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JUNE 6, 2023

LAWSUIT AGAINST COINBASE

The U.S. Securities and Exchange Commission (SEC) recently filed a lawsuit against Coinbase for allegedly violating federal securities law, as the cryptocurrency exchange is accused of offering cryptos to U.S. customers that might have been considered securities. The SEC claims that Coinbase operated as an unregistered broker, exchange, and clearing agency simultaneously by taking on multiple roles such as soliciting customers, processing orders, enabling offers, and acting as an intermediary for the same transactions. However, Coinbase was never registered with the SEC as a broker or clearing agency and therefore evaded the disclosure requirements that were established by Congress for securities markets. These accusations come just one day after the SEC filed a similar lawsuit against Binance.

OIL PRICES FELL

Oil prices experienced a decline despite initial gains following Saudi Arabia’s pledge to reduce oil production. Brent crude dropped by 2% to $75.19 per barrel, while West Texas Intermediate fell by 2.1% to $70.66 per barrel. This slide in oil prices comes as unwelcome news for Saudi Arabia and its energy minister, who ideally require an oil price of around $80 per barrel to finance budget and upcoming development projects. Although many had expected a surge in Chinese oil demands to boost prices, this still has not happened yet, and it is unlikely that oil prices will rise until China’s economy recovers.

TREASURY PLANS BOND ISSUANCE

The U.S. Treasury is planning to issue more government bonds in order to rebuild its weakened account following the recent suspension of the debt limit. While this move has the potential to reduce liquidity and negatively impact equity markets, the impact might be softened as money funds are willing to redirect their investments toward Treasury bills. According to Deutsche Bank, it is estimated that there will be $1.3 trillion in net bill issuance by the end of the year, with $400 billion expected to be issued in June and an additional $500 billion between July and September. Furthermore, there have been good signs of the Treasury’s support as the Treasury drew a solid demand for a $50 billion sale of 44-day cash management bills. However, it is important to note that the possibility of interest rate hikes by the Federal Reserve could potentially decrease demand for these bond issuances.

BANK SHARES FALL

Shares of U.S. banks went down due to concerns of possible liquidity loss for lenders, triggered by the projection that the U.S. government will issue short-term debt to replenish its Treasury General Account. At the same time, the Federal Reserve and other regulators in the U.S. are also considering to increase average bank capital requirements by about 20% as per the Basel Committee of banking regulators’ global rules scheduled to take effect in 2025. Consequently, regional bank stocks witnessed widespread declines with KBW Regional Banking Index, PacWest Bancorp, Western Alliance and Comerica Inc all experiencing losses.

INTERNATIONAL NEWS

A recent survey conducted by the European Central Bank (ECB) has revealed that inflation expectations among euro zone consumers have decreased. The survey, which involved 14,000 adults from the major countries in the euro zone, indicated a decline in inflation expectations over the next 12 months and three years. In addition, the survey found that consumers expect modest wage growth, reduced unemployment, and a contraction in economic growth. These results are viewed positively following the unexpected increase in inflation experienced last month. Nevertheless, despite the optimism, many policymakers support another rate hike in July for inflation to be fully controlled.

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