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SEPTEMBER 14, 2023

PRODUCER PRICES INCREASED

As reported by the Bureau of Labor Statistics, producer prices in the U.S. rose by 0.7% in August, surpassing market expectations of a 0.4% increase. This increase was driven by a 2% advance in prices for goods, primarily fueled by a significant 10.5% surge in energy costs. In addition, prices for services also saw a modest increase of 0.2%, primarily attributed to rising transportation and warehousing costs. Furthermore, excluding volatile items like food and energy, the producer price index recorded a 0.2% increase, in line with the previous month. Moreover, on an annual basis, producer price inflation reached a four-month high of 1.6%, while the core rate decreased to 2.2%, marking its lowest level since January 2021.

SALE APPROVED

FTX Trading Ltd. has obtained court approval, allowing it to proceed with the sale of its $3.4 billion cryptoassets. The purpose of this sale is to generate funds for creditors who claim to be owed tens of billions of dollars. Despite an ongoing legal dispute questioning the ownership of these assets, FTX remains determined to initiate sales promptly. Surprisingly, non-U.S. creditors have rallied behind the proposal, despite their argument that FTX lacks ownership over the cryptoassets deposited by customers on the FTX.com platform. However, both U.S. and foreign creditors, in conjunction with the company, have reached a consensus that FTX should sell up to $100 million worth of cryptoassets per week according to prevailing market prices. The ultimate objective is to convert these digital assets into U.S. dollars, subject to final court approval of a payout plan, and distribute them to the rightful creditors.

FED’S CONCERNS

Researchers at the Federal Reserve have expressed concerns about a popular hedge fund trading strategy that could cause disruptions in the U.S. Treasury market. This strategy involves hedge funds increasing their short positions in Treasury futures to take advantage of price differences between futures contracts and the actual bonds. The Federal Reserve is concerned that these trades could pose risks to the financial system, especially during periods of market volatility and higher interest rates; and if these trades face stress or higher funding costs, it could lead to increased market volatility and dislocations. It is important to note that the Federal Reserve has limited regulatory oversight over hedge funds, which makes addressing these risks a complex task. Nonetheless, taking into account that the unwinding of similar trades in the past has contributed to market illiquidity, the Fed is closely monitoring the situation and aims to prevent such disruptions from happening again.

SIGNIFICANT RISE

Oil prices have surged, with U.S. crude reaching a milestone of over $90 a barrel, marking its highest since November 2022. This surge was driven by growing expectations of a tighter supply outlook. Adding to the upward pressure, Saudi Arabia and Russia recently announced an extension of their oil output cuts until the end of 2023. Consequently, the International Energy Agency predicts a substantial market deficit for the remainder of this year. Moreover, in light of this, the price of WTI crude rose by almost 3% this week, on track for its third consecutive weekly gain.

INTERNATIONAL NEWS

The European Central Bank (ECB) has once again increased interest rates by 0.25%, making it the tenth consecutive rate hike since their efforts to combat inflation began in July of last year. In just over a year, the borrowing rates have escalated by a total of 4.5%. The deposit rate now stands at 4%, while the marginal lending rate rests at 4.75%. Today’s meeting of ECB officials in Frankfurt was filled with uncertainty, as experts initially believed rates would remain steady to support economic growth. However, given the ECB’s projection of persistently high inflation in the coming year, analysts argue that the central bank was left with limited options, and emphasized the need for sustained high interest rates, with the ultimate goal of achieving a medium-term inflation rate of 2%. This decision follows a recent increase in Irish inflation, which spiked to 6.3% annually last month compared to 5.8% in July. In addition, the eurozone inflation remains at 5.3%, with the ECB anticipating that price levels will stay above 3% throughout 2024.

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