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AUGUST 8, 2023

THE NEW STABLECOIN

PayPal has made a significant move in the world of cryptocurrencies by launching a stablecoin called PayPal USD (PYUSD), marking a notable milestone as it is the first time a major U.S. financial institution has ventured into this space. The purpose of this stablecoin is to streamline and enhance digital payments, specifically in Web3 and virtual environments. PYUSD can be easily converted into U.S. dollars as it is backed by dollar deposits, short-term U.S. Treasuries, and similar cash equivalents. This provides a more stable alternative to other volatile virtual currencies, and it can be used for efficient and cost-effective trading within the crypto market. In addition, PYUSD is being issued by Paxos, a trusted partner of PayPal for their crypto services. Following the announcement, PayPal’s stock experienced a rise of over 2%.

RATING DOWNGRADED

U.S. bank shares fell after ratings agency Moody’s downgraded 10 mid-sized lenders, raising concerns among investors about the challenges the banking industry is currently facing. Moody’s highlighted rising funding costs, potential declines in deposit levels, and weaker profitability as risks for the banking sector, which faced a crisis earlier this year due to three bank collapses. In addition, the rating agency also issued a warning that they may reduce ratings for some of the biggest U.S. lenders, with six of them put under review for a potential downgrade. Consequently, shares of Bank of New York Mellon, U.S. Bancorp, Truist Financial, and State Street dropped more than 1%, while Bank of America, Citigroup, and JPMorgan Chase also experienced declines. Moreover, deposits, which have been under pressure since the collapse of Silicon Valley Bank earlier this year, are expected to continue decreasing as customers seek higher-yielding alternatives. Nonetheless, despite these negative news, some experts, such as Georgios Leontaris from HSBC Global Private Banking and Wealth, continued to maintain a positive perspective on the sector, underlining the importance of prioritizing quality and liquidity.

CONFIDENCE INCREASED

According to the National Federation of Independent Business (NFIB) U.S. small business confidence reached an eight-month high in July as its Small Business Optimism Index rose, with concerns about inflation hitting a two-year low. Only 21% of small businesses considered inflation as their biggest concern, down 13 points from the previous year. This positive outlook translated into increased investments in labor and capital. Additionally, small businesses expressed the least pessimistic view of near-term economic prospects since August 2021. However, softening consumer demand led to a decrease in firms planning for price increases. Furthermore, the NFIB report indicated that although the Federal Reserve’s interest rate hikes have moderated demand for credit among small businesses, they have not experienced increased difficulty in acquiring credit.

ENCOURAGING TRENDS

Earnings reports from three major companies showed favorable trends in their financial performance, as Eli Lilly, a pharmaceutical giant, experienced an 85% surge in second-quarter profit compared to last year due to robust sales from its drug pipeline, boosting its full-year revenue and adjusted earnings guidance. Similarly, Palantir, a data-analytics company, reported a 13% rise in second-quarter revenue and projected growth for the upcoming quarter, with net income turning positive. Moreover, Restaurant Brands International, which owns Burger King and Tim Hortons, achieved double-digit growth in same-store sales for both brands, driven by strong performance in the United States and Canada.

CHALLENGING SIDE

On the downside of the latest earnings reports, both UPS and Lucid faced hurdles in their financial performances. United Parcel Service (UPS) faced challenges as weakening e-commerce demand led to a cut in its 2023 revenue and margin forecasts. In addition, anticipation of lower volumes due to an improved labor contract added to the UPS’ struggles. Meanwhile, luxury electric vehicle manufacturer Lucid Group fell short of Wall Street expectations in its second-quarter revenue, primarily due to fewer deliveries of its Air luxury sedans. Nonetheless, despite the revenue shortfall, Lucid’s shares rose over 3% as recent capital raising efforts extended the company’s financial runway until 2025, and it began shipping vehicles to Saudi Arabia as part of a significant deal.

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