Crypto Awakening: Deutsche Bank Dives into Digital Assets Headfirst
Crypto Awakening: Deutsche Bank Dives into Digital Assets Headfirst
Macro Economics: The resumption of student loan payments in September in the United States is expected to significantly reduce household spending by $158 billion each month. The federal student loan payment moratorium, which was implemented as a relief measure during the COVID-19 pandemic, is set to expire soon. As a result, millions of borrowers will be required to start repaying their student loans. There are concerns that this could have a substantial impact on consumer spending and, consequently, the broader economy. Many households that have become accustomed to the additional disposable income during the moratorium may face financial strain as they need to allocate funds for loan repayments. This, in turn, could lead to reduced spending in other areas and potentially negatively impact economic growth.
Digital Asset Market: Deutsche Bank, Germany's largest banking institution, has applied for a digital asset custody license with the German financial regulator BaFin. This move is part of Deutsche Bank's efforts to expand its services to include digital assets, including cryptocurrencies. The bank's investment arm, DWS Group, had previously shown interest in investing in German crypto firms. Although Deutsche Bank had been critical of Bitcoin and the crypto market in the past due to its volatility, it has recently changed its stance. In February 2023, Deutsche Bank Singapore, in partnership with Memento Blockchain, completed trials for a tokenized investment platform called DAMA (Digital Assets Management Access). The application for a digital asset custody license indicates Deutsche Bank's growing interest in the crypto industry and its potential for revenue generation.
Forex Market: Last week, the world's major central banks exhibited divergent approaches to monetary policy. The European Central Bank (ECB) surprised markets by hiking rates and presenting a gloomy inflation outlook, leading investors to anticipate further rate increases in the Eurozone. In contrast, the Federal Reserve opted to pause rate hikes, while China's central bank lowered its medium-term lending rates to boost the economy. The Bank of Japan maintained its ultra-loose policy despite inflation being above target. According to Carsten Brzeski, global head of macro at ING Germany, these varying approaches reflect the fact that the global economy is no longer synchronized and is instead a collection of distinct cycles. The divergent monetary policies also had an impact on currency and bond markets, with the Euro rising to a 15-year high against the Japanese Yen.
Equities: CNBC reported that stock futures were down as Wall Street struggled to maintain the positive momentum from the previous week. The Dow Jones Industrial Average, S&P 500, and Nasdaq 100 futures all experienced declines. This comes after markets were closed on Monday due to the Juneteenth holiday. Investors are cautiously optimistic despite the Federal Reserve's decision to forgo a rate hike in June. The S&P 500 and Nasdaq Composite had recently posted their best weekly performances since March. However, Morgan Stanley’s Mike Wilson warned that the equity markets are stretched and that the recent enthusiasm around stocks may not last. Additionally, U.S. housing starts for May exceeded expectations, with 1.63 million starts, significantly higher than the 1.39 million anticipated. The week is expected to be light on economic data, but investors are keenly awaiting comments from Federal Reserve officials and Fed Chair Jerome Powell's testimony before Congress.
View from our desk
The optimism from BlackRock’s Bitcoin ETF filing with the SEC was quickly priced in Friday, and the crypto market stayed muted over the long week as we close in on the $27k level. Across our desk, we are not seeing any significant new capital getting deployed after the long weekend, nor are we observing any withdrawals. We anticipate the crypto market to stay largely range-bound this week, and only move significantly in response to significant new news releases.
On the economic front, the job numbers don’t look great, and all eyes are on any signs of recession. Counterintuitively, these are positive developments and exactly what the Fed has been looking for since they began their tightening cycle. We continue to believe that the ‘goldilocks zone’ is in view, where a recession can be avoided, Fed halts hikes, and inflation falls back to the target 2% range without further interventions. At this point, one more hike is priced in the FF Futures market, but we believe that this will likely fade away in the coming weeks, and the Fed will stay flat through the end of the year.
Housing starts came as a surprise to many. We think that the explanation is quite simple, builders and developers were on the sidelines given the historic uncertainty in the lending and regional banking markets as the Fed raised rates over 4.5%. Housing demand has remained durable as regional banking issues have fallen to the wayside, allowing builders to re-enter the market with more confidence. With that uncertainty significantly reduced, we will see activity pick up.
Happy Trading!
The 1Konto Team
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