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JUNE 21, 2023

BITCOIN’S BOOM

As of 8:00 A.M CST, Bitcoin’s value has reached almost $29,000 due to increased interest in crypto trading from institutional investors and a surge of exchange traded fund (ETF) applications in the U.S. Bitcoin has hit this milestone, rising by 7.6% in a single day. This upward trend began on June 15, when investment firm BlackRock filed an ETF application with U.S. regulators, causing Bitcoin to rise from $25,300. Since then, the cryptocurrency has continued to increase in value, with a 11.6% boost over the week.

POTENTIAL HIKES AHEAD

During his recent testimony to the House Financial Services Committee, Federal Reserve Chairman Jerome Powell confirmed that interest rates are still likely to increase until inflation comes down. Despite the Federal Reserve Board’s recent decision not to raise rates, Powell emphasized that this was only a temporary pause and suggested that there are still two possible rate hikes coming by the end of the year, as although inflation has decreased slightly, it is still far above the 2% target. Additionally, Powell also highlighted that the decision-making process would rely on incoming data rather than a planned course.

BETTING ON BONDS

Major investors such as T. Rowe Price Group Inc., Allspring Global Investments, and AllianceBernstein Holding LP are defying the Federal Reserve’s stance on interest rates and betting on longer-dated high-grade corporate bonds. They believe that interest rates have peaked and that a potential U.S. recession would force policymakers to reverse course. This strategy, although risky, has paid off this year, with longer-dated bonds outperforming shorter-term bonds. The market’s preference for safer, longer debt reflects the expectation that the Fed will eventually cut rates in response to an economic slowdown. While the Fed has signaled the possibility of further tightening, investors anticipate a shift in policy as economic conditions worsen. This sentiment is supported by historically high yields on longer-dated bonds and the assumption that they will benefit the most when the central bank cuts rates.

GROWING MONEY MARKETS

The U.S. money-market industry has experienced significant growth in the past year to almost $5.5 trillion due to increased interest rates from the Federal Reserve, and now has even more options to attract investors and expand its cash flows. The industry has benefited from the Fed’s tightening, as investors seek a haven from volatility and low bank account rates. In addition, money funds now have more high-yielding assets to invest in, including Treasury bills, and clarity around the Fed’s plans, meaning they can buy longer maturities and earn higher returns. Moreover, the money-market industry will soon gather for Crane’s Money Fund Symposium, where the debate of whether people should switch from ultra-safe funds to invest in stocks or bonds with longer maturities will be addressed.

INTERNATIONAL NEWS

UK inflation remains a concern as the consumer prices index (CPI) rose by 8.7% in May, leading to speculation that the Bank of England (BOE) could raise interest rates to nearly 6%. This comes on the heels of unexpectedly high core inflation (excluding food and energy), which reached a 31-year high of 7.1%. It is feared that this could result in increased monetary tightening, posing a risk to the UK economy. Moreover, the country’s debt-to-GDP ratio has surpassed the highest level since 1961, putting the Prime Minister’s efforts to restore public finances at risk.

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