The macroeconomic ecosystem continues to be the dominant topic. It was further ignited by the recent central bank decisions. While markets were rather optimistic from the US perspective, it does not apply to Europe. With the recent break from interest rate hikes by the Fed, it felt like a turnaround point. However, the Fed hinted that this was merely a break and that further hikes are not unlikely. Following the good results of the inflation data in May 2023, the Fed halted an interest rate hike for now. As of May, the inflation declined to 4%, down from 4.9% in April. These positive results mainly stem from a substantial decline in energy prices. While the development was similarly positive in Europe, inflation remains above 6%. Central bank representatives highlighted that the fight against inflation is not won yet. Hence, it was not surprising that rates were raised to 3.5%. In Switzerland, inflation has never been such a tremendous issue. Nonetheless, the Swiss National Bank also raised its rates, but only by 25bps. The most surprising move came from the UK. The BoE hiked rates to 5% through a 50bps increase. Market participants expected a 25bps hike and the BoE earned substantial critics for that move. The move likely came from the still very high inflation rate of 8.7%. Figure 1 shows the total development of interest rate hikes from the US, EU, UK, and Switzerland since the beginning of 2022. The positive news from the US also had a substantial impact on the equity market. As of the time of writing, the S&P 500 is up another 4% in June and 14% YTD. Although the Fed highlighted rate hikes might not be over, the break in hiking alongside the declining inflation is a promising sign that rates will “soon” come down and the projected recession might be averted. In particular, big tech has reacted strongly to the news, which remains the driver of the exceptional performance of the stock market this year.
The stillstand around the US debt ceiling was finally resolved. While it eased some of the short-term pressure on markets, it is unlikely that the general pressure will be reduced. Since the resolution of the conflict, equities and treasury yields have risen slightly. This development likely has no beneficial implications in the medium and long-term, as it was very unlikely that US politicians would have allowed the US to reach its debt ceiling. They mostly used the discussion to push their political agendas. There is also positive news on the inflation topic. In the US, inflation is at a two-year minimum with “only” 4% and decreased to 6.1% in the EU. While it is still well above the target threshold of 2%, it is a relieving and consistent development. Since a couple of months after central banks started hiking, inflation has decreased steadily albeit with some exceptions when goods affected by war became sparse. In the US, a hike pause or even a hike stop seem to be more realistic. Similar developments can be expected in the EU, but it will likely happen at a later date. With the positive news recently, the S&P 500 also entered a new bull market. From its low in October 2022, the index gained 23.8%. Figure 1 highlights the drawdown of the index in early 2022 and its impressive recovery since then. Since the beginning of June 2023, the crypto markets in the US was rattled by the SEC. The tension between major cryptocurrency exchanges and the SEC is continuing to grow. The SEC sued Binance and Coinbase for different reasons. Binance was sued, as Binance US claimed to be an independent platform for US investors and the SEC argues that the CEO of Binance, Zhao, still controls the trading platform. The SEC sued Coinbase’s trading platform as it allegedly operates an unregistered national securities exchange. Within the Binance lawsuit, the SEC also argues that tokens, such as Solana, Polygon, and Cardano are securities. The latter two claims have huge implications for the crypto market in the US. The space is still insufficiently regulated and most companies have been pushing for clear legislation for years, in particular as digital assets have been removed from the latest hedge fund regulation update. These lawsuits and the conflict between large crypto companies and regulators are likely to spark further discussions on the topic of crypto regulation.