SVET Reports
SVET Markets Weekly Update (August 7–11, 2023)
On Week 31 Moody’s cut the ratings of several banks, while CPI decreased and inflation increased less than expected. However, on Friday, PPI rose, surprising the markets. Nasdaq responded by declining, while BTC continued to hover over 29K, in the absence of a catalyst.
On the crypto front, the Fed announced a new supervisory program for financial institutions engaged in crypto-related activities. Additionally, PayPal is set to launch its own stablecoin, and Binance has become the first fully licensed cryptocurrency exchange in El Salvador.
On the macro side, European natural gas prices rose sharply due to concerns about dwindling LNG flows to Europe. Industrial production in Argentina contracted due to China’s economic deceleration. Meanwhile the Russian budget deficit widened to a record as Belorussian inflation reached its lowest level in decades.
Overall, the week was volatile as anticipated, with macroeconomic data increasing uncertainties among market players. This uncertainty is also supporting BTC at its present levels, preventing a long-overdue correction.
On Monday, consumer credit expanded unexpectedly, with the NASDAQ being lethargically volatile as Apple and Tesla retreated. As traders await the Thursday’s CPI report, BTC made a brief plunge under 29K again, confirming its bearish trend. Other news: Hong Kong’s SFC warned crypto-investors, Bowman (Atlanta Fed) anticipated additional rate increases, and Carbon Credits are down on slowed manufacturing in the EU.
Details:
Total consumer credit in the US increased sharply in June, with non-revolving credit, such as auto and student loans, leading the way (+6%). Revolving credit, such as credit cards, fell slightly (-0.6%).
Comment:
Why did consumer non-revolving credit jump so drastically in June 2023, while revolving credit dropped?
There are a few possible explanations for this trend. One possibility is that consumers are making big purchases now, before prices go up even more. Inflation is high, and consumers are expecting prices to continue to rise. They may be taking out loans to finance large purchases, such as cars and homes, in order to lock in a lower price.
However, this spike in non-revolving credit also looks seasonal. The average quarterly growth rate for non-revolving credit in Q1 and Q2 is around 3%. It is more likely that consumers are taking out student loans to pay for college, which typically starts in September.
On the other hand, the sharp drop in revolving credit (from 8.1% in May and 13.7% in April) may be a sign that consumer confidence in the economy is starting to become shaky. This is not a good sign for the economy as a whole, as consumer credit is one of its main growth drivers. For reference, the total accumulated consumer credit in the economy is USD 4.9 trillion and it has increased almost 25% in 5 year.
Crypto
Hong Kong’s SFC warned investors about unlicensed crypto platforms, hinting that only HashKey and OSL Exchange are licensed. The city is tightening regulations as it seeks to become a crypto hub.
Macroeconomics
Russia: The yield on the Russian 10-year OFZ soared to 11.6% in August, the highest since the invasion of Ukraine, amid a widening budget deficit and a hawkish central bank. The government is heavily dependent on bond issuance to finance its deficit, and the central bank is raising interest rates to combat inflation.
Comment:
The national treasury reported a financial shortfall of RUB 2.6 trillion in the first half of the year, a record high for the period. This was due to the ongoing war, which continued to drain resources, and the state’s essential revenue streams were harmed by low energy prices.
While higher oil prices temporarily improved the budget’s revenue stream, Urals contracts are now trading above the EU’s price cap, increasing geopolitical risk in the market.
As a result, Moscow is heavily reliant on bond issuance to finance its financial shortfall, which is driving up yields.
In the meantime, the Russian Central Bank raised its key interest rate by 100 basis points to 8.5 percent, signaling that the risks of inflation increasing have significantly increased since the start of the third quarter, making more interest rate hikes in upcoming meetings likely.
Carbon Credits: The price of carbon permits in the European Union fell to EURO 87 per tonne, the lowest in two months, as investors anticipate less demand for permits due to a weak manufacturing sector. The decline in German industrial production in July highlights the impact that higher interest rates are having on European manufacturing.
Comment:
Carbon permits work by setting a cap on the total amount of CO2 or GHGs that can be emitted. Companies that emit more than their allotted amount of CO2 or GHGs must either reduce their emissions or purchase carbon permits from companies that have emitted less than their allotted amount. This creates a market for carbon permits, which drives down the cost of reducing emissions.
The size of the carbon permit market is still relatively small, but it is growing rapidly. In 2020, the global carbon permit market was worth an estimated $85 billion. This is expected to grow to $250 billion by 2030.
The major markets for carbon permits in Europe, Asia, and the Americas are:
Europe: The EU ETS is the largest carbon permit market in the world. It covers about 45% of the EU’s greenhouse gas emissions.
Asia: China has the world’s second largest carbon permit market. It covers about 20% of China’s greenhouse gas emissions.
Americas: The Regional Greenhouse Gas Initiative (RGGI) is the largest carbon permit market in the Americas. It covers about 10% of the electricity sector in the northeastern United States.
The growing carbon permits market can be viewed as a global bureaucracy expansion index. While carbon permits are intended to use market forces to help the environment, they cannot exist without a constantly expanding government bureaucracy. While they may fluctuate and decline as the global recession hits markets, the overall trend of world bureaucratization is only upwards.
This is because carbon permits are a form of government regulation. They are created by governments and enforced by governments. In order for carbon permits to work, governments must be able to track and monitor emissions, issue permits, and enforce compliance. This requires a large and violent bureaucracy.
Currencies
Mexico: The Mexican peso has fallen from its near-eight-year high as investors await inflation data and monetary policy decisions. The peso is still one of the top-performing currencies year-to-date, thanks to high interest rates, political stability, and “nearshoring”.
The Mexican peso has experienced a rapid devaluation (from 10 to 24 Pesos / USD) since the 1990s due to a number of factors, including:
The Mexican financial crisis of 1994: The Mexican financial crisis of 1994 was a major economic crisis that caused the peso to lose over half of its value against the US dollar. The crisis was caused by a number of factors, including high government debt, low foreign reserves, and a large trade deficit.
The 2008 financial crisis: The 2008 financial crisis also had a significant impact on the Mexican peso. The crisis caused a global economic slowdown, which led to decreased demand for Mexican exports. This, in turn, led to a decrease in the value of the peso.
The trade deficit: Mexico has a large trade deficit, which means that it imports more goods and services than it exports. This puts a strain on the peso, as it makes it more difficult for Mexico to earn foreign currency.
Political instability: Mexico has experienced a number of political crises in recent years, which have also contributed to the devaluation of the peso. These crises have led to uncertainty about the future of the Mexican economy, which has made investors less willing to invest in Mexico.
The war on drugs: The war on drugs has also had a negative impact on the Mexican economy. The war has led to violence and instability in many parts of the country, which has made it difficult for businesses to operate. This, in turn, has led to a decrease in economic growth, which has put pressure on the peso.
The devaluation of the peso has had a number of negative consequences for Mexico. It has made it more expensive for Mexicans to import goods and services, which has led to inflation. It has also made it more difficult for Mexican businesses to compete with foreign businesses. Additionally, the devaluation has eroded the value of savings and investments.
However, since 2020, the Mexican peso has reversed its course and started to appreciate against the US dollar. This is due to a number of factors, including:
Active reshoring: As the enclosure has led to supply chain disruptions, many companies have begun to reshore their manufacturing operations to Mexico. This has increased demand for the peso.
US Fed’s policies: The US Federal Reserve’s (Fed) decision to print trillions of dollars in quantitative easing (QE) has led to inflation in the United States. This has made the US dollar less attractive to investors, and has led to increased demand for the peso.
It remains to be seen whether the Mexican peso will continue to appreciate against the US dollar in the long term. However, the recent appreciation is a positive sign for the Mexican economy.
Commodities
Platinum: Prices have fallen in August to around $920 per ounce, hovering near a one-month low. This is due to ongoing concerns about demand for platinum, especially from China. New data showed that electric vehicle sales in China grew to over 30% of total sales in July, signaling a slowdown in the demand for platinum-heavy catalytic converters in combustion engines.
Comment
Although the percentage of new electric car sales in China has grown to over 30%, the percentage of electric vehicle production in the world is still very low, at around 6%. This means that the demand for platinum from the automotive sector is still relatively strong, despite the growth of electric vehicles.
The World Platinum Investment Council has projected a considerable deficit of 983,000 ounces for 2023, reaching the highest level seen since the 1970s. This suggests that there is still strong demand for platinum from both industrial and investment sources.
The growth of electric vehicles is a long-term trend, but it is still in its early stages. The demand for platinum from the automotive sector is likely to decline in the coming years, but it will not disappear entirely. Platinum is still used in a number of other applications, such as jewelry, electronics, and dentistry.
The percentage of electric vehicle production in the world is expected to grow to 20% by 2025 and 50% by 2030. However, even at these levels, the demand for platinum from the automotive sector will still be significant.
Overall, the outlook for platinum demand is mixed. The growth of electric vehicles will put downward pressure on prices in the short term. However, the long-term outlook remains positive due to the increasing demand for platinum from other sectors.
Platinum is a rare and valuable metal, and it is not easily replaced by other materials. This means that the demand for platinum is likely to remain strong in the long term.
On Tuesday, Moody’s cut the ratings of several banks, causing major banking stock turmoils across the globe, especially in the EU, as the Nasdaq remained unchanged. Meanwhile, small business owners’ optimism is up, while consumers’ is down, pointing to a potential economic weakness ahead coupled with rising consumer indebtedness. On the crypto side, BTC surged on PayPal’s launch of a stablecoin as the Fed announced a crypto-firm onboarding program.
Details:
Moody’s downgraded credit ratings of 10 small to mid-sized US banks and warned it may downgrade major lenders. The rating agency cited declining profitability and asset quality, particularly in commercial real estate portfolios, as reasons for the downgrades.
The rating agency said that “many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital.” Moody’s also warned that “a mild recession looms and asset quality looks set to decline,” particularly in some banks’ commercial real estate portfolios.
Comment
Obviously, not everyone in the world is buying into the Fed’s fantasies that everything is perfect in the economy. The Fed has been raising interest rates in an effort to combat inflation, but this is leading to slow economic growth and then straight forward to a recession. The Moody’s downgrades suggest that these concerns are not unfounded, at all.
As a result, the political divide over the economy is likely to get worse in the months ahead. The Fed will need to tread carefully if it wants to avoid further alienating businesses and consumers.
NFIB Small Business Optimism Index increased to 91.9 for a third consecutive month in July 2023, but owners remain concerned about inflation and hiring. At the same time, American economic optimism (The IBD/TIPP Economic Optimism Index) hit a 12-month low of 40.3 in August 2023, as consumers remain concerned about inflation, also, and the pace of wage growth.
Comment
The difference in optimism between small business owners and consumers is likely due to the fact that small business owners are more focused on the immediate future, while consumers are more focused on the long-term. Small business owners are seeing strong sales and profits right now, so they are optimistic about the short-term outlook. However, consumers are worried about the long-term impact of inflation and the threat of a recession. Besides, one is for July, the other for August, so it might be just a catching-up issue.
It is possible that small business optimism will start to decline in the coming months, as the economic outlook worsens.
US consumer debt rose to a new record of $17.06 trillion in Q2 2023, up $16 billion from the previous quarter. Credit card balances increased by $45 billion, or 4.6%, to $1.03 trillion. Mortgage debt remained relatively stable at $12.01 trillion. New mortgage originations increased to $393 billion, up from $324 billion in the previous quarter. Student loan balances declined by $35 billion to $1.57 trillion. Credit card delinquencies are at an 11-year high.
Comment
The increase in credit card balances suggests that Americans are using credit cards to finance everyday expenses. This could lead to issues down the road if consumers are unable to repay their debts. it is accompanied, by the increase in credit card delinquencies, showing that more people are struggling to make their credit card payments.
On the other hand, the decline in student loan balances might be attributed to that less loans are originated as people take less of those faced by increased rates. The decline in mortgage suggests that the housing market is cooling off. However, the increase in new mortgage originations shows that some people are still taking on new debt to buy homes.
Overall, those numbers demonstrate that the surprising resilience of the economy can be also attributed to continuing consumer spending exuberance, supported by increasing wages (although at a slower rate).
Crypto
The Fed announced a new supervisory program for financial institutions that engage in crypto-related activities. The program will focus on crypto, blockchain technology, and non-bank technology partnerships. State member banks must obtain written approval from the Fed before issuing, holding, or transacting with dollar tokens.
Comment
The Fed’s decision to launch a new supervisory program instead of a full ban on cryptocurrencies is a positive development for the industry, of course. It shows that the Fed is willing to acknowledge the potential benefits of cryptocurrencies, and it is not trying to shut down the industry altogether.
This positive news may explain why the crypto market is up, while stocks are down mostly. Investors may be viewing the Fed’s decision as a sign that cryptocurrencies are here to stay, and they are betting that the industry will continue to grow in the future.
On the other hand, it creates unnecessary red tape and bureaucracy, which will make it more difficult for businesses to operate in the space. This will likely lead to higher costs for businesses and consumers, and it could stifle innovation.
The Fed’s program is also shrouded in the rhetoric of “consumer protection,” but this is a smokescreen. The real goal of the program is to give the Fed control over the cryptocurrency industry. The Fed is worried about the potential for cryptocurrencies to disrupt the traditional financial system, and it wants to be able to regulate them in order to protect its own interests.
The Fed’s program is a clear example of government overreach. It is an attempt by the government to stifle innovation and competition in the financial sector. The program is also likely to be inefficient and corrupt. Bureaucrats are not experts in the cryptocurrency industry, and they are likely to make decisions that are not in the best interests of consumers.
PayPal is set to launch its own stablecoin — a digital currency linked to the US dollar. With over 375 million users, this has the potential to boost company’s purchasing dynamics.
Comment
PayPal’s move to launch its own stablecoin is a significant development in the world of digital finance. It signals PayPal’s commitment to the space and its willingness to take on the risks and challenges of developing a new form of currency.
The crypto markets have reacted over-positively to the news. However, big corporations have a history of attracting the attention of politicians. We all know what it leads too, don’t we?
There is also the risk that PayPal’s stablecoin could distract customers from truly decentralized forms of payments. Decentralized payments are based on blockchain technology and do not rely on a central authority like PayPal. This makes them more secure and resistant to censorship. However, they are also more complex and difficult to use.
Currencies
Brazil: The Brazilian Real weakened against the US Dollar (4.9 per USD) as markets digested minutes from the Brazilian Central Bank’s meeting, which showed that the bank was less hawkish than expected. The Real is still up 8% against the Dollar this year, thanks to strong commodity exports and a dovish central bank.
Comment:
The Brazilian Real was falling all throughout the 1990s to the US Dollar (from below 1.0 to around 4), but then reversed drastically in September 2002 and then strengthened during the next 10 years (until July 2011) from 4 to around 1.5. Then, again, the Real started to weaken compared to the US Dollar, reaching around 5.8 in 2020. Then again, it reversed on Fed aggressive money printing and got lower to 4.9 in August 2023.
There are a number of factors that contributed to the Brazilian Real’s decline in the 1990s. One factor was the country’s high inflation rate. Inflation in Brazil reached a high of 5,910% in 1990, and it remained high throughout the decade. This high inflation rate made the Real less attractive to investors, and it led to a decline in its value.
Another factor that contributed to the Real’s decline was the country’s large budget deficit. The Brazilian government was running a large budget deficit in the 1990s, and this put pressure on the value of the Real. To finance its budget deficit, the Brazilian government was forced to borrow money from foreign investors. This borrowing put upward pressure on interest rates in Brazil, which made it more expensive for businesses to borrow money and invest. This, in turn, led to slower economic growth, which further weakened the value of the Real.
The Brazilian Real began to strengthen in September 2002 for a number of reasons. One reason was the election of Luiz Inácio Lula da Silva as president. Lula promised to reduce inflation and to improve the economy, and his election led to an increase in investor confidence in Brazil. This, in turn, led to a stronger Real.
Another reason for the Real’s strengthening was the rise in commodity prices. Brazil is a major exporter of commodities, and the rise in commodity prices in the early 2000s led to a surge in export earnings for Brazil. This surge in export earnings helped to strengthen the Real.
The Real began to weaken again in 2011 when the global economy was still recovering from the aftermath of the 2008 financial crisis. Slow growth and uncertainty in major economies, including the United States and Europe, led investors to seek safer assets, such as the US Dollar. This increased demand for the Dollar put downward pressure on many emerging market currencies, including the Brazilian Real.
The Real’s decline reversed only in August 2020 due to the Fed’s aggressive money printing. The Fed began to print money in an effort to stimulate the US economy, and this led to a decline in the value of the US Dollar. The decline in the US Dollar made the Real more attractive to investors, and it led to a strengthening of the Real.
Macroeconomics
Russian budget deficit widened to a record 2.817 trillion rubles in the first 7 months of 2023 from a surplus of 557 billion rubles a year ago. Revenues fell 7.9% to 14.5 trillion rubles, oil and gas revenues plunged 41.4% to 4.2 trillion rubles, while expenses soared 14% to 17.3 trillion rubles. The government is forced to raise borrowing and tap rainy-day fund to cover the deficit.
Comment
The sanctions and a slowing Chinese economy have caused a decline in oil and gas revenues, which are a major source of government income. The war is a major drain on the budget, of course. The government is also providing subsidies to businesses and individuals to offset the impact of the sanctions. The widening budget deficit and the rise in government spending are unsustainable in the long term. The government will need to find ways to reduce its spending or increase its revenues.
On Wednesday, investors are nervous in the wake of Thursday’s CPI data release. As a result, Nasdaq sharply corrected downward on technicals, while EU stocks recovered after Tuesday’s slump. At the same time, BTC continued its whales’ games, bewildering retail traders who are trying to position either for a crash or a sudden jump. Other news: Binance is up and running in El Salvador, the mortgage rate reached a 10-month high, and natural gas prices rose sharply on lower US supply.
Details:
Mortgage rates in the US surged to 7.09% in the first week of August 2023, the highest level since November 2022.
Comment:
The reason why mortgage rates re-established their rising trend in February 2023 despite the fact that the Fed was raising rates very quickly in October-February is likely due to a combination of factors.
First, the Fed’s rate hikes were not enough to offset the rising inflation. Inflation in the US has been at a 40-year high, and it is likely to remain high for some time. This is putting upward pressure on mortgage rates, as lenders demand higher interest rates to compensate for the risk of inflation.
Second, the intensification of the war in Europe and rising political and military tensions with China have also contributed to the rise in mortgage rates. That have created uncertainty in the global economy, which is making investors more risk-averse and demanding higher interest rates.
Finally, the downgrading of the US government debt rating also contributed to the rise in mortgage rates. The downgrade made investors more wary of lending money to the US government, which led to higher interest rates on all types of debt, including mortgages.
Crypto
Binance has become the first fully licensed cryptocurrency exchange in El Salvador. The company received two licenses from the country’s regulators: Bitcoin Services Provider (BSP) and Digital Assets Services Provider (DASP). Binance has also expanded to other countries in recent years, including Italy, France, Sweden, Australia, the UAE, and Japan.
Comment
The SEC’s current stance on cryptocurrency is aggressive and politically motivated. This is likely due to the fact that the SEC is under pressure from Boomers-lawmakers to crack down on cryptocurrency exchanges. I believe that the SEC’s approach is misguided and ultimately harm the US economy.
The SEC’s aggressive stance is driving cryptocurrency businesses out of the US. This is bad for the US economy because it is taking away innovation and talent. The US has always been a leader in financial innovation, and the SEC’s actions are threatening to undermine this position.
In addition, the SEC’s politically motivated approach is creating uncertainty in the cryptocurrency market. This is discouraging investment and making it difficult for cryptocurrency businesses to operate. The SEC needs to take a more balanced approach to cryptocurrency regulation. It needs to be clear and consistent in its enforcement, and it needs to be open to dialogue with the cryptocurrency industry.
Commodities:
European natural gas prices rose sharply (30% to more than EUR 40 per megawatt-hour) today, despite record-high gas storage levels. The increase was driven by concerns about dwindling LNG flows to Europe, as well as higher demand from Asia. Also, US’s exports of liquefied natural gas (LNG) are currently more lucrative for the markets in Asia in September, October, and November. As a result, there may be less LNG available this month. It is added by worker protests that impact LNG supply in Australia.
Comment
Despite the fact that the USA is exporting more liquefied natural gas (LNG) to Asia, fuel reserves in Europe are at their highest level ever for this time of year. The European Union wants them to be 90% full by November, and many countries, such as Spain and the Netherlands, have already met or exceeded this goal. Germany and Italy are close behind, but France is at 78% due to energy supply problems caused by strikes earlier this year.
This is a perfect example of how the market mechanism can work without government intervention. While supplies to the EU are cut from the East due to the war, LNG flows from the opposite side of the world more than compensate for that deficiency. If governments do not interfere, markets will do their job much faster and smoother.
Macroeconomics
Industrial production in Argentina contracted by 2.3% year-on-year in June, the first decline since February. The slowdown was driven by a decline in food and beverages output, as well as other sectors such as machinery and equipment, wood, paper, and printing. Production of basic metals and oil refining rose at a slower pace.
Comment
The decline in industrial production in Argentina is mostly due to China’s economy deceleration. China is Argentina’s largest trading partner, and a slowdown in China’s economy will have a ripple effect on Argentina’s economy.
However, more broadly speaking, we must not forget that the current deceleration of economic activities all around the world is the direct result of the over-centralized, hyper-bureaucratized system of governance that dominates our planet.
The current economic calamities began with the decision of governments to shut down the global economies in 2020. Today, we can say with complete certainty that it has proved to be an absolutely stupid and ineffective choice. It was a major shock to the global economy, and it is likely that the full economic impact of that choice, made for us by aging, technically outdated, and frightened Boomers (with the unique exception of the Swedish government led by 56-year-old Stefan Löfven), will be felt for several decades.
The “quarantine” exposed the weaknesses of centralized decision-making, and it is clear that we need to find a better way to manage our economies in the future. The centralized states are simply incapable of coping with the complicated realities of today. We need to decentralize our economies and give more power to local communities. This will allow us to be more responsive to change and more resilient to shocks.
On Thursday, CPI got down while the inflation got up less than expected which energized markets on the opening but NASDAQ closed in the negative on increased traders uncertainties and bearish technicals. At the same time, BTC continued its record stretch of an suspense inactivity.
Details
Inflation
in increased slightly (to 3.2% from 3.0%) in July, but it is still below the peak of 9.1% reached in June 2022. The main drivers of inflation in July were energy prices, which fell but at a slower pace than in June. Prices for other goods and services also rose, but at a slower pace than in recent months. Core inflation, which excludes food and energy, eased slightly in July (to 4.7% from 4.8% in June).
Comment: It is possible that the increase in energy prices in July is a seasonal effect. The summer months are typically the hottest months of the year, and people use more energy to cool their homes and businesses. This can put a strain on energy supplies and drive up prices.
Consumer Price Index rose 0.2% in July, the same as in June. Shelter (30% of the total index) was the biggest driver of inflation, accounting for over 90% of the increase. Food and energy prices also rose, but at a slower pace than in June. Core inflation, which excludes food and energy, rose 0.2% in July, the same as in June.
Comment
It supports my conjecture. The Fed raising rates start to feed inflation as lenders continue to increase prices in anticipation of the higher rates. This is because lenders have borrowed money at a low interest rate, and they are now passing on those low interest rates to borrowers. However, as the Fed raises rates, lenders will need to charge borrowers higher interest rates in order to cover their own costs. This will lead to higher prices for goods and services, as businesses pass on the higher interest costs to consumers.
In addition, many lenders used bank loans to purchase properties in order to lend it to businesses and families. This means that they are now more exposed to rising interest rates, as they will need to pay more interest on their own loans. This could lead them to increase prices even further in order to cover their costs.
Macroeconomics
The Bank of Mexico kept its interest rate unchanged at 11.25% in August 2023, as widely expected. Inflation has eased in recent months, but remains high. The central bank expects inflation to converge to its target of 3% in the fourth quarter of 2024. The bank will continue to monitor inflation closely and take action as needed.
Comment
The Federal Reserve (Fed) is the most powerful central bank in the world, and its monetary policy decisions have a significant impact on the global economy. As a result, many other central banks around the world tend to follow the Fed’s lead when it comes to setting interest rates.
There are a few reasons for this. First, the US economy is the largest and most influential economy in the world. When the US economy is doing well, it tends to boost economic growth in other countries. This is because the US is a major trading partner for many countries, and when the US economy is strong, it means that there is more demand for goods and services from other countries. This can lead to increased exports and economic growth in those countries.
Second, the US dollar is the world’s reserve currency. This means that it is the currency that is most widely used to conduct international trade and finance. When the Fed raises interest rates, it makes it more attractive for investors to hold US dollars. This can lead to an increase in the value of the dollar, which can make it more expensive for other countries to import goods and services from the US. This can have a negative impact on economic growth in those countries.
Third, many other central banks around the world have a peg or a currency board system that ties their currency to the US dollar. This means that they are legally obligated to keep the value of their currency within a certain range of the US dollar. When the Fed raises interest rates, it can lead to an appreciation of the US dollar, which can put pressure on other central banks to raise their interest rates in order to maintain the value of their currency peg.
On Friday, PPI increased, surprising the markets. As a result, Nasdaq dove, pulled down by AMD and Nvidia, as traders bet on the Fed keeping rates higher for longer. BTC hovered over 29.4K, still waiting for a catalyst. Other news: One more senator supports a reasonable regulatory framework for crypto, standing against the “Dirty Garry” war on blockchain. Belorussian inflation hit a record low.
Details:
Producer prices (PPI) in the US rose 0.3% in July, led by services and goods prices. Year-on-year, the PPI rose 0.8%.
Comment
The producer price index (PPI) is an important economic indicator to follow because it measures the prices paid by producers for goods and services. These prices are then passed on to consumers, so a rising PPI can signal that inflation is on the rise.
The rising PPI and services sector PPI are sending a negative signal to markets. This is because they suggest that inflation is becoming more widespread and that the Federal Reserve may need to raise interest rates more aggressively in order to bring inflation under control.
The Fed is known to pay particular attention to services side inflation. This is because services are a large and growing part of the economy, and because services inflation is often more persistent than goods inflation.
Additionally, the Fed may believe that it is easier to control services inflation than goods inflation. This is because services workers are often less unionized than goods workers, and they have less bargaining power with their employers (and, consequently, the Fed).
Crypto
Senator Lummis filed an amicus brief in support of Coinbase’s motion to dismiss the SEC’s lawsuit against the company. Lummis argued that the SEC should not be allowed to “legislate by enforcement” and that Congress should be the one to develop crypto regulations.
Brazilian lawmakers are considering raising taxes on cryptocurrencies held overseas. The proposed legislation would recognize cryptocurrencies as “financial assets” for tax purposes, and would tax gains from fluctuations in crypto asset prices and foreign exchange rates. The goal of the revision is to promote equal tax treatment for crypto investments abroad.
Comment
It is important to have the support of at least some lawmakers in order to achieve our goals. However, as we can see from the Brazilian example, political support can be a double-edged sword. Bureaucrats not only keep rising taxes but also often demand high sums of money in exchange for their support. In Brazil, for example, a study by Transparency International found that over 70% of lawmakers had accepted bribes in the past year.
Macroeconomics
Inflation in Belarus slowed to 2.7% in July 2023, the lowest level since records began in 1992. The decline was driven by a fall in prices for non-food items, while prices for services and food rose slightly. On a monthly basis, consumer prices rose by 0.3%, the same as in June.
Comment
The low non-food inflation in Belarus, the country next door to the raging war in Ukraine, can be explained by two factors: rigorous price controls from the state apparatus and a fall in imports from Belarus’s major trade partners, Russia and China. Additionally, there has been an increased demand for potash (a fertilizer that is essential to the world’s food industry) from Belarus’s major import partners, Russia, Poland, and Germany.
The combination of these factors has helped to keep inflation in Belarus relatively low, despite the ongoing war in Ukraine. The state apparatus has been able to control prices by setting maximum prices for certain goods and services. The fall in imports has reduced the supply of goods in Belarus, which has helped to keep prices up. And the increased demand for potash has boosted exports and generated foreign exchange income for Belarus.
On Week 33, the FOMC minutes (Wednesday, August 16), retail sales (Tuesday, August 15), and industrial production (Wednesday, August 16) in the US are all expected to be major releases. Also, investors will be watching closely for economic data releases from the US, China, Eurozone, Japan, Germany, India, UK, Canada, Norway, Philippines, and New Zealand.
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