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European stock markets are making modest gains at the end of the week but broadly remain in consolidation, as has been the case throughout the week. Markets have priced in economic risks We appear to have hit a point in which the initial shock has been shrugged off and markets have corrected back to a […]

European stocks have posted losses of around 1% on Wednesday, paring some of the gains we’ve seen over the last couple of weeks. We’ve clearly seen an improvement in sentiment recently as investors have become encouraged by the negotiations between Ukraine and Russia and the impact that’s had on global commodity prices. There remains enormous […]

Stock markets are making decent gains on Tuesday, bouncing back quickly from the disappointment late Monday as Fed Chair Powell turned the hawkish dial up a notch. It didn’t take long for investors to get over the latest disappointment as they prepared for interest rates rising to around 2% by the end of the year. […]

As bond risks grow and contagion appear more likely than ever, every investor needs to consider bitcoin as portfolio insurance.

Crypto markets have been choppy over the past week. Several regulatory news headlines contributed to the moves. President Joe Biden signed an executive order on cryptocurrency policy which is designed to support ‘responsible innovation,’ and MEPs in the EU voted against a proposed bill to limit proof-of-work-based cryptocurrencies. These are positive signs for crypto but […]

The post Crypto Index Tracker – DeFi and Privacy Coins Lead Gains appeared first on The Daily Hodl.

The market has since made back some of those losses, gaining an extra $139 billion, with the global crypto market cap sitting at around $1.87 trillion.

It was all about inflation for the central banks this time around. Both BoE and Fed lifted rates a quarter point, with the latter plans for six more quarter-point hikes on the year. The Fed policy statement indicated that the implications from the invasion of Ukraine and related events are “highly uncertain,” but in the […]

The Australian dollar has posted strong gains for a second straight day. In the European session, AUD/USD is trading at 0.7338, up 0.65% on the day. We continue to see strong volatility from the Australian dollar. The currency started the week with a tumble of 1.44% but has recouped those gains and then some. AUD/USD […]

Bitcoin, and other crypto-assets, look well-positioned for an upclimb in the near term. This is according to new on-chain data from the Santiment analytics platform.

Oil retreat continues Oil prices continued falling overnight, powering the equity relief rally on Wall Street which has extended into Asia this morning. New York Empire State Manufacturing Index fell into negative territory overnight, and US PPI came in ever so slightly under expectations. In a market hungry for reasons to buy the dip, that […]

With conflict in Ukraine comes more reminders of the fragility of the world's automotive supply chains. The March light vehicle production update from S&P Global Mobility (formerly the automotive team at IHS Markit) is likely to downgrade its 2022 forecast by 2.6mn units (i.e. to 81.6 million). The downgrade decomposition will broadly comprise just under 1mn units from lost demand in Russia and Ukraine; and the remainder split between 1) worsening semiconductor supply issues, and 2) loss of Ukraine-sourced wiring harnesses and other components respectively. In addition, the complete loss of Russian palladium is a tail risk with the potential to become the industry's biggest supply constraint.

Pent-up demand reduced by roughly one third

Pre-Ukraine invasion on 24th Feb, the global auto industry had already spent over a year under capacity constrained conditions, with (we estimate) pent up consumer demand up to 10mn units (or 12%) above this year's achievable production. The sudden loss of economic confidence (via high oil and raw material prices, weak equity markets, and tightening interest rates) is dampening demand, and could now reduce that shortfall by roughly one third - though significant pent-up demand remains.

Supply chain remains the constraining factor

While the macro concerns are significant, the supply chain (and not underlying consumer demand) will continue to set the upper limit for vehicle unit sales in the medium term. The key crunch points weighing on production levels post invasion fall into two broad categories: Semiconductor materials supply (specifically via Ukrainian neon and Russian palladium), and electrical wiring harness sourcing.

Specialist material outages could curtail semiconductor recovery

Semiconductor supply challenges are worsening on two fronts: First, via neon gas supply disruptions. Ukraine's firms control around half of high purity neon supply to the semiconductor industry, where the element is used in lasers that etch patterns onto chips. Our channel checks suggest immediate risks are low thanks to semiconductor makers holding sufficient gas inventory, but visibility is poor. The second challenge is availability of palladium, used in semiconductor plating and finishing. In an additional negative twist, China COVID-19 cases at a 2 year high are triggering quarantines and plant closures in northeastern manufacturing hubs including Shenzhen and Changchun. All of the above raise the risk of losses from 'stranded' chips, i.e. semiconductors for which the 'right' car cannot be built due to other constraints.

Ukraine wiring harnesses difficult to substitute

Our channel checks suggest Ukraine-built wiring harnesses were likely destined for around 0.5 to 1mn vehicles pre-invasion. These harnesses comprise complex and manually constructed assemblages of cable. Although some dual sourcing arrangements exist, for the most part switching will be difficult due to already-constrained harness capacity in and around Europe. Production relocations could take 3-10 months due to wait times on machinery and multi-month staff training times. Almost half (45%) of Ukraine-built wiring harnesses are normally exported to Germany and Poland, placing German carmakers at high exposure. Our analysis suggest Opel (i.e. Stellantis via Leoni), VW (via Leoni and Sumitomo) are over-exposed versus peers. On the plus side, once ramped up - lost production could be recovered quickly into late 2022 and beyond.

Palladium: Next 'black swan' candidate

While low probability as things stand, palladium has the potential to become the industry's biggest supply constraint. Russia produces 40% of the world's mined palladium according to USGS. Around two thirds of palladium use is in vehicles, where it is the active element in catalytic converters for exhaust aftertreatment. If Russian palladium supply were suddenly interrupted (due to a western boycott, or Russia stopping supply), production of all vehicles using such sourcing (including hybrids) could potentially stop. Although platinum is an alternative element, it is similarly expensive and also largely Russia-originated. Substitution of any kind is a regulatory minefield since design changes require regulatory re-homologation, which can take months. We do not currently incorporate major palladium disruptions in our forecast base case.