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APRIL 12, 2024

UNSURE OVER APPROVAL

JPMorgan have expressed uncertainty regarding the approval of a spot Ethereum exchange-traded fund (ETF) by the Securities and Exchange Commission (SEC) in May, citing the SEC’s recent actions against Ethereum-related entities, such as the investigation into firms associated with the Ethereum Foundation. While the SEC did not confirm the investigation, JPMorgan analysts interpreted this as a sign that the chances of approval are no higher than 50%. Additionally, analysts also believe that legal battles, similar to those involving Grayscale and Ripple last year, could ultimately result in approval, though not necessarily by May. Moreover, in a more positive view shared last month, JPMorgan analysts have suggested that Ethereum could be classified as a commodity, not a security, due to its increasing decentralization.

RISK OF RECESSION

The recent increase in the consumer price index has raised concerns about the potential for the U.S. to enter a recession, a situation that could be triggered by the Federal Reserve. The unexpected rise in inflation has disrupted market expectations for an interest rate adjustment, forcing the Fed to consider raising rates to combat inflation and potentially risking an economic downturn. Suggestions have been made to revise the inflation target to address this challenge, as maintaining the current Fed funds rate may not be adequate to control inflation effectively. Some experts have proposed adjusting the inflation target to 3%, and this scenario implies that interest rates could remain unchanged for years, and such scenario would increase the risk of a recession.

HESITANT TO BUY

Bond investors, who used to buying every time Treasury yields rose, are now hesitant as a recent auction of 30-year bonds showed weak demand, despite offering a high yield. This has made investors nervous after a tough week of selling in the bond market. Good economic news, like a strong jobs report and steady inflation, means the Federal Reserve might not cut interest rates, which would be good for bonds, however, investors worry that if rates stay high, bond yields could reach levels not seen since last year, especially given the recent trend of higher-than-expected consumer price index readings. This resilience in the economy could delay potential Fed rate cuts and lead to a re-testing of the previous highs in bond yields. The uncertainty has resulted in a lack of the anticipated bond buying, with yields remaining above key levels. As of now, the bond market is feeling a bit shaky right now, like it did in October, and investors are experiencing losses for the month and year. Moreover, the focus now shifts to how long the Fed will maintain its stance and whether rate cuts will be implemented in the future.

ABOVE EXPECTATIONS

JPMorgan Chase, Wells Fargo, and Citigroup recently released their first-quarter earnings reports, with all three banks exceeding expectations. JPMorgan Chase stood out, surpassing Wall Street’s expectations with a 6% rise in profit to $13.42 billion and revenue climbing 8% to $42.55 billion. The bank benefited from its takeover of First Republic during the regional banking crisis, alongside increased interest income from higher rates and loan balances. Similarly, Wells Fargo also exceeded expectations as despite a decline in net interest income by 8%, the bank reported earnings per share of $1.26, and revenue of $20.86 billion. The bank emphasized progress in improving financial performance and diversification, with investments contributing to higher revenue. Nonetheless, despite such strong performances, both banks saw declines in their respective stocks. Moreover, Citigroup’s revenue also exceeded expectations at $21.10 billion, but profit fell 27% due to higher expenses and credit costs. CEO Jane Fraser highlighted the completion of an organizational overhaul, aiming for a simpler management structure aligned with the company’s strategy.

INTERNATIONAL NEWS

The Bank of England is set to scrap its outdated inflation forecasting model in a significant overhaul. This decision comes after recommendations made by former Federal Reserve Chair Ben Bernanke. The central bank aims to improve its forecasting accuracy and decision-making processes. Bernanke’s suggestions will lead to the introduction of a new forecasting framework and a more effective communication strategy. The Bank’s old forecasting system, known as the “fan chart,” will be eliminated as it has been criticized for its inability to accurately predict inflation trends. The overhaul is a response to the bank’s historical struggles in projecting inflation spikes, particularly following major global events. The Bank plans to implement these changes gradually under the guidance of Clare Lombardelli, the incoming Deputy Governor.

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