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DECEMBER 7, 2023

BINANCE’S STRUGGLES BUT STILL RESILIENT

Despite the recent surge in cryptocurrency prices, Binance’s BNB token has failed to fully capitalize on the trend, reflecting the challenging outlook for the exchange. The company incurred a substantial $4.3 billion penalty and pleaded guilty to US charges, which has likely impacted BNB’s performance. While the total market value of cryptocurrencies soared by 12% in the past week, BNB only saw a modest 1.7% increase, trading at $231. This subdued growth underscores Binance’s operational struggles and declining market share, with its dominance slipping from 55% to 32% in spot trading volumes, according to CCData. Experts predict that Binance may lose its leading position in the market to competitors such as OKX, Bybit, Coinbase, and Bitget, further adding pressure on Binance’s new CEO, Richard Teng. Thus, Teng needs to restore the company’s image and fortify its financial standing following regulatory turbulence. Nonetheless, it is worth noting that amid the adversities, Binance remains operational and there is still hope for some recovery in the future.

MONEY MARKET FUNDS’ TAX IMPLICATIONS

Investors who have put their money into money market mutual funds during 2023 may face a surprise come tax time in April due to rising interest rates. As of November 29, a total of $5.84 trillion has been invested in money market mutual funds, as stated by the Investment Company Institute, and many of these funds are paying over 5% in interest. For some, the tax bill they receive could be substantially higher than in previous years, because money market funds pay monthly dividends, and the earnings from 2023 could be significant. However, unlike the more favorable capital gains rates, the earnings from money market funds are subject to regular income tax rates, with the top bracket at 37%. This increase in rates could lead to higher-than-expected tax bills for investors. Nonetheless, it is worth noting that some states may offer a partial tax exclusion on earnings from money market mutual funds, particularly if the funds are tied to U.S. Treasury bonds. However, investors may not learn the full extent of their taxable earnings until they receive their tax forms in early 2024, coming as a surprise, as tax forms for these funds are typically received in January or February.

SMALL INCREASE IN JOBLESS CLAIMS

New claims for unemployment benefits increased less than expected last week to 220,000, signaling a gradual slowdown in the labor market. The rise in job cuts in November was accompanied by a decrease in layoffs compared to a year ago, suggesting a relaxation in labor market conditions. This, along with subdued inflation, has led to expectations of no further interest rate hikes by the Federal Reserve. However, the upward trend in continuing claims for unemployment benefits is partly due to seasonal adjustments, potentially affecting future revisions. While these factors are influencing the labor market, they will not impact the November employment report, which is anticipated to show an increase in nonfarm payrolls and a steady unemployment rate.

POTENTIAL PRICE INCREASE ON EVs

The U.S. government has proposed new regulations to exclude Chinese-made batteries from electric vehicles (EVs) sold in the country, in an effort to reduce China’s dominance in the EV battery supply chain and promote more American production. The rules could potentially result in higher costs for consumers, as vehicles containing Chinese-made battery components will lose eligibility for a full $7,500 US tax credit. The regulations also extend to 2025, when an eligible clean vehicle may no longer contain any critical minerals extracted, processed, or recycled by a “foreign entity of concern,” including those in China. This move could potentially reshape automakers’ supply chains, increasing production in the U.S., and ultimately supporting national security. The proposed restrictions are part of a broader national strategy to revitalize the U.S. automotive industry and boost domestic electric vehicle production. The new regulations have already impacted some automakers, such as Tesla, which has warned that its vehicles may become more expensive. Moreover, these efforts to incentivize domestic production have attracted significant investments, but it remains to be seen how these changes will affect the Biden administration’s goal of increasing electric vehicles to account for 50% of all new vehicle sales by 2030.

INTERNATIONAL NEWS

The Euro-zone faces looming recession risks as Germany and Italy experience a slump in industrial production at the beginning of the last quarter, mirroring a similar trend in France and Spain. The region’s GDP contracted by 0.1% in the third quarter, and ongoing surveys point to ongoing vulnerabilities in both the service and manufacturing sectors. Germany’s unforeseen downturn is attributed to factors such as high energy costs and subdued global demand, impeding its economic rebound. While some surveys indicate signs of stabilization, uncertainties persist. The drop in industrial production in France and Italy underscores broader economic frailty throughout the Euro-zone. This decline could have widespread global implications, prompting close scrutiny by analysts and policymakers for potential measures to alleviate the slump. The economic performance of the Euro-zone carries considerable repercussions, and sustained weak data from the region may impact economies worldwide.

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