FreshForex News.

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[FreshForex]

"EVERY BIT HELPS". RECORD PERFORMANCE OF US TREASURIES

Dear clients,


Foreign buying of US Treasury bonds in March rose to the highest level in more than two years, Treasury Department data showed on Monday, as investors bought government debt amid bank stress during the month.


US Treasuries rose to $7.573 trillion in March, up about $230 billion from $7.343 trillion the previous month. Monthly Treasury bond accumulation in March was the highest since June 2021, analysts at TD Securities said.


According to the cited data, March was particularly significant as it was a time of volatility in the banking sector. The most interesting point was the huge amount of treasury bond purchases. Investors were de-risking at the time because of banking stress. There was a lot of buying on the Chinese side, a lot of buying on the Japanese side. There were interesting purchases from the UK side or via the UK, indicating purchases by hedge funds.


The benchmark 10-year Treasury yield started March at 3.996%, falling by 50 basis points to 3.49% by the end of the month. In October last year the yield on 10-year US Treasuries reached a 15-month high of 4.338%.


Foreign inflows into Treasuries were $35.8bn per trade in March, up from $57.6bn in the previous month. US equities were also bought by foreigners, with inflows of $36.1bn following net sales of $16.2bn in February and outflows of $27.5bn in January.


US residents, meanwhile, increased their holdings of long-term foreign securities, with net purchases of $22.8bn compared with net sales of $8.3bn in February.


Overall, net purchases of long-term overseas securities totaled $133.3bn in March, up sharply from February's inflow of $56.6bn, the data showed.


PLATINUM DROUGHT

Dear clients,


Rising demand from automakers, industry and investors will push the global platinum market into the biggest deficit in years, three industry reports predict.


The reports highlight the changing fortunes of platinum and its cognate metal palladium, which are used mainly in vehicle exhausts to help neutralise harmful engine emissions. For many years, growing demand and shortages of palladium have pushed prices upwards, while low consumption and a more abundant supply of platinum have kept prices low.


Two reports released on Monday suggest that if palladium remains in short supply this year, the platinum supply shortfall will be greater. Automakers are switching from palladium to platinum as a cost-saving measure, heavy-duty vehicles with a high platinum content are on the rise, while zero-emission electric cars are making their way into the palladium-focused light vehicle market. Platinum is also being supported by industrial and jewellery consumption, while palladium demand is almost entirely dependent on the automobile sector.


The World Platinum Investment Council forecast a platinum deficit of 983,000 oz, the highest since the 1970s, following last year's surplus of 854,000 oz.


Meanwhile, net platinum holdings in the ETF increased by 43,000 ounces in Q1 '23, reversing six previous quarters of net disinvestment. The board believes that the revised 2023 deficit forecast of almost 1 million ounces based on historical data is likely to attract additional investor interest in bullion and coins as well as physical asset-backed ETFs.


FOR A RAINY DAY. HOW WALL STREET IS PREPARING FOR A POSSIBLE DEFAULT

Dear clients,


As negotiations to raise the debt ceiling of the USD 31.4 trillion government debt intensify, Wall Street banks and asset managers have started to prepare for the consequences of a possible default.


The financial industry has prepared for such a crisis before, most recently in September 2021. But this time, the relatively short timeframe for a compromise has bankers on their guard, said one senior industry official.


US government bonds underpin the global financial system, so it is difficult to fully assess the damage a default would cause, but executives expect strong volatility in equity, debt and other markets.


The ability to trade in and out of treasury bonds on the secondary market will be severely limited. Even a short-term breach of the debt ceiling could lead to a spike in interest rates, a plunge in equity prices and a breach of credit documentation and leverage agreements.


Banks, brokers and trading platforms are preparing for disruptions in the treasury market as well as wider volatility.


This typically includes planning for how payments in treasury securities will be made; how the critical funding markets will react; ensuring there is sufficient technology, staffing and cash to handle large trading volumes; and checking the potential impact on contracts with clients.


Large bond investors have warned that maintaining a high level of liquidity is important in order to withstand potential sharp fluctuations in asset prices and avoid having to sell at the most inopportune time.


The Securities Industry and Financial Markets Association (SIFMA), a leading industry group, developed an action plan that details what Treasury bond market participants — the Federal Reserve Bank of New York, the Fixed Income Clearing Corporation (FICC), clearing banks and Treasury bond dealers — should do in the run-up to and on the days of a possible Treasury bond payment miss.


SIFMA considered several scenarios. The most likely scenario is that the Treasury would buy time to pay bondholders by announcing on the eve of the payment that it would reschedule these securities, extending them one day at a time. This would allow the market to continue functioning, but no interest would likely accrue on the deferred payment.


In the most destructive scenario, the Treasury does not pay any principal or coupon and does not extend the maturity date. The outstanding bonds would no longer be tradable and could not be transferred through the Fedwire Securities Service, which is used to hold, transfer and settle Treasury bonds.


Each scenario is likely to cause significant operational problems and will require daily manual adjustments to trading and settlement processes.


In addition, in past periods of confrontation over the debt ceiling issue — in 2011 and 2013 — Fed staff and policymakers developed their plan, which is likely to serve as a starting point, with the last and most sensitive step being the complete removal of defaulted securities from the market.

[FreshForex]

5 MINUTE BREAKTHROUGH: A PROFITABLE STARTING STRATEGY

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During webinars, FreshForex analyst will answer your questions regarding the market situation and comment on the latest news.


If you missed the previous webinars, you can always find them here.


NEW TRICKS OF THE OLD CRYPTO

Dear clients,


According to Glassnode, daily transactions hit an all-time high of 682,000 this month, up almost 40% from the previous peak in 2017. Bitcoin's dominance, or share of the total $1.16 trillion cryptocurrency market, has risen to 44% from 38% at the start of the year.


This is due to BRC-20, the first class of cryptocurrency tokens created on the bitcoin blockchain apart from bitcoin itself. Nearly 25,000 experimental coins have already been minted this year, leading to a surge in transactions.


Mostly due to the creation of these tokens, the average daily transaction volume in seven days was more than 531,000, almost double what it was a month ago, according to Blockchain.com.


This new class of cryptocurrency has no specific use beyond speculation, much like memecoins. However, its nascent popularity points to interest in bitcoin not just as a store of value or a payment method, but also as a basis for developing new coins and applications - previously considered the domain of more modern blockchains such as Ethereum and Solana.


Some investors and developers see bitcoin blockchain as a safer long-term basis for creating tokens and applications amid the cryptocurrency carnage that has followed the collapse of high-profile companies such as FTX and a general flight away from risky assets, market participants say.


Nevertheless, the excitement around BRC-20 has been volatile. The total value of these tokens, which are typically traded on secondary markets, especially on decentralised exchanges, surpassed $1bn in early May, but has since fallen to $446m, according to tracker BRC-20.io.


Because the bitcoin blockchain was not originally designed to support the crypto ecosystem, unlike Ethereum and Solana, BRC-20 tokens are created using ordinar theory, which allows data to be written on each satoshi - the smallest bitcoin denomination, or hundred-millionth of a bitcoin.


The race to create these new coins has had little impact on the price of bitcoin, which has been trading below $30,000 since mid-April. However, experts see this trend as "promising" in terms of interest in creating products on the bitcoin blockchain.


ONE STEP BEHIND. THE AI LEGISLATION

Dear clients,


As the race to develop more powerful artificial intelligence services such as ChatGPT accelerates, some regulators are still relying on old laws to control a technology that could change the way society and business operate.


The European Union is at the forefront of developing new rules for AI that could become a global benchmark to address the privacy and security concerns raised by the rapid development of generative AI technology underpinning OpenAI's ChatGPT. However, it will take several years for the legislation to take effect.


"In the absence of regulations, the only thing governments can do is to apply existing rules," experts say. "If it's about protecting personal data, they apply data protection laws, if it's about threatening people's security, there are rules that have not been specifically defined for AI, but they still apply."


In April, European national privacy regulators set up a task force to tackle ChatGPT after Italian regulator Garante pulled the service offline, accusing OpenAI of violating the EU's GDPR, a wide-ranging privacy regime adopted in 2018. ChatGPT was reinstated after the US company agreed to install age verification features and allowed European users to block their information from being used to train AI models.


Generative AI models have become well known for making mistakes, or 'hallucinations', providing misinformation with supernatural certainty.


Such errors can have serious consequences. If a bank or government department uses AI to speed up decision-making, people could be unfairly denied credit or benefits. Major technology companies, including Google and Microsoft Corp, have stopped using AI products considered ethically questionable, such as financial products.


US and European experts say regulators intend to apply existing rules covering everything from copyright and data privacy to two key aspects: the data entering models and the content they produce.


While regulators adapt to the pace of technological advances, some in the industry are calling for more engagement with corporate leaders. Dialogue between regulators and companies has so far been "limited", they say.


"This does not bode well for the future," they say. "Regulators seem either slow or unwilling to adopt approaches that strike the right balance between consumer protection and business growth."

[FreshForex]

CHIPPIN' IN: NVIDIA'S POWER BOOST

Dear clients,


Nvidia Corp on Wednesday forecast second-quarter revenue more than 50 percent above Wall Street forecasts and said it was increasing shipments to meet growing demand for its artificial intelligence chips, which are used to run ChatGPT and many similar services.


Shares in Nvidia, the world's most expensive semiconductor company, soared 28 per cent after the signal to a record high of $391.50. That boosted the market value of Nvidia stock by about $200 billion to more than $950 billion, extending the Silicon Valley-based company's lead as the world's most expensive chip maker and the fifth most valuable company on Wall Street.


Nvidia is forecasting revenue of $11bn for the current quarter, with analysts polled by Refinitiv citing a figure of $7.15bn. They note that amid a gold rush of generative artificial intelligence, demand for Nvidia chips is secure for the rest of the year.


Adjusted revenue for the quarter ended April 30 was $7.19bn on revenue expectations of $6.52bn. The company's data centre chip sales were $4.28bn, beating analysts' forecasts of $3.89bn, according to FactSet.


Nvidia faces competition in AI chips from traditional rivals such as Advanced Micron Devices Inc and Intel Corp, as well as from startups such as Cerebras Systems and its own AI chip efforts at companies such as Google and Amazon.


According to FactSet, revenue from gaming chip sales exceeded Wall Street expectations, coming in at $2.24 billion against forecasts of $1.97 billion. Net income rose to $2.04 billion, or 82 cents per share, from $1.62 billion, or 64 cents per share, a year earlier. Excluding items, the company earned $1.09 per share in the first quarter, beating estimates of 92 cents.


THE STRUGGLE FOR DEPENDENCY. OPENAI AND EU CONFLICT

Dear clients,


Sam Altman, CEO of OpenAI, has spent the last week travelling around Europe, meeting leading politicians in France, Spain, Poland, Germany and the UK to discuss the future of AI and the progress of ChatGPT. On Wednesday, he warned that the company could leave the EU if the bloc becomes "over-regulated".


By February, ChatGPT had set a record for the fastest user base growth of any consumer app in history. More than six months after OpenAI unveiled its AI-powered chatbot to the world, concerns about its potential sparked excitement and anxiety - and led to conflict with regulators.


"The current EU bill on artificial intelligence would be over-regulatory, but we have heard that it is going to be pushed back," Altman said on Wednesday. EU lawmakers responsible for drafting the AI law have disputed Altman's claims. EU industry chief Thierry Breton also criticised the threat, saying the draft rules were non-negotiable. Dutch MEP Kim van Sparrentak, who also worked on the EU bill, said she and her colleagues "should not allow themselves to be blackmailed by US companies".


"If OpenAI cannot meet the basic requirements of data management, transparency, security and protection, then their systems are not suitable for the European market," she said.


OpenAI first clashed with regulators in March, when Italian data regulator Garante shut down the app domestically, accusing OpenAI of breaching European privacy rules. ChatGPT returned to the web after the company introduced new privacy protections for users.


Meanwhile, EU lawmakers have made new proposals to the Artificial Intelligence Act, which would oblige companies using generative tools such as ChatGPT to disclose all copyrighted material used to train systems. EU parliamentarians agreed a draft law earlier this month. Member states, the European Commission and Parliament will finalise the final details of the bill.


The departure of OpenAI is seen as an unlikely outcome as the European market is too valuable economically. Experts note that some legislative relieves are still possible, but the overall trajectory has already been set.

[FreshForex]

UNPAUSABLE. FUTURE OF FED RATES

Dear clients,


Federal Reserve policymakers received a dose of unexpectedly strong US economic data on Friday, which bolstered the case for further monetary policy tightening to reduce persistently high inflation.


A 0.8% rise in consumer spending last month compared with March was good news, showing that the economy is not on the brink of recession, but discomfort for policymakers waiting for a slowdown that could ease rising pressure on prices. And the increase in core inflation to 4.7%, up from 4.6% in March, underlined the Fed's less-than-steady progress in fighting inflation. The US central bank's inflation target is 2%.


Combined with seemingly some progress on a deal to raise the debt ceiling and avert a catastrophic US default, the latest data raises doubts that the Fed will indeed "pause" its campaign to raise rates, as Chairman Jerome Powell signalled earlier this month.


Interest rate futures traders are seeing less subtlety in the numbers and are now expecting an 11th consecutive interest rate hike in June, a reversal of the June pause bets made after the last hike on May 3.


Next month's rate hike is not a definitive decision: Key labour market data from next Friday and fresh inflation data expected on 13 June are still to be announced before the Fed meeting on 13-14 June. However, there are growing expectations that even if the Fed leaves rates unchanged in June, it will hit the brakes in July. In the futures markets the odds are three to one in favour of a rate hike until then.


Fed Governor Christopher Waller — one of the Fed's most hawkish voices — made this point earlier last week. He said that while key data in the coming weeks as well as uncertainty over credit conditions could support a temporary rate halt, the lack of progress on inflation points to the need for further tightening.


BIG AND TECH. S&P 500' FINEST

Dear clients,


Never before in the history of US equities has a small group of companies from one industry had such an impact on the entire market. Six companies — Apple, Microsoft, Alphabet, Amazon, Nvidia and Meta Platforms — now have a combined valuation of around $10 trillion and account for more than a quarter of the total market capitalisation of the S&P 500.


All of these stocks have doubled in value in 2023 — and Nvidia and Meta more than doubled — thanks to the dawn of artificial intelligence and expectations that the Federal Reserve will soon halt interest rate hikes. The benchmark index is up 8% in 2023, but its return is down to just 2% if technology companies are excluded. The S&P 500 is also well behind the technology-heavy Nasdaq Composite, which has entered bull market territory, jumping 22% this year.


Historically, it is rare for a handful of stocks from one sector to make up such a large proportion of the S&P 500. The last time the five largest valuation companies accounted for a quarter of the total market value of the index was in the 1960s, according to Schroders. It is also the first time in history that all five of the largest publicly listed companies represent the same industry.


However, this is not all good news for investors.


It is tempting to view the dominance of the technology sector as a good thing. But single-industry stocks tend to be vulnerable to the same macroeconomic factors — such as rising interest rates, which often hit technology stocks harder than other companies because they are more reliant on borrowing cash.


The overall size of the S&P 500 market is so concentrated around technology companies that it is more vulnerable to sharp price swings than before, Minerva Analysis said. When there is a narrow group of leaders, there is a big risk if something bad happens to technology. If interest rates rise to 7%, it will be bad news for the whole market.


So while the tech giants have provided a surprise rally in equities in 2023, their rising market capitalisation could end up being more of a curse than a blessing for investors.


TRADER' STARTER PACK

Dear clients,


When you are at the start of your trading path, you might want some boost, something to get ahead. This time we'll be looking at some strategies which can help a beginner to gain an egde.


Join us on May 31 at 12:00 GMT.


During webinars, FreshForex analyst will answer your questions regarding the market situation and comment on the latest news.


If you missed the previous webinars, you can always find them here.