The Stock Market
Global Market: S&P 500 & NASDAQ
As 2023 closes out its first half, both key US indices continue to make small climbs fuelled by the consistent drivers in the tech sector. Over June, the S&P500 is up 4.14% to 4450.75 while the NASDAQ sees similar growth of 4.48% to 13821.65. It’s been a steady climb since the turn of the year, all thanks to sustained interest in AI that has invigorated fiat markets. Big winners across the tech industry include Apple, who just broke the $3 trillion market cap and AI chip-maker Nvidia, the biggest riser over the past week, with its valuation rising by 3.6%. These gains have translated into the NASDAQ’s best H1 performance in over 40 years.
It is also that time of the year for equity analysts to take stock and project where markets are headed for the remaining 6 months. In the near term, the AI space will continue to provide strong tailwinds for tech stocks, and analysts generally favour Nvidia’s dominance as the leader in this rally. However, sentiments that these gains will not be sustained dominate the markets. Anna Han of Wells Fargo Securities argues that technical indicators suggest that this rally has overstayed its welcome, and it is likely that tech sectors will eventually stagnate as investors look to cash in from the Q2 rally.
Global Market: FTSE100
The UK closes out 1H with a poor performance as the FTSE100 falls by 0.96% from the previous month to 7526.66. Untamed inflation remains the Bank of England’s fiercest battle this year, as some analysts predict inflation to go as high as 6% by the end of the year. While consumer resilience has held up in 1H, an impending mortgage crisis and the inflation pain are slowly creeping up on consumers. Resolution Foundation predicted that up to £15.8 billion of spending power will be lost due to the rise in annual repayments on UK mortgages. High wages due to unemployment in service sectors like healthcare are driving up wages and increasing prices. Still, these short-term inflationary pressures are going to be ignored to target long-term cooling policies in the coming months.
Telecommunication News: Apple
Investment resilience is the name of the game, as Apple become the first company to reach a $3 trillion valuation. During uncertain global economic situations, Apple remains a resilient force that has attracted much investor confidence. Many analysts are also looking at the possibilities of AI-integrated services that will surely pique Apple’s interest as a feature in future product lines.
The company looks to capitalise on potential interest in the XR space with the announcement of the $3500 Vision Pro headsets. While past instalments like Google Glass may have been way ahead of their time, the product launch of this “spatial computing” device may be able to reap the rewards of having the first-mover advantage in this space. However, supply chain issues have been with their sole manufacturer, Luxshare, as the company cited complications with the semiconductor components in their OLED displays. Investors must remember that while tech is the hottest trend in the markets, nascent products like the Vision Pro are a loss-making venture in the immediate future due to cost-of-production inefficiencies priced into the high sales point. Until this product is priced suitably for a mass commercial market, investors should monitor its fit and response from the first set of users.
The Crypto Market
Cryptocurrency Market: Bitcoin & Ethereum
Strong performance for cryptocurrencies continues as Bitcoin and Ethereum rise by 13.22% and 61.71% from last month’s valuations despite the SEC’s actions. There has been strong momentum from institutional investors once again as other banks like Invesco and WisdomTree follow suit behind BlackRock to apply for a spot Bitcoin ETF. Despite the SEC rejecting BlackRock’s initial application, crypto-enthusiasts now believe it is inevitable that a filing will soon be accepted.
BlackRock’s application was rejected for insufficient information rather than a claim of fraudulent behaviour, which was the case for the CoinBase and Binance Issues. It is a clear path for approval once BlackRock responds directly to the SEC’s doubts. However, institutional involvement could have repercussions on the changing nature of cryptocurrency products, the most clear-cut being that these assets are now tied closely with traditional risk assets. This pushes the “Bitcoin is a digital gold” narrative even future, and perhaps these asset classes will merely become another hedging tool. This could upset crypto-purists who see the value of this asset because it provides freedom from centralised controls. While the view on cryptocurrencies’ future remains binary, it is clear that short-term crypto-backers are the most outstanding winners in this market.
Innovation News: Monetary Authority of Singapore (MAS)
While the SEC continues to drag its feet, the Singapore government is taking a more proactive stance on leading the governance over digital assets. On 21 June, the MAS released a White Paper on a framework for the use cases of digital assets. A hot topic is investigating the possibility of having a central bank digital currency (CBDC). One key innovation was the presentation of programmable money through Purpose Bound Money (PBM). PBMs became a recognised innovation at the Singapore FinTech Festival in November 2022.
Project Orchid: What is a PBM?
At the festival, Project Orchid was unveiled as a plan to develop the technical capacity for a retail CBDC to be used by Singapore. The first phase of this project is to explore the use case of PBMs. A PBM is a programmable payment made directly between users without intermediaries, enabling an automatic transaction once pre-determined conditions are met. The basic use case presented was a voucher system where the money could only be claimed by participating festival food stalls. However, it goes beyond that. This reduces issues of asymmetric information, as transactions only occur once tasks are complete. Additionally, corporates to unbanked individuals can now participate in the economy more safely and have direct ownership of their funds
Risks: The ECB’s View
On January 2023, executive board member of the ECB Fabio Panetta openly expressed his disdain for programmable money systems for CBDCs. While scepticism on the blockchain supporting the entire EU is the only concern, another concern would be the risks associated with restricting how money can be spent.
In a financial crisis, the law of code makes it impossible to meet the demands of sudden urgencies. We can only account for a limited number of contingencies, but there is no certainty on the uncertainty during a financial crisis. Should there be a need to prevent transactions from being executed, there’s no way to do so, which will cause bank runs. It is hard to determine precisely what fail-safes can be implemented without compromising the sanctity of decentralisation.
Regardless of what Singapore decides to do in the future, from a macro lens, there is a lot more global countries that can learn. The government’s proactive approach to digital asset leadership is consistent, as seen by other projects like Project Guardian, a test with financial institutions to see the viability of asset tokenisation. They have a clear guidance and ecosystem necessary to validate the innovation process, which inspires more investor confidence in the product. If companies want to be competitive, they cannot sit on the fence and be reactive to resolving kinks in the current perception of digital assets.
In Other News…
Twitter – Over the weekend, reading restrictions were imposed which limits verified users to 10000 tweets and unverified users access to 500-1000 tweets depending on their account age. Musk justifies his data monopolisation as a response to prevent excessive data scraping on the platform to feed ML models.