Why central banks should stick to controlling inflation

What’s the point of a central bank? The old fashioned among you may think the answer to that is obvious: to manage interest rates and the supply of money such that inflation remains firmly under control. 

Central bankers have different ideas: where they once liked to consider themselves technocratic, they now think of themselves as rather more nuanced – able to “look through” inflation rather than being wedded to metric-driven interest rate rises. And where they once figured that they had just the one job, they now seem to feel the world needs their input on pretty much everything. 

Mervyn King, the former Bank of England governor, recently complained about central banks “moving into the political arena”. And with good reason: data from the Bank for International Settlements shows that references to “inequality” have risen sharply in central bankers’ speeches, while the chief executive of the Reserve Bank of Atlanta (among others) called for central banks to “play an important role in helping to reduce racial inequities and bring about a more inclusive economy”.

You can also be sure that climate change will get a mention within the first few minutes of every speech at the central bankers’ (now virtual) meeting at Jackson Hole. At first glance this might seem to make perfect sense – the European Central Bank’s Christine Lagarde explains it in terms of the fable of the mice, the cat and the bell: all the mice agree that life would be better for all if the cat wore a bell – but no one wants to be the one who actually creeps up and attaches the bell. To want to help with the bell placing is not mission creep, she says, but “acknowledging reality”. You can also argue that it fits perfectly within the traditional brief of most central banks: if, say, climate change could in the medium term be both a nasty driver of inflation and a challenge to long-term financial stability, why shouldn’t central banks have a go at helping out? Most other central banks agree: the Bank of England has climate change down as a “strategic priority”. 

There are a good few reasons why this is a mistake. 

The first reason is that most of these things are none of their business. Central banks have huge power – but as their leaders are unelected it is vital that that power remains as contained as possible. Look at what has already happened over the past decade as central banks have blended monetary and fiscal policy, first by using quantitative easing to finance anything governments fancy, and second by turning a blind eye to the asset-market bubbles and fast-rising wealth inequality that their insanely loose monetary policy has created. There’s a reason the wealth of the world’s billionaires has soared during the pandemic – and it is more likely to be the $120bn of bonds the Federal Reserve has bought every month than fast global GDP growth (the S&P 500 is up by 21% so far this year alone). The world’s central banks might have caused much of the inequality they are so worried about; in that sense, they have been dabbling in politics for a long time already, just not in a good way.

The second reason is that once you start mission creep (for that is what it is) where does it end? It is possible that climate change might cause inflation, but so can a shortage of HGV drivers (currently causing supply havoc in the UK) – and thus far no one has suggested the Bank of England have policies to speed up the training of lorry drivers. These are jobs for other organisations.

However the most obvious reason is that central banks have more than enough to do just covering their basic brief. The developed world is in as hideous a monetary policy trap as it is possible to imagine. Low rates are causing asset price bubbles all over the place (from housing to NFTs); ordinary people have no hope of getting a real return on their cash; inflation is confusing and potentially frightening; and the rise of cryptocurrencies is threatening central bank control over transactions and deposits.

Just trying to work out if inflation is transitory or not would be enough work for most institutions – and that’s before you see the way clear to back out of the monetary policy of the last decade. Once you’ve let markets bubble, how on earth do you unbubble them?

Now try doing that, all the other things mentioned above, and worrying about politics. You might soon find you can’t see the macro for the micro. How, for example, would you square raising interest rates sharply into fast-rising inflation, with protecting minority groups who have high levels of debt or low levels of employment? And how do you keep inflation expectations anchored if everyone knows you have that conflict? That’s not a job description most people would write themselves – particularly given that the last bout of nasty inflation happened in the 1970s (when central banks were explicitly not independent of politics).

Mission creep is a common problem. It might be time for national politicians to start insisting that political issues are left to them and that everyone else just gets on with their own jobs. Local councils could fix the roads really quickly; companies could make, sell and deliver stuff; and central banks could use monetary tools to have a go at controlling inflation. Much easier all round.

• This article was first published in the Financial Times

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Three stocks to protect your income from rising inflation

After decades of quiescence, inflation appears to be rearing its head once again. With interest rates likely to remain well below inflation for many years, savers face the dismal prospect of ever-diminishing purchasing power. 

At Capital Gearing Trust, we focus on protecting the value of our clients’ wealth in real (after inflation) terms. There are a number of tools that we use in pursuit of that aim, including substantial investments in inflation-linked bonds. We also focus on specialist equities, typically investment trusts and real estate investment trusts (Reits), which benefit from long-term inflation-linked revenue streams. These are three examples from the infrastructure and specialist property trust sectors. 

Long-term cashflow from infrastructure

International Public Partnerships (LSE: INPP) is an FTSE 250 investment trust that holds stakes in over 100 public infrastructure projects in a range of sectors. Its areas of focus include electricity transmission, transport and education. Recent new projects include subsea transmission cables linking UK offshore windfarms to the electricity grid. 

Project revenues are regulated or backed by government contracts, and are long term with a weighted average life of 32 years. The portfolio enjoys substantial inflation protection: the managers estimate that portfolio returns increase by 0.8% for every 1% of inflation. This results in a well-underpinned 4.2% dividend that has historically grown by at least 2.5% per annum regardless of the economic environment. If inflationary concerns start to escalate, these secure inflation protected cashflows should be valued at a significant premium. 

Affordable inflation-linked rents

Residential Secure Income Reit (LSE: RESI) has two principal assets within its portfolio: retirement flats and shared ownership accommodation. The retirements flats are let to elderly residents on affordable rents which rise in line with the retail price index (RPI) each year. 

Shared ownership accommodation involves the trust selling a share of residential properties to homebuyers and then renting to them the balance of the house. The purpose is to help house buyers take ownership of properties they would otherwise be unable to buy. 

The trust is able to secure grant funding from the government which it uses to ensure the rental charge is affordable. These rents also rise in line with RPI. The combined effect results in a high-quality income stream that enables it to pay a 4.7% dividend that should rise in-line with inflation. 

Uncapped RPI-linked leases

Secure Income Reit (LSE: SIR) holds a portfolio of high-quality assets on long leases including leisure assets leased to theme parks, private hospitals and hotels. Other similar trusts trade on significant premium to their underlying asset value, but Secure Income Reit trades at only a modest premium. A majority of its long leases are linked to RPI without any caps, which could prove very valuable in the event of a serious surge in inflation.

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Invest in affordable housing – a solid return with a social impact

• SEE MORE The best way to invest in affordable housing

In his 1991 book Parliament of Whores, the political satirist P. J. O’Rourke showed that the US government spent $98bn on poverty relief each year– twice as much as the aggregate amount ($50bn) by which 32.5 million Americans fell below the poverty line. Additional state and local spending of $28bn meant the average poor family should have received enough to raise them comfortably above the poverty line. Yet all that money failed to solve the problem.

The US hasn’t got better at poverty alleviation in the subsequent 30 years, and the UK government is no more efficient. There are 288,000 homeless households in the UK yet local authorities’ policy is to accommodate them in expensive and often sub-standard bed-and-breakfast accommodation. Perhaps the private and charitable sectors can do a better job for less cost?

A solid yield from Home Reit

This is the thesis of two funds listed in late 2020, Home Reit (LSE: HOME) and Schroders BSC Social Impact Trust (LSE: SBSI). Home, managed by Alvarium, raised £240m to invest in “acquiring high-quality properties across the UK let or pre-let to robust tenants on long leases (typically 20 to 30 years), with index-linked or fixed rental uplifts”. These tenants are registered charities, housing associations, or community interest firms but Home is a passive landlord and so it is not responsible for providing care operations for the occupants.

Within six months, £235m was invested in 572 properties managed by 16 tenant partners providing 3,019 beds for the homeless. The initial rental yield is 5.8%, paid for by the Department for Work and Pensions via local authorities. Index-linked rents average just £86 per week, compared with an average £225 per week for those in temporary bed-and-breakfast accommodation.

Home has borrowed £120m for 12 years at a fixed cost of 2.07% to invest in further properties. Another equity issue is likely before long. Even without the benefit of leverage, net asset value (NAV) increased by 4.9% to 102.8p in its first six months, ahead of its target return of 7.5% per year. The shares at 114.5p trade at an 11.3% premium to NAV (as of end February), but are better value than they first look. With a prospective yield of 4.6%, they provide investors with a healthy return and generate a positive social impact.

A less compelling choice

The Schroders trust offered more meagre returns, so raised only £75m. It calls on the expertise of Big Society Capital (BSC), founded ten years ago by Ronald Cohen and four high-street banks, to help it invest in a mixture of social enterprise debt, high-impact housing and social outcomes contracts. 

The target return is only 2% over inflation, which, given the Bank of England’s 2% inflation target, means 4%. The yield when fully invested will be just 1%-2%. The gross return is expected to be near to 6%, but BSC and Schroders will each get a management fee of 0.4% and the underlying managers’ fees will be about 1%. It seems when it comes to good causes investors are expected to tighten their belts more than managers. 

The trust announced that at the end of April it was 60% invested and 90% committed. The NAV at the end of 2020 was up to 99.9p, but it is hard to see it raising significant further equity or sustaining additional debt without higher than target returns. The shares at 103.5p trade at a premium to NAV, which doesn’t look justified. The social impact is commendable, but it may be naive to believe that it will protect it from public-sector hostility to the private and charitable sectors if the political mood changes. Investors can achieve better social impact and better returns by combining conventional investment with tax-deductible philanthropy. Home shows that investors don’t need to sacrifice returns for social impact. Perhaps SBSI will get the message.

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The Story of Anthony Crudele: One of the First E-mini S&P500 Traders

Oscar Wilde once said that “life is never fair, and perhaps it is a good thing for most of us that it is not”. Take from that what you will; but something everyone can attest to is that the ebbs and flows in life, our experiences and what we learn from them; shape us into who we are... No matter how ‘fair’ a situation may be, the outcome may not always be in your favour. But, it’s what we learn from that experience that pushes us on and helps us grow.Much like life in general, the ups and downs of trading are what shape the type of trader that you become. A perfect example of that is the story of Anthony Crudele, a man whose net worth now stands at $32 million dollars (Focus, 2021), (WallMine, 2021).Anthony’s trading story began by accident. Seriously, an actual accident… Fresh out of high school, young Crudele was involved in a serious car crash that changed his life forever. Still reeling from multiple surgeries to heal his broken femur, young Anthony decided that the best rehab for his injuries was to take a job as a runner at the Chicago Merchantile Exchange.Back in 1995 (when Crudele was a fresh-faced 18-year-old), runners were an integral, yet small part of the CME’s overall functioning (Alden, 2015). Antony would be back and forth across the meat pits, delivering orders from desk brokers to traders on the floor. Armed with a runner’s signature yellow jacket, this was Anthony’s first step into becoming the Futures trader that he is today.Young Anthony then began to climb the CME ladder, becoming a clerk in the Eurodollar options, eventually making his way into the S&P500 pits. Surrounded by a handful of great S&P pit traders, Anthony spent the next year of his life absorbing his surroundings so he could then become a member of the CME.It was an incredible turn around. In just under 4 years Anthony had changed direction in such a spectacular way that he’d not only recovered from a debilitating accident but, used his misfortune to spur on his trading career.At 21 years old, armed with a wealth of knowledge, youthful resilience and sheer determination, Crudele began to trade in the S&P pit… However, no great story starts with a smidge of adversity and a quick happy ending.In less than 6 months Crudele decimated his first account. Discouraged and disenfranchised, he paused. He sat on the steps outside the S&P pit to take stock of his situation and work out how he could turn the situation around. It was at this moment that his trajectory totally changed. As Crudele sat, he was approached by a man from Globex.Now, launched in 1992, Globex was the first electronic trading platform used for Derivatives like Futures, Options and Commodity contracts across a wide range of asset classes (Segal, 2021). Originally it was developed to be a ‘low-impact means of providing after-hour market coverage’ for Futures and Options trading: starting with 3 currencies and one treasury note (John W Labuszewski, 2012). However, this obviously isn’t where it ended up.Just at the right time for Crudele, the E-mini S&P500 made its stellar debut on Globex in 1997; and he was invited to be one of the first ever traders of the electronic version of the S&P. Equipped with his ‘never-concede’ attitude, Crudele’s answer of “sure, why not” propelled him to the centre of one of the biggest shifts in trading history: the electronic revolution.At around the same time as Crudele’s move, the stock market was on an extended 15-year rally. Because of this, the S&P 500’s notional value had soared, putting it out of reach for a vast portion of traders… In an almost poetic turn of events, this is where the CME changed everything.They developed a smaller sized product, exclusively for CME Globex and launched the E-mini S&P500.Directly linked to the convenience of immediate fill reports and the ability to trade on an equal footing with anyone in the world, the appeal of electronic trading mounted... And, it mounted fast. Coupled with the launch of the E-mini S&P 500, traders began to climb aboard the electronic trading train as it gathered steam.One of the first passengers aboard this unstoppable movement was our very own Anthony Crudele. Now, at the start, his career didn’t just take off. It was simply the turning point where his own dedication to grow, learn and improve with the electronic movement began.While finding his footing, Crudele started to develop his own indicators and trading method on-screen. His process was unmatched! Partly due to his own dedication, but also because there were no other computer traders on the floor…However, this wasn’t to remain the case. As electronic trading gathered momentum, so did the diversity of traders. Once only accessible to those with extensive funding, now, almost anyone could learn to trade online and hone their own strategy. Over the next few years Anthony’s skills grew and transformed with the changing landscape.At this point, it’s important to know that he wasn’t the only one.Fast forward to May 6, 2010 and enter math prodigy turned trader, Navinder Singh Sarao; one of many high frequency traders involved in trading the E-mini S&P 500 (Martin, 2020). Both men, situated on opposite sides of the Atlantic, watched as the US stock market session started with the Dow Jones down. Opening more than 300 points down, at 2:42 pm the DJ was weighed heavy upon by Greece’s debt crisis.It was at this point tha­t Sarao, dubbed the ‘Hound of Hounslow’, would strike (Vaughan, 2017). Using specifically designed HFT software, Sarao’s algorithm effectively outstripped other HFT systems by ‘spoofing’ the market. His software would basically place thousands of orders before quickly cancelling them, creating artificial demand. Other HFT systems would then react by buying or selling that asset. He would then make genuine buy or sell orders as the price swiftly moved – generating huge profits[1] (Verity & Lawrie, 2020).Meanwhile Crudele, just coming back from lunch, noticed that the E-mini S&P was down by around 25 points. So, with no headlines or other obvious reasons for the drop being apparent, he stepped in and went long (Technologies, 2016).Just 5 minutes later, at 2:47 pm, the Dow plunged a further 600 points – further than it has ever fallen in its 114-year history.The globe was aghast.The plunge was so fast that Crudele didn’t even get the get the chance to put the stop in. Time seemed to stand still as selling escalated and almost his entire trading account disappeared before his very eyes…[1] There is a number of different theories about what contributed to the 2010 flash crash. Our story only visits one of the more high-profile aspects of the crash. But. All was not lost. Moments later he saw it flash limit down for a brief second. Seeing his chance, Crudele tried to buy 100 contracts at the limit however, it turned and only partially filled his order. At this point Anthony started regaining composure and steadfastly gained his losses back.As he inched closer to breaking even he decided to keep strong: riding the trade to take his account substantially higher than it had been before. In a split second, initially dogged by flashbacks to 1997, rather than having one of the worst days in trading like many of his peers, Anthony Crudele ended up having one of his best!Crudele felt like a hero. After initially thinking that once again all was lost, he managed to stay collected and turn the situation into a hugely positive one. With such a sensational turn-around under his belt we can ask the question of what is really important when you’re an online trader?In his own words Crudele has stated “First, reliability. The platform needs to run without glitches or drops. Second, speed. I’m sensitive to how fast my orders are responded to. And lastly, ease of use. I want to work with user-friendly and quick-to-understand tools” (Preda, 2016).So, what could we learn from the likes of Anthony Crudele? Well, firstly, dedication to creating your own path in trading is the only way forward. Without his perseverance and continual development to better his skills, he wouldn’t be where is he today.Secondly understanding the market that you’re trading is paramount. When you’re trading an asset you have to be aware of all of the intricacies that affect price. Without that understanding, you can’t possibly forsee what will happen to an asset's price.And, lastly, risk management is king. No successful trader enters the market without an effective exit strategy in place. With all that in mind, we’ve created an exclusive webinar series to teach attendees about trading the E-mini S&P500 and how to identify opportunities master and consistency in volatile markets.We’ll be teaching the fundamentals of market internals while attendees will also gain access to our gated E-mini Futures Strategy Group. If you’d like to follow in Crudele’s footsteps then we’d recommend clicking here to register.

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Dollar Flat in Europe After Powell's Dovish Tapering Speech

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Market Update – 30 of August

Market News Today 

The markets closed a difficult and nervous week firmly in the green after Fed Chair Powell’s dovish remarks at Jackson Hole. Many had geared up for hints that QE tapering could be announced as soon as September and begun in October. But Powell said that while inflation may have met the criteria to begin reducing the pace of asset purchases, he stressed that “substantial slack” remains in the labor market which is likely to continue, hence failing the test. He also supported the transitory nature of inflation, countering the bevy of FOMC hawks who have been frequently in the press warning of price pressures and advocating tapering soon, if not September. 

• USD (USDIndex 92.58) at multi-week lows today in the wake of Powell laying out a slower-than-expected path to rate hikes, & as traders’ focus shifted to US jobs
• Treasuries managed to extend the gains (10yr down -0.7 bp at 1.3%).
• Equities fell on stronger USD & ISIS-K attack at Kabul Airport (85 dead inc. 13 US soldiers, Biden promises response). (USA500 -0.58% @ 4470, FUTS at 4480 now). Dell, Peloton & HP all reported weaker earnings.t. Topix and Nikkei are up 0.97% and 0.45% respectively also helped by stronger than expected retail sales numbers
• Overnight – USDJPY is at 109.75 and the yen is stronger against most currently, while AUD and NZD struggled.
• USOil turned lower at $68.04 (falling 0.31%), after energy firms suspended 1.74 million barrels per day of oil production in the US Gulf of Mexico as Hurricane Ida slammed into the Louisiana coast as a Category 4 storm.
• Gold steadied to $1812-$1823 area .

European Open –  The September 10-year Bund future is up 15 ticks, slightly outperforming US futures, although in cash markets Treasuries also managed to extend Friday’s post-Powell gains and the US 10-year rate is currently down -0.7 bp at 1.30%. Powell’s cautious stance also helped stock markets and most indices across the Asia-Pacific region had a good start to the week.

GER30 futures are also up 0.12% this morning and US futures are posting fractional gains, although markets clearly are cautious ahead of key jobs data for the US this week and as investors eye the impact of hurricane Ida as well as virus and geopolitical events. In FX markets EURUSD has lifted to 1.1801 and cable is trading little changed at 1.3765.

Today –UK markets are on holiday today, while the Eurozone data calendar includes Eurozone ESI economic confidence data as well as preliminary German inflation numbers for August, the Swiss KoF indicator and the US Pending home sales.

Biggest Mover @ (06:30 GMT) GBPAUD(+0.56%) Spikes back to $1.8886 from $1.8797. Broke 50 EMA earlier, while faster MA’s aligned higher. The MACD signal line & histogram still below 0 line but rising. RSI at 56 and rising. H1 ATR 0.00145, Daily ATR 0.01024.

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Dollar pinned as Powell plods toward tapering

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Russian Ruble Forecast: Potential Drop Ahead!

Good day,Last Friday the Russian ruble formed a black candle below the psychological level of 74.00, creating a bearish engulfing pattern. It’s possible that the Russian ruble could drop till the 72 level soon.Having pulled back from the 1.1704 level, the Euro is heading up. In principle, the Euro might potentially approach the 1.1900 level and face resistance.Gold broke a bullish flag. It is currently approaching the resistance zone formed between the levels 1840 and 1855. This asset might potentially pull back and drop soon.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/russian-ruble-forecast-potential-drop-ahead-30-08-2021"
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Slumping Asian Currencies Face More Risk From Slowdown in China

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Dollar Down, Investors Digest Powell’s Dovish Speech on Bond Tapering

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Key economic events and reports for the week ahead

The key report next Monday will be the US pending home sales index. A downside surprise in the data will be another confirmation that current elevated prices in the market are not sustainable and deter new buyers; suggesting home prices may be poised to retreat.On Tuesday, traders will be watching the report on business activity in the manufacturing sector in China, CPI in the Eurozone and unemployment in Germany. The pace of expansion in manufacturing activity in China is expected to slow down in August, and the Eurozone CPI is expected to rise by 2.8% YoY. Higher than expected EU inflation could reinforce rumors that the ECB will start discussing a PEPP cut at the coming meeting.The main report on next Wednesday will be the US employment report from ADP. The agency is expected to indicate a job gain in August by 500K. Positive jobs surprise may set the stage for rumors that the Fed will start reducing asset purchases in October.Markets will look forward to the NFP's August report on next Friday. Non-Farm Payroll growth is expected at 665K. Of course, this is less than the Fed officials would like to see in order to start reducing QE in October, as suggested by the head of the Atlanta Federal Reserve Bank Rafael Bostic, but a positive deviation may boost expectations of more hawkish Fed rhetoric at the next meeting in September. Weak job growth or a small negative surprise is unlikely to affect QE expectations, as Powell gave a clear signal this week that the Fed will move to cut stimulus later this year.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/key-economic-events-and-reports-for-the-week-ahead-29082021"
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Atlanta Fed Head: Possible to Start QE Tapering in October, Provided That Employment Gains Remain High

Atlanta Federal Reserve Bank chairman Rafael Bostic said in an interview with Reuters on Friday that; beginning to phase out the bond buying program in October would be smart for the Fed if US employment extends current positive trends,.The Fed is now buying $ 120 billion in government bonds and mortgage-backed securities every month to support economic recovery after the downturn triggered by the pandemic.The head of the Federal Reserve Bank of Atlanta will "feel comfortable" if the central bank begins to reduce the pace of bond purchases in October, provided that employment gains in August will remain at the July level, when it was about 1 million.The Fed may announce plans to phase out emergency stimulus following its next meeting on September 21-22.Bostic, who has voting rights on the Federal Open Market Committee (FOMC) this year, said he could support plans to halt asset purchases entirely by the end of the first quarter of 2022.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/atlanta-fed-head-possible-to-start-qe-tapering-in-october-provided-that-employment-gains-remain-high"
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Crypto round-up: PayPal taps into UK crypto market and FCA blacklists Binance

Cryptocurrencies were dominated by news that one of the world’s largest payment processors, PayPal, will allow UK users to buy and sell cryptocurrencies on the platform. 

Here are the top stories that caught our eye. 

PayPal taps into the UK crypto market 

PayPal – one of the worlds’ largest payment processors – is tapping into the UK crypto market by allowing its UK users to buy, hold and sell virtual currencies.

PayPal’s new service which was rolled out this week is available on both the website and the app. To begin with only four of the leading cryptocurrencies – Bitcoin, Ether, Litecoin and Bitcoin Cash – will be offered. 

PayPal’s announcement marks the company’s first crypto offering outside the US. The company said the move was inspired partly by the technological acceleration driven by Covid-19 and lockdown measures. 

PayPal – perhaps trying to pre-empt any critics – said there was an educational element to its offering as well. “By accessing their PayPal account via the website or the mobile app, they can view real-time crypto prices, access educational content to help answer commonly asked questions, and learn more about cryptocurrencies, including the opportunities and risks,” the firm said in a statement. 

All eligible UK customers, once officially verified, can access the new crypto tab either through the website or through the app. 

Customers can start by buying as little as £1 of cryptocurrency via PayPal. No fees will be levied to hold cryptocurrencies in an account, but there are transaction fees and currency conversion fees. In all, PayPal users will be able to buy or sell up to £35,000-worth of crypto a year, or £15,000 in any one transaction.  

UK regulator says that Binance is incapable of being regulated

The world’s largest cryptocurrency exchange was “effectively blacklisted”, as the thisismoney website put it, in the UK on Thursday after the Financial Conduct Authority - the UK regulator – said the exchange was not “capable of supervision”.

The FCA said Binance poses a “significant risk to consumers”. However, UK users of Binance can still use the exchange’s website Binance.com as the website is not tied to Binance’s UK entity. 

The FCA’s comments come as central banks and regulators are alarmed at the breakneck speed at which cryptocurrencies are growing. 

It also comes after traders who were seeking compensation from Binance for an outage earlier in May secured more than $5m in funding for an international arbitration case against the cryptocurrency exchange. 

The outage was related to China’s crackdown on the cryptocurrency sector in May, which wreaked havoc in crypto markets. 

Crypto markets update

Here’s what happened in the crypto market in the last seven days

• Bitcoin rose 2.6% to $48,335.
• Ether rose 1.1% to $2,356.
• Dogecoin fell 10.9 % to $0.29.
• Cardano rose 16.3% to $2.85.
• Binance Coin rose 12.3% to $488.

What investors need to watch out for

• Cardano’s “Alonzo” Upgrade. The upgrade is due to launch in mid-September. The Alonzo hard fork will pave the way for much-anticipated adoption of smart contract functionality. 

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The charts that matter: markets cheer Powell’s inaction

Welcome back. 

In this week’s magazine, we explore the investment opportunities in outsourcing. The sector has seen more than its fair share of blunder and scandal, to the benefit of neither shareholders nor voters – and yet slow but steady improvements mean now may be the time to invest, says Jonathan Compton. Find out what he has to say in this week’s magazine – if you’re not already a subscriber, sign up for MoneyWeek magazine now.

This week’s “Too Embarrassed To Ask” video looks at metaverse. The term “metaverse” sounds like something out of a science fiction novel (and it is). But what does it actually mean (it’s not just crypto though that’s involved)? Find out here. 

And in the podcast this week, Merryn and John talk about what lies behind the shortages we’re facing in everything from chicken to microchips – is this really a once-in-a-lifetime disaster, or is it just because we’re suddenly paying a lot more attention to how the supply chain works? We also look at why now might be a good time to follow private equity into the UK. Find out what they have to say here.

Here are the links for this week’s editions of Money Morning and other web articles you may have missed:

• Monday Money Morning: What income investors should learn from the Covid-19 pandemic
• Tuesday Money Morning: What PayPal’s foray into cryptocurrencies means for your money
• Wednesday Money Morning: Boom, bust - what's next for bitcoin?
• Thursday Money Morning: The UK is cheap - you should invest some of your money there.
• Friday Money Morning: Will Jerome Powell lay out a tapering timetable today? Probably not

Now for the charts of the week. The big event turned out to be a more dovish-than-expected speech from Jerome Powell at Jackson Hole, last thing on Friday.

Gold rose this week as investors bet that rising Covid-19 cases could deter the US Federal Reserve from announcing taper plans at the Jackson Hole Symposium – which, as it turns out, is what happened.

(Gold: three months)

The US dollar index (DXY – a measure of the strength of the dollar against a basket of the currencies of its major trading partners) rose ahead of Powell’s speech but lost ground in its wake as Powell noted that interest rates weren’t likely to rise in anything like the near future.

(DXY: three months)

The yield on the ten-year US government bond was higher ahead of the speech (yields move inversely to the price of bonds).

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year bond also rose a little ahead of Jackson Hole. 

(Ten-year Japanese government bond yield: three months)

And the yield on the ten-year German Bund followed the direction of US bonds.

Ten-year Bund yield: three months)

Copper prices were steady ahead of the Fed's symposium and then jumped higher as the dollar fell back on Powell’s relaxed tone.

(Copper: nine months)

The closely-related Aussie dollar rose over the course of the week.

(Aussie dollar vs US dollar exchange rate: three months)

Bitcoin rose a little after the crypto market received a boost on news that PayPal, one of the world's largest payment processors, is allowing UK account holders to buy and sell crypto.

(Bitcoin: three months)

US weekly initial jobless claims rose by 4,000 to 353,000. 

(US initial jobless claims, four-week moving average: since Jan 2020)

The oil price rose for most of the week after US government data indicated fuel demand shot up to its highest level since before the pandemic began.

(Brent crude oil: three months)

Amazon moved sideways but rose on the week.

(Amazon: three months)

And Tesla remained volatile, ending the week little changed.

(Tesla: three months)

Have a great weekend. There won’t be a Money Morning on Bank Holiday Monday but we’ll be back on Tuesday.

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