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JULY 17, 2023

REVIEWING BEGINS

The U.S. Securities and Exchange Commission (SEC) has taken a significant step in the review of Bitcoin exchange-traded fund (ETF) applications, accepting BlackRock’s spot Bitcoin ETF application. This move signals the SEC’s serious consideration of the application, with BlackRock’s global stature in the asset management industry potentially indicating greater institutional adoption of Bitcoin and other cryptocurrencies. To address regulators’ concerns, BlackRock and other firms are making amendments to their ETF applications, such as the surveillance-sharing” agreement BlackRock made with U.S. crypto exchange Coinbase, which is intended to enhance the SEC’s ability to monitor and regulate the ETF’s underlying assets, particularly Bitcoin, which is known for its decentralized and relatively uncertain nature. The SEC is also reviewing ETF applications from other companies, including Wise Origin, WisdomTree, VanEck, Invesco Galaxy, and ARK 21Shares. These firms have submitted their applications for approval, and the SEC has sought public comments on these proposed ETFs as part of its review process. Moreover, Europe is expecting its first spot Bitcoin ETF listing, which reflects the growing interest in cryptocurrency investment.

OPTIMISM AMONG CONSUMERS

According to the latest Consumer Sentiment Index from the University of Michigan, U.S. consumers are feeling increasingly positive about the economy, reaching the highest levels of confidence since September 2021. The index revealed a significant 13% jump from June, the largest monthly increase since 2005. Stocks are performing well, with some experts even predicting a potential record-breaking year for the S&P 500. In addition, inflation has eased from over 9% to 3%, and the U.S. labor market remains strong, with historically low unemployment rates. Nevertheless, despite recent positive data surprises, the possibility of a “soft landing” remains uncertain, with concerns about slowing consumer spending and the Fed’s efforts to restore inflation back to 2%.

RATE HIKE DEBATE

Since the last policy meeting, Federal Reserve officials seem poised to approve another modest rate increase, driven by inflation concerns. However, recent data showing a potential slowdown in inflation has sparked a heated debate over whether this will be the final needed increase or not. The focus now lies in determining if the economy has fully absorbed the impact of prior tightening or if it’s still adapting to those changes. This uncertainty leaves two possibilities: either more rate increases may be necessary to control “disinflation,” or further tightening could harm the economy and job market due to already weakened price pressures. While some officials advocate for additional rate hikes beyond the upcoming meeting, which is expected to see a quarter-point increase, others note that previous rate adjustments might have had a more rapid and potent impact than anticipated. Consequently, the ongoing discussion over future rate increases remains uncertain.

BANKS’ DEPOSIT PRESSURES

The largest U.S. banks are facing tougher competition for deposits and higher expenses to retain them, something that is creating challenges for smaller regional banks already dealing with balance sheet weaknesses. The battle with higher interest rates has forced regional banks to pay more for customer funds and led to the devaluation of once-reliable bonds. Some banks have failed, while others are struggling to secure funds as depositors withdraw their cash. The prospect of further rate hikes, along with potential stricter regulations for smaller banks, adds to the pressure. Analysts are expecting tough financial results, and the KBW Regional Banking Index has experienced a significant decline this year due to increased short selling.

KEY EVENTS HAPPENING THIS WEEK

Monday: Empire State manufacturing survey report for July.

Tuesday: U.S retail sales, Industrial production reports for June, Home builder confidence index report for July, and earnings reports from Bank of America Corp and Morgan Stanley (before market opens).

Wednesday: Housing starts report from June, and earnings reports from Goldman Sachs (before market opens), International Business Machines, Netflix, and Tesla (after market opens).

Thursday: Initial jobs claims, U.S. leading economic indicators report for June, and earnings reports from Blackstone, Johnson & Johnson, American Airlines and Newmont (before market opens).

Friday: Earnings reports from American Express and SLB (before market opens).

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