as the UK’s efforts to foster greater stability in its volatile bond market buoyed sentiment toward riskier assets. 

 

Risk assets have recovered in recent days as investors assessed positive company results, cheaper valuations enticed buyers and concerns about UK assets were soothed. 

 

Still, with lingering concerns over inflation, the economy and hawkish central banks, there’s debate over how durable the gains will prove.

 

Asian markets were higher on Tuesday with Tokyo's Nikkei 225 (+1.42%), Sydney’s ASX 200 (+1.72%), Hong Kong's Hang Seng Index (+1.82%) and Seoul's Kospi Index (+1.36%) all up.



1. For Credit Suisse, White Knights Emerge from the Desert  

 

  • Struggling Swiss lender Credit Suisse is now going hat in hand to hunt for potential white knights from Abu Dhabi and Saudi Arabia. 

  • Both kingdoms are considering whether to put money into the investment bank and other businesses to take advantage of depressed values and the Credit Suisse brand.

 

During the 2008 Financial Crisis, banks and investors from the Middle East were hard put to provide any bailouts as they themselves had been the victims of the crisis as well, having loaded up on ill-fated securities linked to the U.S. property market. 

 

But the past year has been kind to Middle East’s biggest investors whose coffers are now bulging from surging energy prices, in particular the shock rise in natural gas because of Russia’s invasion of Ukraine. 

 

Which is why it’s no surprise that having long counted wealthy Middle Eastern investors as top shareholders, including the Qatar Investment Authority and Saudi Arabia’s Olayan Group, struggling Swiss lender Credit Suisse is now going hat in hand to hunt for potential white knights from Abu Dhabi and Saudi Arabia. 

 

Both kingdoms are considering whether to put money into the investment bank and other businesses to take advantage of depressed values and the Credit Suisse brand and are separately exploring potential investments through sovereign wealth funds such as Abu Dhabi’s Mubadala Investment and Saudi Arabia’s Public Investment Fund. 

 

Shares of Credit Suisse rose as much as 8.7% in New York trading and 4.1% in Zurich on news of a potential white knight emerging from the desert sands, although the stock is still down about half from the beginning of this year. 

 

Credit Suisse is less than two weeks away from revealing details of its latest restructuring, including the potential separation of the advisory and leveraged finance business. 

 

The bank said in a statement that after annoucing the third quarter earnings, it will update about progress on its comprehensive strategy review. 

 

In the past, Credit Suisse received approximately US$2 billion in convertible notes issuance in April 2021 from the Qatar Investment Authority which helped shore up the balance sheet after the bank’s exposure to losses from Archegos Capital Management. 

 

Archegos Capital Management, Bill Hwang’s family office, had billions of dollars in leverage from lenders including Credit Suisse and its implosion has badly hit the Swiss-headquartered lender.



2. The Yen is Sinking Like a Rock but what will Tokyo do? 

 

  • The yen continued to slide towards the closely-watched 150 level, keeping investors on high alert for another possible round of intervention by Tokyo.

  • Japanese officials said that they will focus on the speed of declines and be watching markets with a sense of urgency.

 

The Japanese yen continues to slide as currency traders focused on the widening yield gap between the U.S. and Japan, with the former hiking rates aggressively and the latter keeping them at rock bottom levels to boost the economy. 

 

Japan’s first intervention to support the yen in 24 years was made last month because of a rapid slide of the yen to 145.90 per dollar, a hitherto inconceivable level.

 

Not so long ago, it was considered impossible for the yen to rise above 130 versus the dollar.  

 

However, even as the dollar has slipped against its Group-of-10 peers, the yen continued to slide towards the closely-watched 150 level, keeping investors on high alert for another possible round of intervention by Tokyo. 

 

Japan’s currency fluctuated around 149 per dollar in early Tokyo trading, after weakening Monday, a level last seen 32 years ago. 

 

With 150 as a key psychological level for the yen, traders shorting the currency could likely cause a breach that would pressure the government to act again to shore up the embattled currency. 

 

Japanese officials said that they will focus on the speed of declines and be watching markets with a sense of urgency. 

 

Yen price action over the past few days match the conditions required for action from Japanese officials and they could step in any time between 149-150. 

 

The yen’s slump this year has encouraged investors to seek out the more attractive returns in dollar assets compared to ones in Japan, as the country pursues a distinctly separate monetary policy from other rich-world counterparts.  

 

Last month, top currency official Masato Kanda said that stealth intervention was among the possible options for the government, adding the finance ministry wouldn’t necessarily confirm each intervention when it takes place, but traders look likely to continue testing Tokyo’s resolve. 



3. Binance Backs Bitcoin Miners to the Tune of US$500 million 

 

  • Binance Pool, a mining subsidiary of Binance, launched a US$500 million lending project to support the mining industry, which comes as a key time as many miners are struggling to keep their operations above water. 

  • Binance Pool will also launch cloud mining products, directly purchasing the cloud mining hash power from Bitcoin mining and digital infrastructure providers. 

 

Despite the decentralized nature of blockchain technology, the crash of algorithmic stablecoin TerraUSD and its sister token Luna, and the subsequent string of failures thereafter, have revealed just how interdependent and connected the industry is and continues to be. 

 

Which is perhaps why Binance, the world’s largest cryptocurrency exchange by trading volume, is stepping in to shore up one of the most heavily battered segments of the industry – the cryptocurrency miners who secure blockchain transactions. 

 

According to an official blog post, Binance Pool, a mining subsidiary of Binance, launched a US$500 million lending project to support the mining industry, which comes as a key time as many miners are struggling to keep their operations above water. 

 

Loans will be provided to “blue-chip” Bitcoin miners who could back their bids with physical or digital assets, according to Binance Pool’s blog post. 

 

Several conditions to access the US$500 million loan fund include an 18-to-24-month term, 5% to 10% interest rates, and some physical or digital assets as security. 

 

Binance will look at a wide range of metrics, including current performance, mining power and security quantity, to define the borrower’s creditworthiness and the consequent loan-to-value. 

 

According to Binance, “blue-chip” borrowers must be classified as Binance VIP users and connect at least 500 PH/s to the Binance Pool for a minimum of 24 months after the loan is issued. 

 

Binance Pool will also launch cloud mining products, directly purchasing the cloud mining hash power from Bitcoin mining and digital infrastructure providers. 

 

Cryptocurrency mining, especially in the support of proof-of-work blockchains like Bitcoin, are capital intensive and a combination of high energy costs, inflation and a sharp decline in digital asset prices has put pressure on operations. 

 

In the case of large mining groups in Texas, some miners actually found it more profitable to shutdown operations and sell energy back to the grid. 

 

Proof-of-work blockchains remain important to the cryptocurrency ecosystem and miners play a significant role in securing blockchain transactions. 

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