Centerfin Collective Weekly

Weekly Update June 23, 2023

UK inflation and rates rise, Bitcoin hits $31k, China tension continues

UK inflation and rates both surprise

This week the UK reported higher-than-expected inflation of 8.7%, the highest rate in over 30 years. The Bank of England then hiked interest rates by 0.50% to 5%, also more than expected.

  • Unlike the US, where inflation is still high but declining, it seems to be a bigger problem in other countries
  • It's not entirely clear why inflation has been sticker abroad, but it has forced the Central Banks to continue to hike while the Federal Reserve has paused
  • If this dynamic continues, it could put further pressure on the US Dollar, which has been in a downtrend since October of last year
  • Given most mortgages in the UK are only fixed rate for a few years and then switch to a variable rate, this could also begin to put real pressure on homeowners
  • This isn’t as big of an issue in the US as most mortgages are fixed rate and locked in at very low rates pre-2022

Bitcoin hits $31,000

Bitcoin hit its highest level in over a year on several positive developments. WisdomTree filed for a Bitcoin ETF following BlackRock’s lead last week. Four hours later, Invesco re-activated its prior application. Separately a new crypto exchange, EDX Markets, launched this week. EDX is backed by Fidelity, Charles Schwab, and Citadel. The CEO, Jamil Nazarali, was formerly with Citadel.

  • BlackRock would not likely file for a bitcoin ETF unless it believed there is a good probability of approval
  • Rivals WisdomTree and Invesco followed very quickly not to lose momentum to a first mover
  • Household-known incumbents like Fidelity and Charles Schwab backing a new crypto exchange is also a very positive sign, especially in light of the SEC’s recent crackdown
  • EDX differs from all prior exchanges because it does not custody the assets, similar to how stock exchanges operate
  • These are all very positive developments for Bitcoin and Ethereum

China tension continues

Earlier in the week, Secretary of State Antony Blinken paid a visit to Beijing in an effort to improve relations. While the visit was described as moderately productive, things escalated after President Biden referred to Xi Jinping as a dictator during a speech at a fund-raiser. China responded that his remarks were “extremely absurd and irresponsible.”

  • Our relationship with China has been strained since the Trump administration
  • Things have not improved, especially given the Russia/China relationship
  • While many companies have begun moving manufacturing capacity out of China, our economies are still very intertwined
  • China is the dominant producer of minerals that we and the rest of the world cannot function without
  • As an example, China produces 85% of the world's magnesium
  • Magnesium is widely used in the production of steel and aluminum, as well as many electronics
  • We cannot simply decouple from China without finding new sources of materials

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