Weekly Market Wrap | 10 June 2023

#SEC_Crypto #OilSupplyCut #AusRateHike 

Topic #1: SEC sues Binance and Coinbase

Coinbase price chart (Source: Google Finance)

The US Securities and Exchange Commission (SEC) has launched lawsuits against two major cryptocurrency exchanges, Binance and Coinbase, alleging various forms of misconduct. Bitcoin, the leading cryptocurrency, experienced a 6% drop in value upon the announcement, reaching lows of $25,440. Coinbase’s share price plummeted by 12%, prompting professional investment fund ARK Invest to purchase 400,000 shares during the dip.

In the case of Binance, the SEC claims that the exchange secretly transferred billions of dollars in customer funds between entities controlled by its CEO, Changpeng Zhao. Additionally, Binance and its affiliate, BAM Trading Services, are accused of operating unregistered securities. Similarly, Coinbase, with approximately $130 billion in assets, is being targeted by the SEC for allegedly operating unregistered securities and for its staking-as-a-service program.

Both Binance and Coinbase have strongly denied the accusations made by the SEC. Binance issued a statement highlighting that the allegations should not have been the basis for an expedited enforcement action. Coinbase, on the other hand, criticized the SEC’s enforcement-focused approach in the absence of clear regulatory guidelines for the digital asset industry. 

The lawsuits against Binance and Coinbase signal the SEC’s determination to investigate and regulate the crypto industry. While the SEC aims to address potential misconduct, the lack of clear regulations for digital assets has sparked criticism from crypto companies. The ongoing uncertainty and legal battles surrounding cryptocurrencies raise concerns about the industry’s reputation and its ability to achieve mainstream adoption.

Topic #2: Saudi Arabia cuts supply by another 1 million barrels/day

Crude Oil WTI Futures Price Chart (Source: investing.com)

What Happened?

In a recent announcement, Saudi Arabia, the world’s largest oil exporter, revealed plans to slash its oil outputs for a minimum period of one month, starting in July. This decision has had an immediate impact on global oil prices, leading to a surge on Monday. The production cut is considered the most substantial in years and was initiated following a meeting between Saudi Arabia and OPEC+. Following the news, the WTI rose by 2.4% to $73.50. 

Why Did It Happen?

The decision to curtail oil production by Saudi Arabia is primarily driven by OPEC+’s responsibility to stabilize the global crude market. OPEC+ is accountable for approximately 40% of the world’s crude production and has already reduced its output target by a total of 3.66 million barrels per day, amounting to 3.6% of global demand. The recent move highlights existing tensions and the delicate nature of relationships among oil-producing nations. 

What does It mean for the investors?

While the recent decline in oil prices has brought some relief to consumers grappling with inflation, the production cut is likely to exert upward pressure on gas prices. For investors, this could translate into potential opportunities in oil-related stocks and commodities as market dynamics adjust to the production cut. Additionally, the Saudi Energy Minister stated that the cut could be extended underscores the commitment of OPEC+ to market stability, thus providing investors with an added layer of certainty.

Topic #3: RBA raises interests by 25 bps

Rate hikes by RBA (Source: TRADINGECONOMICS.COM)

What Happened?

In a move to combat persistently high inflation, the Reserve Bank of Australia (RBA) has implemented its 12th consecutive interest rate hike in just over a year. The decision to increase the cash rate by 25 basis points brings it to 4.1%, reaching its highest level in 11 years. Although economists and markets had anticipated no change this month, the RBA emphasized the need to address the ongoing elevated inflationary pressures in the economy.

RBA Governor Philip Lowe stated that while inflation has passed its peak, it remains at 7%, which is still too high to achieve the target range. The RBA’s decision signifies its unwavering commitment to combating inflation and returning it to the target range. 

Lowe also indicated that if required, additional rate hikes may be implemented in the future to ensure inflation returns to target. The persistence of high services price inflation and the rising unit labor costs, coupled with subdued productivity growth have also contributed to the decision to raise interest rates.

What does It mean for the investors?

RBA’s proactive stance to control inflation could provide long-term stability for the economy. Investors should carefully monitor the effects of the rate hike on various sectors, such as housing, consumer spending, and business investment. Additionally, the possibility of future rate increases should be taken into account when making investment decisions, particularly in sectors sensitive to interest rate changes.

IndexLevel1 Week1 MonthFrom Jan 1 2023
S&P 500 (US Stocks)4,299+0.37%+3.90%+12.41%
Nasdaq 100 (US Tech Stocks)14,528-0.15%+8.84%+33.75%
CSI-300 (Chinese Stocks)3,837-0.62%-4.01%-1.32%
Bitcoin (in USD)25,804+0.21%-6.69%+55.40%

Source: Google Finance, Bloomberg, Yahoo Finance, CNBC, Financial Times, Reuters, Forbes, The Guardian

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