🤔 Will the Fed Pull a Magic Trick? Interest Rates in Limbo❓

Good Morning!

Stocks in Asia are taking a nosedive, with the MSCI Asia Pacific Index set to end July in the red. Hong Kong's leading the pack, tumbling over 1% as China's stimulus hype fizzles out. Meanwhile, the yen's feeling the heat as the Bank of Japan gears up for its policy powwow. Traders are holding their breath for the Fed's next move, with Treasury yields staying put after a three-month winning streak.

In today’s email:

• Fed Watch: Widely expected to hold rates steady this week

• Bitcoin: Bitcoin took a dive, down to $66k

• Stocks: Earnings season underwhelming so far

• Gold: PBoC still covertly stockpiling gold!

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THE BIG IDEA

The Federal Reserve is poised to maintain steady interest rates at its upcoming two-day policy meeting, while potentially signaling openness to rate cuts as soon as September

Recent data shows inflation edging closer to the Fed's 2% target, with the personal consumption expenditures price index rising by 2.5% in June, down from 2.6% in May. This trend may prompt the Fed to revise its description of inflation from "elevated" to "moderately elevated," indicating growing confidence in price stabilization.

The Fed's current benchmark interest rate range of 5.25% to 5.50% has been maintained since last July, marking one of the longest periods of tight monetary policy in recent decades. Despite earlier recession warnings, the economy has shown resilience, with unemployment remaining low at 4.1% and second-quarter growth reaching a surprising 2.8% annualized rate.

Acknowledging imminent rate cuts would align the Fed with investor expectations of at least a quarter-percentage-point cut at the September meeting

However, this move could thrust the central bank into the spotlight of the ongoing U.S. presidential race, with some Republican lawmakers warning that a September rate cut might be perceived as politically motivated.

Fed officials, including some hawkish voices, broadly agree that inflation is easing. Governor Christopher Waller has suggested that current data is approaching the point where rate cuts would be warranted. The upcoming policy statement and Chair Jerome Powell's press conference on Wednesday will be closely watched for signals of the Fed's future direction.

As the election approaches, voters' interpretation of economic data could sway their political leanings. Oxford Economics suggests that focusing on recent inflation trends and low unemployment could benefit the Democrats, while fixating on overall price levels might favor the Republicans. Potential Fed rate cuts could quickly impact various financial products, including mortgages and credit cards, further influencing the economic landscape.

MARKETS AT A GLANCE

TOP NEWS

Japanese banks attract foreign investment as potential beneficiaries of monetary tightening

As the Bank of Japan prepares for a policy shake-up, foreign investors are betting big on Japanese banks. With the Nikkei up 20% in the past year, banks have snagged a cool 472 billion yen in net stock purchases. Why? The end of negative rates could mean record profits for Japan's financial giants, making them the hottest ticket in town.

Global earnings season underwhelms despite meeting expectations, as companies lower guidance

The earnings season is serving up a mixed platter, with about 40% of U.S. and European firms reporting. While results are largely as expected, they're not enough to extend the market rally. High interest rates and China's economic woes are forcing many companies to lower their full-year forecasts. Tech giants' reports this week could shake things up.

Commodities erase 2024 gains as China's economic woes and US natural gas selloff weigh on the market

The commodity market's hitting a rough patch, folks. The Bloomberg Commodity Spot Index is down nearly 6% in July, its worst monthly showing since May 2023. China's economic struggles are casting a long shadow, while US natural gas and foodstuffs are also feeling the heat. Copper's tumbled below $9,000 a ton, and Brent crude's taken an 8% hit. It's not all doom and gloom though – gold's shining bright, up 2% this month.

CRYPTO

Bitcoin drops to $66,000 as U.S. government moves $2 billion worth of BTC, sparking sell-off fears

Crypto markets are on a rollercoaster ride! Bitcoin's taking a nosedive, erasing last week's gains and flirting with the $66,000 mark. The culprit? Uncle Sam's moving $2 billion worth of BTC, sending traders into a tizzy. Solana's SOL is leading the major losses, down 6%. Meanwhile, Ether's showing some backbone despite ETF outflows. Analysts warn of more volatility ahead, with central bank decisions looming large this week.

Sen. Gary Peters emerges as a potential VP pick for Kamala Harris, backed by labor unions

In a surprising twist, Sen. Gary Peters of Michigan is quietly emerging as a dark horse VP candidate for Kamala Harris. Labor unions are leading the charge, pushing for Peters to be considered. Why? Michigan's a must-win battleground, and Peters' strong union support could be a game-changer. He's raised his profile by leading the DSCC and winning tough races. Peters is opposed to cryptocurrency.

Solana surpasses Ethereum in weekly fee revenue, riding the memecoin wave

Solana's making waves! For the first time ever, it's outpaced Ethereum in weekly fee revenue, raking in a cool $25 million compared to Ethereum's $21 million. The surge is largely thanks to a memecoin trading frenzy on platforms like Pump.fun and Moonshot. On July 28 alone, Solana pocketed $5.5 million in daily revenue. However, some experts warn of wash trading inflating volumes. Despite the hype, Ethereum still dominates in total value locked.

Compound Finance's 'Golden Boys' agree to rescind controversial proposal amid governance attack allegations

Drama in DeFi-land! The "Golden Boys" voting bloc behind Compound Finance's contentious Proposal 289 has agreed to back down. Their original plan to create a "goldCOMP" token using $25 million worth of COMP tokens raised eyebrows and cries of "governance attack." Now, they're pivoting to a new staking proposal that aims to keep everyone happy. The COMP token's price perked up 6% on the news, but it's still down 94% from its all-time high.

GOLD

China's central bank continues covert gold purchases despite claiming to have stopped

Investigative gold analyst Jan Nieuwenhuijs has uncovered evidence that China's central bank (PBoC) is still secretly buying gold, despite claiming to have stopped in May 2024. By analyzing UK customs data, he found that 53 tonnes of gold were shipped to China in May, likely destined for the PBoC. This covert buying strategy aims to dampen gold prices, allowing China to acquire more at lower cost. The findings suggest China is rapidly diversifying its foreign reserves amid geopolitical tensions.

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