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AUGUST 3, 2023

CRYPTOS DECLARED SECURITIES

A Manhattan federal judge recently declared that cryptocurrencies are regarded as securities, regardless of how they are sold. This decision enables the Securities and Exchange Commission (SEC) to pursue securities charges against Terraform Labs and its founder, Do Kwon, with far-reaching consequences for crypto legislation and legal battles. This opinion contradicts a prior ruling on Ripple, where the court stated that a cryptocurrency’s classification as a security can vary depending on the buyer; and it now complicates the ongoing SEC litigation with Ripple and crypto exchange Coinbase, as the SEC alleges unregistered sale of securities against Coinbase, which the company firmly denies.

FEWER LAYOFFS

American employers announced fewer layoffs in July compared to the previous year, indicating a potential slowdown in job losses and offering hope that the labor market will continue to support the economy. According to a report released by employment firm Challenger, Gray & Christmas, layoffs in July decreased by 8% compared to the same period in 2022, marking the first year-over-year decrease in over a year. The decreasing trend in layoffs suggests that companies are finding alternative ways to cut costs rather than resorting to significant job cuts. Additionally, the technology sector experienced the highest number of layoffs, while business closing and market economic conditions were cited as the primary reasons for layoffs. This positive trend in the labor market aligns with other indicators, such as the addition of 324,000 private-sector jobs in July, as estimated by payroll processor ADP. More information on job growth and unemployment rates will be provided by the Department of Labor in their upcoming report on Friday.

OPTIMISTIC DESPITE RESULTS

As for the latest reports, Moderna reported a quarterly loss and a significant drop in revenue due to a 94% decline in Covid shot sales compared to the previous year, leading to a plunge in total revenue. Nevertheless,Moderna remains optimistic about its updated Covid vaccine, aiming for strong demand in the U.S. commercial market; and it expects higher sales, between $6 billion to $8 billion, from its Covid shot this year due to potential demand for 50 to 100 million doses in the fall. As a result, Moderna’s shares rose. Moreover, Warner Bros. Discovery also reported second-quarter results that fell below expectations, with a decrease in global direct-to-consumer streaming subscribers due to the shift to its combined Max streaming service. However, despite this, Warner Bros’ shares rose as it announced a tender offer to reduce debt.

TOUGH WEEK

Long-dated U.S. Treasuries are experiencing their worst week of the year as the U.S. economy shows unexpected resilience and concerns arise over the growing budget deficit. The yield on 30-year securities has risen by nearly 25 basis points in the past three sessions, reaching levels last observed when inflation was over 7%, more than double the current rate. This surge in borrowing costs is challenging the belief that 2023 would be the “Year of the Bond.” The market is worried that strong labor market data may compel the Federal Reserve to raise interest rates further to curb inflation. Furthermore, additional pressure comes from Fitch Ratings’ downgrade of U.S. debt and an influx of government bond sales, shedding light on the country’s fiscal outlook. Bill Ackman, founder of Pershing Square Capital Management, is supporting the sell-off, foreseeing a long-term shift in yields as public debt increases. Ackman is placing significant bets on the decline of 30-year Treasuries, considering it a hedge against rising stocks and a result of the anticipated rise in yields driven by the Fed’s plan to reduce its balance sheet.

INTERNATIONAL NEWS

The Bank of England, aiming to control inflation, has raised its main interest rate by 0.25 percentage point to 5.25%, reaching a 15-year high. The decision was supported by a 6-3 vote in the Monetary Policy Committee, with some members advocating for a larger increase, while one member preferred no change. With this move, the bank is determined to maintain a tight monetary policy for a considerable period to bring inflation back to its 2% target. In line with their updated inflation forecast, the bank anticipates inflation to decline to 4.9% by the end of this year, followed by a dip below 2% in the second quarter of 2025. This projection comes as a relief to Prime Minister Rishi Sunak, who previously pledged to halve inflation by the year-end when the rate had reached 10.1% in January. Finance Minister Jeremy Hunt expressed approval, highlighting that according to the bank’s latest forecast, headline inflation is expected to be below 3% in a year without any risk of recession. Nevertheless, Hunt acknowledged the challenges faced by households dealing with higher mortgage bills and assured that efforts to support them would continue.

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