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OCTOBER 4, 2023

SEC VS COINBASE

The Securities and Exchange Commission (SEC) is unrelenting in its legal pursuit against Coinbase Global Inc., as it reinforced its arguments that the assets traded on the largest cryptocurrency exchange in the U.S. qualify as securities. Let’s remember that Coinbase has been facing the SEC’s allegations of offering unregistered securities through its crypto products, and that in response, the crypto exchange has sought to dismiss the lawsuit, claiming that the SEC had abused its discretion. Under the leadership of Chair Gary Gensler, the SEC argues that most tokens are subject to its rules and that trading platforms should register with the agency. In addition, The SEC further asserts that Coinbase operated an unregistered exchange, brokerage, and clearing agency for years. This case holds immense significance as it addresses ongoing questions about the SEC’s jurisdiction over digital assets. Moreover, given Coinbase’s prominent standing in the U.S., this case has attracted attention from both industry advocates and critics and the outcome could have significant implications for the SEC’s regulatory claims on a wide range of digital assets.

SOFT LANDING THREATENED

The recent surge in long-term interest rates, reaching the highest levels in 16 years, is presenting a threat to the economic soft landing that has been anticipated. Over the past year and a half, the Federal Reserve has been gradually increasing short-term rates to curb inflation and dampen economic growth. Yet, the sudden spike in long-term bond yields, with uncertain triggers, raises concerns about the unintended consequences. The implications are significant: a sustained climb in borrowing costs, coupled with plummeting stock prices and a stronger dollar, could have repercussions on both the U.S. and global economies. The sudden rise in bonds comes at a time of eased inflation and indications from the Fed that rate hikes are nearly finished, however, now the scenario is uncertain and there is a potential for further hikes to occur.

SHARP RISE

According to recent data from the Mortgage Bankers Association, U.S. mortgage rates surged to 7.5% last week for the first time since November 2000. This sharp increase in rates has had a significant impact on the housing market, as reflected by a considerable drop in applications for home purchases, reaching the lowest level seen in decades. Additionally, the overall volume of mortgage applications, including refinancing activity, fell to its weakest point since 1996. These rate hikes can be attributed to the Federal Reserve’s efforts to increase interest rates in response to a robust economy. As a result, the housing market is grappling with unaffordability, as rising mortgage rates and limited supply drive up home prices.

NOT AS EXPECTED

The September report on U.S. private payrolls has showed a smaller increase than expected, suggesting a potential slowdown in the labor market. The ADP National Employment Report revealed a rise of 89,000 jobs, falling short of economists’ forecast of 153,000. In addition, while there were more job openings than unemployed individuals in August, the number of unfilled positions has increased notably. It is important to note that this data might not entirely reflect the true pace of the labor market decline as the ADP report is not always an accurate predictor of private payrolls in the overall employment report. Moreover, the gradual easing of the labor market can be attributed to the Federal Reserve’s interest rate increases, which have amounted to 525 basis points since March 2022.

INTERNATIONAL NEWS

Euro zone bond yields have risen to their highest levels in over a decade, driven by a selloff in debt markets sparked by unexpectedly strong U.S. job openings data. Consequently, The benchmark German 10-year yield reached a 12-year high, while Italy’s 30-year yield rose to a 10-year high. Furthermore, policymakers’ decision to rule out interest rate cuts in light of above-target inflation has contributed to the increase in euro zone yields. Moreover, since the sharp rise in long-term rates suggests that traders anticipate elevated interest rates in the foreseeable future due to the ongoing strength of the world’s largest economy, the European Central Bank’s monetary policy faces pressure, potentially impacting the risk premium on Italian bonds.

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