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Good morning.
Yesterday’s “reopening” optimism is beginning to fade as rising commodity prices reignite inflation concerns. That’s putting the lid on U.S. futures and stocks in Asia this morning.
While commodity prices are jumping, Bitcoin remains in the doldrums.
In today’s essay, I examine the incredible 2021 run in commodities, which, for one prominent basket of metals, fuels and staples, have now overtaken crypto in YTD returns.
But first, let’s see what else is moving the markets.
Markets update
Asia
- The major Asia indexes are mixed in afternoon trading with the Nikkei up 0.5%.
- Here’s the most “2021 story” of the day: shares in Samsung Publishing took off in Seoul today after Elon Musk tweeted “Baby Shark crushes all!,” a reference to some viral video clip that the publisher has a stake in. 🦈
- OPEC+ agreed to boost oil output for next month, but beyond that is anybody’s guess. That pushed Brent crude to close yesterday above $70/barrel for the first time since October 2018.
Europe
- European stocks are slightly higher out of the gates with the Stoxx Europe 600 up 0.2% in the opening minutes, led higher by banks and autos. Yesterday’s gains pushed the benchmark to yet another all-time high.
- A global minimum tax for corporations—the big subject of an upcoming G7 meeting—struck at 21% would net the EU and U.K. an extra $140 billion per year in tax revenues, two new studies show. EU officials wasted no time trumpeting the findings.
- For the first time since March 2020, the U.K. yesterday recorded no new COVID-19 deaths.
U.S.
- U.S. futures are as flat as a frisbee this morning. That’s after a mid-afternoon slide on Tuesday pushed the Nasdaq and S&P 500 lower.
- The Hollywood blockbuster of the summer could very well be AMC Entertainment. Shares soared a further 22% yesterday after the cinema chain sold a block of shares to a hedge fund for $230.5 million.
- On the IPO front… SoFi Technologies closed up 12% in its trading debut yesterday. The student loan specialist went public via a Chamath Palihapitiya-engineered SPAC.
Elsewhere
- Gold is slipping, falling below $1,900/ounce.
- The dollar is up.
- Crude continues its impressive run with Brent trading above $70/barrel.
- Bitcoin is flatlining, trading below $37,000. It hasn’t broken above the much-watched $40K price barrier in the past six days.
***
Copper, crude… and inflation
I want to go back to the winners/losers discussion because I didn’t give enough attention yesterday to one roaring segment of the market: commodities.
You can draw a straight line from soaring crude, metals and staples prices to rising PPI and CPI. And that’s at the core of investors’ jitters over inflation. “Cost inflation is picking up everywhere,” BofA Equities analysts wrote in a recent research note. “Not surprisingly, manufacturers around the world have been speaking about commodity headwinds.”
That’s not great news for people who make things or people who buy things. And, a sustained period of rising prices will ultimately get the attention of the Fed—that’s the fear, anyhow. The specter of tapering could be bad news for anyone long growth stocks.
But the savvy investor may see an opportunity in such storm clouds. Turns out the commodities trade is a classic hedge against inflation. They deliver strong returns when, say, oil demand is brisk, and offer diversification when risk assets are buffeted by uncertainty, and when bonds are delivering measly returns.
This phenomenon has really played out in recent weeks as commodity prices take off, leaving all kinds of financial assets in the dust. Things like corn futures, Brent and copper have outperformed just about all risk assets (with the exception of meme stonks, maybe). On cue, the Bloomberg Commodity Index has been hitting highs not seen since 2015.
Perhaps even more surprising, these commodities have really taken off even as crypto sputters.
Bitcoin is having a good year, but it’s middle-of-the-pack when compared to a basket of the raw materials and energy sources that power our world.
So, commodity bulls, here’s a cigar to go along with your blockbuster returns. More impressively, you’ve shown admirable restraint. I haven’t seen a single “have fun staying poor” crack coming from Commodities Twitter.
***
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
The dangers of going virtual. Last year, nearly four in five (78%) S&P 500 companies held virtual-only annual shareholder meetings; the number has jumped higher this year. Don't expect that figure to go down all that much over time as corporate execs grow accustomed to dull virtual affairs. It's a trend that could ultimately silence small shareholders, Fortune's Maria Aspan reports.
There's an ETF for that. Inflation jitters are likely to give us some volatile moments this summer. That's the thinking behind a recently launched ETF that's tied to Treasuries and interest rates. It's premised on the belief that the forces that propelled risk assets over the past decade will diminish in the face of rising prices.
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Market candy
Quote of the day
When you combine massive earnings growth with perhaps the fastest economic growth in decades, the stock market should be primed for further gains, right?
Not so fast.
That's Ben Carlson of Ritholtz Wealth Management who crunches the numbers on corporate and stocks data going back to the 1930s to find that earnings growth doesn't always correspond to knockout S&P 500 returns. Here's why.
