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SEPTEMBER 8, 2023

CHARGES ON DEFI PROTOCOLS

The U.S. Commodities Futures Trading Commission (CFTC) has taken action against three decentralized finance (DeFi) platforms – Opyn, ZeroEx, and Deridex – for failing to register as required and engaging in illegal digital asset commodity transactions. These projects allegedly offered leveraged and margined digital assets without proper authorization, violating CFTC rules. As a consequence, Opyn, ZeroEx, and Deridex have been ordered to pay penalties of $250,000, $200,000, and $100,000 respectively, and must cease their operations. The CFTC highlights that the use of smart contracts does not legitimize unlawful transactions, and its Enforcement division will continue to adapt and actively pursue unregistered platforms that allow U.S. individuals to trade digital asset derivatives.

POTENTIAL RISKS OF HIGHER RATES

The Bank of America Corp. strategists have expressed concern over the possibility of interest rates remaining high for an extended period, which could adversely impact the U.S. economy and trigger a stock market sell-off. They estimate a 20% likelihood of a severe economic downturn, with risks such as escalated oil prices, a strong dollar, elevated bond yields, and tighter financial conditions surfacing between September and October. To mitigate these risks, the strategists urge investors to adopt a defensive approach and brace for a potential hard landing. Additionally, they highlight that increasing bond yields are making stocks less appealing, evidenced by a negative earnings-bond yield gap. In response to these uncertainties, cautious investor behavior is observed, with substantial investments in money market funds and a higher allocation to cash. Nonetheless, there have been inflows into global stock funds and bonds as well.

DECLINE ON TREASURY YIELDS

U.S. Treasury yields declined as investors became apprehensive about possible future interest rate hikes following the release of economic data. The yield on the 10-year Treasury decreased by nearly 2 basis points, settling at 4.246%, while the 2-year Treasury yield dropped by about 2 basis points, reaching 4.938%. Concerns have risen regarding persistent inflationary pressures and a tight labor market, despite initial jobless claims being lower than anticipated. Market expectations currently place the likelihood of a November rate hike at about 42%, and decisions going forward will greatly depend on upcoming data releases, particularly the consumer and producer price index reports.

FOOD PRICES PLUNGED

The United Nations food agency, the Food and Agriculture Organization (FAO), announced that in August, the global food price index reached a two-year low. This decrease was primarily driven by declines in dairy products, vegetable oils, meat, and cereals, despite increases in rice and sugar prices. The FAO also reported a rise in sugar prices due to concerns about the impact of the El Nino weather pattern on global production. Moreover, vegetable oil and dairy prices experienced decreases, while cereal production was slightly revised downward due to adverse weather conditions affecting wheat crops in Canada, the European Union, and China.

CLEAR ENERGY TAX INCENTIVES

The U.S. Treasury has announced its intention to issue guidance on additional tax incentives for clean energy. This guidance will include provisions that discourage companies from relying on Chinese supply chains. The specifics of the guidance, such as timing, have not been provided, but it is expected to be released before the end of 2023. The guidance will impact industries involved in manufacturing batteries and critical minerals components for clean energy products, such as solar, wind, and batteries. The automotive sector, in particular, is anxiously awaiting clarification on whether collaborations with Chinese partners will qualify for tax credits. Additionally, the Treasury plans to provide guidance on tax credits for energy-efficient home improvements and sustainable aviation fuel. Originally estimated to cost around $369 billion over 10 years, the demand for these clean energy tax credits may drive the costs up to approximately $1 trillion.

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