Japanese Yen Consolidates Against USD, Looks to FOMC Minutes for Fresh Impetus

US Federal Reserve (Fed) vice-chair Philip Jefferson said risks to the central bank’s employment and inflation goals are now closer to equal.

“The balance of risks to our two mandates has changed — as risks to inflation have diminished and risks to employment have risen, these risks have been brought roughly into balance,” Jefferson said on Tuesday in prepared remarks for an event at the Davidson College in North Carolina. 

Jefferson, in his first public speech since May, said he will be assessing incoming economic data and the balance of risks “when considering additional adjustments to the federal funds target range”. He added that he is making decisions on a meeting-by-meeting basis. 

Fed officials lowered interest rates at their meeting last month for the first time since the onset of the Covid-19 pandemic, reducing them by a half percentage point. The move came amid further signs of cooling inflation and growing concerns about the labour market. 

Forecasts released the same day showed the median projection from Fed officials called for an additional 50 basis points in reductions this year, implying smaller, quarter-point cuts at each of their two remaining meetings in 2024. 

The vice-chair said the economy is growing at a “solid pace”, even as the labour market has slowed from an overheated state. He said inflation is much closer to the Fed’s 2% target and should continue to cool towards it.

A surprisingly strong jobs report released last week tempered fears around the labour market. Employers added 254,000 workers to payrolls in September, while figures for July and August were revised higher. The robust pace of hiring helped bring the unemployment rate down to 4.1%.

“The good news is that the rise in unemployment has been limited and gradual, and the level of unemployment remains historically low,” Jefferson said. “Even so, the cooling in the labour market is noticeable.”

The jobs news last week drove investors to pare bets on another large rate cut at the Fed’s next meeting in November. Markets now see a quarter-point reduction as the likeliest outcome. 

A handful policymakers, including New York Fed president John Williams, have indicated continued support for further rate reductions, albeit at a slower pace, even after the stronger-than-expected September jobs report. That data led a few Fed watchers to call on the central bank to stop cutting rates. 

Jefferson also spoke at length about the history of the discount window, the Fed’s primary emergency lending facility. Following the collapse of Silicon Valley Bank and other regional lenders last year, policymakers have encouraged all banks to sign up to the discount window and to practise using it, should they need it in a liquidity emergency.

The Fed is also in the process of collecting comments from the public on various aspects of discount window use and functionality, Jefferson said.

Before joining the Fed’s board of governors in 2022, Jefferson was the vice-president for academic affairs and dean of faculty, as well as an economics professor, at the Davidson College.

Source: The edge markets

Macro:

Market Picture

The cryptocurrency market rolled back 1.8% in 24 hours to $2.17 trillion due to a reduction in risk appetite among investors, sparking a sell-off in bonds and equities. That said, as the less risky of the cryptocurrencies, bitcoin has been gaining ground relative to the overall market during similar periods, now holding 56.9% of the capitalisation of all currencies – its highest since April 2021. That share is largely taken away from Ethereum, which now weighs in at 13.5% of the entire market, which was also last seen three and a half years ago.

Technically, bitcoin sold off to consolidate above its 200-day moving average, a demonstration of bearish strength. But we’re still inclined to see this as more of a short-term correction for now, as the latest episode of risk-off is driven by strong data. While this is a formal reason to sell, strong employment is still a positive factor, promising more demand for final consumption and investment. The threat to cryptocurrencies so far is a combination of a new round of rising prices with signs of a weakening economy. Perhaps they’ll be found in economic reports this week and next. But that’s nothing more than a risk.

News background

According to CoinShares, crypto fund investments fell $147 million last week after three weeks of inflows. Bitcoin investments were down $159 million; Ethereum was down $29 million, and Solana was up $5 million. Investments in funds with multiple crypto assets were up $29 million, recording their 16th week of inflows. Since June, such products have become favourites among investors who prefer to invest in a diversified basket of assets rather than individual assets.

Despite the previous week’s difficult start, the options market points to bullish sentiment in the fourth quarter. QCP Capital is optimistic for a strong October, given the projected rate cuts and bitcoin’s correlation with equities. UBS forecasts China’s announcement of a new stimulus package from 8-18 October for 1.5-2 trillion yuan ($213-285 billion) with an additional 8 trillion yuan ($1.14 trillion) in 2025.

Crypto Insights noted ‘one of the highest levels of crypto optimism’ for the year among investment fund managers. The number of funds invested in cryptocurrencies topped 1,600.

PwC notes that the UAE has abolished VAT on all crypto transactions, putting digital assets on par with traditional finance (TradFi).

Pavel Durov said Telegram users bought up to 600,000 ‘rare’ gifts in a few hours on the day of their launch. The developers promise that in the future, ‘rare’ gifts can be converted into NFTs on the TON blockchain and traded as tokenised assets.

On paper, Pakistan’s deal with the International Monetary Fund for a US$7 billion (RM30.03 billion) bailout seemed like an inevitability. A period of crushing inflation, depleted foreign currency reserves and other economic shocks pushed the South Asian nation to the brink of default.

But locking down the funds recently might have been the easy part.

The finer print of the IMF program, which included increasing taxes by a record 40%, has caused panic across Pakistan. Leading to the deal, electricity prices jumped threefold for some people and the price of milk in Karachi surpassed what it would cost in Paris. Many Pakistanis now spend more than half of their income on food. And items from rice to shoes are increasingly out of reach for an already shrinking middle class.

“People simply have no power to buy,” said Niaz Muhammad, who sells produce in an affluent area of Islamabad, the capital. Customers who used to purchase fruits and vegetables from him daily are now doing so only a couple of times a week, he said. “It’s not just me facing this. Everybody is.”

Prime Minister Shehbaz Sharif, whose coalition government has only been in power for seven months, is urging patience in a country that cannot keep up. Over the past few years, Pakistan has lurched from one crisis to the next, including a tempestuous period of political unrest and deadly floods that caused billions of dollars in damage.

For a stretch, Pakistan reported Asia’s highest inflation rate. Though consumer prices have somewhat moderated this year, the cost of essentials continues to inflict pain. Incomes aren’t rising and purchasing power has roughly halved or more over the past five years. Inflation, which averaged 23% or so in the last fiscal year, is far higher than the average salary hike of 5% to 10% for Pakistan’s vast population of daily wage earners, according to government data.

In an interview with a local broadcaster, Finance Minister Muhammad Aurangzeb acknowledged “transitional pain” from the IMF bailout. “But if we are to make it the last programme,” he said, “then we have to carry out structural reforms.”

The IMF has also publicly defended terms of the deal. Officials have pointed out that Pakistan’s economic metrics broadly improved over the past year and the momentum must be sustained.

“The task now is to pursue reforms which underpin stability and sustainably strengthen the living standards for low- and middle-income households,” an IMF spokesperson said in a statement.

A pivotal question now is whether Pakistanis will bear the higher tax rates or mobilise for yet another change of government. Protesters appear on the streets regularly to vent their frustrations at Sharif and a political establishment they believe has looted them for decades without a payoff. The latest IMF program, which was secured two weeks ago, is the 25th time Pakistan has received bailout money since achieving independence.

Authorities will also want to avoid the kind of deadly protests that gripped Kenya in June and July. The demonstrations forced the government there to reverse tax hikes linked to IMF-backed austerity measures, putting billions of dollars of funding from the Washington-based lender at risk.

In a recent policy note, Moody’s Ratings warned that “a resurgence of social tensions on the back of high cost of living” could make it more difficult for Pakistan to implement reforms agreed upon with the IMF. Beyond a 40% general tax hike, Pakistani officials plan to increase taxes on agricultural income and within the retail sector.

Electricity prices are an especially sensitive issue, roiling rich and poor alike. In a recent video on social media, the popular actor Rashid Mehmood held up his inflated electricity bill and said he no longer wanted to live anymore.

“This has become too much,” he said.

Outside a hospital in Karachi, Ashrat Bano, 55, a cleaner in the building, expressed similar frustration. Electricity is now her biggest monthly expense. She routinely borrows money to support a family of four.

“I can’t pay it,” Bano said.

While almost nobody disputes that Pakistan needs to widen its tax base — the South Asian nation has one of the world’s lowest tax-to-GDP ratios at about 9% — the latest budget has triggered an uproar. Though taxes have risen for the middle class, there’s been no cut in state expenses for the new fiscal year, which started in July. Revenue generated from salaried Pakistanis fills 42% of the government’s tax coffers.

Private companies aren’t happy either. Pakistan’s current corporate tax of about 30% is among the highest anywhere. Exporters who were protected for decades by the government because they earned valuable dollars were also brought into the existing tax regime — bumping their tax rate from 1% to 29%.

Eighteen export associations published front page advertisements for multiple days in a row in leading newspapers to protest the move.

To meet the moment, multinational companies are resorting to “shrinkflation”. Nestle SA and Procter & Gamble Co have reduced the purchasable quantities of products including yoghurt and nappies. PepsiCo Inc’s Aquafina launched a more compact water bottle two years ago. And bread is available in smaller loaves, including a four-slice one.

Ali Khizar, head of research at Business Recorder, said it’s hard to find a bright spot these days for salaried workers. Car sales are the lowest in two decades. The price of air conditioners has doubled over the past couple of years. And Pakistan’s best and brightest are moving out of the country at a record pace.

Though the new taxes will help tame inflation, he said, the economic slowdown will continue.

“The misery of the middle and lower middle class is not likely to go away anytime soon,” Khizar said.

Source: The edge markets

Company Overview: The Rise of Moove Lubricants

IPO Details: Going Public

Financial Performance: A Growing Business

Business Model: Innovation and Quality

Industry Outlook: Growing Demand for Lubricants

Risks and Challenges

Investor Outlook: Is Moove Lubricants a Good Investment?

Conclusion