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JUNE 15, 2023

CRYPTO REGULATION CHALLENGES

U.S. actively enforcing regulations on cryptocurrency exchanges has presented an opportunity for other countries interested in joining the burgeoning crypto industry. Other countries, such as those in Europe, are making significant strides in becoming a hub for the crypto industry. However, challenges arise when it comes to regulation, as national regulators struggle to classify and keep track of thousands of crypto assets with distinct technological features. Additionally, decentralized finance protocols, a potential area of growth, are proving to be difficult to regulate. The risk of fraud is still present, which could lead regulators to tighten their grip.

STEADY JOBLESS CLAIMS

According to the Department of Labor, initial jobless claims were unchanged for the week ending June 10, but continuing jobless claims came in higher than expected, with 1.775 million people filing for benefits. The four-week moving average also increased and is at its highest level since November 2021. Although the advance seasonally adjusted insured unemployment rate remained steady, the actual number of initial claims under state programs rose by 13.0% from the prior week, which was slightly below the expected 13.1% due to seasonal factors.

IMPLICATIONS DUE TO PAUSE IN RATES

The recent decision by the Federal Reserve to keep interest rates unchanged will have varying effects on different groups of people. As for savings accounts and CD holders, there will not be any significant rise in their returns. However, they may be tempted to turn to online banks or top credit unions, where higher rates are available. In addition, borrowers with floating-rate debt should see some relief with the rate pause, but others looking for new credit may still find themselves limited. For borrowers with mortgages, they will also benefit from lower rates, as interest rates on fixed-rate mortgages are likely to remain stable or decrease slightly. Moreover, credit card rates will remain stable, but credit card issuers may reduce rewards or charge fees to increase their revenue. And lastly but not least, the pause in rates is favourable for the U.S. federal government as it temporarily relieves the upward pressure on borrowing costs when rolling over debt and borrowing new money.

OIL PRICES BOUNCE BACK

Oil prices rebounded after a previous decline, with West Texas Intermediate futures trading around $69 a barrel. The Federal Reserve’s hawkish tone, combined with expectations of upcoming supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC+), influenced the market. Additionally, Middle Eastern oil is gaining value relative to oil from other regions ahead of Saudi Arabia’s planned output reductions, however, assessing the impact of these cuts has become challenging due to high trading activity in the pricing window for the region’s benchmark. Moreover, despite claims of weak demand, data suggests that global oil inventories have not declined due to stable supply growth. As a result, analysts on Wall Street have adjusted their price forecasts, reflecting a more cautious outlook for oil prices this year.

INTERNATIONAL NEWS

The European Central Bank (ECB) has announced a rate increase of 0.25%, which boosted its main rate to 3.5%. Despite prices cooling down at a quicker-than-expected pace, headline inflation remained at 6.1% in May with core inflation at 5.3% – well above the ECB’s target of 2%. However, the poor economic performance in the region could pose a challenge for the bank to raise rates any further, as GDP dropped by 0.1% during the last quarter of 2022, indicating the region is in a technical recession. Economists expect one final increase in either July or September, which would contribute to an overall monetary tightening of 4.25% since July 2022.

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