Wednesday's Markets Update (August 2, 2023)

03 Aug 2023 by rate3

On Wednesday, NASDAQ reacted violently to Fitch's decision, tumbling down by more than 2%. BTC, however, remained unperturbed above 29K. Other updates: Grayscale's report pointed to macro risks for crypto; Stock markets are falling across the EU following the US lead; the Brazilian central bank cut its key interest rate further than expected.

Crypto
GrayScale reported that crypto markets have recovered, but macro factors could pose a risk. A soft landing for the US economy would support further gains, but a stumble or higher rates could pause the recovery.
A new amendment to the 2024 National Defense Authorization Act (NDAA) could introduce new KYC and AML measures for stablecoin issuers. This could pose compliance challenges for stablecoin issuers like Circle, which issues USDC.
Robinhood's crypto-related transaction revenue decreased by 18% because fewer customers were making trades.

Stocks
Italy: Italian stocks fell 1.15% on Wednesday after Fitch downgraded the US government's credit rating. The banking sector was among the biggest laggards. It shows how fundamentally flawed and unfair the contemporary, hyper-centralized financial system is.

Comments:
The question of why the Italian stock market is falling after the US credit rating downgrade while the US market is rising has a distressing answer.

Fitch Ratings downgraded the US's credit rating from AAA to AA+. This was the first time in 70 years that the US's credit rating had been downgraded. The downgrade was due to concerns about the US's budget deficit and debt levels.

There are a few reasons why Italian shares sank after the US credit rating was downgraded. First, investors became more risk-averse and stock markets around the world fell. Italian shares were particularly hard hit, as Italy is one of the countries that is most vulnerable to the European debt crisis.

Second, the downgrade increased concerns about the stability of the global financial system. This led to a flight to safety, as investors sold riskier assets, such as Italian shares, and bought safer assets, such as US Treasuries (zic!).

Finally, the downgrade made it more expensive for Italy to borrow money. This is because investors demand a higher risk premium when lending money to countries with lower credit ratings. This increase in borrowing costs could make it more difficult for Italy to finance its government debt, which could lead to a sovereign debt crisis.

So, as is currently the case in every country in the world, the poor pay for the wealthy's debts and receive nothing in return but senseless political rhetoric. What can go wrong? :)

Macroeconomics
Brazil: The Brazilian central bank cut its key interest rate by 50 basis points to 13.25%, exceeding market expectations. The committee said that the easing cycle will depend on the evolution of inflationary dynamics.

Comment
The Brazilian central bank's decision to cut interest rates is a significant departure from the policies of the Fed, which has been raising rates in an effort to combat inflation. The Fed's policies have been criticized by most of independent economists, who argue that they are harming economic growth and leading to a recession.

The Brazilian central bank's decision is a sign that some countries are willing to take a different approach to monetary policy. These countries are not willing to sacrifice economic growth in order to try to curb food and energy prices inflation, which is driven by factors outside of their control.

The Brazilian central bank's decision is also a sign that these countries are starting to assert their independence from the US-led monetary system. They are no longer willing to follow the lead of the Fed.

The Brazilian central bank's decision is a welcome development. It shows that there are other countries that are willing to take a more thoughtful approach to monetary policy. The Fed's policies are suffocating economic growth and harming entrepreneurs. The Brazilian central bank's decision is a step in the right direction.

Albania: The Bank of Albania held the key policy rate at 3% in August 2023. Inflation is expected to cool, but normalization is not ruled out amid persistent risks.

Comments
There are a few reasons why the inflation rate in Albania is so low after the war hit the EU in 2022, especially compared to neighboring more developed countries like Italy:

Albania is less dependent on foreign energy sources.** Albania is a small country with a relatively small population, and it produces a significant amount of its own energy from hydropower. This means that Albania is less exposed to the volatility of global energy prices than countries that rely on imported oil and gas.
Albania has a relatively small open economy. Albania's trade-to-GDP ratio is about 60%, which is lower than the average for European countries. This means that Albania is less exposed to the global economic shocks that have driven up inflation in other countries.
Albania has a relatively low-wage economy. The average wage in Albania is about $500 per month, which is much lower than the average wage in developed countries. This means that Albanian consumers are less able to afford to spend on imported goods, which helps to keep inflation in check.
In addition to these factors, the Albanian government has also taken some steps to mitigate the impact of inflation. For example, the government has imposed price controls on some essential goods and services, and it has also provided subsidies to businesses to help them offset the rising cost of energy.

Commodities
Rice: Global rice prices are rising due to concerns over the global supply. Thailand is bracing for a potential drought next year (El Nino), and India has banned non-basmati white rice exports. This could lead to fluctuations in the global rice market and affect food security in poor nations.