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The charge higher in Bitcoin, the best known cryptocurrency, and the advance of US semiconductor stocks may not be a coincidence. The Philadelphia Semiconductor Sector Index, made up of 18 US semiconductor companies, has sold 36% this year, thanks to demand for chips used in mobile phones. However, high-powered chips are also needed to mine cryptocurrencies. The recent surge in the Bitcoin price is unlikely to have passed unnoticed to investors in the semiconductor sector.
The gap it yields between 2-year US and German bonds has widened by more than 2 percentage points to the highest level since 1999, but that has done little to help the dollar as it theoretically should. The euro still stands close to its highest level of the year, touched in late August as traders switched their focus from a Federal Reserve that has been raising interest rates since late 2015 to the European Central Bank, which is this week expected to scale back its bond-buying programme.
Investors believe the future for cobalt is bright. The optimism, some might say exuberance, comes from the fact that cobalt is used in batteries in electric vehicles. The popularity of electric cars is expected to drive a four-fold increase in demand for cobalt by 2025, according to analysts at Goldman Sachs. The price has also been helped because getting hold of the material isn't easy. It's mostly mined in the Democratic Republic of Congo. However, if cobalt's price keeps rising at this giddy pace, investors face the risk that the electric vehicle industry looks for a new ingredient for its batteries.
The era of low interest rates that investors need for returns has proved oxygen for so-called zombie companies. This is shorthand for companies with poor profitability that might otherwise struggle to stay afloat. Longview Economics, a research house, has plotted the percentage of all listed US companies with earnings before interest and tax that over the last three years have been lower than the size of the interest payments they've made on their debt. As the chart shows, zombie companies have been on the rise. As central banks continue to raise interest rates, the fate of these companies will become a concern.
The long bull market in UK property has closely tracked the collapse in yields of the longer-dated UK government bonds issued over the past two decades. However, since August 2016, the yield on the 30-year gilt has risen from 1.24%, the lowest level of the modern era, back to 1.94%. It is something investors in UK assets should pay close attention to.
