The Bank of England is considering a possible centralised Cryptocurrency to be created instead of the Pound Sterling. This raises questions regarding the future of finance and monetary policy in an ever-more technological world. Moreover, it appears that the UK is not yet in a recession, but that a recession is near. Lastly, with US equities still falling due to a fear that the Fed will increase interest rates to combat inflation, European bonds are seeing greater demand.
Economic Indicators:
BBC reports that the Office for National Statistics has said that during December, the UK has seen a 0.5% decrease in national output. This might have resulted from the recent strikes, which have decreased productivity in various fields, including academic research. The Bank of England claims that the UK economy is not in a recession yet, but that a recession should be expected later this year. The UK economy is still performing worse than major economies when considering the gap of -0.8% between its current output level and its pre-covid level. Moreover, the Bank of England has released a report considering the potential adoption of a digital currency that will replace the Pound sterling. This move might be a revolutionary change to the way money works worldwide. However, some may fear the adoption of a completely digital currency, as it can potentially result in all the transactions a person does being recorded, and thus in a loss of anonymity and privacy. Nonetheless, this move seems calculated and brave with the advancements of Crypto-Markets.
Market Performance:
The S&P 500 has increased by around 2% over the last two weeks, highlighting a potential recovery of the index after a year where it has underperformed in comparison to previous years. At the same time, the tech-heavy NASDAQ has increased by around 3%, bringing the total increase in the index's value in the last month to 6.52%. This is a sign that Tech-companies are managing to restore their previous values and perhaps even appreciate them. Lastly, in the last two weeks, the Dow Jones Industrial Average appreciated by 0.45%, which still means that overall the index is stabilising around the current value, which is more or less similar to its value last year.
Currencies:
The American Dollar has appreciated against the pound by 2.694%, and the Euro appreciated against the pound sterling by 0.908%. The Swiss franc (CHF) also increased against the Pound Sterling by 2.425% pound. This means that the Pound sterling is depreciating against the major currencies. If this trend continues, it will result in foreign goods becoming cheaper and thus in more imports demanded.
Commodities:
According to the Market Insider, the trading giant Trafigura is facing a $577 million loss and says that it has uncovered a systemic fraud perpetrated against it. The company is one of the largest traders of metal and energy in the world. The company argues that some cargoes it bought did not contain the nickel they were supposed to, which resulted in an estimated loss of around $500,000 a container. Trafigura maintains its position that no one from the firm was part of the fraud and that it will continue to increase its commitment to having a greater presence in the fast-growing battery metals market.
Market Outlook:
The Financial Times reports that US equities fell last week because investors turned cautious on comments from Federal reserve officials that the US interest rates would have to rise to combat inflation. This trend highlights a continued fear among investors that a rise in interest rates would mean the economy will slow down, and thus, American share values will plummet. Moreover, the Financial Times reports that around the time US equities fell, Equities in Europe increased, which suggests that investors have substituted the purchase of American bonds to European ones. This means that the Federal Reserve must manage inflation expectations while also lowering expectations about a sharp change to its monetary policy. CBNC reports that the Chinese Hesai Group, considered a leading player in sensor technology for autonomous cars, was listed on Nasdaq last Thursday and soured with its shares obtaining around 11% in the debut. Hesai Group's success indicts a trend: many Chinese startups now wish to integrate with the American market and have American IPOs. This shows that the economic interdependence between China and the United States does not appears to stop.
Additional Resources:
https://www.bbc.co.uk/news/business-64584295
https://markets.businessinsider.com/news/commodities/trafigura-trading-nickel-fraud-commoditites-trade-million-shipping-prateek-gupta-2023-2
https://www.politico.eu/article/uk-enters-international-race-to-create-public-digital-money%EF%BF%BC/
https://www.ft.com/content/1eb8ac84-ce04-4f7e-9d55-937fbc34b72d