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SEPTEMBER 13, 2023

HIGHEST INFLATION JUMP

U.S. inflation accelerated in August, marking its largest monthly increase this year, and a reversal from the previous months’ cooldown, potentially prompting the Federal Reserve to consider raising interest rates later in the year. According to the latest Labor Department’s report, the consumer-price index, which measures prices of goods and services across the U.S. economy, rose by 0.6% in August compared to the prior month. This rise was driven by an increase in gasoline prices. Moreover, when excluding the volatile categories of food and energy, core inflation, or the underlying inflationary pressure, also accelerated, rising by 0.3% in August. In addition, on an annual basis, prices increased by 3.7% in August, up from 3.2% in July. However, core inflation slightly decreased to 4.3% in August from 4.7% the previous month.

ONE MORE SEEKING APPROVAL

Franklin Templeton, a prominent asset manager with $1.4 trillion in assets under management, has joined the race to launch a Bitcoin exchange-traded fund (ETF), as the company recently filed an application with the U.S. Securities and Exchange Commission (SEC) seeking approval for “The Franklin Bitcoin ETF”. This ETF would be part of the Franklin Templeton Digital Holdings Trust, and if approved, it would provide both institutional and individual investors with a regulated and convenient means of gaining exposure to the volatile Bitcoin market without the need to physically own the cryptocurrency. In addition, The Franklin Bitcoin ETF’s shares would be listed and traded on the Cboe BZX Exchange, with Coinbase, acting as the fund’s custodian. Moreover, the SEC is expected to respond to Franklin Templeton’s application by October 16, however, the agency still retains the flexibility to delay its decision further.

HIGHER RATES CONTINUE

According to the Mortgage Bankers Association, higher mortgage rates continue to have a noticeable impact on mortgage demand, particularly for refinancing. Last week, there was a 0.8% decrease in total mortgage application volume compared to the previous week. Additionally, the average interest rate for 30-year fixed-rate mortgages with conforming loan balances rose to 7.27% from 7.21%. Furthermore, in line with this, the demand for refinancing dropped by 5% for the week, marking a 31% decline compared to the same period last year. As a result, the refinance share of mortgage activity decreased to 29.1% from 30.0% the previous week. Nonetheless, despite these figures, there was a modest 1% increase in applications for purchasing homes, indicating that some potential buyers are exploring alternative options such as adjustable-rate mortgages. Moreover, it is important to note that overall mortgage application levels are currently at their lowest point since 1996.

TAX CUT EXTENSION BATTLE

President Biden and Republicans are preparing for a heated battle over extending the 2017 tax cuts. However, beneath the rhetoric lies a reality that suggests much of the battle has already been decided, with tax cuts poised to prevail once again. The pivotal provisions of these tax cuts, originally championed by Republicans and signed into law by former President Trump, are slated to expire in 2025. Nonetheless, regardless of the election outcome, there appears to be a strong probability that these provisions will be extended. Remarkably, President Biden himself has proposed prolonging most of these tax cuts specifically for households, all while assuring that taxes will not be increased for individuals earning less than $400,000. This political equilibrium, where both parties vie for the support of the middle-class electorate by advocating for tax cuts and increased spending, has led to a concerning conundrum of stagnating or declining tax revenue in the face of mounting government expenditures. Yet, it is worth noting that this approach has also precipitated soaring deficits and an ever-increasing debt burden, potentially jeopardizing the nation’s fiscal stability in the long run.

INTERNATIONAL NEWS

The U.K. economy contracted sharply in July, recording its steepest decline in seven months with a 0.5% slip in GDP. Strikes, unfavorable weather conditions, and an overall contraction across key sectors like services, construction, and manufacturing contributed to this downturn. Amidst existing challenges such as higher borrowing costs, policymakers may need to reassess plans to raise interest rates. Moreover, Goldman Sachs has already revised its forecast, predicting a 0.2% contraction in the third quarter and potentially lowering the annual growth estimate. Nevertheless, despite these concerns, Chancellor of the Exchequer Jeremy Hunt remains cautiously optimistic, highlighting the U.K.’s resilience in recovering from the pandemic and positive projections from the International Monetary Fund.

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