Soft-landing engineered?

This week we got the latest inflation read, with the Consumer Price Index (CPI) coming in lower than expected. CPI rose 0.2% in June and was up 3% from a year ago. Core CPI, which excludes food and energy, was up 0.2% in June and 4.8% over last year. The numbers were the lowest since March 2021 and October 2021, respectively.

• The Fed has been raising interest rates since early 2022 to help fight inflation
• Inflation has been trending lower since late last year but still above the Fed’s target rate
• Markets rallied hard on this print as the “soft-landing” narrative took hold
• A “soft-landing” refers to inflation coming back down the Fed’s target while avoiding a recession
• While it would be great if we could avoid a recession, the Fed’s track record in this regard is not great, having only engineered one soft landing back in 1994

US Dollar dives lower

Related to the soft-landing narrative, the US Dollar (USD) took a substantial nose-dive this week. The DXY index, which measures the USD versus a basket of major currencies, fell almost 4% since the end of last week to a recent level of 99.7, the lowest level since early 2022.

• The USD (and most currencies) partially derives its value from its relative purchasing power versus other currencies
• Given inflation is still stubbornly high in the UK and Eurozone, the market anticipates that rates will be relatively higher in those markets versus the US
• Higher relative interest rates make those currencies relatively more valuable
• A lower USD is good for commodities like gold, silver, and oil, as all are priced in USD
• It is also good for US companies that export goods to other markets

SEC dealt blow in crypto case

This week a US judge ruled that Ripple Labs, the company behind the XRP token, did not violate federal securities laws by selling the token to the public on exchanges. It didn't all go their way; the judge did agree with the SEC that Ripple’s sale of XRP to institutional investors, including hedge funds, was an unregistered sale of securities. Regardless of the split decision, the market saw this as a big win for the crypto industry.

• This is a big blow to the SEC, given it has previously won other similar cases
• Given the split decision, however, it opens additional questions regarding the appropriate regulatory framework
• It does seem to make it clear that crypto doesn’t neatly fit under the SEC’s jurisdiction over the sale of securities
• We hope Congress acts sooner than later to help put in place regulations specific to this industry

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