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April Showers Bring Global Uncertainty

The Nasdaq experienced its worst month since 2008 losing 13.3% in April, the Index has slid 22% year-to-date. On April 20th Netflix fell 35% which wiped out $54 billion in market value after it reported a decline of 200,000 in its subscriber base. Netflix has tumbled -72% from its 52-week high. Other notable tech stocks have also plunged more than 50% from their 52-week highs among these are Zoom Video -75%, PayPal -73%, Meta Platforms (Facebook), -53%. Amazon fell 15% after it announced that 2022-Q1 was it’s first losing quarter since 2015.

The equity market decline is coupled with announced layoffs, Robinhood, the popular online trading platform, announced a 9% reduction in full-time staff as revenues came in well below expectations. Bearish Sentiment spiked up to 60%, while Bullish sentiment declined to 16% at the end of April.

The Advanced Estimate of U.S. GDP showed that the U.S. economy shrank 1.4% (annualized) in the first quarter. The decline in Net-Exports of 3.2%, and Government spending of .48% wiped out the increase in Household Consumption of 1.8% and the increase in Investment of .43%. Although most of the decline was confined to imports it still points to the fragility and interconnected nature of the global economy. Economic growth concerns still abound and the resurgence of Covid-19 in China the imposed strict lockdowns have heightened concerns for global economic growth. The escalation of the war in Ukraine is also a global geopolitical concern. The news that Russia will cut gas supplies off to countries that do not meet its demand to pay in rubles, currently targeted at Poland and Bulgaria, will push energy prices even higher – European energy prices have surged 17% in one day on the news.

China and Supply Chain Concerns

Marine traffic outside Shanghai port. The green dots are cargo vessels in transit and red dots are tankers.

China’s strict Covid restrictions are increasing global supply chain issues. The zero Covid policy is preventing people from going to work so manufacturing is at a standstill. China’s ports have a shortage of dockyard workers and truck drivers leading to major congestion. Bloomberg noted on April 18th that almost 500 ships were stuck outside Shanghai. This chaotic situation will only pressure inflation further across the globe. Deutsche Bank said global supply chain problems will cause inflation to surge above 8% in the UK until next year. Inflation concerns are being felt everywhere. In the U.S. CPI is at a shocking 8.5% which is the highest since 1981. Consumers are asking the question what can I live without for the first time in many years due to the higher prices.

The Impact on prices from the war in Ukraine

A recent report by the World Bank states that the war in Ukraine “has contributed to an historic shock to commodity markets that will keep global prices high through the end of 2024. The spike in energy prices over the past two years is the biggest since the 1973 oil crisis, while the jump in food prices is the most since 2008 ... Russia is a leading exporter of oil, natural gas and coal, while Ukraine is a major source of wheat and corn. The situation has been exacerbated by soaring fertilizer costs and price spikes for key metals ... After nearly doubling last year, energy prices are expected to jump more than 50% this year before easing in 2023 and 2024. Food prices will soar by 22.9% this year, highlighted by a 40% rise in wheat prices.

The sharp rise in prices has consumers asking the question: What can I live without? for the first time in many years.

Lithium Prices and Supply

Lithium prices continue to climb even after an increase of more than 400 percent last year. A conference we attended last week focused on lithium stressed projected major shortfall of lithium beyond 2025. This shortage in supply could could stall the electric car revolution as lithium is a key component in the production of EV batteries. To provide security of its supply chain Elon Musk, founder of Tesla, has been rumoured to be looking to purchase a lithium company. Lithium is primarily mined in Chile, Argentina, China, and Australia. However China dominates in the facilities that convert lithium ore into the intermediate products which can be used in EV batteries. With only two operational lithium mines in North America, exploration for lithium has increased with a number of companies in the exploration stage with some close to producing. The environmental factors around lithium production and processing have created a challenge for North American companies.

This is going to be a very exciting area to follow over the next few years. Our April Critical-Metals for a Sustainable World publication has a detailed report on the lithium supply chain.

Bonus Tip:

Turbulent markets are likely to continue over coming months. Buying put options to hedge against declines can provide peace of mind. Have some gold & silver exposure too.

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Peter Szydlowski

Digital Marketing Specialist

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