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OCTOBER 18, 2023

AMENDMENTS HINT POSSIBLE APPROVAL

Earlier this morning, the price of Bitcoin (BTC) surged to a high of $28,817 following amendments made to a spot Bitcoin ETF filing by Fidelity. This move has sparked a wave of optimism among traders, leading to a 2.8% increase in the past 24 hours and pushing Bitcoin to its highest level in two months. Fidelity is not alone in making changes to its ETF filing, as other major firms like Ark Invest and Invesco have also recently amended their filings. These developments suggest ongoing discussions between these companies and the U.S. Securities and Exchange Commission (SEC), hinting at a potential approval of the ETFs in the future. If approved, it is anticipated that the ETFs could contribute around $1 trillion to the current market capitalization of $1.1 trillion. Furthermore, despite false rumors, Bitcoin’s price continues to climb, with analysts predicting a further increase. This prediction is based on the increasing trading volumes, which are seen as a positive indication of new buyers entering the market rather than existing investors exiting.

CONTRASTING PERFORMANCES

In the third quarter, Morgan Stanley faced a 9% decline in profits, largely attributed to reduced revenues from investment banking and trading. While it outperformed some of its counterparts, such as Goldman Sachs, which experienced a more significant 33% profit drop, it still trailed behind banks like JPMorgan, Bank of America, Wells Fargo, and Citigroup, all of which reported profit increases. Notably, Morgan Stanley’s investment banking revenues plunged by 27%, positioning it at the bottom among major Wall Street operations. In contrast, P&G exhibited a robust performance in the fiscal first quarter, with a 6% increase in net sales and organic growth across all product categories. The company’s success was attributed to its ability to implement price increases and its commitment to new product innovations, with the healthcare segment registering impressive 10% growth. Furthermore, P&G’s forward guidance remains positive, with a profit outlook for the fiscal year and the added advantage of lower commodities costs, resulting in a substantial 460 basis point rise in gross profit margins from a year ago.

SURGING TERM PREMIUMS

Investors and Federal Reserve officials are currently focused on a concept called term premium, which represents the additional component of Treasury yields beyond expected short-term interest rates. Recent financial models have indicated a significant rise in term premiums, driving up longer-term Treasury yields above 4.8% for the first time since 2007. This surge in yields has raised concerns among experts, as it suggests that the underlying cause may be something beyond the control of the Federal Reserve, potentially making it more dangerous. Nonetheless, economists caution that these term premium models provide imperfect estimates, making it difficult to determine whether or not they serve as a warning. Moreover, some experts suggest that rising term premiums may be influenced by factors such as increased supply of government bonds or uncertainty surrounding long-term inflation.

MORTGAGE MARKET SLUMPS

Mortgage applications in the U.S. have hit a nearly 30-year low, signaling troubles for the housing market. This decline is a result of rising borrowing costs for six consecutive weeks. According to the Mortgage Bankers Association’s index, there has been a 6.9% drop in overall applications for buying or refinancing a home, reaching its weakest level since 1995. Furthermore, the interest rate on a 30-year fixed mortgage increased by 3 basis points to 7.7%, marking the sixth consecutive weekly increase. Additionally, the rate on a five-year adjustable mortgage rose by 19 basis points to 6.52%, which is the second-highest increase since 2011. Consequently, home-purchase applications fell over 5%, reaching their lowest level since 1995, and refinancing applications declined significantly, experiencing the biggest drop since February. The rise in mortgage rates is closely tied to Treasury yields, which have been rising due to positive economic data, suggesting that the Federal Reserve may need to raise interest rates once again.

INTERNATIONAL NEWS

Euro zone bond yields have reached their highest levels in weeks as the latest stronger-than-expected U.S. retail sales data has caused a sell-off in bonds on both sides of the Atlantic, raising expectations of prolonged high interest rates. Additionally, geopolitical tensions in the Middle East, have dampened risk appetite, increasing demand for the safe-haven properties of bonds. As a result, the impact of these events is reflected in higher bond yields, with Germany’s 10-year benchmark yield experiencing a slight decrease and Italy’s 10-year bond yields rising. This widening gap between the yields of these two countries suggests that investors are factoring in different levels of risk within the Euro zone, particularly towards economies with higher debt levels.

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