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JUNE 26, 2023

BITCOIN ETF APPROVED

The U.S. Securities and Exchange Commission (SEC) has given the green light for the first leveraged Bitcoin futures exchange-traded fund, called Volatility Shares 2X Bitcoin Strategy ETF (BITX), which will launch on the Chicago Board Options BZX Exchange on June 27. BITX is classified as a leveraged ETF, meaning it will use Bitcoin futures to leverage its returns against a benchmark index. Moreover, the fund seeks to generate investment returns equal to twice the CME Bitcoin Futures Daily Roll Index, allowing investors to gain exposure to securities, such as equities and commodities, without physically owning them.

INFLATION CONCERNS

The Bank for International Settlements (BIS), which oversees central banks worldwide, has issued a warning in its annual report about inflation in the major global economies, noting that despite the increase in interest rates over the past 18 months, inflation remains stubbornly high. The BIS recommends that countries take monetary and fiscal policy action to address the problem of price stability, and stated that the longer that inflation remains high, the greater the risk of further crises. The BIS remains confident that central banks can manage inflation, but it highlighted the uncertain costs of doing so.

CHANGE IN EXPECTATIONS

As investors closely observe the Federal Reserve’s actions, they are increasingly realizing that the central bank’s primary focus lies in combating inflation, rather than solely worrying about the implications of raising interest rates for the US economy. This growing recognition suggests that the bond market’s pronounced volatility experienced over the past 15 months is expected to continue. According to a recent survey, an overwhelming 80% of respondents predict that the U.S. yield curve, which reflects the relationship between bond yields and their respective maturities, will remain inverted until 2024. Additionally, nearly half of the survey participants anticipate at least two more interest rate hikes from the Federal Reserve, representing a notable change from previous expectations of rate cuts.

BANKS TO FACE STRESS TEST

Large U.S. banks are set to demonstrate their resilience in the face of potential banking sector turmoil during the Federal Reserve’s annual stress tests. The results, which will be released this week, assess banks’ ability to withstand severe economic downturns. These tests have become crucial for banks’ capital planning, determining the amount of cash they can distribute to shareholders through dividends and share buybacks. While last year’s tests were relatively straightforward, this year’s are expected to be tougher. Despite the challenges, analysts and industry insiders believe the banks being tested will show capital levels above regulatory requirements. However, the tests may lead to slightly more conservative shareholder payouts given new capital requirements and economic uncertainties.

KEY EVENTS HAPPENING THIS WEEK

Tuesday: New home sales and Consumer confidence reports for May and June, respectively.

Wednesday:  Fed Chair Jerome Powell’s speech addressing policy panel, and U.S. Mortgage Bankers Association (MBA) reports.

Thursday: Fed Chair Jerome Powell’s discussion with Bank of Spain Governor, Initial jobless claims report, Pending homes report for May.

Friday:  Personal consumption expenditure (PCE) price index report for May and final Consumer sentiment report for June.

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