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SEPTEMBER 19, 2023

PUSH FOR CLARITY

Coinbase, the largest cryptocurrency exchange in the U.S., is ramping up its efforts to advocate for regulatory clarity in the industry. They are pushing for a crypto bill that would determine whether a cryptocurrency is classified as a security or a commodity. To support this, Coinbase is launching a paid media campaign and organizing a “fly-in” event where executives and developers from various crypto companies will meet with lawmakers. With an estimated 52 million crypto owners in the U.S., the industry is pushing hard in Washington to rein in the U.S. Securities and Exchange Commission’s crackdown on the sector. Coinbase has been a leader in industry advocacy, having spent $3.39 million on lobbying, and recently established a non-profit called Stand With Crypto to advance pro-crypto policies.

FED’S CURRENT OBSTACLE

The Federal Reserve is currently grappling with the familiar obstacle of rising oil prices as it strives for a smooth economic transition. With oil prices surging almost 30% since June, there are concerns about inflation and consumer purchasing power. The Fed has raised interest rates significantly recently to counter these risks, however, the impact of high oil prices on inflation and economic growth is conflicting, leaving policymakers uncertain about the appropriate response. Moreover, while traditionally downplayed, recent data suggests that oil price increases may have a more significant inflating effect, and the Fed is closely monitoring the situation, particularly seeking any signs of broader price increases driven by gasoline costs. Meanwhile, consumer behavior shows a disinflationary mindset, with expectations at their lowest levels in two years. Nonetheless, some experts warn that the inflationary impact may not remain benign, making the future trajectory of oil prices a key determinant.

PROMISING FUTURE DESPITE FALL

U.S. home construction dropped in August to the lowest level since June 2020, highlighting the toll of declining housing affordability. According to the latest housing starts report, residential starts decreased by 11.3% last month, with a significant decline in multifamily construction. However, there is a glimmer of hope as applications to build future projects increased, indicating optimism about future demand. Unfortunately, the recent increase in mortgage rates has made homeownership less affordable, leading to a decrease in demand, which is reflected in the low builder sentiment. Despite this, limited existing-home inventory presents an opportunity for builders to attract potential buyers. Notably, multifamily construction reached its lowest level since the pandemic began. Moreover, although there was a decline in housing starts in most regions, the Northeast experienced a slight increase.

POTENTIAL BUY OPPORTUNITY

According to AllianceBernstein LP, as well as major players like JP Morgan and Allianz, the current market conditions present an opportune time to invest in US Treasuries. These renowned financial institutions believe that the Federal Reserve’s upcoming policy shift towards easing monetary policy could lead to a significant drop in benchmark yields, potentially reaching as low as 2.5%. Although some market watchers remain skeptical due to recent yield surges, these influential players assert that the risk-reward ratio for owning 10-year Treasuries at current levels is highly attractive. They anticipate a return of nearly 20% for investors if yields drop as projected.

INTERNATIONAL NEWS

In August, Euro-area inflation decreased to 5.2% from the initial reading of 5.3%, indicating a slowdown in consumer prices. Core inflation, which excludes volatile elements like food and energy, remained at 5.3%. Recently, the European Central Bank (ECB) raised borrowing costs for the tenth consecutive time, reaching a record rate of 4%, and while some officials suggest this may be the final step in the tightening cycle, others believe further actions may be required. However, the adjusted inflation reading supports the prediction of a significant deceleration in both headline and core inflation for September. In addition, the ECB has indicated that borrowing costs might be sufficient to bring inflation back to the target level. Therefore, if price pressures continue to decline as expected, it is likely that this cycle of rate hikes will come to a close.

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