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November performance of Element One

Element One investment fund performed -0,23% during November 2021.

Element ONE
Issuer: ELEMENT ONE LTD 
ISIN Number: VGG299771086
IssueDescription: USD CL B SHS
ISO CFI: CICXXX

  • Hedge fund share price — $1 973,47.
  • On the 9th of December, we executed a sell order on the pre-market trading session for Power shares (Nasdaq: IPW). The total return equals 63,4% for less than two months. 

6 best-performing companies in Element ONE portfolio

  1. On Semiconductor (Nasdaq: ON)
  2. APA Corporation (Nasdaq: APA)
  3. Ovintiv (Nyse: OVV)
  4. Progenity(Nasdaq: PROG)
  5. Immunome (Nasdaq: IMNM)
  6. Walmart (Nyse: WMT)

In the independent rating of investment analysts — invest-idei.ru, Raison Asset Management has a leading position out of more than 50 companies.

United States

The S&P500 index decreased by 0,67% — from 4597 down to 4566,25. DXY or dollar index saw a massive surge by 2,05% and closed the month at 96,05.

The cost of a 5-year credit default swap (CDS) in the US has increased by 2.19% over the past month and reached 14. This value represents an implied probability of default of 0.23%.

The yield spread between 10-year and 2-year US Treasuries continued to decline. As of December 6, it amounted to 0.78, which reflects growing expectations for a tightening of monetary policy in the United States.

FED interest rate: 0,25% (previous 0–0,25%).

Decisions from the Federal Open Market Committee meeting

  • Shift the risks for the baseline forecast of economic activity downward, and the risks associated with the inflation forecast — upward.
  • Increase holdings of SOMA (open market system account) Treasury securities by $60 billion and agent MBS by $30 billion during the month from mid-December.
  • Increase holdings of Treasury securities and agent MBS as needed to maintain the smooth functioning of the markets for the securities.
  • Conduct transactions under an overnight buyback agreement with a minimum rate of 0.25% and a cumulative limit of $500 billion; the aggregate limit of transactions may be temporarily increased at the discretion of the chairman.

Market expectations

  • In the United States, the five-year inflation offset rate, based on Treasury Inflation-Protected Securities (TIPS), rose by about 45 basis points. In surveys of primary dealers and market participants conducted by the Open Market Desk, the PCE’s average headline inflation forecast for 2021 has been significantly revised upward.
  • The market’s implied trajectory for the federal funds rate has increased, which means an earlier date for raising the target range of the federal funds rate.
  • The implied volatility of short-term interest rates in options has increased, which reportedly reflects greater uncertainty over the dynamics of the federal funds rate.
  • Respondents’ average expectations for the federal funds rate at the end of 2025 remained largely unchanged, indicating that investors have not revised their expectations for the cumulative volume of policy tightening over the next four years.

Source: Federalreserve

Jerome Powell:

  • The likelihood of rising inflation has increased. High inflation risks a return to full employment. The Fed should be ready to react if inflation in the US does not begin to subside in the second half of 2022.
  • Labour market conditions continue to improve, but the omicron strain COVID-19 and rising cases of disease pose a threat to the US economy.

Labour market and inflation

  • The unemployment rate (November 2021) decreased to 4.2% against the forecast of 5.4% (6.877 million people). The current value is below the 10-year period from June 2007 to June 2017;
  • The number of initial claims for unemployment benefits is 222K, which is in line with the average of 2018 — Feb. 2020;
  • The median consumer price index showed another historic record and amounted to 7.102.

According to a Cleveland FED study, the median CPI signals inflation trends better than the all-items CPI or ex-food and energy CPI. According to the latest research by the Cleveland Fed, the median CPI better reflects inflation in the short and long term than the core CPI.

Expected 5-year inflation declined 14.20% from a peak of 3.17% (November 16) to 2.72%.

The unemployment rate in the United States(November 2021)

The number of initial applications for unemployment benefits in the United States

Median Consumer Price Index in the United States

Expected 5-year US inflation

Yield Spread Between 10-Years and 2-Years US Treasury bonds

Source: FRED

European Central Bank

From the November 2021 Financial Stability Survey (FSR):

  • The short-term risks to financial stability associated with the pandemic have eased as the economy recovers.
  • Tensions in global supply chains and recent increases in energy prices could pose challenges for economic recovery and inflation;
  • There is growing vulnerability in housing markets and inflated valuations of financial assets.

Christine Lagarde (Frankfurt am Main, November 19, 2021):

  • Inflation dynamics as the economy recovers is manifested in two main areas: a sharp rise in energy prices and an imbalance in supply and demand. Against the backdrop of these factors, inflation in the eurozone is growing. The share of items in the core inflation basket with inflation rates above 2% increased to about 45%. This is much lower than in the US, where the share is around 75%.
  • For inflation to steadily return to target when interest rates are close to the effective bottom, it is necessary to persist in monetary policy. In particular, do not rush into premature tightening due to transient inflationary or supply-side shocks. We remain confident that inflationary pressures will ease over time.

Source: ecb.europa.eu

However, inflation in the EU in November reached a record high of 4.9%, which is higher than in the entire history of the Eurozone.

EU Inflation rate

The head of the Central Bank of Estonia Mr. Müller:

If the eurozone recovery allows the ECB to complete the Emergency Stimulus Program (PEPP) for buying 1.85 trillion euros of bonds in March, then officials could discuss the possibility of increasing the standard stimulus program (APP).

ECB Asset Purchase Program

Source: Bloomberg

Russian Federation

Key metrics

  • Inflation (October 2021): 8,38%
  • Target inflation: 4,0%
  • Interest rate: 7,50%
  • International reserves of the Russian Federation: $619,8 billion

Bank of Russia Governor Elvira Nabiullina:

  • The inflation forecast for 2022 has been increased to 7.3–8.3%.
  • Inflation at the end of 2021 will be between 7.4–7.9%.
  • The Central Bank will consider the need for further rate hikes at upcoming meetings.
  • The return to the neutral level of the rate (5–6%) will take place no earlier than mid-2023.

Source: Bank of Russia.

OECD inflation forecast for 2022
(Organization for Economic Co-operation and Development)

Commodities market

  • The broad commodity market, represented by the Invesco DB Commodity Index Tracking Fund (ETF), fell 8.76% from 21.35 to 19.48.
  • The price of gold futures (GC) remained practically unchanged (+ 0.02%), amounting to $1,784.3 at the end of the month.
  • Futures on the WTI mark in November fell by 20.81% — from 83.57 to 66.18 $/b.

The OPEC + countries have retained the current strategy of the alliance with an increase in oil production in January by the planned 400 thousand barrels per day. OPEC has cut its forecast for global demand for crude oil for 2022 by 100 thousand bbl / d, to 28.70 b / d.

In November 2021, the average value of the FAO Food Price Index (CPI) was 134.4 points, which is 1.6 points (1.2%) higher than the October figure and 28.8 points (27.3%) higher than November 2020 of the year. Thus, the CPI is growing for the fourth month in a row and reached its highest value since June 2011.

Source: fao

IPO

The global IPO market broke its previous record in 2007, surpassing $600 billion in raised funds.

  • Leading electric truck startup Rivian Automotive Inc., which raised nearly $12 billion in an IPO on the Nasdaq;
  • The largest in Asia was the August IPO of China Telecom Corp. by 54 billion yuan ($8.4 billion);
  • Polish postal service provider InPost SA took first place in Europe, listing on the Amsterdam stock exchange in January for €2.8 billion ($3.2 billion).

IPO volumes by year

Source: Bloomberg.com

SPAC

Source: Spacalpha

The US Securities and Exchange Commission announced its decision to enact new legislation that requires foreign companies to open their ledgers for US control.

China and Hong Kong are the only jurisdictions that refuse to allow inspections, although Washington has been demanding them since 2002.
This rule makes it possible to start a process as a result of which more than 200 companies can be delisted from the US exchanges.

Source: Bloomberg.

China plans to ban companies from entering overseas stock markets through variable ownership (VIE) entities, closing a loophole long used by the country’s tech industry to raise capital from overseas investors.

COVID-19

  • Dr Susan Hopkins (Public Health England): The R-value, or Reproduction Index, of variant B.1.1.529 in Gauteng, South Africa, where it was first discovered, is now 2. Above R greater than 1, the epidemic will grow exponentially.
  • Juliet Pulliam (South African Center for Epidemiological Modeling and Analysis): Omicron has the ability to evade immunity from earlier variants of the virus.