SERVICE CLOSURE
Crypto.com has announced that it will be shutting down its institutional service for U.S. clients from June 21 in response to the limited demand from institutional investors during challenging market conditions. Although this decision will not affect the retail app, which has over 80 million users globally, it comes at a difficult time for the company and the crypto industry. Crypto.com reduced its global workforce by 20% in January, while crypto industry continues facing an increasing degree of scrutiny in the U.S., with the Securities and Exchange Commission (SEC) taking legal actions. However, Crypto.com’s decision to close its institutional service has more to do with the lack of demand than regulatory concerns. The company will continue to provide its clients with the ability to buy, sell, and spend cryptocurrencies through its platform, offering a Visa debit card for digital asset transactions.
FED’S NEW PERSPECTIVE
Federal Reserve officials are reconsidering their belief that rising wages are causing inflation, leading some to support a pause in their interest rate increases. Previously, officials thought that if wages increase at a slower rate, it would help reduce inflation because labor costs make up a significant part of the overall costs of services. However, new research and opinions suggest that the link between wages and prices is not so straightforward. If this is the case, the labor market may suffer without affecting inflation much, leading policymakers to consider the best approach forward. Recent data indicates core inflation rates have moderated below their 2% target, and there has been a shift towards the idea that inflation drives wage growth as if prices go up, wages also tend to increase.
HEDGE FUND SELLING
Hedge funds are continuing to sell short-dated Treasuries as they believe that the Federal Reserve’s efforts to control inflation are far from over. According to the Commodity Futures Trading Commission, leveraged investors increased their net-short two-year Treasury positions for the eleventh consecutive week – longest run on record. Furthermore, the fact that inflation remains higher than target has given hedge funds confidence in their short positions, which may be linked to the “basis trade,” where speculators aim to profit from differences between cash Treasuries and futures. As a result, the yields on two-year U.S. Treasuries rose 0.02% and benchmark 10-year yields rose by 0.01%. Additionally, despite concerns of a recession and ongoing inflation, the latest Bank of America sentiment survey showed U.S. longs were at the highest level since 2004.
OPTIMISM ABOUT EMERGING MARKET BONDS
Morgan Stanley, along with other Wall Street banks, has become optimistic about the growth of local emerging market bonds, but it remains cautious about the currencies of developing economies as the dollar is projected to stay strong. According to Morgan Stanley, emerging market local bonds are expected to show promising growth due to anticipated rate cuts, potentially delivering a yield of around 2% by year-end. In addition, hard currency bond returns may also be around 4.5%. Moreover, the bank recommended investors to opt for local rather than hard currency bonds for the second half of 2023.
KEY EVENTS HAPPENING THIS WEEK
Monday: Federal budget report for May and Consumer inflation expectations.
Tuesday: U.S. National Federation of Independent Business (NFIB) Optimism Index report and Consumer price index (CPI) report for May.
Wednesday: U.S. Mortgage Bankers Association (MBA) reports, Producer price index (PPI) report for May and Federal Reserve’s decision on interest rate policy.
Thursday: Initial jobless claims report, Business report inventory report for April ,U.S. retail sales, Industrial production and Capacity utilization reports for May.
Friday: Consumer sentiment report and speech from Fed Governor Christopher Waller addressing financial stability and macroeconomic policy.
