Alpha-Centric ESG Research

Kyle Rudden

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in <a href="https://www.smartkarma.com/insights/bitcoin-on-balance-sheets-indirect-crypto-exposure-considerations-for-crypto-leery-esg-investors" target="_blank" data-smartkarma-citation="insights:52207" rel="noopener">Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors</a>. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates <a href="https://www.smartkarma.com/entities/bitcoin-usd" target="_blank" data-smartkarma-citation="entities:25895:1" rel="noopener">Bitcoin (XBT)</a>'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates Bitcoin (XBT)'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: Friday’s jobs report shocker capped off a week which included US Treasury Secretary Janet Yellen needing to be Mirandized. This was followed by the Fed stating the obvious in its financial stability report. Unmentioned in this report is that the role of this Fed is no longer to take away the punchbowl, but instead it is the bartender. The week ended with a jobs report that was the biggest miss in nominal terms, ever.The report was at odds with recent PMI surveys in which respondents stated that it was difficult to hire. This may be the result of frictions in hiring as unemployment benefits as well as child-care needs and postponed school re-openings delay employee re-entry. The truth serum for the US economy may occur around September when extended unemployment payments expire.The market impact was an immediate 10 basis point (bp) drop in the 10-year Treasury while the 2-year note even fell 1bp. Prices on the 10-year gave up these gains as the day progressed, but the smart money, that is the bond market, may be correct with the recent dampening of interest rates suggesting a longer time period to a less accommodative Fed.  The US Treasury bond curve ended the week flatter with short-end yields falling by much less than the longer part of the curve.With rates continuing to push credit spreads, Asia- and European-headquartered banks generated negative total returns in all but the lowest duration notes. There was a clear preference for Additional Tier 1 (AT1) bond issuance over the past week while over US$11 billion equivalent was raised by financial institutions globally in USD and Euros. In what may have been the busiest AT1 bond issuance weeks of the year, five institutions brought over US$6.5 billion in six securities.Nonetheless, this is a great credit environment and spreads which could go even tighter into year-end. A single piece of data, such as April’s non-farm payroll figure, is unlikely to change investor positioning. It may be a little too early to fade the market as fundamentals catch-up.Next week we will get a record-matching $126 billion slate of Treasury auctions. We may also see a robust serving of corporate and financials debt issuance. US consumer-price data is set to be published on Tuesday, 12 May. A sharp annual acceleration is forecast, although the market is likely to dismiss the figure as resulting from a comparison to depressed levels of a year earlier.With peak Q1 earnings season now behind us, Japanese banks will deliver their year-end results over the next week while several other stragglers pepper the remainder of the month. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow with material debt issuance over the next few weeks after reporting earnings.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.

Executive Summary: Friday’s jobs report shocker capped off a week which included US Treasury Secretary Janet Yellen needing to be Mirandized. This was followed by the Fed stating the obvious in its financial stability report. Unmentioned in this report is that the role of this Fed is no longer to take away the punchbowl, but instead it is the bartender. The week ended with a jobs report that was the biggest miss in nominal terms, ever.The report was at odds with recent PMI surveys in which respondents stated that it was difficult to hire. This may be the result of frictions in hiring as unemployment benefits as well as child-care needs and postponed school re-openings delay employee re-entry. The truth serum for the US economy may occur around September when extended unemployment payments expire.The market impact was an immediate 10 basis point (bp) drop in the 10-year Treasury while the 2-year note even fell 1bp. Prices on the 10-year gave up these gains as the day progressed, but the smart money, that is the bond market, may be correct with the recent dampening of interest rates suggesting a longer time period to a less accommodative Fed.  The US Treasury bond curve ended the week flatter with short-end yields falling by much less than the longer part of the curve.With rates continuing to push credit spreads, Asia- and European-headquartered banks generated negative total returns in all but the lowest duration notes. There was a clear preference for Additional Tier 1 (AT1) bond issuance over the past week while over US$11 billion equivalent was raised by financial institutions globally in USD and Euros. In what may have been the busiest AT1 bond issuance weeks of the year, five institutions brought over US$6.5 billion in six securities.Nonetheless, this is a great credit environment and spreads which could go even tighter into year-end. A single piece of data, such as April’s non-farm payroll figure, is unlikely to change investor positioning. It may be a little too early to fade the market as fundamentals catch-up.Next week we will get a record-matching $126 billion slate of Treasury auctions. We may also see a robust serving of corporate and financials debt issuance. US consumer-price data is set to be published on Tuesday, 12 May. A sharp annual acceleration is forecast, although the market is likely to dismiss the figure as resulting from a comparison to depressed levels of a year earlier.With peak Q1 earnings season now behind us, Japanese banks will deliver their year-end results over the next week while several other stragglers pepper the remainder of the month. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow with material debt issuance over the next few weeks after reporting earnings.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.

Bank Credit Weekly: Jobs Report Shocker Flattens Curves

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

EURO STOXX 50 Price EUR / Technical Analysis

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.

Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.

Global Equity Strategy: Stick With Reflation & Reopening Theme

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

In our Macro Overview of Global fund positioning, we cover the following: <ul>
<li>Managers raise EMEA Overweight, hit max underweight in US.</li>
<li>Taiwan key beneficiary of COVID rebalance, India sees outflows.</li>
<li>Cross country exodus seen in Financials/Energy.  Materials reverse long-term decline.</li>
<li>Active managers move towards defensive and secular growth sectors and out of cyclicals.</li>
<li>UK Energy stocks see decline, Dutch Tech stocks continue to attract new investment.</li>
</ul>Taken from our Global fund analysis, covering 391 active global funds with combined AUM of $800bn.

In our Macro Overview of Global fund positioning, we cover the following: 
Managers raise EMEA Overweight, hit max underweight in US.
Taiwan key beneficiary of COVID rebalance, India sees outflows.
Cross country exodus seen in Financials/Energy.  Materials reverse long-term decline.
Active managers move towards defensive and secular growth sectors and out of cyclicals.
UK Energy stocks see decline, Dutch Tech stocks continue to attract new investment.
Taken from our Global fund analysis, covering 391 active global funds with combined AUM of $800bn.

Global Equity Positioning:  Macro Overview.  Raising EU Overweights, Taiwan Vs India, UK Decouples

Netherlands

ING Groep N.V. offers financial services to individuals, corporations, and other institutions.  The Company offers corporate, investment, and private banking services, asset and portfolio management, treasury services, and insurance.  ING Groep has offices throughout the world.

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ING Groep NV (INGA NA)

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

Bitcoin holdings by issuers and investors is driving crypto custody demand. Big banks are stepping. A big opportunity, but some ESG investors might...

Kyle Rudden

Bank Credit Weekly: Jobs Report Shocker Flattens Curves

Job data raises uncertainty as the Fed continues to act as bartender. Financial stability risks appear binary while rates push credit spreads. Can...

Hank Calenti, CFA

Major Breakout For EURO STOXX 50

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and...

Vermilion Research

Global Equity Strategy: Stick With Reflation & Reopening Theme

Our bullish outlook remains intact supported by the absence of breakdowns across major global indexes. Until this changes, we believe global...

Vermilion Research

Global Equity Positioning: Macro Overview. Raising EU Overweights, Taiwan Vs India, UK Decouples

In our Macro Overview of Global fund positioning, we cover the following: Managers raise EMEA Overweight, hit max underweight in US. Taiwan key...

Steven Holden

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