Central Banks Hint at Future Rate Cuts and Markets Skyrocket! 🚀

🐺 Hi pack-mates,

This is Howling Markets, the friendly grandmaster that teaches you all the ways to checkmate the financial markets’ king!

Today we will be covering:

• What Is the Basel Committee for Banking Supervision (BCBS)? 🏦

• Cryptocurrency Regulations Are Starting to Ease for Stablecoins 🧾

• Central Banks Hint at Future Rate Cuts and Markets Boom! 🚀

• Equity and Debt Markets Daily Update ⚖️

•  And more!

Market Watch 👀

What is the Basel Committee for Banking Supervision (BCBS)? 🏦

The Basel Committee on Banking Supervision is an international body created to develop banking regulation standards. As of today, the Basel committee is composed by 45 members coming from the central banks of 28 different jurisdictions.

Basel was created in 1974 after the collapse of the Bretton Woods system and its main scope is to introduce and improve a set of international regulations governing the financial and banking systems addressing the issues posed by the globalization of these sectors.

The set of Basel regulations has been revised and improved quite a few times over the years and it is mainly composed of different capital requirements that banks must satisfy while performing their activities.

The goal? Limiting insolvency risks in the banking sector and reducing spillover effects in the entire market in case a bankruptcy happens.

Cryptocurrency Regulations Are Starting to Ease for Stablecoins 🧾

The topic of cryptocurrencies’ regulation has been around for quite some time, mainly because of the riskiness of these new digital assets. The main issue was that either these regulations were too stringent, rendering cryptos similar to stocks, or too loose, opening up to potential frauds, losses, bankruptcies and more.

The Basel Committee for Banking Supervision (BCBS) up to this point had issued extremely stringent rules that banks had to satisfy in order to hold a very limited number of cryptocurrencies.

More specifically, banks could have only allocated at most 2% of their capital to the purchase of cryptos, and on top of this, they would have also been obliged to issue capital to match their exposure.

Despite these regulations will not change any time soon for risky cryptocurrencies as stated by the BCBS, the committee has started to work on a less stringent set of rules for stablecoins, which are cryptocurrencies whose value is pegged to a specific asset, such as a stock, gold, and currencies.

However, not all stablecoins will be covered by this less stringent set of rules, as the BCBS has decided to introduce a list of 11 characteristics that each coin must satisfy to benefit from the new legislation, including being supervised, regulated and redeemable at all times.

The stringent crypto regulation has been one of the main issues delaying the institutional adoption of these new digital assets. Do you believe that with these new regulations we will reach it sooner, causing a crypto boom in the next years?

Today’s Howling Question

And now, let’s test your knowledge about cryptos. Which of the following is stablecoin?

a)   Bitcoin (BTC)

b)   Ethereum (ETH)

c)  Cardano (ADA)

d)  Dogecoin (DOGE)

e)   Tether (USDT)

Try to answer this question and then check the right answer after the last interesting news!

Central Banks Hint at Future Rate Cuts and Markets Skyrocket! 🚀

Well, why are all the major stock markets around the world recording strong upside performances?

The answer to this question lies in the press conferences held by the Federal Reserve on Wednesday and by the ECB on Thursday. Despite the two very different economic environments, the decision has been the same: holding policy rates and signaling a potential end to interest rate hikes.

However, there is a substantial discrepancy between the two. The Federal Reserve has also communicated that they are already discussing potential rate cuts in 2024, while the ECB stated that they haven’t discussed cuts yet and they believe that inflation could pick up once again.

Despite this difference, interest rates swap markets are calling for an “European bluff”, predicting that both in Europe and in the US there will be 6 quarter point (0.25%) rate cuts throughout 2024, essentially pricing-in very dovish central banks in 2024.

Do you think that the markets are being overly optimistic and that the prices could come back down once the optimism wears off, or do you believe that the markets got it right?

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

On Thursday the stock market continued to inch higher as every major news outlet published articles and commented on the dovish attitude of central banks. In the eyes of the stock market, it is an easy decision: rates go down, businesses boom, everyone buys, prices go up.

On the other hand, we must notice how the stock market finally started to slow down after a month and a half of restless optimism. Now, the falling momentum that we talked about in yesterday’s newsletter might start to materialize.

Today the market pushed 0.26% higher, but it closed the day with a very particular candle shape that often represents the second candle in the “evening star” pattern, signaling a potential bearish reversal.

Additionally, one last thing to note is that the stock price, aside from being extremely overextended, is also approaching the all-time high, which often represents an extremely tough resistance to break through.

On the other hand, the debt market seemed to be much more decisive as opposed to the stock market. The 10 year US government bond rate fell by another 2.41% continuing the trend started yesterday as the Federal Reserve hinted at possible rate cuts in 2024.

How do you think the markets will conclude the week on Friday? Will the stocks complete the evening start pattern, or will they continue to march towards their all-time high?

Answer

The correct answer is e) Tether (USDT).

Tether is the stablecoin pegged to the United States Dollar Value, and one of the cryptocurrencies with the highest trading volume in the market.

All the other alternatives are simple cryptocurrencies which can be categorized as “free-floating digital assets”, meaning that their value is not restricted in any way.

Howl-Worthy Memes 😂

🐺 See you next time!

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