Internal | July 12th, 2024

GOOD MORNING

Here's everything you need to know today: Did you think yesterday’s Headline CPI print was an open invite for Jay Powell and the FOMC to cut rates like now and forever? Well, you might not like what the Core CPI looked like… Anyway, Happy Friday.

While we’re being a downer, China’s banking system looks like it might be poised on the edge of a real crisis. If the nation’s shambolic real estate market does crash the banks, fears of contagion will grow unless China has its own Jamie Dimon type, eager and capable of acquiring all the smaller fish.

Speaking of small fish, don’t look now but Goldman Sachs looks like it might be trying to take early dominance of Wall Street’s tokenization market.

Let’s dive into more detail below.

ECONOMY

June’s Inflation Data Is A Rate Cut Rorschach Test

June’s Inflation Data Is a Little Bit Dovish, A Little Bit Hawkish, and Not-At-All Rock and Roll

BREAKING NEWS
Jay Powell and interest rate cuts have become the Ross and Rachel of contemporary markets, with investors tuning in every few days for a new glimpse into the "Will They or Won't They?” narrative that has them totally hooked.

Thursday morning’s CPI data drop for June is the kind of “very special episode” that economists and traders have been looking forward to for weeks, hoping that a clear number will show the Fed Chairman how much he wants to cut rates, how much he needs to.

Well, the print is out! And... it’s not terribly clear.

WHAT HAPPENED
Let’s just plow through the numbers and get back to hoary allegories: Headline CPI was up a modest 3.0% year-over-year for June, but cooling off (very) slightly from May's 3.3%. Monthly, we got an almost negligible 0.1%. Essentially, prices are holding steady.

Well, steady if we exclude the nauseating rollercoaster that is food and energy pricing, with food up 2.2% over the year and energy down the same over the same period. Core inflation actually edged up 0.3% from May to June, landing at an annual increase of 3.5%. Housing, transport, and medical care services were the main culprits here, as they always are.

Considering Powell sounded as dovish as he has in quite some time during his two days of testimony on Capitol Hill this week, the headline number is soft music to the ears of rate doves, while hawks are looking at core inflation showing no signs of playing nice and wincing at the idea of two rate cuts this year. Basically, The Fed's next move might actually be as predictable as a mouse on meth in a maze full of cheese.

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CHINA

China’s Banking Crisis Deepens with 40 Banks Failing in One Week

Global markets watch with caution as China’s banking sector struggles despite strong GDP growth

BREAKING NEWS
Bank failures are like dominoes. Everyone remembers Signature Bank, which closed on March 12, 2023, after banking officials in New York put up the permanent "on a break" sign following significant withdrawals in the wake of the failure of Silicon Valley Bank's. Weeks later, First Republic Bank collapsed.

In total, five banks failed in 2023. Dominoes.

Now, the world is watching China's banking sector as 40 banks have gone under and been absorbed into larger financial institutions, the latest being Jiangxi Bank. Dominoes were invented in China.

WHAT HAPPENED
Bank failures occur for many reasons: a sudden run on deposits leaving banks without necessary liquidity, a significant number of bad loans or assets that lose value rapidly, eroding capital reserves, or severe economic downturns that end up reducing asset values.

In China, a staggering 3,800 financial institutions are reportedly in dire straits. And get this: they hold $7.5 trillion in assets, representing 13% of the banking system. To put $7.5 trillion into perspective, spending $1 million daily would take over 20,500 years.

The size, scale, and speed of these failures are shocking, especially since China's year-on-year GDP growth in the first quarter was 4.5% and 6.3% in the second, higher than that of the world's major developed economies, as reported in Jiangxi Bank's 2023 interim report.

Many of these banks have long been mismanaged, accumulating vast amounts of bad loans. They have lent heavily to real estate developers and local governments during China's unprecedented consrtuction boom, exposing them to property market crises where some institutions have disclosed that up to 40% of their books now consist of non-performing loans.

Which leads us to China’s radioactive property sector, where overextended developers and local governments have defaulted on loans.Reuters recently reported that home prices in China have been falling more rapidly over the past decade, with new home prices declining for eleven consecutive months.

According to China's National Bureau of Statistics, prices dropped by 0.07% in May, resulting in a 3.9% decrease compared to the previous year. April's data showed a similar year-on-year decline of 3.1%.

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CRYPTO

Goldman Sachs Plans Three New Tokenization Products for This Year

Goldman Sachs’ tokenization products leverage permissioned blockchains to cater to financial institutions, ensuring speed and security

BREAKING NEWS
Warren Buffet famously said, "I would not pay $25 for all the Bitcoin in the world." Nevertheless, Bitcoin, in all its volatility, appears to have inspired Goldman Sachs, which announced Wednesday the launch of three tokenization products set to roll out this year.

Although Goldman's crypto leanings are, for now, permissionless (Bitcoin is the opposite), their new offerings will include a Real World Asset (RWA) marketplace, with a primary focus on the U.S. and European markets.

With an impressive $2.81 trillion in assets under management and $1.64 trillion in total assets, Wall Street’s favorite Vampire Squid is now positioning itself at the forefront of tokenization.

WHAT HAPPENED
Mathew McDermott, Goldman Sach's global head of digital assets, triggered this initiative after noticing a significant uptick in client interest in crypto. Crypto awareness and ownership rates have increased to record levels this year, with 40% of American adults now owning crypto, up from 30% in 2023. This could be as many as 93 million people.

It should also be noted that this isn't Goldman's first crypto rodeo (nb; imagine the hats for that rodeo).

In April 2021, Goldman co-led the first public digital issuance on the Ethereum public blockchain for the European Investment Bank (EIB), a €100 million 2-year bond. This transaction was the first of its kind and pointed to others that there was a sea change in capital markets on the way.

Goldman’s new offerings will include marketplaces for tokenized real-world assets (RWAs) and are designed to cater to financial institutions rather than retail investors, leveraging permissioned blockchains for execution speed and diverse collateral options.

This move comes as funds specializing in tokenized RWAs, such as BlackRock's USD Institutional Digital Liquidity Fund and Franklin Templeton's OnChain US Government Money Fund, gain traction. This reflects a trend in major financial players adopting digital asset infrastructure.

CONTINUE READING ➔

1. S&P 500 Posts Record Close, Costco Raises Membership Fees

The S&P 500 achieved its 37th record close of 2024, driven by gains across major indexes. Additionally, Costco announced an increase in membership fees for the first time since 2017. Basic memberships will rise by $5 annually, while executive memberships will see a $10 hike.

2. Apple Reaches Deal with EU Regulators on Mobile Payments

Apple has agreed to open its tap-and-go payment technology to rival providers, settling an EU antitrust case. This move aims to increase competition and innovation in the mobile payments market across Europe.

3. Amazon Teases Prime Day Deals Amid Intensified Retail Competition

Amazon has announced a preview of its Prime Day deals, including discounts on brands like Dyson and Southwest Airlines. This comes as other major retailers also plan sales events to compete with Amazon’s annual shopping bonanza.

4. Shares of Stellar Blade Maker Shift Up Surge 50% on Trading Debut

Shift Up, the company behind the popular game Stellar Blade, saw its shares soar nearly 50% on its first day of trading. The IPO raised approximately $315.56 million, signaling strong investor interest.

5. BMW Recalls Over 390,000 Vehicles Due to Airbag Issue

BMW is recalling more than 390,000 vehicles because of a potential airbag inflator defect. The recall affects certain 3 Series Sedans and 3 Series Sportswagons, and BMW dealers will inspect and replace airbag modules as needed.

6. Biden Administration Announces $1.7 Billion to Convert Auto Facilities for EV Manufacturing

The White House announced $1.7 billion in funding to help convert shuttered or at-risk auto manufacturing plants to produce electric and hybrid vehicles. This initiative aims to bolster the EV industry and preserve jobs.

7. PepsiCo Earnings Beat Estimates Despite Weak U.S. Demand

PepsiCo reported better-than-expected second-quarter earnings, though its revenue fell short of expectations due to declining demand for snacks and sodas in the U.S. market.

8. MicroStrategy Announces 10-for-1 Stock Split Following Bitcoin Surge

MicroStrategy, the largest corporate holder of bitcoin, declared a 10-for-1 stock split after its share price tripled over the past year due to the bitcoin rally. The company aims to make its stock more accessible to investors.

9. Volkswagen to Ramp Up Solid-State Battery Production with QuantumScape

Volkswagen and QuantumScape announced a significant expansion in the production of solid-state batteries. This collaboration aims to advance battery technology and increase its application in electric vehicles.

10. Tesla Shares Fall After Reported Robotaxi Reveal Delay

Tesla's shares dropped 6% following news that the company is delaying the launch of its highly anticipated Robotaxi from August to October.

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