Quoteworthy: "They should pretend to work somewhere else." — Tesla CEO Elon Musk, on employees who don’t want to return to the office
Retail investors should steer clear of cryptocurrencies, warns DPM Heng
Deputy Prime Minister and Coordinating Minister for Economic Policies Heng Swee Keat has warned retail investors to “steer clear” of cryptocurrencies. “We cannot emphasise this enough,” he told the Asia Tech x Singapore Summit on Tuesday (May 31).
Heng’s warning comes after many investors suffered losses from the recent price crashes of TerraUSD and Luna. The crashes have also affected the prices of other cryptocurrencies, including Bitcoin.
In spite of that, the government still wants to leverage the benefits of the digital asset ecosystem. “We remain keen to work with blockchain and digital asset players to encourage innovation, and build up trust in the sector,” says Heng, referring to licences and in-principle approvals granted to 11 digital payment token services in the past two years.
Further to his speech, Heng announced the launch of Project Guardian, which is a collaborative effort by the Monetary Authority of Singapore (MAS) to partner the industry to explore the tokenisation of financial assets and develop the future of financial infrastructure.
According to a separate statement released by the MAS, Project Guardian will test the feasibility of applications in asset tokenisation and DeFi. The project will also seek to manage risks to financial stability and integrity.
The first industry pilot under Project Guardian will explore potential DeFi applications in wholesale funding markets. Led by DBS Bank, JP Morgan and Marketnode, a joint venture between SGX Group and Temasek, the pilot involves the creation of a permissioned liquidity pool comprising tokenised bonds and deposits. It also aims to carry out secured borrowing and lending on a public blockchain-based network through the execution of smart contracts. — Felicia Tan
Buy-the-bottom calls on China get louder as Shanghai reopens
Investors are trying to get ahead of any good news in China, as the lifting of a lockdown in financial centre Shanghai eases pressure on a struggling economy.
A three-times leveraged China stock ETF saw a record volume surge on Tuesday (May 31) and Wednesday, almost six times the daily average. Data on Monday showed overseas investors snapped up US$2.5 billion ($3.4 billion) worth of Shanghai and Shenzhen shares last month, and hedge funds look to have covered their short positions after being wrongfooted by a brief rally in mid-March.
The renewed interest in Chinese equities is helping to fuel a nascent rebound from a bruising start to the year, when Covid lockdowns exacerbated an already-slowing economy. The CSI 300 Index of mainland shares has climbed 8% from its late-April low, paring losses for 2022 to about 17%.
That the gains have come in the face of disappointing economic data shows the desire of investors to be first in any sustained rebound, given how far stocks have fallen. While the nation’s strict adherence to Covid Zero continues to weigh on the outlook for Chinese markets, the easing of curbs in Shanghai after a two-month lockdown should spur increased activity.
“The second quarter marks the trough: Shanghai is reopening and the 33 stimulus policy measures are starting to kick in,” says Wendy Liu, chief Asia and China equity strategist at JPMorgan Chase & Co in Hong Kong. “The reopening may also help investor sentiment because a good number of onshore analysts, traders and portfolio managers are based in Shanghai.”
Still, the recovery in Chinese stocks is laced with volatility and unease, with markets adopting a path of two steps forward, one step back. The Hang Seng China Enterprises gauge snapped a three-day gaining streak on Wednesday, losing as much as 1.8% as traders took profit.
The government is unlikely to back away from its Covid Zero strategy, which means future outbreaks will continue to be met with economically disruptive containment measures. Weak homebuyer sentiment and a liquidity crisis for developers are putting pressure on the property market. And while authorities are taking steps to bolster the economy, Chinese banks are struggling to find businesses to lend to.
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“We don’t think now is the right time for investors to jump right into the market and buy the dip,” Morgan Stanley strategist Laura Wang said in a Bloomberg TV interview on Wednesday. “There are still a number of risk factors we’re seeing right now, and we think another one to two quarters of patience is needed.”
But there are also signs the economic outlook is improving. Many of Shanghai’s residents can move freely from Wednesday and factories are resuming their operations. Data this week showed a smaller-than-expected contraction in manufacturing and services output for May and more local governments are resuming cross-province travel.
On Wednesday, Beijing ordered state-owned policy banks to set up an RMB800 billion ($164.4 billion) line of credit for infrastructure projects as it leans on construction to stimulate the economy.
“An area where I see opportunity is Chinese stocks,” says Kristina Hooper, chief global market strategist at Invesco. “Valuations are very attractive.” — Bloomberg
US Fed’s Bullard sees 3.5% rates setting up cuts in 2023 or 2024
Federal Reserve Bank of St Louis President James Bullard urged US policymakers to raise interest rates to 3.5% this year to bring inflation down from near a four-decade high, adding that some of those hikes could be reversed late next year or in 2024.
Bullard reminded the Economic Club of Memphis on Wednesday (June 1) that in late 2019, prior to the Covid-19 pandemic, Fed rates were 1.55%, the 10-year Treasury yield was 1.86% and mortgage rates were below 4%.
“This may provide a practical benchmark for where the constellation of rates may settle once inflation comes under control in the US,” he said during the virtual presentation.
Bullard, who has been the most hawkish Fed official this year, has supported Chair Jerome Powell’s plan to raise interest rates by a halfpoint at the next two meetings. He later told reporters that he is looking for another hike of that size in September if data comes in as expected. Yet he also repeated that rates may come back down in 2023 or 2024 once inflation returns to target.
“I think we have a good plan for now,” Bullard tells the reporters. “This 50 basis point per meeting increase is twice the normal pace that the committee has used in recent years, which shows that there’s a lot of unanimity around expeditiously moving to neutral in this high-inflation environment that we’re in.”
The Federal Open Market Committee raised rates by a half-point last month to cool the hottest inflation in 40 years and officials have signalled they will hike by the same amount again at their meetings in June and July. They also began shrinking their massive balance sheet at a monthly pace of US$47.5 billion ($65.4 billion) from Wednesday, stepping up to US$95 billion in September, in a process also called quantitative tightening.
Bullard says front-loading the rate hikes this year rather than spreading them out over two or more years would allow the Fed to counter inflation, much of which has been caused by fiscal and monetary stimulus as opposed to supply issues related to Covid. “We want to move as quickly as we can,” he says.
The US economy is already beginning to slow in response to less monetary stimulus, cited in the Beige Book report on regional economic conditions. Bullard told reporters that was expected and welcome. Growth should be expected to slow to a long-term trend rate, of around 1.75%-2%, he says.
‘’This doesn’t surprise me,” Bullard says. “I would say overall, the anecdotal reports I’ve heard — some of which filtered in to the Beige Book — are consistent with continued growth in the US economy: In certain markets very, very strong. In others more tempered.” — Bloomberg