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AUGUST 11, 2023

PPI INCREASED

Wholesale prices rose more than expected in July, going against the recent trend of easing inflation pressures, as according to the Bureau of Labor Statistics, the producer price index (PPI), which measures the costs received by goods and services producers, increased by 0.3% for the month. In addition, the core PPI, excluding food and energy, also saw a 0.3% increase. Moreover, despite predictions of a 0.2% uptick for both readings, PPI climbed by 0.2% even when accounting for exclusions such as food, energy, and trade services.

BITTREX’S SETTLEMENT

Bittrex, a U.S. cryptocurrency exchange, has reached a $24 million settlement with the U.S. Securities and Exchange Commission (SEC), following the lawsuit the SEC has filled against Bittrex, in which it was alleged that the exchange operated unlawfully as a securities exchange, broker, and clearinghouse. According to the SEC, Bittrex made over $1.3 billion in illegal revenue between 2017 and 2022 and instructed cryptocurrency issuers to delete statements that could suggest violations of securities laws. As part of the settlement, Bittrex will pay $14.4 million in disgorgement, $4 million in prejudgment interest, and $5.6 million in civil money penalties, and the company has not confirmed or denied the SEC’s allegations. Moreover, Bittrex has also faced scrutiny from other regulatory organizations and recently filed for bankruptcy, discontinuing its U.S. operations. In a separate incident, Bittrex received a record $53 million fine from the U.S. Treasury Department for alleged violations of American sanctions programs. This fine was imposed by both the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN), amounting to $24 million and $29 million, respectively.

RECORD INFLOWS

U.S. Treasury investments are set for a record year with substantial inflows driven by investors seeking higher yields, as Bank of America (BofA) reported substantial cash and bond investments totaling $20.5 billion and $6.9 billion, respectively, during the week ending August 9. The ongoing allure of fixed-income markets remains evident despite unfulfilled predictions of a bond rally and economic slowdown. So far this year, $127 billion has poured into Treasuries, with a potential annual total of $206 billion, reflecting a shift in investment preferences. This growth is also influenced by the Federal Reserve’s interest rate hikes, prompting investors to explore money-market funds for better returns.

BEYOND RATE HIKES

The Federal Reserve might be close to ending its campaign of raising interest rates due to a decrease in inflation, but there is still another move they are making that could affect the stock market. The Fed is carrying out a process is called “quantitative tightening”, which involves reducing its balance sheet by about $80 billion per month. This means that the Fed is taking liquidity out of markets by allowing certain bonds to mature without reinvesting the proceeds, and this reduction in liquidity could negatively impact stocks and other risk assets. Historically, stocks tend to perform well when the Fed is increasing reserves and struggle when reserves are declining, therefore, stocks may continue to face pressure even if the Fed stops raising interest rates. Additionally, the reduction in the Fed’s balance sheet also affects banks by shrinking their cash reserves, reducing their ability to make loans and investments, and this tightening of credit conditions combined with previous interest rate hikes, may explain why banks are less willing to loan out money.

INTERNATIONAL NEWS

The U.K. economy has surpassed expectations in the second quarter, with a growth rate of 0.2%, propelled by increased household spending and manufacturing output, as reported by the Office for National Statistics. Many had predicted that the tightening of monetary policy by the Bank of England (BOE) and persistent inflation would dampen demand, resulting in stagnant GDP growth, however, the economy defied those projections, expanding by 0.5% in June. Notably, manufacturing and production sectors experienced significant growth, while services saw a modest increase. In addition, both household and government spending exhibited robust growth, despite facing price pressures. Nevertheless, despite this positive news, U.K. inflation remains high at 7.9% and it is not expected to reach its 2% target until 2025.

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