Investment Insights

Cocoa and Fraud

  • Apr 03, 2024
  • Matthew Boxall

The first quarter of the year ended with a shortened trading week for investors before the long weekend for Easter, but that didn’t stop the major indices advancing on the week. The S&P 500 Index gained 0.5%, rounding out its strongest first quarter since 2019, whilst closer to home, the FTSE 100 rose 0.4%.

In a quiet week for news flow, the collapse of the Francis Scott Key Bridge in Baltimore gained a lot of attention, raising concerns over its economic impact due to its vital role in U.S. shipping and transportation.

The incident involved the 95,000-ton Dali, a container vessel under A.P. Moeller Maersk’s charter, which struck a support pillar of the bridge following an urgent distress signal. The resulting disruption to the supply chain has become a focal point of economic concern with port operations halted indefinitely.

As one of the most active ports on the U.S. East Coast, the diversion of shipments from Baltimore is expected to lead to significant logistical delays and increased costs, exacerbating the inflation worries that both consumers and policymakers are currently attuned to.

Despite the historic monetary policy shift from the Bank of Japan, which raised interest rates from negative territory, that the yen approached a 34-year low last week. Analysts do not expect the BoJ to hike rates again soon, prompting speculation that they may have to intervene to stabilise the weak currency which has been beneficial for exporters but worrisome for the economy.

Staying out East Chinese Premier Li Qiang attended the China Development Forum in a bid to bolster investor confidence, which has been shaken by the turmoil in the country’s property market. Authorities have pledged to provide support for growth sectors such as AI and biotech, and the IMF reiterated that the economy has substantial growth potential if China continues pro-market reforms.

Countering the more positive outlook was another warning by the US Treasury Secretary warning China against flooding the market with unrealistically cheap clean energy products. If China sells its excess stocks of electric vehicles and solar products internationally at prices lower than production costs, a practice known as "dumping", it could provoke retaliatory measures, including tariffs, from trading partners.

In corporate news, Boeing annouced a management shakeup, with three top-level executives grounded from the Company in the aftermath of quality issues and immense scrutiny after a 737 Max 9 mid-flight blowout. The head of Boeing’s commerical airplanes unit, Stan Deal is set to retire with immediate effect, and the current CEO, Dave Calhorn set to resign at the end of the year, as well as the Board Chairman, Larry Kellner who will not standing for re-election. Investors welcomed the reorganisation and shares of the airline ended the week up 2.2%.

Amazon is upping its stake in AI startup Anthropic to a total of $4 billion after announcing a further $2.75 billion investment, making it the company's largest ever private investment. This is part of a strategy to enhance Amazon Web Services by integrating Anthropic's AI chatbot into its suite of cloud services, potentially improving Amazon's supply chain efficiency. Unlike similar deals in the industry, this partnership isn't exclusive, allowing Anthropic to pursue other collaborations, with Google Cloud rumored to be a potential investor.

This investment is indicative of a broader trend where tech giants rapidly acquire AI startups to drive innovation across their platforms, with the anticipation that some of today's lesser-known entities could become the tech titans of tomorrow, particularly in healthcare and biotech.

Investors are also indulging in the chocolatey goodness in the run up to Easter. The price of Cocoa, which has outperformed the likes of NVIDIA stock and Bitcoin, is now sitting above $10,000 per tonne. There are several catalysts that are behind Cocoa’s price propulsion including severe weather which is impacting production and concerns over deforestation regulation and climate change.

In the crypto space, Bitcoin pushed back above the $70,000 mark on the same week CEO of FTX, Sam Bankman-Fried was sentenced to 25 years in federal prison. He was found guilty on all seven counts of fraud and conspiracy charges in what US Attorney Damian Williams referred to as "one of the biggest financial frauds in American history."

(Cover Image Source: Kalen Emsley)

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.