What matters in U.S. and global markets today |
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Global equities rose early on Wednesday as bets for a Federal Reserve rate cut next week solidified following more bad news on the U.S. jobs front. Traders’ attention will now turn to U.S. producer and consumer inflation data releases set for today and tomorrow. While hot prints could create some noise in rates market, few expect anything to significantly alter the Fed’s plans for next week.
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Markets are fully pricing in a 25-basis-point Fed cut on Sept. 17, and the likelihood of a half-point move has risen after the release of more gloomy employment data. The Labor Department on Tuesday said U.S. job growth was overstated by 911,000 in the 12 months through March, which suggests that labor market momentum has been fading for longer than previously thought. Two-year Treasury yields are hovering near 3.55%, while 10-year yields ticked up to 4.09%. Gold hit a record high $3,673.95 per ounce on Tuesday before pulling back, though it has been rising again early on Wednesday.
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Europe’s STOXX 600 rose slightly early on Wednesday, led by retailers after Spanish fast-fashion giant Inditex surged on news of strong sales momentum ahead of the autumn quarter. Meanwhile, French bond yields held steady after French President Emmanuel Macron named Sebastien Lecornu as prime minister. The selection of Lecornu, a one-time conservative protege, suggested that Macron is seeking to press on with a minority government that will not abandon his pro-business reform agenda.
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Global oil benchmarks rose after Israel struck Hamas leadership in Qatar on Tuesday. Brent crude was trading shy of $67 early on Wednesday, while WTI was hovering above $63. However, events in the Middle East have had a limited impact on oil prices over the past two years, and there is little reason to believe the latest move will be any different.
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Poland shot down drones that entered its airspace during a widespread Russian attack in western Ukraine on Wednesday, with the NATO member calling the incursion "an act of aggression" and marking the first time a member of the alliance has fired shots in the war.
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U.S. President Donald Trump urged EU officials on Tuesday to hit China with tariffs of up to 100% as part of a strategy to pressure Russian President Vladimir Putin, according to a U.S. official and an EU diplomat.
- A federal judge on Tuesday temporarily blocked President Donald Trump from removing Federal Reserve Governor Lisa Cook, an early setback for the White House in an unprecedented legal battle that could upend the central bank's long-held independence.
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The Federal Reserve is widely expected to cut interest rates next week even though inflation is still around 3%, a full percentage point above the official goal. This raises an uncomfortable question, writes ROI columnist Jamie McGeever: is the central bank's 2% inflation target still viable?
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Nearly four years after Europe’s energy crisis erupted in late 2021, the continent has moved from emergency response to system redesign. But, writes the Center for the Study of Democracy’s Martin Vladimirov, the European Union is not out of the woods. Deep vulnerabilities persist, and progress toward clean, secure and affordable supply is highly uneven across the continent.
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Stablecoins might reboot US 'exorbitant privilege' |
An increasingly anxious debate about the rise of dollar-pegged "stablecoins" has started to dwell on the resurgence of global dollar dominance rather than a "de-dollarization" long talked about. But its private sector nature adds considerable angst.
Dollar stablecoins, which are pegged to the U.S. dollar and offer instant settlement, are used by crypto traders to move funds between tokens. They were given a shot in the arm by July's "Genius Act" framework legislation in U.S. Congress, which requires stablecoins to be fully backed by liquid assets such as cash and Treasury bills.
Stablecoins have enjoyed rapid growth, with their combined market capitalization more than doubling in the past 18 months to almost $280 billion - and some projections have this reaching $2 trillion within three years. The U.S. Treasury lauds the potential demand boom for its burgeoning debt. However, they still represent only about 1% of global transactions and are still a rounding error in comparison with the $100 trillion global government bond market.
Even though dominated by two behemoths Tether and Circle, which together make up more than 80% of the total size, the number of stablecoins is expanding. |
Graphics are produced by Reuters. |
But 99% of this universe remains dollar-backed even though most transactions happen outside of the United States. And it's this feature that many regulators and central banks are increasingly looking at in examining the potential for stablecoins to ever represent a significant portion of global money flows and cross-border transactions.
That's not unthinkable, given that stablecoins offer rapid settlement and the ability to avoid exchange controls, border taxes and international sanctions - attributes that could become ever more attractive in an increasingly shaky geopolitical environment.
China, for one, has zeroed in on the risk. Until recently, Beijing was only committed to the development of a sovereign digital yuan, but the government is now examining the rising use of yuan-backed stablecoins. Whether it's too late for it or other governments to catch up remains to be seen. |
Many of the potential risks to the international financial system are detailed in a piece this week by economist Helene Rey in the International Monetary Fund's Finance and Development magazine, where she argues that regulators need to get a handle on this digital currency world's relatively opaque data sooner rather than later.
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