A collective sigh of relief swept over Wall Street yesterday following the latest CPI reading. While core inflation increased to 3.1% in July, beating both expectations and the June figure, headline inflation remained at 2.7%, below economists’ predictions. The publication was reason enough to drive US stocks higher, pushing the S&P 500 and Nasdaq Composite indices to new record highs by Tuesday evening. With the latest inflation data out of the way, markets now have a relatively clear view of the US economy. Inflation levels, while not ideal, remain manageable. The labour market on the other hand appears to be struggling. By most accounts, this is a straightforward setup to lower interest rates on the Dollar in September and judging by overall sentiment, market participants seem to agree. The optimism has even spread as far as Japan, where the Nikkei 225 closed at record highs yesterday. The index continued to push higher still this morning, breaking above 43,000 points for the first time in its history. The economic calendar will provide another insight into US inflation on Thursday, this time in the form of the Producer Price Index, which is predicted to rise to 0.2% in July. Bitcoin remains near all-time highs of $120,000 but attentions are currently turned towards the broader altcoin market. Ethereum is currently toying with a record high of its own after a 9% surge yesterday pushed the token price above $4,600. The project rose to similar highs back in 2021 when prices topped out around $4,800 but the ensuing bear market destroyed such valuations for years to come. The increasingly loud question being floated around is whether “alt season” is finally back in play. Bitcoin dominance fell below 60% recently but has a long way further to fall before such claims can be substantiated. Shares in Robinhood (HOOD) closed at a record high last Friday, while paradoxically Coinbase (COIN) remains around 25% down from its peak in July. #Inflation #Altcoins
US stocks ended on a high note last week after a huge rally in Apple (AAPL) pushed the Nasdaq Composite index to a new record high. Shares in Apple rose over 13% last week following bullish projections from Wells Fargo as well as an announcement from the company that it is increasing its investments in the United States by an extra $100 billion over the next four years. Despite the worrying jobs figures published the week prior, all three major US indices finished the week in the green, with the Nasdaq Composite and S&P 500 gaining 3.9% and 2.4% respectively, while the Dow Jones rose by a more modest 1.3%. In Japan meanwhile, the Nikkei 225 is also pushing for a record high of its own after an early morning surge pushed the index back over 42,000 points. The rise in traditional markets was certainly nothing to be sniffed at, but it paled in comparison to the movements in cryptocurrencies. Bitcoin ended the week on good footing yesterday and carried over the momentum into this morning’s session. BTC is now hovering around $121k but the greater story lies in the altcoin market. Bitcoin dominance has taken an absolute beating recently and the gains seen up and down the leader board certainly reflect that. Even Ethereum has finally stepped up to the plate, convincingly breaching $4k and pushing into valuations not seen since the tail end of 2021. There is only really one item worth discussing on the economic calendar this week: US inflation. The PCE price index published two weeks ago suggested there had been an uptick in inflation in recent months, which may or may not be confirmed by Tuesday’s CPI report. Forecasts suggest a slight increase in core inflation to 3% year-over-year, while the headline figure is expected to hit 2.8%. Inflation is certainly one side of the equation, but the dire jobs numbers revealed by the most recent NFP report are a much bigger problem for the Federal Reserve. Stephan Miran is set to replace outgoing board member Adriana Kugler and should he be approved by the time of the next meeting in September, the Fed is facing the prospect of three dissenting members if Jerome Powell continues to hold rates steady. A lot can happen between now and the next decision on the 17th of September, but so far markets are pricing in a 25-bps cut with 90% confidence. #Apple #Altcoins #Inflation
The latest tariff deadline is set to come into force tomorrow. Countries around the world are scrambling for last-minute trade deals, or in China’s case, a deal to delay the incoming tariffs. The president of Switzerland announced that she would fly to Washington D.C. in an attempt to avert 39% tariffs on Swiss goods. India meanwhile is facing renewed pressure after president Trump threatened to increase tariffs beyond the previously agreed 25% figure. Tensions between the two nations have flared up in recent days because of the secondary sanctions imposed on Russia, which burden Russia’s trading partners with additional tariffs. This is particularly tricky for India, which now sources roughly 40% of all its crude imports from Russia. As the deadline approaches by the hour, it becomes increasingly unlikely that any more significant deals will emerge. Last Friday’s NFP-inspired selloff did not last and by Monday evening US stocks had largely recovered. The Dollar meanwhile has been remarkably boring with major pairs barely moving all week. Gold has been similarly muted, content to hover around $3,380 per ounce since Monday. Unsure on their next course of action, many markets have collectively decided to do nothing at all. Bond markets on the other hand are seeing more activity this week as traders anticipate a pivot in monetary policy. The latest NFP drop has all but convinced markets that a rate cut is coming in September and many traders are repositioning accordingly. #Tariffs #NFP
The latest Non-Farm Payrolls put a serious dent into investor sentiment last Friday. The July figures were bad enough, coming in at just 73k new jobs against expectations of 110k, but revisions on previous months delivered the real death blow. In a shocking correction, June numbers were revised from 147k down to 14k, while May was slashed from 139k to 19k, culminating in a massive revision of quarter of a million fewer jobs. The first question on the minds of many is how did the Bureau of Labour Statistics get the numbers so wrong? The second question is what these numbers mean for the US economy. The commissioner of the BLS has already been fired by president Trump, but the second question remains unanswered. US stocks took the news badly, resulting in a 1.2% loss for the Dow Jones on Friday, while the S&P 500 and Nasdaq Composite fell 1.6% and 2.2% respectively. Stock markets around the world soon followed suit, while Asian markets had to wait for this morning’s open to react. The Dollar erased all gains from earlier in the week while gold took the opportunity to climb 2.2% to $3,362 per ounce. As expected, the Federal Reserve elected to maintain interest rates on the Dollar at 4.5% during last week’s meeting. In a not-so-expected move, two out of the eleven board members dissented, voting instead for an immediate rate cut. While the dissent has no impact on the overall decision, it is the first time since 1993 that two governors voted against the majority. The decision to maintain high rates has been repeatedly criticised by the Trump administration, but up until now the Fed had always been able to back up their position by pointing to a strong labour market. With the latest NFP report, that position instantly became untenable. FedWatch is now heavily in favour of a rate cut on the 17th of September, with interest rate traders now betting on a 25-bps cut with 80% confidence. The economic calendar is a veritable ghost town compared to last week’s actioned-packed schedule. With the exception of a rate decision from the Bank of England on Thursday, service PMIs are the only noteworthy events of the week. Earnings are also unlikely to spark much interest. The latest NFP data has challenged a number of narratives and markets will have to wait for the dust to settle before regrouping. #NFP #FED #Gold
Markets have had a few days to digest the EU-US trade deal reached on Sunday. The biggest mover so far has been the Euro, which faced lows of $1.15 yesterday after having fallen 1.5% so far this week. Weakness in the common currency was enough to briefly push the Dollar currency index back above 99 for the first time in over a month during yesterday’s session. Staying with the Dollar, traders only have a matter of hours to wait before the Fed comes to a decision on the next interest rate target and while the outcome is unlikely to be anything other than a rate hold, there are growing rumours of dissent among the ranks. A number of board members, including Waller and Bowman, are becoming increasingly vocal about the need to lower rates. From today onwards, the economic calendar will shift up a gear. The aforementioned Fed decision is worth keeping an eye on, but traders are facing a packed schedule from here until Friday. The ADP employment change, while often at odds with NFP data, may upset markets later today. Thursday’s PCE Price Index is another big event, but pales in comparison to Friday’s Non-Farm Payrolls. A reminder that Microsoft (MSFT) and META report earnings later today, while Apple (AAPL) and Amazon (AMZN) report tomorrow. Geopolitical events are also beginning to resurface, as president Trump launched an ultimatum at Russia to end the war in Ukraine within the next 10-12 days. The declaration includes threats of hefty tariffs on US trading partners who continue to import Russian oil, leading to potential supply woes. Crude oil has climbed 6% since Monday, with Brent futures pushing $72.50 a barrel and WTI now over $69. Such sanctions will mostly affect the likes of India and China, further complicating ongoing trade negotiations with the US. #USD #Earnings #Oil
The GENIUS Act has been signed into US law after successfully passing through both Houses of Congress. The bill has been widely celebrated by the crypto community, not only because it is the first piece of cryptocurrency legislation to be enacted into US law, but also because it shows the willingness of the current administration to encourage future developments in the nascent industry. GENIUS stands for “Guiding and Establishing National Innovation for U.S. Stablecoins” and stablecoins are indeed the focus of this piece of legislation. So what does the bill entail? A stablecoin is a cryptocurrency that is pegged to the value of a fiat currency, such as the US Dollar. As with all cryptocurrencies, stablecoins rely on blockchain technology in order to be sent and received around the world. Unlike other cryptocurrencies however, stablecoins do not change in value. The most widely used stablecoin is Tether (USDT), which makes up around 70% of the total stablecoin market. Tether has been around since 2014, which makes it one of the oldest cryptocurrencies still in widespread use. Circle’s USDC is another common example. In theory, one USDT is always equal to and redeemable for one USD, although during times of extremely high volatility and unusual market conditions, the gap between the two can widen for brief periods of time. One of the main problems of stablecoins, particularly Tether, is that for the past ten years they have existed in a very murky legal grey area. The legal status of such financial instruments, as well as the bodies responsible for issuing them, have long cast a shadow over the crypto industry. “Tether FUD” has been a recurring feature over the years and developers and investors alike have never been sure about the precise legal standing, nor the trustworthiness, of stablecoins. The point about legal uncertainty is by no means exclusive to stablecoins. The entire crypto industry has suffered a great deal in recent years because of the lack of clarity from financial agencies such as the SEC. Developers have been begging for guidance for a long time, only to receive contradictory advice and punitive measures in return. Ongoing developments, including but not limited to the GENIUS Act, are a genuine breath of fresh air in this regard. The first thing the GENIUS Act does is to give a proper definition of the term “payment stablecoin”, illustrating just how far behind the regulation side of crypto is. The GENIUS Act makes it unlawful for anyone other than a permitted entity to issue stablecoins in the US. These permitted entities are grouped into three categories: Put bluntly, no one can issue stablecoins without the express approval of the federal or state government. Any party found in violation of the above faces fines of $1,000,000 per violation and up to five years imprisonment. Stablecoin issuers are required to maintain full reserve backing. This means that every synthetic Dollar issued has to be backed up by an equivalent real-world Dollar. Permitted reserves include: Stablecoin issuers must publish monthly reports detailing the quantity of outstanding stablecoins and the amount and composition of the reserves backing them up. Furthermore, issuers are forbidden from engaging in rehypothecation, meaning they are not allowed to use assets if they are already being used by their clients as collateral. The full reserve requirement is all the more interesting because regular bank deposits do not benefit from such protection. As of 2020, US banks are under no obligation whatsoever to hold any reserves to back up their customers’ deposits. The GENIUS Act rules that if a stablecoin issuer goes bankrupt, the assets used to back up its stablecoins are not the property of the issuer’s creditors. The intention here is to isolate those funds from bankruptcy claims, reserving them instead to cover the losses of stablecoin holders. Moreover, if those reserves are not enough to redeem all outstanding stablecoins, the act gives holders absolute priority for compensation, even above administrative expenses. Stablecoin issuers are subject to the same comprehensive regulatory oversight as traditional financial institutions. This means all the same rules covering anti-money laundering, sanctions, customer identification and due diligence also apply to stablecoin issuers. Such rules come hand-in-hand with relevant enforcement mechanisms, such as hefty fines and prison sentences. Many of the above points fall under the umbrella of basic common sense, which is an interesting point in itself. The GENIUS Act is in fact the first piece of legislation to clarify the obvious point that stablecoins are neither securities nor commodities. Stablecoins have been around since 2014, crypto itself even longer. It has taken this long just to settle on basic definitions. The lesson here is that developers cannot wait for regulatory clarity before pushing forward. Build first, let the lawmakers catch up later. With that said, a well-defined legal framework provides fertile ground for future innovation and growth, allowing developers to build without constant fear of repercussion. The GENIUS Act has passed and the Clarity and Anti-CBDC Acts are next in line. Hopefully there will be many more to come.
