- Dwindling Energy Capacity
- Japan Has Long Sought More Inflation
- The Front Line
- Stock Market’s Plunge Continues
- Cathie Wood’s Famed Market-Beating Return Is Disappearing
- States Turn to Tax Cuts as Inflation Stays Hot
- For Tens of Millions of Americans, the Good Times Are Right Now
- Housing Supply Is Finally Improving
- Apple’s China Engineers Keep Products Flowing as Covid Shuts Out U.S. Staff
- Truckers Want More Trucks Than Industry Can Build
- Pfizer to Buy Migraine Drugmaker Biohaven in $11.6-Billion Deal
- Philip Morris International in Talks to Buy European Smokeless-Tobacco Rival
- Meta’s First Store Aims to Lure Consumers to The Metaverse
- Tyson Foods Profits Soar as Meat Prices Climb
- Rivian Stock Slumped. Ford Plans to Sell Part of Its Stake.
- Warhol’s ‘Marilyn,’ at $195 Million, Shatters Auction Record for an American Artist
The Federal Reserve painted a somewhat concerning picture of the global financial system in its latest semi-annual Financial Stability Report, citing particular examples that may warrant further attention. Surging inflation and Russia's war in Ukraine have supplanting the coronavirus pandemic, while a quick monetary policy tightening cycle may result in lower economic output and raise borrowing costs. In turn, that could lead to job losses, unsustainable debt levels for businesses and impact the housing market via higher mortgage rates.
Quote: "While the recent deterioration in liquidity has not been as extreme as in some past episodes, the risk of a sudden significant deterioration appears higher than normal," the U.S. central bank said in the report, which is published each May and November. "Further adverse surprises in inflation and interest rates, particularly if accompanied by a decline in economic activity, could negatively affect the financial system."
Besides broad economic issues, the Financial Stability Report also looks at trends in trading and investing. "A sharp rise in interest rates could lead to higher volatility, stresses to market liquidity, and a large correction in prices of risky assets, potentially causing losses at a range of financial intermediaries. Declining depth at times of rising uncertainty and volatility could result in a negative feedback loop, as lower liquidity in turn may cause prices to be more volatile." That could be particularly worrisome with the share of U.S. household wealth - that comes from directly or indirectly held stocks - hitting a record 41.9% through the end of 2021, more than double where it was 30 years ago.
Coming up: Treasury Secretary Janet Yellen is set to testify before the Senate Banking Committee at 10 a.m. to brief lawmakers on the annual report of the Financial Stability Oversight Council. "There is the potential for continued volatility and unevenness of global growth as countries continue to grapple with the pandemic [and] Russia's unprovoked invasion of Ukraine has further increased economic uncertainty," she said in prepared remarks. "The U.S. financial system has continued to function in an orderly manner, though valuations of some assets remain high compared with historical values." (14 comments)
While equities are attempting to pare some of the big losses they saw on Monday, the cryptosphere is still in the gutter, with Bitcoin (BTC-USD) falling below $30,000 for the first time in more than a year. The souring sentiment has also weighed heavily on crypto miner stocks like Riot Blockchain (RIOT) and Marathon Digital (MARA), as well as exchange Coinbase Global (COIN) and Bitcoin leveraged firms like Michael Saylor's MicroStrategy (MSTR). Even TerraUSD (UST-USD), the third largest stablecoin by market cap, lost its peg to the U.S. dollar, dropping to as low as 69 cents and causing a swathe of investors to liquidate their holdings.
The skeptics: While crashes have hit Bitcoin before, some say enthusiasm among dip buyers - that used to help prices quickly rebound - is fizzling. One of the biggest advantages of crypto was that it was supposed to provide a hedge against inflation, though that theory has gone up in smoke with Bitcoin getting even more devalued than real-world currencies in a time of red-hot inflation. Another long-term incentive was that crypto could provide a store of value via anonymous transactions and wallets, but not only have governments gotten better at tracking the assets, they are on the verge of regulating them big time.
The believers: Bitcoin and cryptocurrencies are widely known for their violent price swings, and have been selling off along with traditional markets due to macroeconomic uncertainty. "Crypto is going through the lull that the internet went through," added billionaire entrepreneur Mark Cuban. "The use of Smart Contracts to improve business and profitability" will be the next driver, though "the chains that copy what everyone else has, will fail." Meanwhile, El Salvador, the first-ever country to adopt Bitcoin as legal tender, bought the dip again, scooping up 500 more Bitcoins for $15.4M to mark its largest purchase of the crypto on record.
Statistics: The global market cap for the entire crypto market is now hovering around $1.5T, down 50% from the $3T milestone seen last November, according to data from CoinGecko.com. 40% of Bitcoin holders are also underwater on their investments, per Glassnode, and in the last month alone, 15.5% of all Bitcoin wallets fell into an unrealized loss. (12 comments)
2020 and 2021 were boom years for special purpose acquisition companies, or SPACs, but the party seems to be coming to an end. Goldman Sachs (GS), the No. 2 underwriter of SPACs, is pausing its work in the industry, exiting most vehicles it has taken public due to regulatory concerns. Officials have released proposed rules that seek to boost transparency and bring SPACs in line with conventional public listings, making the mechanism less attractive to Wall Street.
What are SPACs? They're basically empty shell companies that raise a lot of money by going public - without targeting a particular industry - and later use the money to buy a company. The backdoor IPOs can offer liquidity, are light on the regulatory side (no S-1 filings) and aren't subject to lockup rules. The traditional IPO process can also take anywhere from several months to a year - as negotiations with institutional investors play out - though some SPAC deals are reported to only take weeks and could provide better price support.
Up until now, Goldman Sachs had free reign on the market, helping SPACs list on public exchanges with very little recourse if something goes wrong in the process. The SEC now wants to implement new liability rules for banks and underwriters, meaning they would be held responsible for the eventual merger and the company with which the SPAC merges. Investors would also have the right to sue blank-check companies if they issued exaggerated projections or inaccurate statements about the companies they planned to take public.
Outlook: The Goldman SPAC exit comes after it helped sponsors raise almost $16B last year. Bloomberg also recently reported that Citi (C) put a temporary hold on underwriting SPACs until companies can determine legal liabilities of the latest SEC proposed rules. All the news means that the public listing process will likely head back to the way things worked before the pandemic: SPACs were sidelined in favor of IPOs or direct listings (where a company floats its existing private shares). (7 comments)
How's this for a statistic? The biggest U.S. tech giants have shed over $1T in market capitalization over the past three trading sessions. Among the biggest losers were Apple (AAPL), which lost over $220B since last Wednesday, as well as Microsoft (MSFT), Amazon (AMZN) and Tesla (TSLA), which have all tumbled by around $200B. In fact, the Nasdaq 100 Index plunged another 4% on Monday, extending its decline to 10% since the Fed raised interest rates by half a percentage point last week (and vowed to continue hiking at that pace).
On the move: "We expect markets to remain volatile, with risks skewed to the downside as stagflation risks continue to increase," wrote Barclays' Maneesh Deshpande. "While we cannot discount sharp bear market rallies, we think upside is limited."
Caution ahead: “The days of market whiplash are just beginning," added Andy Kapyrin, co-chief investment officer at investment advisory RegentAtlantic.
Getting magnified: "Seismic activity in the stock market continues to intensify as all sizes and styles sink deeper into the red," noted Sam Stovall, chief investment strategist at CFRA.
Bottom line: "The market doesn't know how high the Fed has to go to control inflation, and we have the sense of a global slowdown," explained Sebastien Galy, macro strategist at Nordea Asset Management. "There is a lot of negatives that are happening in the market." (55 comments)
In Asia, Japan -0.6%. Hong Kong -1.8%. China +1.1%. India -0.2%.
In Europe, at midday, London +0.6%. Paris +0.8%. Frankfurt +1.2%.
Futures at 6:20, Dow +0.9%. S&P +1%. Nasdaq +1.6%. Crude -1.4% to $101.65. Gold +0.1% to $1860. Bitcoin -6.2% to $31,390.
Ten-year Treasury Yield -7 bps to 3.00%
Today's Economic Calendar
6:00 NFIB Small Business Optimism Index
7:40 Fed's Williams Speech
8:30 Fed's Bostic Speech
9:15 Fed's Barkin: "Why We Care About Inflation"
1:00 PM Fed's Kashkari Speech
1:00 PM Results of $45B, 3-Year Note Auction
3:00 PM Fed's Mester Speech
7:00 PM Fed's Bostic Speech