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JULY 7, 2023

LIMITED IMPACT

According to a research report from JPMorgan, the approval of a spot bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC) may not have a significant impact on crypto markets, as although there is growing optimism that the SEC may approve such ETF, similar ones have been available in Canada and Europe without attracting much investor interest. In addition, bitcoin funds, including futures-based and physically backed ones, have not been popular since the second quarter of 2021. Furthermore, the bank stated that while physically backed bitcoin ETFs have some advantages over futures-based ones, these advantages are relatively minor.

EMPLOYMENT SLOWDOWN

Employment growth in the U.S. experienced a slowdown in June, signaling a slight weakening of the labor market’s strength. The Labor Department reported an increase of 209,000 nonfarm payrolls, falling short of the anticipated 240,000, while the unemployment rate remained steady at 3.6%. Although still solid considering historical data, this marked a significant decline from May’s revised total of 306,000, making it the slowest month for job creation since December 2020. However, there was some positive news as average hourly earnings rose by 0.4% for the month and 4.4% from a year ago, surpassing expectations. Apart from government jobs, particularly at state and local levels, major sectors that exhibited growth were health care (41,000), social assistance (24,000), and construction (23,000). On the flip side, the retail sector witnessed a decline of 11,000 jobs, while transportation and warehousing experienced a drop of 7,000 jobs. It is worth noting that the previously strong job growth engine, the leisure and hospitality sector, only added 21,000 jobs in June, suggesting a significant cooldown in its momentum.

BANK SHARES FELL

U.S. bank shares have experienced a decline, causing a key regional index to hit a two-week low due to ongoing concerns about the lenders’ health after the crisis in regional banks. This decline comes just ahead of the release of second-quarter results next week. The KBW Regional Banking Index dropped 2%, reaching its lowest point since June 23, while the S&P 500 Banks Index slipped 2% as well. Analysts noted that there is likely to be more pressure on net interest margins than expected as the favorable phase of asset repricing ends during the tightening cycle. The current interest-rate environment presents challenges for most banks, with few positive fundamentals. Regional banks such as PacWest Bancorp, Comerica, KeyCorp, and U.S. Bancorp all saw declines in their stock prices. This drop also affected larger banks like JPMorgan Chase, Wells Fargo, Goldman Sachs Group, Morgan Stanley, Citigroup, and Bank of America.

CASH SURGE

According to a report from Bank of America Global Research, global investors have poured a substantial amount of money into cash funds, which now total a staggering $7.8 trillion. In the past week alone, $29 billion was invested in cash funds, along with $13 billion in equity funds and $9.8 billion in bonds. Despite concerns about an impending recession, the global economy has shown remarkable resilience, leading to a significant rally in equity markets. This has resulted in the largest inflow in eight months, amounting to $12.9 billion, into U.S. large caps. However, recent data indicating that the Federal Reserve may resume rate hikes in July, there has been a sell-off in equity markets and a rise in short-dated bond yields, reaching highs not seen since the financial crisis. Bank of America (BofA) warns that if financial conditions continue to tighten throughout the third quarter, it could signify an opportune moment for investors to prepare for a potentially challenging economic scenario. Additionally, another noteworthy development found in this repis that over the past eight weeks, inflows into developed markets equities have overtaken inflows into emerging markets equities for the first time since November 2022.

POTENTIAL RELIEF AHEAD

Buying a car has become increasingly challenging and expensive, with a record number of 17.1% people paying over $1,000 a month for financing their vehicle purchases in the second quarter. This is up from the previous quarter and a significant increase compared to pre-pandemic levels. The high costs of vehicles and borrowing are posing difficulties for consumers in the car market and although the Federal Reserve’s decision to pause interest rate hikes did not provide much relief, there is hope that rates may stabilize as inflation slows down. which could lead a deacrease in car prices, offering some relief to buyers. Moreover, increased incentives and competition among manufacturers are creating opportunities for consumers to find deals below the sticker price, nevertheless, the positive effects for consumers may have potential negative implications for automotive stocks.

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