Top financial market stories of the week — UK inflation, Biotech boom & more…
Monday 14th June 2021 — Friday 18th June 2021
1. UK Inflation rises above Bank of England target
UK consumer price inflation (CPI) jumped to 2.1% in May, above the Bank of England’s 2% target and its highest since July 2019, official figures showed today. This was an increase of 0.6% from April and the rise was mostly caused by the pent up demand, some of which was released in May as lockdown restrictions eased. Inflation rising too sharply is seen as a sign that the economy is running into difficulties as demand is outstripping supply.
The increase was caused by a surge in fuel costs, clothing and eating out. Fuel prices in the UK are rising at nearly 18%. There are also increasing concerns over inflation in the US which has already hit 5%, more than double the Fed’s target. There are concerns the UK may continue onto a similar path as the US passes on higher levels of inflation through its higher export prices.
The Bank of England has said it expects inflation to hit 2.5% by the end of this year as the economy reopens after its coronavirus lockdowns and as global oil prices rise. They have also said they expect the increase in inflation to be transitory, i.e. temporary, and therefore the Bank expects it will not have to increase interest rates to offset the rise.
2. Hedge funds to hold 7% crypto assets within next 5 years
Hedge fund managers are expected to increase their holdings of crypto assets within the next 5 years to approximately $313 billion, which is around 7.2% of their portfolios. It is unclear how exposed hedge funds are to crypto’s at present, however, it is likely a very small exposure.
The survey, conducted among 100 CFOs around the world, signals that the hedge funds are planning to significantly expand their crypto holdings by 2026. 17% of the respondents shared higher expectations, stating that the hedge funds will probably manage more than 10% in crypto.
Investments have been motivated by the rising cryptocurrency prices in the past year and it appears fund managers have not been put off by Bitcoin’s recent plunge and subsequent volatility. Moreover, banks such as Morgan Stanley and Goldman Sachs have revealed plans to give clients access to crypto-asset funds, which may give credibility to cryptocurrencies as an investment vehicle and stabilise prices. It is possible that greater exposure by hedge funds to crypto’s will help to decrease its volatility. This is because if hedge funds hold more of the asset, it is likely to be seen as a store of value and the time horizon for holding the coins may increase which will help to stabilise prices.
3. Equities update
$4 billion wiped off Coca-Cola’s value — Monday
Coca-Cola, the official sponsor of Euro 2020, usually place two bottles in front of everyone speaking at press conferences. However, Cristiano Ronaldo picked up the two Coca-Cola bottles and put them out of sight before holding up his water bottle and saying: “Drink water.” His actions led to Coca-Cola shares plunging. Ronaldo has previously expressed disapproval of Coca-Cola and other unhealthy foods and beverages.
The shares, which had opened at about $56.17, had fallen by 1.6%, to $55.22, by the end of the press conference. Its market value dropped by $4 billion, to $238 billion from $242 billion. Shares continued to slide on Tuesday, falling by 0.3%.
Stocks drop after Federal Reserve signals tighter monetary policy — Thursday
Stock markets around the world fell early on Thursday, as the Federal Reserve said on Wednesday evening that most officials expected a rate rise in 2023, up from a previous projection of 2024. After the announcement, the FTSE All-World index dropped 0.5% and the European Stoxx 600 index fell 0.3%. The S&P 500 also declining 0.5% and the Nasdaq dropped 0.2%.
At its latest meeting, the Fed also agreed to keep the main interest rate at the 0%-0.25% range and maintain the asset purchasing programme at $120 billion per month to help the economy to continue to recover from the pandemic. However, the chair of the Fed Jerome Powell said that the asset purchasing programme may be tapered in the near future.
4. 10 US Biotech IPO’s in one week — Why the Biotech industry is booming
Biotechs have been leading this week’s IPO market, with 10 out of the 16 companies expected to list their shares in the US being Biotech firms.
One is Alzamend Neuro, which develops products to treat neurodegenerative diseases and psychiatric disorders; its stock soared nearly 600% during its debut on Tuesday. ALZN opened at $29 a share and quickly shot up to as high as $33.55, up 571% from the $5 a share that its initial public offering had priced at.
Lyell Immunopharma ( a firm which develops T cell therapies to treat solid-tumour cancers) opened on Thursday. The company offered 25 million shares at $17. Shares opened at $18.75, up 10.3% from the initial public offering’s price.
Six biotechs have listed today (Friday). These include: ATAI Life Science, a German start-up, developing drugs to treat mental illness. The firm is offering about 14.3 million shares at $13 to $15 each. There is also Century Therapeutics produces therapies to treat tumours among other illnesses. The company is offering 10.55 million shares at $18 to $20.
Thirdly, Codex DNA provides instruments for biotechs. The company is selling about 6.7 million shares at $14 to $16. Ambrx is developing biologics to treat diseases and the company is selling 7 million American Depositary Shares at $17 to $19 each. Each ADS represents seven ordinary shares.
Cyteir Therapeutics develops therapies to treat cancer. It is selling 7.4 million shares at $16 to $18. Finally, Verve Therapeutics is offering 11.8 million shares at $16 to $18 each.
So far this year, 38 biotech IPOs raised $7.5 billion, according to Dealogic. It is estimated that the market for Biotech will reach $950 billion by 2027. Biotechnology has helped in improving healthcare access in many areas and meeting medical requirements in regions across the world which have helped to bolster the biotechnology market revenue. The pandemic has also provided the opportunity for firms to make advancements in the healthcare industry through technology.