May 20, 2024

NewEdge Wealth senior portfolio manager Ben Emons breaks down the recent trend in the metals market, as developments in AI drive demand for copper.

Video transcript

The sanctions by the US. And Russia is started to get an impact on the metals market and there's obviously a major demand building because of all this A I development that we're having that copper is a big input into any type of semiconductors out our computer uh chips. So I think it's a global macro story that's going to drive things. It's Monday May 20th 2024 and this is Markets Daily a show where we get into the minds of some of the smartest and most experienced investors, traders, analysts, economists CEO S and basically anyone with a hot or smart take on what's going on in the crypto markets. I'm Jen Sasi. Before we get into our discussion today, let's take a look at what's going on in the markets. Ethan Bitcoin are trading relatively flat this morning. The consolidation is followed by a bullish week. Last week was triggered by renewed optimism about a US rate cut and the rally in stocks. We're going to talk about that in just a few seconds. It also seems like the market is preparing for potential E ETF rejection. So as we've been talking about on this show, the SEC is set to weigh in on NXE three ETF on May 23rd poly market has set a 10% chance of an ether ETF being approved by the end of the month, 13% chance of one being approved by the end of June and 28% of one being approved sometime this year. Let's make sense of this and more with new wealth senior portfolio manager, Ben Emmons. Ben. welcome back to the show. Good morning, Jen. It's great to be back. Thank you for having us. All right, we start the show now with the call of the day. What's yours? It would be copper in this case, you know, there's a, there's a big search going on and I don't want this is very technical because copper traded the two exchanges right in London and, and in New York. But that, that's actually the not really the story. The real story is that the sanctions by the US and Russia is started to get an impact on the metals market and there's obviously a major demand building because of all this A I development that we're having that copper is a big input into any type of semiconductors out our computer uh chips. So I think it's a global macro story that's gonna drive things. And if you look at the stock market leadership, there's actually really shifted. Now, the the the semis are more lagging behind now and the copper and metals and gold are really taking the lead I say in terms of return relative to the to the SEP index, I think that's meaningful because typically a a rally in mes means in market lingo reflation is in, you know, you're getting somewhat of a boost to commodity prices and it could be a positive thing for the time being for markets. And I think we should take note of it. It's, it's a, it's an interesting development and and probably going to affect markets from here, make the connection for me. Is there a correlation between metal and the crypto markets or metal and risk assets? Yeah, there is actually and I would say particularly in this situation because uh the semiconductors have been such a powerful force behind the market rally and and as a result because of all the A I hype the financial conditions in particularly United States, but somewhere else have all loosened even though the fed is supposed to be tight in its policy. Now, if you don't connect the metals picture to that, now what is really happening is if you, if metals are driving financial conditions, the link with crypto is that crypto and financial conditions have had a correlation now for several years, a positive one. That's because there are more, more companies out that are using crypto for servers or as an asset on their balance sheet. So if you're getting metals ra rallying and loosen financial conditions and financial conditions getting looser than crypto markets are getting elevated too. And if you don't add in discussion, you just had about the ETF launches, then you can see the mix all coming together. So this is your, this is your typical global macro gen. It's like one variable rallies and then affects a lot of other variables. All right, let's broaden it out a little bit more. I know the last time you were on the show, I asked you this exact same thing, but given what's going on in the markets this morning, how would you be looking at allocating a portfolio? So we still remain in a, let's say positive risk on tone. Um One if you think about interest rates because that's what I focus on, particularly, I'm still quite wary of where treasury yields are heading. There's a lot of fluctuation. So if the feds own holds, there's a lot of opportunity in in riskier fixed income, let's say structure credit or emerging markets or floating rate debt, that's one side of the portfolio. The other side would be that the risk on to has led to equities continue to set new highs without seeing a major bubble yet appearing or any kind of major valuation inflating such that it becomes concerning we like particularly energy and, and financials in that aspect. But you can now start adding in some of the commodities underneath the energy. And if you think really further down through which would not as a firm position in, but there's also a lot happening in agricultural commodities too. So the commodity rally that we're seeing, I think for the time being will be with us. So hence energies are one of our favorite picks. I want to talk about inflation. I mentioned at the top of the show there, uh markets were looking pretty optimistic last week. As as there's this renewed optimism, we may see a rate cut this year in the United States because you focus so much on, on, on inflation. I'm just curious to hear, is there something that we're not talking about that we should be when it comes to the macroeconomic data that's coming out and as, as it pertains to inflation. Yeah, I would think that the, the the narrative that has come about of either stagflation or, you know, major slowdown or, or, you know, slowing down the economy. That seems to be all I think somewhat misplaced one. The, the, the actually the data that's showing is just really a temporarily softness and it's very much at the top line. Um If you think of retail sales or even within the inflation number in itself, there's nothing that indicates that we're really decelerating with activity sharp or faster. So there's nothing also about some sort of a stagnation happening. While we have inflation, unemployment remains low, the jobless claims continue to be very subdued, which are really good indicator of the health of the labor market and the so called surprise index that people look at the economic surprise index. Although that measures, you know, whether a number comes out higher than estimated or lower or lower than estimated there, some sort of index, it's more like a diffusion idea what the economists say, meaning it just shows you some sort of a trend of the economy. So it looks like the momentum maybe of the economy has somewhat stalled out. But if you're getting a stock market that's up this much this month already. And financial conditions are loosening, there's going to be an effect on the economy in the next quarter again, which is likely positive if we have no change in fiscal policy by the spending that we're seeing and multi policy is on hold. It's not gonna raise rates but not cut either. There's actually not much that's there for the economy to slow down. So I I think the slow down stall stack stack ation so to speak, I think is misplaced. It's interesting you say that now, uh look at this through the lens of the crypto markets with me, you say the next quarter is gonna look pretty positive for markets in general. What do you think happens with crypto markets? Because last time we talked, I believe the ETF S were recently approved, the markets were doing really good. There's been some ups and downs since then. How, how do you see the crypto markets reacting as I mentioned. So that correlation between crypto and financial conditions or the equity market is there. So you could say that that's the case that you know, crypto should live higher. There are obviously those fundamental factors that you talk about. I mean, if crypto goes up in value, those ETF S will get inflows and the institutional community that completely under way that the crypto sector in itself would, would then start adding Bitcoin ETS and or adding Bitcoin in by itself, right? So in other words, there's a bit of a re self reinforcing mechanism uh there between crypto and the markets, there's also something about liquidity, by the way that I, I didn't mention was that we have the treasury who would build up a huge balance of the FED is now start to spend that down because they have to, they have to do that by legislation, but that money enters into the system. Now, the Fed has recently announced that it's slowed down as QT program, quantitative tightening. So that's actually money coming reentering in the system. And if you don't get everybody on the sidelines started putting some money to work in the markets, there's money entering the system, that's where crypto is really sensitive to. And, and it's been tradition in that way and I think hasn't changed if liquidity picks up significantly, crypto will pick up. And I, I think that's what we're in for somewhat of a liquidity expansion that should lead to a better performance of crypto. Now, I I know that you're not always afraid to give a price prediction. Some guests on this show are, where do you, where do you see Bitcoin headed by the end of the year? I think the last time we spoke, you said it could hit $100,000. Yeah, I've said it in your show and it was another show. I said it too and it sounds on the headline so I can repeat the headline. I said sky is the limit because it is sky is the limit, right? And I mean, and the reason why 100,000, which some people have said this in the past, the late great uh Scott Miner, for example, from Guggenheim, he, he, he mentioned numbers like that I base it upon now that this is really driven by fundamental flows coming in that asset class. You know, if it's regulated through an ETF that is a very important step forward to fundamental investors buying the asset class instead of all the speculators. I think that's why there's a scope for going to 100,000. Now when we're gonna reach that, I don't know. But it seems to me like some sort of a benchmark where we, we hit a little over 70,000, we broke the highs, but it seems that that's not really where we're gonna end up. It seems more momentum behind it as I mentioned all those other factors of what's going on in markets probably helped crypto getting to a higher level. So an even level of 100,000 is very possible from there. Who knows if we're hitting 40,000 on the dow? And when I started working in the nineties, I I that was, I think 5000, then why couldn't crypto go higher as well that way? Right. If you think of that, that sort of historical context, Ben, we've been really optimistic so far on, on this show, any challenges you see ahead uh when it comes to the crypto markets. Well, the the always the challenge is that if you're getting an economy can start to heat up and things start to get like more and more momentum that the discussion about rate hike or hikes comes back, that will be the first, you know, say setback for crypto that, that, that's that asset class will react more sensitive to the prospect of hikes than maybe other asset classes. Something to keep in mind. People keep saying there's no hikes, it's not gonna happen, but it could happen. The fed members have indicated they would be willing to, if, if inflation doesn't go that direction. The second thing would be that we do get some sort of a political or geopolitical tension that really puts the focus on safe assets, that may be somewhat of an attraction to crypto. Like, you know, gold has had a major run. And that could be the case. I've seen this before. Gold rallying and Bitcoin actually going sideways or, or lower maybe because people flock more to gold than to a crypto as, as a safe asset. I think those are the two. I think we could, we would have to look at, at who knows how this is gonna play out. It seems for now we're a very benign environment for the time being, but we know that this big election in the US is coming and we know that there are tensions in the Middle East that are not dissipating as we saw with the developments in around overnight. So I think we should as investors keep in mind that the benign environment never last forever. So I, I think that's a great advice that you've just given me there. Ben, I gotta ask you, what do you think is the potential that we see a rate hike this year? It, it's, it's there. It's an option on the table. It's a really tiny probability that's priced into the futures market, which always happens is a bit of a, you know, technicality. If, if people think there's rate cuts are gonna be someone else thinking there's gonna be a rate hike, that's just markets. But that probability does tell us something. There is something about a wariness of if a fed member or 23 have indicated that there is a possibility they may have to raise rates then that will be continue to be on the mind. Now, will it happen? Totally depends on how inflation goes from here so far. It looks like it has stalled out. It doesn't decline much more. So if it were to start to pick up, like we see in the first three reports this quarter and then this last one was a little softer, but we pick up again from there. Then the possibility for rate hike just by incrementally goes up, the fed will still be very reluctant though to cut, to hike rates. They're much more like to cut rates. There's nothing political, there's more about they want to reach the inflation goal close to it, then they can cut rates and they've shown to the world, I guess how policies work. If they have the hike grade means that they were once again behind the curve. But if inflation doesn't go that direction, then the fed will move that direction to the high. It would have no other choice but to do that to maintain credibility. So I think we need to keep it in mind that it's a possibility. It's always a pleasure hearing from you. Thanks for joining the show this morning. Thank you, Jen. Great to be with you.

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