Daily Analysis 26 September 2022 (10-Minute Read)

A terrific Monday to you as global risk assets extended their selloff.


In brief (TL:DR)

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  • U.S. stocks closed lower on Friday with the Dow Jones Industrial Average (-1.62%), the S&P 500 (-1.72%) and the Nasdaq Composite (-1.80%) all down.

  • Asian stocks extended their selloff on Monday as fears of faster inflation and global recession continued to rise.

  • Benchmark U.S. 10-year Treasury yields advanced eight basis points to 3.77% (yields rise when bond prices fall).

  • The dollar continued its unrelenting rally, with the gauge rising to yet another record.

  • Oil fell with November 2022 contracts for WTI Crude Oil (Nymex) (-0.76%) at US$78.14.

  • Gold slumped with December 2022 contracts for Gold (Comex) (-0.10%) at US$1,654.00.

  • Bitcoin (-0.94%) fell to US$18,896, headed for its lowest weekly close since 2020 on Sept. 25.


In today's issue...


  1. IMF Comes to the Rescue as Global Economic Outlook Worsens

  2. Soaring Dollar Bends Price for Metals

  3. U.S. CFTC Extends Regulatory Reach to DAOs


Market Overview

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An index of global stocks traded near the lowest since 2020, while European equities extended declines after sliding into a bear market on Friday. Mining and energy stocks underperformed as metals and oil fell on concern that demand will ebb as economies slow. Treasuries sold off, extending the worst bond slide in decades. Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Asian markets fell on Monday with Tokyo's Nikkei 225 (-2.66%), Sydney’s ASX 200 (-1.60%), Hong Kong's Hang Seng Index (-0.44%) and Seoul's Kospi Index (-3.02%) all in the red.



1. IMF Comes to the Rescue as Global Economic Outlook Worsens

  • While the IMF’s lending to economically troubled countries has hit a record high, at least five countries have been pushed into default, with more expected to follow.

  • The IMF is in negotiations with several countries about support packages which would increase its total commitments further.

The pandemic forced dozens of countries to reach out to the IMF for assistance but Russia’s invasion of Ukraine and a sharp rise in global interest rates has seen them reach out again for more.

According to IMF data, the volume of loans disbursed by the fund amounted to US$140 billion in 44 separate programs at the end of August.

IMF lending is already higher than the amount of credit outstanding at the end of 2020 and 2021, when levels reached record annual highs because of the pandemic.

Borrowing figures from the IMF are expected to grow further in the coming months as interest rates soar which will risk triggering a severe recession.

And while the IMF’s lending to economically troubled countries has hit a record high, at least five countries have been pushed into default, with more expected to follow.

Some analysts say the IMF’s lending capacity could soon be stretched to its limits, as poor countries which are locked out of international debt markets are forced to turn to the fund for support.

With the IMF’s total commitments, including loans agreed but not yet disbursed, already standing at more than US$268 billion, the IMF is in negotiations with several countries about support packages which would increase its total commitments further.

Zambia and Sri Lanka, which both defaulted in the pandemic, along with Lebanon, Russia and Suriname, are negotiating IMF bailouts as part of efforts to restructure their debt.

Ghana, Egypt and Tunisia are in early talks for IMF support.

Meanwhile, Pakistan was approved for a US$1.1 billion bailout at the end of August and Argentina is set to receive US$3.9 billion in the next few weeks as part of its US$41 billion package.

The IMF has warned that 55 of the world’s poorest countries face debt repayments of US$436 billion between 2022 and 2028, with about US$61 billion falling due this year and in 2023, and almost US$70 billion in 2024, when a recession is most likely to hit.



2. Soaring Dollar Bends Price for Metals

  • Investors are turning to the U.S. dollar as a haven rather than gold with the greenback trading higher and likely to continue to rise.

  • As concerns over the global economy gather, the rapidly collapsing price of metals is raising concerns over an impending recession as companies freeze hiring and credit conditions tighten.

While gold is seen as a traditional haven in times of economic distress, the precious metal has slumped over the past month in the face of the greenback’s relentless gains and hawkish moves by central banks.

The dollar hit a fresh record adding to fears for the global economic outlook that also saw Britain’s pound hit a record low and China’s yuan neared its weakest since 2008.

Against this backdrop of carnage, gold plumbed its lowest since 2020 while copper and iron slumped.

Investors are turning to the U.S. dollar as a haven rather than gold with the greenback trading higher and likely to continue to rise.

Meanwhile, bullion has entered a bear market, trading at a level 20% below its record high in 2020.

Copper, often seen as a bellwether of global growth, just hit its lowest since July as investors bet on sharp slowdowns in the U.S., and more demand turbulence in Europe amid the region’s energy crisis.

Iron ore has sunk about 20% this quarter as investors continue to fret about a prolonged property crisis that’s stymied construction activity and as U.S. real estate prices show signs of weakening.

As concerns over the global economy gather, the rapidly collapsing price of metals is raising concerns over an impending recession as companies freeze hiring and credit conditions tighten.



3. U.S. CFTC Extends Regulatory Reach to DAOs

  • A recent enforcement action by the U.S. Commodity Futures Trading Commission (CFTC) signals that the DAOs are within the purview of the agency’s oversight.

  • According to tracker DeepDAO, the action may have big implications for the nearly 5,000 DAOs in existence, about 2,300 of which have assets of more than US$1 million.

Over the past year, many crypto projects have transformed themselves into decentralized autonomous organizations, or DAOs - organizations governed by holders of special tokens - partly in hopes to avoid regulatory scrutiny and probably to avoid giving authorities an entity to target.

Because most DAOs don’t check their customers’ identities, or otherwise comply with many existing financial-industry laws such as KYC and AML, the decentralized nature of the businesses that they operate are one excuse for not performing such checks.

However, a recent enforcement action by the U.S. Commodity Futures Trading Commission (CFTC) signals that the DAOs are within the purview of the agency’s oversight.

On Thursday, The CFTC filed and settled charges against bZeroX LLC and its founders Tom Bean and Kyle Kistner for illegally offering “leveraged and margined retail commodity transactions in digital assets,” among other charges.

Simultaneously, the CFTC filed a federal civil enforcement action in the U.S. District Court for the Northern District of California charging the Ooki DAO - a decentralized effort that bZeroX converted into last year - with violating the same laws.

According to tracker DeepDAO, the action may have big implications for the nearly 5,000 DAOs in existence, about 2,300 of which have assets of more than US$1 million.

The CFTC’s action holds accountable for the DAO’s violations those individuals who participated in decision-making for the Ooki protocol by exercising their governance tokens.

According to DeepDAO, there are 3.9 million holders of governance tokens,and they include many high-profile venture-capital firms, including the likes of Andreessen Horowitz.

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