Publishing this ICYMI:

South Korea’s Financial Services Commission (FSC) is reportedly preparing to ease restrictions on institutional cryptocurrency trading.

According to Yonhap news agency, the plan aims to gradually allow institutional investors to open trading accounts on domestic cryptocurrency exchanges.

Currently, South Korean regulations limit cryptocurrency trading to retail investors who have verified their identity with their legal name. Although there was no official ban on institutional trading, the FSC had previously recommended that banks prevent institutional entities from opening foreign currency accounts.

More here.

As an aside, I seem to have screwed up crypto yesterday with this:

Outlook for the Federal Open Market Committee (FOMC) from UBS.

Analysts at the bank say the December jobs report, due this Friday, and next week’s inflation data will offer further insight into the US economy. While the Federal Reserve is unlikely to cut interest rates at its policy meetings in early 2025, UBS predicts the upcoming data will reflect a slowdown in inflation and a cooling labor market. This could pave the way for the Fed to start cutting interest rates again by the June meeting. In line with the Fed’s latest economic projections, UBS expects the second rate cut to follow in the third quarter of the year.

Markets:

• Gold rose $13 to $2,662
• US 10-year yields steady at 4.68%
• WTI crude fell 93 cents to $73.32
• S&P 500 up 0.2%
• USD leads, GBP lags

The US dollar finished as the best again today. In the bigger picture, the market is becoming increasingly concerned about Trump taking office and imposing tariffs. With the whole world on target, the only safe place is the US dollar. The rhetoric will not subside, including after Trump takes office.

The pound was the biggest loser on the day, but all the selling happened hours ago in the US. The catalyst was gilt yields falling to their highest level since 2008. Rates fell below 1.2450 as the pound fell to its lowest level since April. There was a slight recovery in North American trade as the US dollar fell modestly.

Economic data was mixed with the ADP number negative for employment, while jobless claims fell. The Fed’s minutes were largely ignored, but Waller made comments that were more than expected, stressing that he believed rate cuts would continue. That contrasts with the global bond market, which is either pricing in higher inflation, a higher US deficit or some sort of trade uncertainty.

In general, foreign exchange movements in US trading were small as the dollar sank slightly lower. Stocks and commodities were volatile, however, and bitcoin fell sharply at one point before recovering. Eyes are increasingly on fixed income, but the 30-year selling at 0.7bps year to date has provided some relief.

Recall that Thursday is somewhat of a holiday for the US market due to Jimmy Carter’s funeral, and Friday is non-agricultural payroll.

Last week’s note from JPM argued that the dollar could continue to rise, but that it is stretched and that further growth is likely to be limited. It’s a conundrum, we’re waiting for the straw to hit the camel’s back to break this trend.

A summary of the notes below, with various influencing factors, I’m sure you’ll be familiar with. Nice comparison though. I’ve bolded some things that caught my eye.

1. Differences in global growth and central bank policies

• The widening gap in global growth has led to significant differences in monetary policy.
• TThe spread in US 10-year bond yields with key trading partners has hit its highest level since 1994.

2. The strength of the US dollar

• Despite two Federal Reserve rate cuts in 2024, the US dollar appreciated by 7%.
• The US real broad effective exchange rate (REER) remains near historic highs, indicating sustained strength.

3. Reasons for the strength of the dollar

• Differences in economic growth: The US economy grew 2.7% in 2024, outpacing the 1.7% growth in other developed markets, supported by strong productivity, business investment and a more stable labor market.
• Monetary Policy Divergence: Limited Fed rate cuts come at a price (44bps for 2025), compared to a larger cut by the ECB (110bps) and a rate hike in Japan (47bps), maintaining the yield gap.
• Policy changes: Support for domestic manufacturing, tariffs and deregulation by the new administration could further boost business growth and the dollar.

4. Long-term restrictions on the dollar

• The dollar is historically overvalued (two standard deviations above its 50-year average), indicating limited room for further appreciation.
• Structural issues like the US trade deficit (4.2% of GDP in September 2024) could eventually weigh on the dollar.

5. Impacts of a strong dollar

• Challenges for US-based investors: Reduced performance of international companies and higher costs for US exports.
• Negative impact on US companies with significant international exposure.
• A strong dollar supports the ‘American exceptionalism’ narrative, but requires investors to carefully assess portfolio risks.

While dollar strength may persist in the short term, historical patterns and structural factors point to potential downward pressure in the longer term.

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Finance Magnates CY Limited

The major US indices end the day mixed with the Dow and S&P rising and the Nasdaq and Russell 2000 lower. Trading conditions were volatile.

Tomorrow the stock market will be close compared to the former Pres. Jimmy Carter’s funeral. That will lead to Friday’s US jobs report.

A snapshot of the closure level shows:

• The Dow Industrial Average rose 106.84 points, or 0.26%, to 42,635.20
• The S&P index is up 921 points or 0.16% to 5918.24
• The NASDAQ index fell -10.80 points or -0.06% to 19478.88.
• Russell 2000 -10.4 points or -0.48% to 2239.96

some big losers today include:

• Modern -9.17%
• super microcomputer -5.15%
• Papa Johns -4.96%
• Rivian -4.95%
• AMD -4.31%
• Dollar Tree, -4.05%

Some of today’s winners:

• Boston Scientific, +4.29%
• Stryker, +2.49%
• United Airlines +2.48%
• Intuitive Surgical +2.28%
• DoorDash +2.19%
• Northrup Grumman +2.13%
• Intuit +1.69%