The Case for Yellow Cake(ism)
Macro & Overnight
Poor earnings updates from US tech mega caps hampered progress in US equities for most of last week, but that changed on Friday. US equities were up c 2.5% on Friday – buoyed by a recovery in tech and weaker than expected Home Sales data. As seen previously, bad news is good news, through the lens of a Fed pivoter.
The anti-inflation rhetoric of the world’s central bankers has not moderated, but substantial evidence of a slowdown in global economic activity is now increasingly evident. The question remains, at which data is the Fed looking?
The Fed will deliver a fourth straight +75bp hike on Wednesday, and a US labour market update is due on Friday.
Eurozone inflation reports on Friday (Germany reached 11.6% vs 10.9% expectations) put upward pressure on government bond yields across Europe (ex-UK).
German bund yields added 15bp, and the spread on Italian bonds remains at heightened levels.
Last week, Sterling’s rebound and lower gilt yields provided a tailwind for UK mid/small caps, but less so for the FTSE 100.
UK media commentary over the weekend played down the idea of a windfall tax on banks in next month’s budget but suggested an increased burden on North Sea producers. We have results from BP this week, it will be interesting to see how they run this particular gauntlet.
Thursday sees the Bank of England set to raise Bank Rate by 75bp to 3.00%. The highest level of Bank Rate for 14 years.
Oil prices moved down on Friday yet still recorded weekly gains. UK gas prices firmed up following the re-opening of the Rough gas store, increasing demand for injection. The broader European gas market remains oversupplied in the short term during the unseasonably warm weather.
UK Company News
Yellow Cake, the AIM listed specialist investment company that holds uranium fuel for investment purposes, issued a quarterly update. Uranium as an alternative energy asset is not widely appreciated, but YC management summarised the uranium investment case as follows:
Current geopolitical and environmental forces only served to strengthen the case for holding uranium; There is a widely held acceptance that global decarbonisation to fight the devastating effects of climate change cannot happen without the security of supply in energy alternatives; The world nuclear power generating capacity is forecast to more than double by 2050; The world is already consuming more uranium than it produces.
More on the case for nuclear energy can be found here: https://hypernormaltimes.com/f/our-energy-delusion
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