Powell, Cohn, Taylor, Warsh or Yellen – The Next FED Chair Will Decide the Economy’s Path

The Chair of the Federal Reserve, currently held by Janet L. Yellen is now up for grabs, with Yellen’s 4-year term due to end on 3rd February 2018.

With the FED Chair considered to be the most influential central banker in the world, responsible for the world’s largest global economy, there’s plenty of focus, not only on who is in the running and the possible implications from a monetary policy outlook perspective, but also on whether the position and the FED itself can continue to remain independent from the U.S government.

Speculation on who is the front-runner has had an influence on the direction of the Dollar in recent weeks, with the categorisation of the candidates, who have been selected by U.S President Trump, into conformists and nonconformists or doves and hawks driving the Dollar depending upon whether there’s a dove or a hawk leading the race.

While there is no formal date set for when an announcement will be made on who will be sitting in the hot seat come 4th February, a White House spokesperson said on Wednesday that Trump will announce the next FED Chair in the coming days, with five candidates currently in the running.

At the time of writing, there appears to be no clear favourite, with the main front runners being Jerome Powell, a current voting member of the FOMC and FED Board of Governors, former FED Board of Governors Kevin Warsh, Stanford economist John Taylor, current FED Chair Janet Yellen and White House chief economic advisor Gary Cohn.

The Next Fed Chair Odds

As things stand, Jerome Powell remains the favorite for the Chair, PredictIt putting the odds of a Powell selection at 42%, with Powell having the backing of U.S Treasury Secretary Mnuchin, who may soon find out how much of the U.S President’s ear he actually has.

Second in the running, following yesterday’s meeting with Trump, is current FED Chair Yellen with odds of 24%.

Behind Yellen sits Taylor and Warsh, with Taylor having been reported to have impressed the U.S President in an interview at the start of the week that led to Taylor moving ahead of Warsh, though sentiment has shifted with the markets now seeing Trump picking a more dovish FED Chair who not look to reap havoc on the markets.

At the back of the pack is Trump’s economic advisor Cohn, who has fallen well behind, with just a 7% chance of being selected and now considered an outsider.

While PredictIt has given each of the front-runners the odds of selection, the fact that President Trump is making the decision certainly makes it an unpredictable one and, while history suggests that new President’s tend to go with sitting FED Chairs, Trump’s nonconformist approach to the presidency and intentions to deregulate removes the benefit of history.

Trump’s Decision: Different Economic View, Different Future

Each of the frontrunners has differing views on financial deregulation and monetary policy and the combination of the two will certainly be key considerations for Trump as he makes one of the most important decisions of his first term in office.

Front-runner Powell is considered to be more in favor of financial deregulation and more hawkish on monetary policy than FED Chair Yellen, while considered to be more dovish on monetary policy and more conformist on financial regulation than both Taylor and Warsh.

Both Warsh and Taylor have a strong history together and both are considered to be supportive of deregulation, which would be aligned with Trump’s aspirations to take the pressure off banks, though both are considered to be particularly hawkish on monetary policy, which could see the FED take a more aggressive path towards monetary policy normalization.

U.S President Trump has certainly been vocally in favor of the low-interest-rate environment that has supported U.S equity markets and helped maintain a weaker Dollar, so while both Taylor and Warsh favor deregulation, there will be some concern over monetary policy and the possible effects on the equity markets and of course, the U.S Dollar.

Another factor to consider with both Taylor and Warsh is that both are likely to be advocates of a rules-based approach to monetary policy, based on inflation and full employment, an approach that is preferred by some of the President’s closest aides, not to mention the Republican Party ethos of removing policy discretion from the hands of the FED.

The downside is that a rules-based approach almost removes accountability from the FED and places it firmly in the hands of Congress and, with Trump’s tweets on economic growth and U.S equity market rallies, a slowdown in growth and a market reaction to a Taylor based model, which suggests that the FED Funds Rate should be sitting nearer 3%, maybe a pill too bitter for the President to swallow.

While Trump was quite critical of Yellen during the presidential campaign, the weaker Dollar and record highs enjoyed by the U.S equity markets, not to mention the ever-tightening labor market, have certainly put Yellen back in the running. The current FED Chair certainly doesn’t require any introductions but is considered the most conformist on financial regulation and the most dovish on monetary policy than the other front-runners.

A safer bet for some may even be Trump’s current chief economic advisor Cohn, who will likely be on the more dovish side on rates, whilst aligned with Warsh and Taylor on regulation, though it would be a big call to give the top spot to the laggard.

There were no comments from the Trump-Yellen meeting on Thursday, but with Trump having praised Yellen’s efforts last month, the chances of Yellen remaining in the chair has improved in recent days.

It’s likely to boil down to which of the candidates is more open to deregulation that marries with Trump’s intentions to ease banking regulations in the interest of growth, while also being considered adept in being able to shift between a rules-based and discretionary approach in the event of a crisis. With that in mind, a surprise is certainly plausible and the very uncertainty has left the markets second-guessing in recent weeks and will likely to continue to do so until the FED Chair has been announced.

News overnight hit the wires that Trump is veering towards Powell in another series of leaks and with, all things considered, my bet would be Powell over Yellen, Powell’s support for deregulation likely to be the clincher.

With Abe Looking Set to Take the Weekend Election in Japan, Focus Remains on the Dollar and the Effects of Spain on the EUR

Earlier in the Day:

There were no material stats released through the Asian session today, as the markets struggle with a number of driving forces through the week.

On Thursday, we saw the Kiwi Dollar slump 1.71% in response to NZ First’s decision to side with Labour in a coalition government, with further declines being seen in early trading today, the Kiwi Dollar down a further 0.63% to $0.69868 at the time of writing. While the markets are wreathing to a populist, anti-immigration government entering office, the RBNZ will on hand be thanking their lucky stars for the much needed slump in the Kiwi Dollar to support better trade terms and inflation, while on the other hand, NZ First’s desire to shift the central bank’s focus away from inflation to managing a weaker Kiwi Dollar will be a concern.

It’s too early to begin deciding the fate of the New Zealand economy and the Kiwi Dollar, with the agreements from negotiations between the respective parties entering into the coalition yet to be released, but given the rise in popularity of the NZ First Party, it would be hard to imagine Peters giving up key Party mandates.

The Aussie Dollar managed to give up Thursday’s gains in early trading, down 0.43% at $0.7844, with concerns over China and a possible shift in the PBoC’s focus to begin addressing China’s debt woes contributing to Aussie Dollar weakness, though renewed optimism that Trump will be able to deliver on tax reforms drove the U.S Dollar.

For the Yen, Election Day is looming. A revival in the U.S Dollar and the prospects of an Abe victory has eased any market jitters, with the polls showing that the decision for a snap election to catch the opposition party off-guard has paid off, pegging back the Yen through the session.

At the time of writing, the Yen was down 0.61% at ¥113.224 against the Dollar.

The Day Ahead:

Macroeconomic data is on the lighter side for the day ahead, with key stats out of the Eurozone limited to Germany’s September producer price index figures. The data is unlikely to have a material impact on the EUR through the day as the markets continue to respond to the troubles in Spain, as the Spanish government prepares to invoke Article 155 to strip the Catalan government of certain powers.

Catalonia may be a small region of Spain, but when considering the fact that the region accounts for close to 20% of Spain’s GDP, that’s considerable when also considering the fact that Spain is the Eurozone’s 4th largest economy.

Sentiment towards the EUR has been mixed, with concerns over China and slower growth weighing on market risk appetite, with carry trades reversing in favour of the EUR, while the response to the Spanish government’s intentions to enact Article 155 this weekend has pegged back any further gains.

Adding to the downside for the EUR has been renewed optimism that the U.S administration will be able to deliver on tax reforms, following the U.S Senate agreeing to accept a 2018 fiscal budget resolution on Thursday that paves the way for the much talked about tax reforms.

The news reversed Dollar weakness which came in response to news hitting the wires of Trump favouring Jerome Powell as the next FED Chair, Powell’s more dovish stance on monetary policy than some of the other front runners shifting market sentiment towards a possibly more aggressive path towards monetary policy normalisation.

On the stats front, existing home sales due out the U.S this afternoon will likely be ignored by the markets, as focus will be primarily on the progress on tax reforms and on who will be the FED Chair next February, with FED Chair Yellen also scheduled to speak late in the day, which could provide some final moves in the Dollar before the close.

At the time of writing, the EUR was down 0.38% to $1.1807, with the Dollar Spot Index up 0.24% to 93.486.

With the EUR under the cosh and the Dollar enjoying some attention, the Sterling bulls will be thankful of a day without any material stats, following the dire retail sales figures out of the UK on Thursday, which continues to question whether the BoE was right in its decision to ease monetary policy in the wake of the EU referendum result last year. Inflation has outpaced wage growth and, with household debt on the rise, the BoE is now in a precarious situation where lifting rates could in fact be more damaging than allowing inflation to run its course.

It’s going to boil down to the UK Budget and how far the UK government can go in loosening the purse strings whilst also being mindful of the need for a measured approach as negotiations on Brexit continue.

At the time of writing, the Pound was down a further 0.35% to $1.3113, with noise from the EU Brexit Summit likely to be a driving force through the day.

So Who Has the Most Advanced Cyber Warfare Technology?

Cyber warfare by definition is the use of computer technology to disrupt activities of a state or organization. Attacks can bring down official government or company websites and networks, disrupt and even disable essential services and much frightening, harming major facilities and infrastructure networks, steal or amend classified data, bring down financial systems and even decide the outcome of a superpower’s presidential election.

Cyberwarfare in more recent years has risen up the rankings as one of the more effective forms of war, used with the intent of inflicting harm over presiding governments and damaging economies, without the costly exercise of taking up arms.

The covert nature of cyber warfare is more akin to the cold war era of spy games, with superpowers and even the less powerful, raising the stakes, while we common folk sit back and ponder how fortunate we are to be living in relatively peaceful times, particularly in the West.

Estimates suggest that as many as 120 countries have developed ways to use the internet as a weapon and enter the fray, targeting government computer systems, utilities and of course, the financial markets.

The Cyber Cold War

Within Asia, China will certainly have one of the more advanced cyber armies, with estimates suggesting that China may have as many as 100,000 cyber soldiers today. It’s no secret that China has been using private sector specialists in its cyber offensive, in what is considered to be a decentralized network of cyber soldiers.

China is probably considered public enemy number one when it comes to cyber war, with the Chinese having been accused of being responsible for an array of cyber-attacks in Canada, France, India, Russia and, of course, the U.S., to name just a few of its more revered casualties of cyberwar.

An apparent agreement between the U.S and China of mutually assured restraint may well be as good as the handshake made at the time of the agreement, with China amongst other advanced nations having entered what some dub as the dawn of a Cyber Cold War.

Despite the handshake between China and the U.S, made during Obama’s time in office, the U.S State Department continues to publicly state that Chinese cyber-attacks against U.S companies remain ongoing.

Perhaps one of China’s generals in cyber warfare is Huawei, a company started just 30 years ago by Reng Zhengfei, a former civil engineer in the PLA and also a member of China’s Communist Party. Its telecommunications capabilities and support from the Chinese government certainly support the view that the Company is in bed with the Chinese government and engaged in covert operations.

Back in 2011, Huawei was in fact banned by the U.S government from bidding for the tender for the U.S emergency communications network, with the ban still effective for any projects of national strategic importance. It was only the following year that the Australian government blocked a Huawei bid to work on the country’s National Broadband Network.

In 2013, the UK government completed a cyber-security review and concluded that enhancements were required. The review is over cyber threats from Huawei’s cybersecurity center in Southern England. The Indian government has also faced some home truths, with certain departments within Huawei’s Indian office off-limits to locally employed staff.

Not only is the founder of Huawei a member of the Party’s army, but also a member of the Communist Party of China and if you’re looking for a clearly defined org chart on who sits where and responsible for what, it may be easier to get the NSA’s org chart.

It is worth pointing out that like any war, nations may be engaged in either defense, offense or both, with many nations having to partake in the interest of national security.

Other countries heavily involved and considered advanced in Cyberwarfare include Russia, with last year’s U.S Presidential Election and surprise Trump victory being attributed more to the will of the Russian Cyber Army and Putin than the voting population of the U.S.

According to Bloomberg, the Russians had targeted as many as 39 states across the U.S., though the U.S is certainly not the only victim to fall foul of Russia’s cyber-attacks, with Ukraine earlier in the year accusing the Russians of attacking its security service system, which spread globally affecting companies as distant as Australia. The alleged attacks on the Ukraine are not the first and are unlikely to be the last.

Ransomware attacks have become all the more popular in recent times, reaching as far as attacks on Bitcoin currency and, while North Korea continues to parade its military capabilities, the Kim Jong-Un regime is also known to be into cyber warfare, with the cyber army more commonly known as Unit 180, sitting within the North Korean’s main spy agency. Targets for Unit 180 include the U.S, South Korea and a number of other countries and, while North Korea vehemently denies the claims, investigations have found evidence that point to North Korea being involved in the global WannaCry “ransomware” cyber attack that hit over 300,000 computers in 150 countries in May. The attack even managed to lock some UK hospitals out of their IT systems, causing operations to be canceled.

North Korea has also been linked to a cyber-attack on the Bangladesh Central Bank, where a reported $81m was stolen and also an attack on Sony’s Hollywood studio.

Cyber-attacks similar to the North Korean Bangladesh Central Bank heist would certainly explain where the nation has sourced its funds to develop nuclear capabilities and weaponry now capable of reaching U.S soil. Defectors have affirmed that Unit 180 is engaged in the hacking of financial institutions and withdrawing funds from bank accounts, with members of Unit 180 traveling overseas to access more advanced internet services as victims unable to trace the attacks back to North Korea.

With the Far East catching up in cyber warfare, as power continues to ebb towards China, EU defense ministers just this week took part in a simulated cyber-attack exercise for the first time, the exercise is used to raise awareness of the possible impact of cyber-attacks on the military in particular.

While we have discussed the victims and the aggressors, the new cyber cold war is a global one, with nations not requiring the US Dollars or the sheer numbers to inflict significant damage and disruption on a global scale.

Unsurprisingly, the U.S sits as the nation has the best offensive cyber capabilities, the National Security Agency has been and continues to be involved in an array of big brother and clandestine operations.

To put the scale of the U.S cyber army into perspective, the headquarters of the U.S cyber spy division is considered to be equivalent to the size of a U.S city, with the NSA headquarters not only heavily armed, but also has its own police force. And it just keeps getting bigger, with the NSA’s cyber spies recently joining forces with U.S Cyber Command, which is responsible for the U.S Cyber Army, Cyber Airforce, Cyber Marine Corps and Cyber Navy.

To the NSA’s embarrassment, it was Snowden’s revelations that publicized just how advanced the U.S was in the race to cyber supremacy and it certainly just caused for other nations to take note and catch up.

Snowden had also stated that the U.S is intent on turning the internet into a battleground for war, with the U.S government looking to attain Information Dominance.

Perhaps surprisingly will be Israel’s assumed ranking of number 2 in the rankings, with the U.S and Israel agreeing to collaborate on fighting off cyber-attacks, Israel too has been a victim of ransomware over the summer. Israeli intelligence is well known across the world and some say that Israel leads cyber warfare technology. The need to monitor Iran, in particular, and its progress in nuclear and cyber capabilities considered key to the stability of the region. Underground, there is a battle between Israel and the US versus Iran, Russia and perhaps China.

There will be some debate over who comes 3rd, China or Russia, with both considered particularly active, when considering some of the cyber-attacks hitting the headlines in recent years, which leaves Iran and North Korea, who are assumed to have similar capabilities, ranking behind what may ultimately be a China – Russia collaboration to take over the world, or at least battle against the might of the U.S.

So, with the U.S sitting at the helm and way ahead of the field, the aggressor has certainly fallen victim to cyber-attacks and we will expect the developed world to play catch up, not because there is concern over the NSA listening in, that has been going on since the ‘50s, but because countries like Iran, North Korea, and even Russia are intent on causing material disruption and even influence democracies across the globe. Lessons learned from the actions of an American past and perhaps even present.

Big brother has always been the U.S, but it now has some younger brothers and in the modern age of technology, they are likely to grow up quickly.

One can only imagine the prospect of a combination of Artificial Intelligence and advanced Cyber warfare technology. Such a world and such a prospect is a chilling one to consider, with access to nuclear codes, central banks, financial systems, the military and the corporate world, as we know it today, likely to leave mankind pondering on whoever came up with such a devastating idea.

We’re not there yet, but our governments are in a hurry and it won’t be long before the cyber war evolves into something more than just spy games.

NZ First Tanks the Kiwi with UK Retail Sales and Trump to Drive the Pound and the Dollar

Earlier in the Day:

Macroeconomic data released through the Asian session this morning was on the heavier side and included Japan’s September trade figures, 3rd quarter GDP together with September industrial production and fixed asset investment numbers out of China and Australia’s September employment data.

Japan’s trade surplus widened in September, with exports rising by 14.1% following August’s 18.1% increase year-on-year, providing further support to the Nikkei, as exports increased for the 10th consecutive month supporting the Japanese export stocks and the continued optimism in the global economy.

In contrast, China’s 3rd quarter GDP numbers made less of an impact on the markets, with disappointment of a slowdown in growth in the 3rd quarter holding back a market rally in response to the Dow’s 23,000 breakthrough on Wednesday, despite the numbers being in line with forecast and September’s retail sales and industrial production figures being on the positive side.

With the National Party Congress in progress, both the Hang Seng and the CSI300 were in the red at the time of writing, though the negative response to the numbers will likely be short lived, China’s 3rd quarter growth being only marginally slower than the 1st half of the year.

For the Aussie Dollar, there was some upside following the better than expected employment numbers, with Australia’s unemployment rate falling to 5.5%, though looking at the numbers, full time employment gains lagged part-time employment gains. Since September 2016 however, full-time employment increased by 315,900, with part-time employment rising by just 55,600 which is a positive for the Aussie Dollar.

At the time of writing the Aussie Dollar was up 0.04% at $0.7849, with Aussie Dollar having given up gains off the back of the employment numbers following the release of China’s 3rd quarter GDP figures.

Things weren’t so good for the Kiwi Dollar in Asian trading hours this morning however, with the Kiwi Dollar tumbling 1.08% to $0.7076, on news that NZ First Party leader Peters was preparing to announce with which party they will side to form government.

While the Kiwi managed to make a partial recovery, NZ First Party leader Peter’s announcement of a coalition with Labour pulled back the Kiwi Dollar, which was down 1.33% at $0.7058 at the time of writing, the general view being that the new coalition’s policy on immigration and trade will be a negative for the New Zealand economy. The Greens appear to be backing NZ First’s decision, so that’s the end of that for the National Party.

The Day Ahead:

It’s another day for the Pound today, following the disappointing wage growth figures and a particularly dovish new Deputy Governor of the BoE, with September retail sales expected to provide further indications of whether the BoE will be in a position to lift rates and begin curbing inflationary pressures that have gone above and beyond the BoE’s objective for some time now.

Based on forecasts, the numbers are likely to be a negative for the Pound, though as we have seen throughout the year, the UK economy has remained surprisingly resilient despite the negative sentiment over the effects of Brexit and inflation on the economy. An unexpected boost in sales will add to the prospects of a November rate hike, though with a move largely priced in, it’s likely to boil down to whether the BoE will have to take a more hawkish stance on policy over the medium-term, with the markets currently expecting a move towards normalization to be a particularly gradual one.

The Pound was up just 0.04% at $1.3211 ahead of the European open, managing to hold on to $1.32 levels in spite of the BoE doves.

For the EUR, it’s another big day as the markets prepare for yet another showdown between Catalan President Puigdemont and Spanish Prime Minister Rajoy, with no material stats out of the Eurozone to consider. The Spanish government’s Monday deadline for Catalan to clarify whether it has declared independence was extended to this morning and any defiance from the Catalan government could see the Spanish government respond with Article 155 that will likely result in more Spanish unrest and political uncertainty. While the EUR is up 0.08% at $0.1796 at the time of writing, we can certainly expect the markets to respond, though there have been suggestions by Catalan government officials that no clarification will be forthcoming, which should make things interesting.

Across the Pond, it’s a big day for FED Chair Yellen, who is scheduled to meet with the U.S President to discuss a possible second term as FED Chair. There’s been plenty of hype over who the likely FED Chair will be, with yields swaying on market sentiment, the emergence of Yellen as a front runner reversing the jump in yields following Stanford economist John Taylor’s interview with the U.S President earlier in the week.

We will expect comment from the U.S President on how the meeting went, though the eventual outcome will continue to be a mystery as Trump looks for a supporter of financial deregulation.

On the data front, stats are limited to the weekly jobless claims and October Philly FED Manufacturing figures, which will provide direction for the Dollar, particularly if the Philly FED Manufacturing data is as impressive as the NY Empire State numbers released at the start of the week.

With Trump expected to announce the FED Chair in the coming days, it’s likely to remain the area of focus for the markets however, the prospect of a material change to policy setting and regulation certainly not something to be brushed aside.
The Dollar Spot Index was up 0.06% at 93.416 at the time of writing, with Trump in the driving seat for the day.

Market Snapshot – Equity Markets Rampant as the EUR and GBP Soften

Dow Set to Break through 23,000 for a 2nd Consecutive Day

The Dow was unable to hold on to 23,000 levels on Tuesday, while the Dow Mini is currently up 54 points as the markets look to take another run at a plus 23,000 close.

European equities are in buoyant mood at the time of writing, with Chinese Premier Xi doing little to alarm the markets in his opening speech at the National Party Congress. Both a softer EUR and GBP have supported the respective indexes through the early part of the European session, with gold giving up gains from earlier in the day as risk appetite continues to build. It’s a snappy combination for the market bulls, dovish central bank sentiment coupled with a positive global macroeconomic environment.

Uncertainty over Catalan Independence Continues to Weigh on the EUR

Ongoing uncertainty over whether Catalan President Puigdemont will declare independence ahead of tomorrow’s deadline continues to weigh on the EUR through the early part of the European session, with the EUR down 0.21% at $1.1741. Concerns over the Eurozone’s 4th largest economy has built following the Spanish government’s downward revision to growth forecasts for next year. Catalan spokespersons have said that there will be no response to Prime Minister Rajoy’s deadline, which will raise the possibility of Article 155 being invoked that would remove certain governing powers of the Catalan government.

Sterling Takes a Dive on Latest Employment Numbers

Following some dovish commentary from newly appointed Deputy Governor of the Bank of England on Tuesday, the markets responded in form to the release of this morning’s UK employment figures, with a slight uptick in wage growth continuing to spell trouble for those looking for a more hawkish Monetary Policy Committee, the only positive from the stats being the fact that the UK’s unemployment rate continues to sit at a 42-year low. Wage growth increased by just 2.2% including bonuses per year in the 3-months to August, falling short of September’s 3% surge in consumer prices and even the start of the 3-month period’s May 2.9% annual rate of inflation. The Pound slid from $1.3184 to sub-$1.316 levels following release of the figures before recovering to $1.3166 at the time of writing, with pressure on the UK government and the BoE to address the effects of softer wage growth and inflation continuing to build.

Bitcoin and Ethereum Price Forecast – Consolidation Mode

Bitcoin continues to defy gravity and much more with Bitcoin sitting at just under $5,500 at the time of writing, as the markets continue to look ahead to up and coming forks that are likely to result in additions to the Bitcoin family, with Bitcoin Gold the first up next week.

Investment bankers have tried to stem the Bitcoin storm, though the advice may be that ‘if you can’t beat them, join them,’ some of the very same U.S banks now looking to provide a Bitcoin trading platform.

Cryptocurrency resilience has been more than evident, despite the best efforts of some governments to curb the seemingly unstoppable rise in value, which may suggest that talks of a bubble will begin to abate. Remove the scaremongering and what’s left could be a surge of stratospheric proportions, the scaremongering having left many an investor on the side lines, laying-in-wait for the collapse…

As ever, caution is needed, but as Bitcoin continues to knock down the walls of resistance, some may decide to throw caution to the wind.

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Bitcoin Prices Ignore the Prospect of Hard Forks

In contrast to the August hard fork that saw Bitcoin tumble to sub-$3,000 levels, sentiment towards the possible creation of Bitcoin Gold seems to have few in arms as the battle between Bitcoin’s core developers and the mining cartel rages on.

Some consolidation over the near-term would be the classic way of thinking, but with little seemingly able to get in the way of the dynamicity of Bitcoin and the market, support levels remain strong at present, despite the likes of Goldman Sachs suggesting that gold remains their preferred investment of the two.

Ultimately, the question will be whether too many Bitcoin hard forks will spoil the broth, the cryptoworld having been able to stomach the creation of Bitcoin Cash, which to-date remains the only alternative Bitcoin currency.

Ethereum prices eased back at the time of writing, down 9.33% at $306.04 as some profit taking hits following the success of the hard fork at the start of the week.

Ethereum has yet to test Bitcoin, but Bitcoin may be about to test Ethereum support, with the Bitcoin Gold Fork providing an alternative to Ethereum miners, with graphic processing units about to be an option to mine for Bitcoin Gold.

Forecast

Barring any unforeseen events through the day, we will expect some degree of consolidation to prevail as the Cryptoworld looks ahead to the upcoming forks and whether there will be a resultant shifting of the goal posts for Bitcoin and Ethereum, though as we have seen in the past, there’s plenty of appetite for now to support the various cryptocurrencies over the near-term.

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Gold Steadies as Markets Consider the FED Chair Effect

Gold looked to reverse declines from the early part of the week, as sentiment towards a significantly more hawkish FED in the hands of Stanford economist John Taylor eased through the early part of the day.

The Taylor Law has projected that interest rates should be three times higher than current levels, with Taylor known to be a hawk, but as the markets and many of the FOMC hawks know too well, it’s not just down to the views of the Chair and the hawks, with the doves having curtailed a more aggressive rate path over the last 18-months, despite a continued improvement in U.S economic conditions and tightening labour market.

With the U.S President scheduled to meet with current FED Chair Yellen tomorrow, it remains unclear who the favorite is and if in fact a more hawkish candidate would be able to instill a more aggressive Committee attitude towards policy.

Gold finds support as Chinese Premier Delivers Opening Speech

Gold
Daily December Comex Gold

Risk appetite through the early part of the day was limited as the markets took a more cautious approach as the markets look for any intentions by the Chinese government to begin addressing corporate China’s mounting debt crisis and its infrastructure plans for the next 5-years.

Equity market stability through the Asian session may leave gold on the back foot going into the European session however, with the ASX200, Hang Seng and Nikkei flat at the time of writing, the CSI300 up 0.43%, defying the traditional declines going into the National Party Congress.

From a data perspective, stats out of the U.S are limited to September housing data and the Beige Book, which will likely have limited impact on the direction of gold through the day, while FOMC members Dudley and Kaplan could influence should there be any hawkish sentiment towards the U.S economy and monetary policy.

Oil prices continued to move northwards, with WTI putting more distance between itself and $50 per barrel as the markets responded to the larger than expected draw down according to the API numbers out of the U.S late on Tuesday. Indicators are bullish for crude at present, with risk of supply disruption and rising tensions between the U.S and Iran adding to the appetite ahead of this afternoon’s weekly EIA inventory figures. Time will tell how far the rally will run, with the markets all too aware of the readiness of U.S shale producers to crank up production at a drop of a hat.

Silver outpaced gold through the early part of the Asian session this morning, supported by a softer U.S Dollar and market caution through the opening speech of Chinese Premier Xi at China’s National Congress.

EURUSD Daily Fundamental Forecast – October 18, 2017

EURUSD Wednesday

The EURUSD pair continued to soften on Tuesday, with pressure coming from all sides as economic data out of the U.S continued to impress, with import prices jumping 0.7% and September industrial production rising by 0.3% in spite of the effects of Hurricanes Harvey and Irma through the month.

With macroeconomic data out of the U.S continuing to support a December rate hike by the FED, the Spanish government’s downgrade of economic growth projections for next year from 2.6% to 2.3%, attributed to the Catalan call for independence was another negative on the day.

In contrast to the recent stats out of the U.S, economic data out of the Eurozone disappointed on Tuesday, with Germany and the Eurozone’s ZEW Economic Conditions Indexes on the decline, with the Eurozone’s core inflation figures continuing to sit well short of the ECB’s objective.

EURUSD under Pressure as Geo-political Risk Weighs

EUR/USD daily chart, October 18, 2017
EUR/USD daily chart, October 18, 2017

While macroeconomic data out of the Eurozone has been largely positive in recent weeks, the Eurozone economy may begin to feel the pinch of rising geo-political risk.

We’ve seen the Spanish Government already downwardly revise growth forecasts for next year, which is not ideal when considering the fact that Spain is the Eurozone’s 4th largest economy, the downgrade is justified when considering Catalonia’s GDP contribution to the Spanish economy.

How things evolve in Spain in the coming days will provide the EUR with direction through the week, though it’s not just Spain that the markets will need to keep an eye on, with German Chancellor Merkel on a weaker footing at the coalition negotiating table following last weekend’s state elections and that’s before considering political events in Austria, as populist parties continue to disrupt the progress of the elite.

On the data front, there are no material stats out of the Eurozone today to provide direction for the EUR, while Draghi is scheduled to speak this morning, which could provide direction for the EUR should any references be made to the ECB’s asset purchase plan intentions going into the New Year. There had been disappointment at the start of the week following leaked reports on the ECB’s intentions, so anything more hawkish will be EUR positive.

Out of the U.S, the Beige Book and September housing sector data will be in focus, with FOMC voting members Kaplan and Dudley also scheduled to speak, any hawkish commentary on policy being Dollar positive. We’ve seen the Dollar find direction of late over speculation over who is in line to take the top job at the FED, with the market and Dollar favourite most likely to be Yellen. The U.S President is scheduled to meet with the current FED Chair tomorrow to discuss another term and noise over candidate progress will need to be factored in through the day.

Commodities Daily Forecast – October 18, 2017

Gold

Gold remains under pressure with economic data out of the U.S continuing to impress, as industrial production gained in September despite Hurricanes Harvey and Irma and U.S import prices increased by 0.7%. There may be some near-term support with China’s National Party Congress getting underway today …Read More

Silver

Silver outpaced gold through the early part of the Asian session this morning, supported by a softer U.S Dollar and market caution through the opening speech of Chinese Premier Xi at China’s National Congress.…Read More

WTI Crude Oil

Oil prices continued to find support in the early part of the day, with support coming from continued unrest in Iraq as Iraqi troops engaged with Kurdish fighters in the oil region of Kirkuk. Additional support comes from expectations of a further decline in U.S crude oil inventories, with the weekly EIA numbers due out later today, the API having reported a 7.13m barrel draw down on Tuesday evening. Further gains will hinged on whether tensions continue to build between the U.S and Iran over the nuclear agreement and whether U.S shale producers crank up production with oil prices sitting above $50 per barrel…Read More

Natural Gas

Gas prices eased back on Tuesday, with further declines seen in the early part of the day today as concerns over an easing in demand over a warmer weather outlook in the U.S weighed, with the outlook for next month now key as current November forecasts remain normal, the latest decline attributed to weather forecasts for the remainder of October…Read Me

China’s National Party Congress in the Spotlight, with Draghi and UK Employment Figures to Drive the EUR and the GBP

Earlier in the Day:

There were no material stats released through the Asian session this morning, leaving the markets to consider China’s Premier Xi Jinping’s opening speech at China’s National Party Congress.

With the U.S administration ruffling global feathers, a shift in foreign policy and sentiment towards relations with the U.S is a possible outcome to the this week’s gathering, with China likely to be looking to make further inroads into being the global leader, Trump certainly giving Xi Jinping a relishing opportunity to put China ahead of the pack.

Following the small gains in the U.S equity markets on Tuesday, amongst the Asian majors, the ASX200, the Nikkei and Heng Seng were flat at the time of writing, while CSI300 continued to move forward, despite traditionally being under pressure going into the twice in a decade assembly, though there could be pressure should the head of the PBoC call for a focus on pegging back ballooning debt levels across Chinese companies.

While there will be concerns over what’s to come for China’s equity markets this week, China’s market regulators have put in measures to prevent any unnecessary market volatility during the National Party Congress.

Looking across to the Kiwi Dollar and ongoing discussions between NZ First, the National Party and the opposition and the Greens, little news has emerged on which way the NZ First board and party leader Peters are likely to go leaving the Kiwi Dollar under pressure, down 0.22% at $0.7155 at the time of writing.

Following a relatively dovish set of RBA meeting minutes on Tuesday, the Aussie Dollar managed to stand its ground, supported by the risk on sentiment and yield differentials driving carry trades in favour of the Aussie Dollar, with the U.S Dollar pulling back on the continued speculation over who will take the top spot at the FED.

At the time of writing, the Aussie Dollar was flat at $0.7845, while Premier Xi’s opening speech at China’s National Party Congress eased appetite for the Yen, which was down 0.10% at ¥112.31 against the Dollar.

The Day Ahead:

Following BoE Governor’s failings to provide a more assertive outlook on BoE monetary policy in his testimony to the House of Commons Treasury Committee on Tuesday, the Pound remains under pressure despite the annual rate of inflation ticking up to 3% in September.

There’s been plenty of debate on whether the BoE will make a move next month and the more dovish side of the camp suggest that softer wage growth may actually have pegged back inflationary pressures that could give the BoE some breathing room.

This morning’s average earnings and claimant count numbers will provide the markets with some further direction on the BoE’s likely moves in the coming months, with Carney noting that inflation was likely to move higher than September’s 3% by the end of the year, with the markets having priced in an 80% chance of a November move.

At the time of writing, the Pound down 0.07% at $1.3181, with noise over Brexit another consideration ahead of tomorrow’s EU Brexit Summit

Across the Channel, the EUR has been under the cosh this week as geo-political uncertainty continues to weigh on the EUR, with Spain seemingly torn following Catalan’s independence referendum.

Till now Catalan President Puigdemont has been silent on whether independence has been declared, with the Spanish government having made it clear on its position in recognizing the referendum.

Hopes of any dialogue between the Spanish and Catalan governments seems to be dwindling by the day following the arrest of two of Catalan’s separatist leaders on Tuesday, the two facing possible charges of sedition. To make matters worse for those in search of independence, Spain’s constitutional court unanimously ruled that the Catalan referendum had in fact broken Spanish constitutional law, upholding the court’s previous ruling that had called the referendum illegal.

Catalan President Puigdemont has until tomorrow to clarify the issue of independence and, following yesterday’s arrests, Puigdemont is likely to be under even greater pressure from Catalan hardliners to push for independence.

While the uncertainty is considered less of a Eurozone issue and more of an internal issue for the Spanish government, there had been concerns of an impact to the Eurozone’s 4th largest economy, which were justified on Tuesday as the Spanish government revised its growth forecast for 2018 from 2.6% to 2.3%, attributing the downward revision to the current uncertainty over Catalan’s calls for independence, Catalonia being one of Spain’s key economic regions.

The EUR was down 0.03% at $1.1762 at the time of writing. With no material stats scheduled for release through the day, direction will be hinged on noise from Spain and any comments from ECB president Draghi, who is scheduled to speak later this morning.

Across the Pond, debate over Yellen’s successor at the FED has been a key driver for the Dollar in recent days, with gains in the Dollar easing following a shift in sentiment late on Tuesday ahead of Yellen’s meeting with Trump tomorrow.

For the Dollar bulls, the good news was the pickup in industrial production in September, which came despite Hurricanes Harvey and Irma and with FOMC members Kaplan and Dudley scheduled to speak today, there could be more gains should both brush aside the continuingly soft inflationary pressures.

On the data front, stats are limited to September housing data and the release of the Beige Book, which could test the Dollar should Kaplan or Dudley fail to take a hawkish stance on the U.S economy and monetary policy.

At the time of writing, the Dollar Spot Index was up 0.06% at 93.545.

RBA Minutes Weigh on the AUD, with UK Inflation and Carney to Drive the Pound

Earlier in the Day:

Macroeconomic data out of the Asian session this morning was limited to New Zealand’s 3rd quarter inflation figures, which were better than forecasts, easing some pressure on the Kiwi Dollar, though the numbers were certainly well below Q3 estimates released in August, where the annual rate of inflation had been estimated at 2.1%.

The RBNZ has shifted its stance on monetary policy, with concerns over a softening in inflation coupled with negative trade terms from a stronger Kiwi Dollar weighing. While this morning’s figures may be a positive for the RBNZ, how the Kiwi Dollar performs in the coming weeks will be a consideration for the RBNZ and much of that will likely depend on with whom NZ First Party decides to form a government with.

The Kiwi Dollar moved from $0.7190 to $0.71933 upon release of the data, before easing back to $0.7165 at the time of the report, as the markets wait on to see which way the NZ First Party Board will swing.

For the Aussie Dollar, the RBA meeting minutes were also released this morning, the AUD having been hit by the more dovish than expected statement released earlier in the month.

Key points from the minutes include:

  • The RBA is in no particular hurry to lift rates and has no intention of following other central banks, where monetary policy easing through and beyond the global financial crisis was considered to be far more significant than the RBA’s easing.
  • Rising energy costs have been absorbed into margins rather than being passed through to final prices, with recent data pointing to subdued price pressures, suggesting that any necessary move to curb inflationary pressures remains unwarranted.
  • Aussie Dollar appreciation is expected to contribute to subdued price pressures, with any further appreciation in the Aussie Dollar likely to lead to a slower pickup in economic activity and inflation than currently forecasted.
  • Concerns over household debt were raised once more, with the RBA noting household sensitivity to rising interest rates and, despite a positive view on the domestic economy, this concern alone will more than likely leave the RBA in a holding pattern over the near-term.

The Aussie Dollar moved from $0.78450 to $0.78406 upon release of the minutes, which come in the wake of the RBA’s financial stability report released late last week, where the RBA had also raised concerns over the possible effects of interest rate hikes on household disposable incomes, particularly with wage growth continuing to lag behind the rate of increase in household debt.

Following another record run across the major U.S indices, it was another risk on day for the markets, with the Nikkei, ASX200, CSI300 and Hang Seng making further ground, as the markets look ahead to Xi Jinping’s opening speech at the first day of China’s National Party Congress tomorrow.

How China intends to move forward over the next five years will certainly be a key driver this week, with Xi Jinping’s speech expected to outline whether the Chinese government will continue to support growth or pull back the reigns and look to consolidate.

Asian equities certainly seemed more interested in the record closes over in the U.S than what’s to come.

The Day Ahead:

For the day ahead, there’s certainly plenty to consider, with macroeconomic data out of the UK kicking things off, September’s inflation figures likely to stir the Pound, with the annual rate of inflation expected to hit to 3%.

There’s been little sign of respite in UK inflationary pressure, with any upticks in the Pound seemingly short lived, which may leave the BoE with little choice but to deliver on its suggestion of a rate hike in the coming months.

BoE Governor Carney is scheduled to speak later in the morning, as Carney delivers testimony to the House of Commons Treasury Committee. Earlier in the year, Carney had justified a hold on monetary policy, in spite of surging consumer prices, over near-term negative projections for labour market conditions that have yet to materialize.

With tomorrow’s employment numbers scheduled for release and Thursday’s retail sales figures, a hawkish Carney and some positive numbers this week will certainly be bullish for the Pound, though there is the EU Brexit Summit to consider later this week, EU Commission President Juncker having been rather scathing on progress to date.

At the time of writing, the Pound was up 0.02% at $1.3254, with Carney likely to have the final say on the Pound ahead of tomorrow’s employment numbers.

Across the Channel, macroeconomic data out of the Eurozone includes the ZEW’s October Economic Sentiment figures for Germany and the Eurozone together with the Eurozone’s finalized September inflation numbers. Draghi had only just echoed Yellen’s outlook on inflation and a likely pickup in the near-term, so while core inflation is expected to continue to fall well-short of the ECB’s objective, hopes will be of a near-term pickup that could force the ECB to rethink its asset purchasing program plans for next year, the leaked information having weighed on the EUR at the start of the week.

Adding pressure on the EUR will be the Spanish government’s extended deadline to Catalan President Puigdemont until Thursday to clarify whether independence has been declared. Monday’s deadline passed with the Puigdemont remaining silent through the day in defiance. The invoking of Article 155, which will remove certain Catalan government powers could well be the final outcome, which would more than likely result in further unrest across Spain and not only impact the EUR but the Eurozone’s 4th largest economy that has been recovering well through the year.

At the time of writing, the EUR was down 0.24% at $1.1768, with today’s figures and of course, German Chancellor Merkel’s progress on coalition talks also key to direction through the day.

Across the Pond, the Dollar found its feet late in the day on Monday as news hit the wires of Trump’s interview with Stanford University economist John Taylor, who was said to have impressed. Taylor is perhaps the most hawkish of the candidates at present, though perhaps of greater importance was an announcement that the U.S President would meet with current FED Chair Yellen to discuss the possibility of serving running for a second term.

While focus will continue to be on the FED Chair interviews and the U.S Administration’s tax reform plans, macroeconomic data out of the U.S this afternoon is limited to September’s import and export price index and industrial production figures, which are forecasted to be Dollar positive.

There have been few disappointing stats out of the U.S of late, with inflation having been the negative from a FED policy perspective. FOMC voting member Harker speaking late in the day could provide some direction for the Dollar, while Draghi is also scheduled to speak after the closing bell.

At the time of writing, the Dollar Spot Index was up 0.08% at 93.383.

Asian Equities Move Forward, with Yellen Delivering Dollar Support

Earlier in the Day:

The markets responded to the softer than forecasted inflation figures and upbeat retail sales data out of the U.S, with Asian equities on the march through the session this morning, as sentiment towards the prospects of a December rate hike by the FED eased further, following the more dovish than expected monetary policy meeting minutes that had been released last Wednesday, while the general outlook towards the global economy continues to be upbeat.

At the time of writing the Nikkei was up 0.64%, with the ASX200 closing with a 0.56% gain, while the Hang Seng and CSI300 were also continuing to make forward moves, up 0.93% and 0.04% respectively ahead of the 19th Communist Party Congress, which starts on Wednesday.

Concerns over a possible missile launch by the North Koreans seemed to have little impact on risk appetite through the Asian session, as the U.S and South Koreans kicked off a joint drill that resulted in criticism from the North Koreans.

Key stats released through the Asian session this morning included China’s September inflation and producer price figures and Japan’s industrial production numbers. China’s producer price index surged by 6.9% year-on-year, with consumer prices rising by 0.5% for the month.

Out of Japan, industrial production grew by 2% in August according to finalized figures, which fell short of the prelim 2.1% increase, whilst the sector saw activity bounce back from July’s 0.8% decline, providing further support to the market’s upbeat sentiment towards the global economy, which has seen the Nikkei hit levels not seen since the mid-1990s.

For the Kiwi Dollar, the markets would have been hoping for some news on whether NZ First party leader Peters and the board will be looking to form a coalition with the National Party or the Labour and the Greens. Acting Prime Minister English announced early in the day that an announcement may not be forthcoming until the end of the week, with NZ First party leader Peters also suggesting that a decision would likely be reached by the end of the week, the previous October 12th timeline having already passed. There’s plenty of uncertainty with NZ First policies more aligned with Labour and the Greens, whilst many consider a two-party coalition a simpler route to an agreement. At the time of the report, the Kiwi Dollar was down 0.08% at $0.7175, with any upside continuing to be dependent upon who takes office and the RBNZ’s monetary policy outlook.

The AUD was down 0.13% at $0.7877, with the Yen down 0.06% at ¥111.89 as the U.S Dollar found some support from comments from FED Chair Yellen on Sunday, Yellen saying that her best guess would be for inflation to accelerate in the near-term following a period of unexpectedly soft inflation.

The Day Ahead:

Macroeconomic data is on the lighter side for the day ahead, with data out of the Eurozone this morning limited to August’s trade figures ahead of October’s New York Empire State Manufacturing Index this afternoon.

Following Germany’s August trade data released last week, which saw a sizeable widening in the trade surplus, expectations will be for the Eurozone trade surplus to also see a widening in August, despite a strengthening in the EUR through the month. While any positive numbers will be EUR positive, Yellen’s views on inflation managed to provide the Dollar with some support going into the European session, with the EUR down 0.13% at $1.1805 at the time of writing, despite ECB President Draghi sharing the same view as Yellen on inflation.

Geo-political uncertainty continues to be a factor for the markets, with Merkel’s CDU Party losing out to the Social Democrats over the weekend in a snap state election victory, with SPD support rising to 37.7% based on projections, ahead of the CDU’s 33.7%. While the state elections tend to have less of an influence on the markets and the EUR, the CDU defeat will likely weaken Merkel’s powers in negotiations with possible coalition partners in the coming weeks.

Adding to mix today will be whether Catalan President Puigdemont declares independence, with the President having been given until 0800GMT to clarify whether independence has been declared. We can expect some disruption should Puigdemont declare independence, following Spanish Prime Minister Rajoy’s warning that Article 155 of the Spanish Constitution would be invoked, resulting in direct rule and removing the Catalan government’s powers.

With no material stats out of the UK today to drive the Pound ahead of some key stats through the week, noise over Brexit will be a factor to consider through the day ahead of this week’s EU Summit on Brexit.

Across the Pond, with data limited to the manufacturing numbers, the Dollar may be tested ahead of this afternoon’s stats, as the markets look to who will likely take over the FED and whether there is any increased tension between the U.S administration and North Korea, which would be seen as Dollar negative, though Yellen’s inflation sentiment will likely echo through the European session.

At the time of writing, the Dollar Spot Index was up 0.09% at 93.175, with the Pound flat at $1.3284.

The Next Cryptocurrency Evolution: Countries Issue their Own Digital Currency

Depending on which U.S Bank CEO you listen to, the sentiment varies considerably, which continues to leave a shroud of uncertainty over the cryptoworld.

Volatility has certainly picked up of late, largely attributed to a shift in central bank focus on cryptocurrencies, with China’s decision to ban ICOs and the shutting down of cryptocurrencies, considered by some to the be the beginning of the end for the decentralized, unregulated market as it is today.

While China has raised questions over the future of cryptocurrencies in the world’s largest mining and ICO markets, there appears to have been a paradigm shift in sentiment towards cryptocurrencies, with countries having launched or exploring the possibilities of launching national cryptocurrencies. Such a move suggests that there will likely be longevity in cryptocurrencies and the only real question cryptocurrency holders need to ask is where the dominos will fall.

Interestingly, back in 2015 when Ecuador became the first country to launch an electronic currency, the government had banned Bitcoin and competing for e-money systems ahead of the shift to electronic money. Perhaps the Chinese government and the PBoC have a similar line of thinking as the government’s control on capital outflows is just another reason why the government is likely to deliver a Chinese Yuan cryptocurrency alternative to Bitcoin.

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It’s certainly early days, but with a number of countries have already launched their own cryptocurrencies, there are others looking to follow. Governments look to battle the decentralized component of Bitcoin and regain control, with a centralized version of the ever-growing popularity of decentralized cryptocurrencies.

So far, the countries that launched their own Cryptocurrency

To date, countries that have issued their own cryptocurrencies include Ecuador, China, Senegal, Singapore, Tunisia, though these countries will not be standing alone for long with Estonia, Japan, Palestine, Russia and Sweden looking to launch their own national cryptocurrencies. Some of these countries are likely to take it a step further and replace paper tender altogether with China being one nation that is looking to take one step beyond a virtual and paper version.

Of the countries looking to introduce their own cryptocurrencies, the world’s largest economies could force the hands of smaller nations and we would expect momentum to build in the years ahead. Central banks now looking closely at the successes and constraints faced by those who have already stepped into the light, though only in early September, ECB President Draghi stated in a press conference that no member state of the Eurozone can introduce its own digital currency, with the currency of the Eurozone being the euro.

How countries’ launch of their own cryptocurrency can Affect Bitcoin and Ethereum?

As countries continue to explore and roll out their own cryptocurrencies, there has been some concern over the possible ramifications of the existence of national cryptocurrencies on Bitcoin and Ethereum.

As things stand, both Bitcoin and Ethereum managed to navigate through the market selloff last month, following China’s moves against Bitcoin and ICOs, with the existence of national cryptocurrencies having yet to influence market appetite for the decentralized cryptocurrencies. Bitcoin surprised again as prices broke the $5000 psychological level and hit a new all-time high above $5800.

The issue that the market and decentralized cryptocurrencies such as Bitcoin will be the likely face the decision by central banks to ban existing cryptocurrency exchanges, same as China has done, forcing Bitcoin holders to move out of Bitcoin into national virtual currencies.

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A move to a centralized cryptocurrency will unlikely be well received by the crypto community, though few will argue against the need for some regulatory oversight and it would perhaps be more appropriate to come from a regulatory body that is independent of governments and Central Banks as paper tender remains in circulation.

For now Bitcoin and Ethereum are likely to be safe and with a number of countries having already recognized Bitcoin as legal tender, including Japan, it’s going to take some time for the reversal process to play out and for citizens of the more forward-thinking nations to pass up Bitcoin’s attractiveness in the interest of a national cryptocurrency.

After all, Bitcoin is not just a virtual currency, but also an investment that has lined many a pocket with gold. National cryptocurrencies are unlikely to give buyers a similar opportunity as the centralized nature behaves quite similar to a  paper tender, where the value is likely to be controlled by the respective central banks.

Not only countries: What is Numeraire Cryptocurrency?

With cryptocurrencies having gripped the markets and with equity markets close to or at record highs, the savvy fund managers have been in search of a new alternative, with many looking for similar returns to those enjoyed by the early holders of Bitcoin.

One of the key benefits of cryptocurrencies that tends to be lost in the returns is the fact that cryptocurrencies can be used to incentivize, with the programmability of cryptocurrencies making it possible to embed rules that can influence the holder of a particular cryptocurrency.

In 2016, Numerai launched as a ‘new kind of hedge fund built by a network of data scientists.’ Traditionally, funds make trades based on human decisions and a mass of research, while Numerai allows anonymous programmers to write open source trading algorithms based on data provided by Numerai.

The programmers /data scientists are then paid Bitcoins depending on how well their respective algorithms fare in the market.

In a bid to take yet another leap forward, Numerai launched its own cryptocurrency called Numeraire. Numerai initially distributed one million Numeraire tokens to 12,000 data scientists, who are then able to bet their tokens on how well their respective algorithms will perform. The distribution of the tokens was based on the past performance of the data scientists’ algorithms.

As before, if an algorithm does well, the data scientist will be paid with Bitcoins, but will also have their Numeraire stake returned, then programmers having sent their Numeraire token stakes to Numerai’s smart contract on the Ethereum blockchain. If the algorithm does poorly, then the data scientist won’t receive any payment and will also lose their Numeraire stake, the lost Numeraire tokens being permanently destroyed.

The launch of Numerai and the eventual creation of Numerai tokens is certainly one that hasn’t been seen before, with data scientists not only incentivized to do deliver strong algorithms but also to bring in new programmers to improve the performance of the Fund. The better Numerai’s performance, the more value assigned to Numeraire and the more profit to share amongst the programmers still in possession of Numeraire tokens.

It’s said to be the first hedge fund to harness network effects and the theory being that value is gained through strengthening effects, but the jury is out on what lies ahead for Numerai and the data scientists holding the Numeraire tokens. The hedge fund looking to break down the competitive nature in finance by incentivizing collaboration for gain.

If one has something, the other will try to achieve the same

Keeping up with the Jones’ is a phrase synonymous with suburbia and we will expect governments and central banks to get on the cryptocurrency bandwagon in the interest of keeping up with the latest phenomenon, which is not that new when considering the fact that Bitcoin was launched back in 2009.

The very fact that many countries have already acknowledged Bitcoin as a legal tender suggests that phase 2 is on the horizon for many, which will likely involve the reversing of their recognition of Bitcoin in the interest of successfully issuing their own cryptocurrencies.

J-Coin ICO certainly looks to be on the cards, with a consortium of Japanese banks getting ready to launch a national digital currency to pull citizens away from paper money as J-Coin ICO is expected to take place ahead of the 2020 Tokyo Olympics. For now, the Bank of Japan and financial regulators are backing the project.

A cashless world is just around the corner and cryptocurrencies are the perfect replacement, with HSBC, Barclays, UBS and Santander currently developing a Universal Settlement Coin in a bid to make trade more efficient. How central banks respond to a Universal Settlement Coin remains to be seen, but for those interested in retaining the decentralized nature of cryptocurrencies, national digital currencies certainly go against the grain and we could reach Cryptoworld’s utopia of a single global, decentralized, digital currency.

A world without the FED and the Dollar or the ECB and the EUR? Some may say ‘better the devil you know.’

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China Trade Figures Impress with Retail Sales and Inflation to Drive the Dollar

Earlier in the Day:

Macroeconomic data out through the Asian session was on the lighter side this morning, with material stats limited to New Zealand’s September Business PMI and China’s trade data, while the RBA also released its financial stability review.

The NZ Business PMI softened slightly in September, but was still considered to be at a high level, providing support to the Kiwi Dollar as the markets now need to wait until next week to discover which party NZ First will form a coalition with, the Nationals or Labour.

NZ First Party leader Peters said that NZ First’s board, the members of whom have yet to be revealed, will ultimately have the final say on which side NZ First should go with and with the Thursday deadline now passed, limbo continues for the Kiwi Dollar, which has benefitted from Dollar weakness than any shift in sentiment towards the uncertainty over the elections and the more dovish RBNZ.

For the AUD, yield differentials continued to support the AUD through the Asian session, with the RBA’s financial stability review having limited impact on the direction of the AUD.

Unsurprisingly, the RBA highlighted household borrowing as the key risk to Australia’s financial system, with any shift in RBA monetary policy through rate hikes likely to weigh heavily on households and their ability to meet debt obligations, which would also impact disposable incomes and peg back spending.

The concerns were nothing new, with the RBA having raised similar concerns in during the monetary policy meetings and will certainly be one of the factors that could leave the RBA treading water for longer.

At the time of the report, the Aussie Dollar was up 0.15% at $0.7832, with the Kiwi Dollar up 0.14% at $0.7134, with direction through to the close hinged on this afternoon’s U.S retail sales and inflation figures, with China’s trade figures doing little to peg back the AUD through the Asian session, supported by an 18.7% surge in China imports, with exports up 8.1% year-on-year in Dollar terms.

The Day Ahead:

Macroeconomic data through the European session today is limited to finalized September inflation figures out of Italy and Germany, which are unlikely to have a material bearing on the direction of the EUR through the day, as the markets continue to look for clues on the ECB’s intentions vis-à-vis the asset purchasing program for next year.

Inflationary pressures continue to remain subdued, with inflation numbers out of France disappointing yesterday, which supports the ECB’s more dovish position, though with the Eurozone economy continuing to press ahead, a move towards normalization remains likely at the turn of the year.

Geo-political risk has abated to a certain degree, with the Spanish government now looking to force the Catalan’s hand on independence, with a deadline of 16th October being given by Rajoy to Catalan President Puigdemont to clarify whether independence is the direction the Catalans wish to go, not that the Spanish government has any intentions of letting independence go ahead…

Dollar weakness has certainly contributed to the EUR’s resilience this week and reports of seismic activity in North Korea, within the same area as the nuclear testing site, has added to the Dollar’s softening, with funding currencies being the victim of a shift in risk appetite.

A lighter economic calendar will leave the EUR in the hands of FOMC member speeches later today and a heavy set of stats out of the U.S, which could yet again lead to a shift in sentiment towards a FED rate hike by year-end.

For the Pound, there are no material stats scheduled for release from the UK, with the Pound having found its feet on Thursday following news that the EU’s chief negotiator Barnier may be willing to offer the UK a 2-year transition period to remain within the EU. The Pound had been under scrutiny following news that negotiations had ground to a halt.

Politics is not alone in dictating the direction of the Pound, though Brexit will remain the key driver over the medium term, with even the BoE likely to be influenced by progress on negotiations and the terms under which Britain will eventually part ways.

There’s never a dull moment, with North Korea in the mix and, with the direction of the Dollar likely to cause central banks to have to weigh the likely effects of currency appreciation during a period of Dollar weakness.

Things could change for the Dollar this afternoon, with key stats out of the U.S including September’s inflation and retail sales figures, August business inventories and prelim October consumer sentiment numbers. Forecasts are certainly Dollar positive, with inflation expected to pick and retail sales to see a bounce, though it remains to be seen whether Hurricanes Harvey and Irma will have impacted.

A pickup in inflation and jump in consumer spending will support the likely majority of the FOMC members, with the fence sitters eager to see positive stats between now and the December meeting to support a rate hike. FOMC voting members Kaplan, Evans and Powell are scheduled to speak after the release of today’s stats, which will provide further direction should there be any reference to monetary policy.

The Pound was up 0.08% at $1.3273 at the time of writing, with the EUR up $0.13% at $0.1845, while the Dollar Spot index was down 0.11% at 92.959.

FOMC Meeting Minutes Weigh on the Dollar with Draghi and the EUR in Focus

Earlier in the Day:

Economic data through the Asian session was limited to Australia’s new home loan figures for August, which was Aussie Dollar positive, a 1% rise in new loans coming in ahead of a forecasted 0.5% increase.

The Aussie Dollar showed little response to the figures, with the key driver through the Asian session being the FOMC meeting minutes released late into the U.S session.

A divided FOMC camp weighed heavily on the Dollar, members seemingly divided into those looking for a December rate hike over concerns of a possible overheating, those looking for positive economic indicators between now and the December FOMC before making a decision and the doves, adamant for the need of a pickup in inflation towards the FED’s 2% target before willing to make a move.

On the balance, while the Dollar remained under pressure through the Asian session, economic data out of the U.S of late has been particularly upbeat and should indicators continue to support a strong end to the year, the Committee will likely be divided into the two camps by year-end, though the effects of Hurricanes Harvey and Irma may come into play in the coming weeks.

Hopes of the central banks for a stronger U.S Dollar will have been dashed for now, with the Aussie Dollar rising 0.36% to $0.7816 at the time of writing and the Kiwi Dollar up 0.47% at $0.7114, the gains in the Kiwi Dollar coming despite the markets waiting on NZ First Party leader Peters’ announcement on with which Party NZ First will be looking to form a coalition. It’s the fifth and final day of talks and an announcement is expected by the end of the week, a National – NZ First coalition likely to see the Kiwi Dollar bounce back to $0.72 levels, with focus likely to then revert back to the outlook on monetary policy, the RBNZ having recently turned dovish.

The gains in the Yen were more muted however, with the Yen up 0.20% to ¥112.28 against the Dollar, appetite for Asian equities on the rise through the session on the back of the more dovish than expected minutes from the FOMC.

The Day Ahead:

The economic calendar is on the quieter side through the European session today, with stats out of the Eurozone limited to finalized September inflation figures out of France and the Eurozone’s August industrial production figures.

Following Germany’s production figures released on Monday, which surged 2.6% in August, expectations are for the Eurozone numbers to be EUR positive, though the markets will also have ECB President Draghi to consider this afternoon. The bounce in the EUR in the wake of the dovish FOMC meeting minutes has seen the EUR reach $1.18 levels, with more gains likely to be on the cards as economic data out of the Eurozone continues to impress.
ECB concern over EUR strength could see Draghi talk down the EUR, but having refrained from doing so in recent speeches, there may be little in the way of the EUR rally ahead of tomorrow’s inflation and retail sales figures out of the U.S.

For the Pound, stats were limited to this morning’s RICS House Price Balance numbers for August, which reported a pickup in house prices, though the markets showed little response to the figures, with the Pound having found its feet through the first half of the week on hopes that the British Prime Minister has managed to avert a Tory party rebellion over Brexit.

While there are no material stats scheduled for release, BoE Monetary Policy Committee member Haldane is scheduled to speak this afternoon. Following the release of trade and industrial and manufacturing production figures earlier in the week, sentiment towards BoE monetary policy remains mixed, leaving the door ajar for Haldane to influence market sentiment towards a possible rate hike before the end of the year.

A pickup in the Pound will ease some inflationary pressures, though unlikely to be enough to pull inflation back to below the BoE’s 2% target any time soon.

Across the Pond, stats are limited to the weekly jobless claims figures and September’s producer price index numbers, with the markets also needing to consider FOMC voting members Brainard and Powell, who are scheduled to speak this afternoon, though there will need to be some particularly hawkish commentary for the markets to respond.

The Pound was up 0.26% at $1.3258 at the time of writing, with the EUR up $0.12% at $0.1878, while the Dollar Spot index was down 0.18% at 92.852.

The Dollar and the FOMC Meeting Minutes in Focus for the Day

Earlier in the Day:

Economic data out of Australia this morning was limited to October’s consumer sentiment figures, but off the back of yesterday’s upbeat business confidence numbers for September, there will be hopes of a boost to domestic consumption in the wake of the figures released. It’s in fact the first time since late last year that optimists outnumbered pessimists, with the upbeat sentiment supported by the positive global economic outlook coupled with easing concerns of an imminent RBA rate hike.

It’s certainly good news following a slump in retail sales in August, according to figures released last week, with retail sales considered to be the thorn in the Australian economy’s side when looking at growth projections for this year and next.

The Aussie Dollar moved from $0.77994 to $0.78048 upon release of the data, before falling back to sub-$0.78 levels despite a softer U.S Dollar, with sentiment towards monetary policy holding back more solid gains through the session.

For the Kiwi Dollar, New Zealand and the markets remain on tender hooks, with New Zealand First Party leader Peters saying that a decision on which party they will join to form a coalition will be made on Thursday. Despite the uncertainty, the Kiwi Dollar was up 0.13% at $0.7079 at the time of writing, with a slump in the U.S Dollar attributed to the intraday gains.

With the FOMC meeting minutes scheduled for release later today and China’s trade data due out on Friday, there’s certainly plenty for the markets to consider and that’s before factoring in concerns over a pickup in geo-political risk.

The Day Ahead:

It’s a busy day ahead for the markets, with the EUR finding relief off the back of news that the Catalan president Puigdemont has taken dialogue over a call for independence, following threats from Spanish Prime Minister Rajoy’s over the weekend.

Plenty of uncertainty remains on what lies ahead for the Catalans, with Puigdemont stating that he will declare independence despite intentions to negotiate with the Spanish government.

With market concerns over greater unrest in Spain easing over the near-term, economic data out of the Eurozone has also been upbeat, with ECB executive board member Lautenschlaeger adding to the upside, saying that the ECB should begin to taper its asset purchasing program next year.

Economic data out of the Eurozone this morning includes French nonfarm payroll figures for the 3rd quarter and finalized September inflation numbers out of Spain, which could provide further support for the EUR and market expectations of an imminent announcement by the ECB on its monetary policy outlook for next year.

Across the Channel, sentiment towards the Pound also improved following yesterday’s production figures, despite disappointing trade data, with the British Prime Minister managing to bring a degree of unity to the Party, at least for now.

There are no material stats out of the UK this morning however to provide the Pound with direction, leaving the Pound down 0.05% at $1.3196 at the time of writing.

Across the Pond, the key driver for the Dollar will be the release of the FOMC meeting minutes later today, with the August JOLTs job openings also of interest following the weak nonfarm payroll numbers last week that had been attributed to Hurricanes Harvey and Irma.

While the Dollar Spot Index is down 0.07% at 93.229 at the time of the report, expectations are for the Dollar to begin finding its feet, though much will depend on the U.S administration’s tax reforms on whether the Dollar can outpace the EUR and the ECB’s likely shift in monetary policy before the end of the year, with a FED rate hike in December now largely priced in.

The Pound in the Spotlight with Trade and Production Figures in Focus

Earlier in the Day:

Macroeconomic data released through the Asian session was on the positive side today, with Japan’s current account surplus widening in August, Australian business confidence improving in September and the UK’s BRC Retail Sales Monitor reflecting a 1.9% year-on-year rise in sales.

Through the early part of the day the was up AUD 0.44% at $0.7787, supported by the upbeat business confidence numbers, while the Yen was flat against the Dollar at ¥112.66 as the markets look ahead to this month’s General Election, with Tokyo Governor Koike’s newly formed Party of Hope seeing support falling from 19% at the end of September to just 13% with just under two weeks remaining. The call for a snap election certainly looks to be paying off for Prime Minister Abe, the Party of Hope having little time to prepare for a strong campaign.

With the Japan Election looking set to deliver the markets choice, uncertainty continues to linger on who will be running the New Zealand government. The final vote count on the weekend had given more seats to both Labour and the Green parties, which is expected to give the respective parties more bargaining power, though the outcome continues to sit in the hands of New Zealand First party leader Peters.

There’s plenty of speculation and there seems to be a rising consensus that Peters will opt for a coalition with Labour and the Greens. Such an outcome is expected to be a negative for the Kiwi in the near term, with Labour Party pledges to reign in on immigration and trade renegotiations expected to weigh on economic growth.

The RBNZ will have a busy time in the coming months and the final outcome of the General Election will need to be a consideration. The Kiwi Dollar was up just 0.01% at $0.7067 off the back of the weaker U.S Dollar, with the gains coming despite more disappointing data out of New Zealand this morning, electronic card sales rising by just 0.1%, falling short of a forecasted 0.7% gain.

The Day Ahead:

Through the European session, the Pound will be in the spotlight, with key stats scheduled for release out of the UK including August trade data and industrial and manufacturing figures. The Pound has taken a beating in recent weeks, after having made a move to $1.36 levels in late September, as the markets continue to shift on sentiment towards monetary policy, following a string of softer economic indicators and the building negative sentiment towards the British Prime Minister and concerns over whether the Tories will be able to avert a crisis that could send Brexit negotiations into disarray.

Both sides of the Brexit negotiation table appear to be passing the buck on where the next move needs to come from, with Theresa May having delivered an update on Brexit to the House of Commons on Monday, which included raising the possibility of a “no deal” Brexit eventuality.

With political uncertainty having a material influence on the Pound, today’s stats are going to need to impress for the Pound to have a chance of a recovery and look to force the BoE’s hand on making a move before the end of the year. The softer Pound will be adding further inflationary pressures, which have reached levels of concern for the BoE and BoE governor in particular.

While focus will be on the trade and production figures, the NIESR GDP Estimate will also have an impact this afternoon, the UK economy having managed to avert a recession despite the negative sentiment surrounding Brexit and UK politics.

The Pound was up 0.22% at $1.3171 at the time of writing with direction through the remainder of the week largely hinged on this morning’s stats.

Across the Pond, focus will now be shifting to the FED minutes scheduled for release tomorrow evening, as the markets look for the FED to make its final move in December, though who will take the top spot continues to be a driving force as Trump looks for Yellen’s replacement, the markets cognizant of the importance of the FED, not just to the U.S economy, but the global economy.

There are no material stats out of the U.S this afternoon to have an impact on the Dollar, with FOMC voting member Kashkari scheduled to speak, who will more than likely continue to protest against a more hawkish outlook on policy, to which the Dollar has become somewhat de-sensitised.

The Dollar Spot Index was down 0.16% at 93.523 at the time of writing, with little to drive the Dollar ahead of tomorrow’s FED minutes and Friday’s inflation and retail sales figures.

For the EUR, a widening of Germany’s trade surplus in August inspired the EUR, which managed to build on to its gains from the Asian session despite an initial softening upon release of the stats, with the data out of the Eurozone continuing to impress.

The EUR was up 0.35% at $1.1781 at the time of writing, while the markets will keep an eye on Spain and Catalan’s calls for independence, with Catalan President Puigdemont scheduled to address lawmakers and quite possibly ruffle the feathers of the Spanish government even further, with Prime Minister Rajoy having already stated that a move to impose direct rule on the semi-autonomous region is an option.

Theresa May and the Pound in Focus with the Economic Calendar on the Quiet Side

Earlier in the Day:

Material macroeconomic data through the Asian session was limited to China’s September service sector PMI numbers, which disappointed as the PMI slipped from 52.7 to 50.6, suggesting that sector activity stagnated. The softer output was in stark contrast to manufacturing sector output which had impressed the markets, with China’s CSI playing catch up this morning, following Golden Week last week.

At the time of writing, the CSI300 was up 1.56%, with the ASX200 in positive territory, while the Hang Seng slipped with Galaxy Entertainment and Sands China joining property and energy stocks to pull the index into the red.

Property stocks came under pressure following news of disappointing home sales in China, while Macau’s Gaming Association reported marginally better revenue compared with the previous year.

On the currencies, the story of the morning was a bounce in the Pound, which recovered to $1.31 levels through the Asian session, while the EUR, the Aussie Dollar and the Yen were relatively flat through the session.

For the Kiwi Dollar there were further declines, down 0.28% at $0.7073 at the time of writing, as the talk of coalition talks continues to take its toll, following the official vote count from the General Election, which showed greater support for the centre-left. It’s all in the hands of NZ First leader Peters now, with the National Party and Labour – Green needing NZ First’s nine seats for a parliament majority.

Noise over progress on the negotiations will continue to dictate direction of the Kiwi in the coming days before any announcement, with a near-term uptick in the kiwi likely should it go the National Party’s way, though sentiment towards monetary policy and the economy in general will limit the upside.

The Day Ahead:

There are no material stats scheduled for release through the European and U.S sessions today, with stats out of the Eurozone limited to this morning’s August industrial production figures out of Germany. The numbers came off the back of a strong rebound in factory orders numbers released last week.

Despite the positive numbers, the EUR took a tumble in the wake of the numbers, falling from $1.17369 to $1.17299.

While the EUR moved into the red, down 0.04% at the time of writing, the Pound was up 0.33% at $1.3109. The gains came off the back of news that the UK Office for National Statistics had made an error in its calculation of company employment costs. The numbers are expected to be revised upwards, which will be seen as another reason for the BoE to make a sooner rather than later move on a rate hike.

The Pound is not out of the woods however, with British Prime Minister Theresa May scheduled to speak in the Commons today. How the speech to call for an open mind on Brexit is received will likely have a material impact on the Pound, which has been under pressure in recent weeks as speculation begins to mount on a possible change in Tory Party leadership and yet another snap General Election early next year.

Despite a softer EUR, the Dollar Spot Index was down 0.03% at 93.772 with a lack of stats through the day to fuel the Dollar rally, though yield differentials will certainly continue to favour the Dollar, with recent macroeconomic data out of the U.S suggesting that the FED may be falling behind the curve.

It’s Nonfarm Payrolls – Can the Dollar Hold on?

Earlier in the Day:

There were no material stats out through the Asian session this morning to taint the mood, following yet another set of records from the U.S., which fuelled the risk bellies of the Asian markets this morning.

While the “risk on” sentiment continued to drive the Nikkei, the Hang Seng and finally the ASX200, Hong Kong markets having been closed yesterday, the recently energized Dollar has weighed most heavily on the yield differentials that had seen the AUD and even the Kiwi Dollar hit respective highs against the Dollar through the summer.

Having threatened to rebound to $0.80 levels, the AUD has fallen back, as the markets continue to price in a FED rate hike by the end of the year, with Trump’s talk of tax reforms raising the prospects of a more hawkish FED over the medium-term.

The RBA had struck a relatively cautious note in the October statement earlier in the week, which came before the disappointing retail sales figures that weighed heavily on the Aussie Dollar on Thursday, so while we would have expected the risk on sentiment to support the Aussie Dollar through carry trades, a narrowing in yield differentials and disappointing figures out of Australia could well see the Aussie Dollar pegged back for now.

For the Kiwi Dollar, the RBNZ also took a more dovish stance on policy in the latest meeting and, with continued uncertainty over who will eventually form government, we won’t expect any material upside in the Kiwi until there is greater clarity on the coalition front and in that regard, for any upside it’s going to have to be National Party led. It sits in the hands of NZ First Party leader Peters and while talks had got underway on Thursday, Peters has been clear that no decision will be made until after the final election count tomorrow and not before 12th.

At the time of the report, the Kiwi Dollar was down 0.17% at $0.7105 in what has been a relentless slide through the week, with the Kiwi down 1.3% by Thursday’s close.

The Aussie Dollar has had a somewhat better week, down 0.5%, off the back of Thursday’s almost 1 cent slide, while the Yen has managed to stand its ground despite the market’s insatiable appetite for risk through the week.

At the time of writing, the AUD was down 0.50% at $0.7756, with the Yen down 0.14% at ¥112.98, as the markets look ahead to today’s nonfarm payroll and wage growth figures.

The Day Ahead:

It’s been an undeniably solid week for the Dollar and the U.S markets this week, with U.S. macroeconomic data impressing, while the U.S administration continues to press ahead on tax reforms, following the House of Representatives passing of a $4.1tn budget on Thursday afternoon.

While the Dollar has been on the rampage through the week, this afternoon’s nonfarm payroll and wage growth figures will certainly be of interest, though we can expect the markets to be somewhat less sensitive to the nonfarm payroll numbers, with Hurricanes Harvey and Irma likely to have impacted labour market conditions in September.

The ADP numbers earlier in the week were relatively positive considering the impact of the storms and last week’s initial jobless claims figures, released on Thursday, suggested that labour market conditions had returned to normal so, barring particularly dire numbers, focus will likely be on any revised August figures and of course, wage growth, which is forecasted to pick up last month.

FOMC Members speaking on Thursday were on the hawkish side, with voting member Harker continuing to favour a move, supported by non-voting member Williams, while FED Chair candidate Powell held back from sharing any views on monetary policy, focussing more on regulatory aspects of central banking.

Following this afternoon’s labour market figures, a number of FOMC members are scheduled to speak including voting members Kaplan and Dudley, who could dispel any negative sentiment towards any softer stats, should the numbers disappoint.

Across the Pond, the Pound has certainly been in the wars, with the markets now fearing the possibility of yet another snap election that could see Theresa May and the Tories ousted from office. Monetary policy has taken a back seat for now and there’s certainly more room for the Pound to fall when considering where the Pound stood against the Dollar through the summer.

For those focused on the macro, the data has been less impressive this week, while service sector activity remained steady. Any hints of a snap election early next year could see the BoE take a breather, though a further tumble in the Pound will certainly not help soften inflation, which would be a bad combination with a fall in consumer confidence should the Tory Party in fact implode with a vote of no confidence.

The Establishment will undoubtedly be licking their lips at such a prospect, with the upper hand over Brexit negotiations likely to fall into the EU’s lap by default, which would be yet another negative for the Pound. The British Prime Minister will likely have until the end of the year to rally the troops, but following this week’s closing speech, it may be a tall order.

Stats out of the UK this morning were limited to house price data, which were of little interest to the markets, with so much to consider on the political and monetary policy front in the coming weeks.

At the time of writing, the Pound was down a further 0.24% at $1.3087 and even hawkish commentary from BoE Monetary Policy Committee Member Haldane later in the day may not be enough to salvage something from the week.

For the EUR, the ECB’s monetary policy meeting minutes failed to impress, with the resurgence in the Dollar, coupled with political uncertainty in Germany and Spain weighing.

The ECB minutes continued to reflect concerns over EUR strength, so perhaps the latest Dollar rally, will ease some concerns over beginning to taper the asset purchasing program and even more so, should the U.S administration finally be able to deliver on a growth policy before the end of the year.

Macroeconomic data out of the Eurozone is limited to this morning’s Germany factory orders, which are forecasted to rebound from July’s woes, though the EUR will likely to be dictated more from news from Germany and Spain than this morning’s stats, as the markets get ready for today’s U.S labour market figures.

At the time of the report, the Dollar Spot Index was up 0.14% at 94.09, with the EUR 0.09% at $1.1700, with the Dollar likely to be tested ahead of today’s stats, the markets all too wary of the possibility of Hurricanes Harvey and Irma throwing a curve ball.

Cryptos and the Regulatory Landscape around the World

The Landscape

Back in 2018, there was the talk of introducing a global regulatory structure for an asset class that has no borders.

While a standardized regulatory landscape did not materialize, a lot has happened since the crypto meltdown of 2018.

Governments and regulatory bodies had to decide whether to be a friend or foe to the crypto markets.

That decision saw some governments come down hard, while others welcomed exchanges and investors.

The More Rigid

Looking at some of the more significant crypto jurisdictions:

China

China is considered as one of the most anti-crypto governments. Back in 2018, the government banned initial coin offerings. The government also forced the closure of exchange platforms that trade cryptocurrencies.

While the government rolled out wide-sweeping changes, it is not actually illegal to hold, buy, or sell cryptocurrencies.

Government agencies in China had been swift to classify Bitcoin and other cryptos as a virtual commodity. By classifying cryptos as a virtual property and not as a currency, the freedom to buy, sell, or hold remains.

In contrast to many geographies, the government is very much in favor of blockchain technology, however. The government encourages only the development of blockchains that service the real economy.

While there are a number of government agencies involved in the regulation of cryptos, the PBoC is the more widely known regulator.

Other government agencies that issued bans on all ICOs included:

  • The Central Cybersecurity and Information Technology Lead Group of the Communist Party of China.
  • Ministry of Industry and Information Technology.
  • State Administration for Industry and Commerce.
  • China Banking Regulatory Commission.
  • China Security Regulatory Commission and China Insurance Regulatory Commission.

South Korea

In July 2020, the South Korean government finalized a new tax rate for crypto trading income. The tax threshold for income from crypto assets is set at 2.5m won, equivalent to US$2,000 per annum.

Back in March 2020, the South Korean National Assembly also unanimously passed the amendment to the Act on Reporting and Use of Specific Financial Information.

Following a prolonged period of debate and review, the amendment provides a regulatory framework for cryptos and related service providers.

Cryptocurrency exchanges and service providers must be in compliance with the Financial Action Task Force (“FATF”) AML standards.

All G20 countries have declared their commitment to follow these standards.

Additionally, South Korea had introduced the real-name verification system in 2018. Real-name accounts is an AML measure. The law requires the assigning of verified individuals to single bank accounts. This then allows individuals to withdraw and deposit fiat currency to and from an exchange.

Regulated entities are required to go a step further and obtain an Information Security Management System (“ISMS”) certification. The Korea Internet Security Agency (“KISA”) is responsible for issuing certifications.

Japan

The Financial Services Agency (“FSA”) is responsible for the regulation of cryptocurrencies and the crypto market.

Earlier this year, the FSA made amendments to the Payment Services Act (“PSA”) and the Financial Instruments and Exchange Act (“FIEA”).

The new cryptocurrency regulatory framework was introduced and made effective on 1st May.

In summary,

  • The PSA regulates crypto-asset exchange service providers. These include persons engaged in the business of selling, purchasing, or intermediating the sale and purchase of or providing custody services for, crypto assets.
    • Previously, custody service providers that are not engaged in the business of selling, purchasing, or intermediating the sale and purchase of crypto assets were not previously regulated under the PSA.
  • The FIEA regulates crypto asset-related derivatives businesses and registration under the FIEA is required.
    • Previously such businesses had fallen under the purview of the PSA.
    • In the event of a business also providing custody services, they must also register as a crypto exchange that falls under the purview of the PSA.

In addition to the above regulations, the FSA also announced the approval of 2 self-regulatory organizations.

  • Japan STO Association
  • Japan Virtual and Crypto Assets Exchange Association (“JVCEA”)

Both organizations work alongside the FSA to enforce strict standards on the crypto sector.

Legal Classification

Currently, Japan neither treats nor considers cryptocurrencies as fiat money.

Virtual currencies are also not considered securities. The PSA defines a virtual currency as follows:

  • The proprietary value that may be used to pay an unspecified person the price of any goods purchased or borrowed or any services provided and which may be sold to or purchased from an unspecified person (limited to that recorded on electronic devices or objects by electronic means and excluding Japanese and other foreign currencies and Currency Denominated Assets) that may be transferred using an electronic data processing system.
  • The proprietary value that may be exchanged reciprocally for the proprietary value specified in the preceding item with an unspecified person and that may be transferred using an electronic processing system.

Currency Denominated Assets means any assets which are denominated in Japanese Yen or other foreign currency, and which do not fall under the definition of Virtual Currency.

The EU

While cryptocurrencies are legal, regulations vary by each member state. One consistency, however, is in regard to taxation. Here, the European Court of Justice 2015 exempted cryptocurrencies from value-added tax.

Aligned with other G20 nations, all EU member states have introduced regulatory standards as per the recommendations made by the Financial Action Task Force (“FATC”).

FATC states that any crypto site should comply with KYC and AML standards. Additionally, all cryptos sites must share data with their respective regulators.

In 2020, the 5th AMLD came into effect. This requires that crypto exchanges register with financial regulators and provide client wallet addresses to them.

The UK

In the UK, the crypto market falls under the purview of the Financial Conduct Authority (“FCA”).

Since January 2020, The FCA monitors crypto businesses to ensure their compliance with AML and counter-terrorist financing.

By contrast to more rigid jurisdictions, however, the FCA is not responsible for the oversight of crypto exchanges in general. This means that the FCA is not monitoring how exchanges protect the assets of its clients.

Under the Inland Revenue, the amount of tax due from cryptocurrency earnings depends on the individual’s personal circumstances. This includes the consideration of an individual person’s residence and domicile status.

For UK tax residents, the buying and selling of crypto assets by an individual will normally amount to investment activity. In such cases, if an individual invests in crypto assets, they will typically have to pay Capital Gains Tax on any realized gains.

The U.S

Regulatory authorities that are relevant to Bitcoin and the broader crypto market include the SEC, the IRS, FinCEN, and the CFTC.

Securities and Exchange Commission (“SEC”)

The SEC’s main area of focus has been on assessing the legality of ICOs and approvals of crypto ETFs.

Under SEC guidelines, an ICO must be evaluated under the Howey Test to determine classification as a security.

Howey Test: An investment contract exists when there is the investment of money in a common enterprise with a reasonable expectation of deriving profits from the efforts of others.

Inland Revenue Services (“IRS”)

As a government tax agency, the IRS enforces the taxation of earnings from crypto assets.

Follow this link to access the FAQ section of the IRS website related to virtual currency transactions.

The Financial Crimes Enforcement Network (“FinCEN”)

As a branch of the U.S Treasury Department, FinCEN ensures that crypto-related businesses are compliant with AML and KYC regulations.

FinCEN also assesses whether individuals or firms operate as money transmitters.

The Commodity and Futures Trading Commission (“CFTC”)

The CFTC is a government agency responsible for approving and regulating the trading of crypto futures and options. Certain levered spot transactions also fall under the purview of the CFTC.

Unwelcoming Governments and Regulators

Some governments made it simple and introduced absolute bans or implicit bans on cryptocurrencies. The following countries have reportedly imposed outright bans on cryptocurrencies:

Algeria, Bolivia, Ecuador, Egypt, Morocco, Nepal, Pakistan, and the UAE.

Other countries that have imposed implicit bans or restrictions include:

  • Bangladesh (Banking ban)
  • Cambodia (Banking ban)
  • Canada (Banking ban)
  • China (Banking ban)
  • Columbia (Banking ban)
  • Indonesia (Illegal as Payment Tool)
  • Iran (Banking Ban)
  • Jordan (Banking ban)
  • Russia (Banking ban)
  • Saudi Arabia (Banking ban)
  • Taiwan (Banking ban)
  • Vietnam (Illegal as payment tool)

Jurisdictional Arbitrage

A number of exchanges have established in crypto-friendly jurisdictions to woo crypto investors and traders.

As the crypto market matures, however, there has been a material shift in the profile of investors and traders.

Exchanges have had to adapt to meet the needs of the diverse set of requirements.

For some, security and anonymity remain key and supersede all other attributes. In such cases, crypto exchanges have sought crypto-friendly havens. For others, however, there is a preference for a solid regulatory environment and transparency.

As the crypto market develops further, the loopholes in maintaining anonymity may erode further.

For many governments and regulators fighting financial crime and the funding of illegal and terrorist activity will continue remain high on the list.

Until then, however, crypto-friendly jurisdictions include:

Bermuda, Gibraltar, Hong Kong, Malta, Mauritius, Puerto Rico, the Cayman Islands, and Seychelles.

Conclusion

The outcome of the regulatory reforms over recent years achieved one key goal. Bitcoin and the broader markets failed to return to the dizzy heights of late 2017.

While that may be bad news for those in search of 1,000% returns, the market has seen much less volatility relative to 2018.

Back in 2018, the crypto market had been in the hands of governments and regulators.

Regulatory chatter and raids on exchanges had caused unprecedented daily swings. For now, regulatory risk has abated.

The good news, however, is that the crypto market has stabilized and the talk of bubbles has all but ended.

More reforms are likely, though the market may now remain under the radar until levels begin to approach 2017 highs.

As we have seen within the banking world, light-touch regulatory jurisdictions may be forced to eventually tighten controls. This may not happen, however, until there is a more standardized global regulatory framework is in place.