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OCTOBER 3, 2023

ETHER ETFS LAUNCHED

The debut of the first exchange-traded funds (ETFs) focused on ether, the second-largest cryptocurrency, provided individual investors with convenient access through brokerage accounts. However, initial response from small investors has been lukewarm. Most of the newly launched ether ETFs as they amassed less than $7 million in trading volume. Furthermore, market experts predict intense competition for these funds, with contenders like ProShares, VanEck, and Bitwise Asset Management vying for assets through cost-effective strategies and effective marketing. Additionally, Grayscale Investments has filed paperwork to convert its $5 billion ether trust into a spot ether ETF. Moreover, it is worth noting that the trading environment for these first ether ETFs differs from the initial launch of bitcoin ETFs, as bitcoin prices have declined due to the collapse of major crypto firms and the rise in U.S. interest rates, resulting in reduced interest in speculative investments.

FURTHER HIKES CONSIDERED

According to Federal Reserve Bank of Cleveland President Loretta Mester, the U.S. central bank is likely to raise interest rates once more this year and keep them higher for a while to address inflation. However, the final decision will depend on how the economy progresses, with concerns about a slowdown in China, potential strikes by United Auto Workers union members, and government shutdowns as risks to inflation and growth. Mester emphasized the need to gather more economic information and assess the impact of existing financial conditions. Moreover, although inflation remains high, Mester does not expect a major shift in consumer spending due to the resumption of student loan payments.Various Fed officials hold differing views, with some suggesting that interest rates are already restrictive enough, such as Fed Vice Chair Michael Barr. On the other hand, others like Fed Governor Michelle Bowman argue for multiple rate hikes to reach the inflation goal, while some like New York Fed President John Williams indicate that the central bank may have finished raising interest rates, but they would maintain them at higher levels for some time to bring inflation down to the desired 2% target.

SURGE TO NEW HIGHTS

The 10-year Treasury yield, which acts as a benchmark for mortgage rates and reflects investor confidence, recently surged to its highest level since August 15, 2007 as it has risen more than 64 basis points to reach 4.727%. This upward trend was driven by investors assessing the state of the economy and anxiously awaiting key labor market data that will inform the Federal Reserve’s monetary policy decisions. In addition, coinciding with this rise, the 2-year Treasury yield, which is sensitive to expectations about the Federal Reserve’s own borrowing rate, also edged higher to 5.115%. Surprisingly, despite U.S. lawmakers managing to avert a government shutdown by passing a last-minute spending bill, which is a temporary solution that allows lawmakers more time to finalize crucial government funding legislation and avoids negative effects for the U.S. credit rating and overall economy, yields continue to rise.

STEADY DECLINE

Oil prices have remained steady, with a small decline following the previous day’s drop. Concerns surrounding the global economy overshadowed the tightness in the physical oil market, causing uncertainty about future demand. Consequences, West Texas Intermediate (WTI) traded at around $89 per barrel after experiencing a 2.2% decrease. The ongoing global sell-off in bonds and stocks, along with a stronger U.S. dollar, contributed to this trend. Higher interest rates and a stronger dollar raise the costs of storing and shipping crude oil, leading to decreased demand. Moreover, although China’s top refiner has been actively purchasing oil, it has not been enough to offset these larger market forces. Nevertheless, some experts remain optimistic about the price potential, considering positive market fundamentals. Looking ahead, OPEC+ ministers will BE meeting tomorrow to assess global markets, but it is not expected that any policy changes will be recommended during the meeting.

INTERNATIONAL NEWS

The European Central Bank is determined to maintain its fight against inflation, even though the current base case is to keep interest rates unchanged, according to Chief Economist Philip Lane. Lane emphasized that the ECB’s borrowing costs have reached a level that will make a substantial contribution to achieving the inflation target of 2%, however, he cautioned against fixating solely on the December meeting, as there are still uncertainties that won’t be resolved by then. Despite the ECB’s record of raising rates 10 times consecutively, economists and markets expect the deposit rate to remain at 4% until the first half of 2024, and recent inflation figures support this expectation, with consumer-price growth moderating to 4.3% and core inflation (excluding energy and food costs) at 4.5%. Furthermore, Lane acknowledged that reaching the ECB’s goal of 2% inflation will take time, with their most recent forecast projecting it to be achieved in the third quarter of 2025, and he stressed the importance of closely monitoring energy prices due to their inherent volatility. Moeeover, at the same conference, some policymakers, such as Tuomas Valimaki, standing in for Finland’s Olli Rehn on the Governing Council, suggested that further rate hikes may be necessary.

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