ECB, U.S., Solana Nfts discussed on CoinDesk Podcast Network
Minimum thieves, no ACH transaction fees, and no withdrawal of these. One of the largest exchanges in the U.S., FTX U.S. is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTX, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. So let's try to bring this back to a discussion of what is happening right now. Where we started that Dixie was up to its highest point in 20 years. However, the big question and topic of discussion really for the last few months is whether this represents U.S. strength or just weakness in the other currencies, namely the Euro and the Japanese yen. Put differently, are people fleeing risk markets for dollars, or are they fleeing other currencies for dollars? Or is it some combination of both? So with that question in mind, let's look at the Euro. The Euro fell to its lowest level in two decades on Tuesday. For a while it looked like it was heading to €1 to $1 parity, but it ended up stopping just short. In total the Euro is down 9% against the dollar so far this year. Now the background of this is pretty clear. Eurozone inflation hit a record 8.6% in June across the entire economic zone. Some areas were hit harder such as Spain at 10.2%. The big story here is, of course, energy inflation, which hit 41.9% for June compared to 39.1% in May. Unsurprisingly, this is related to Russia's war in Ukraine. That said, there's also a policy dimension to this as well. Despite all of this inflation, the ECB still hasn't raised interest rates at all. With the Central Bank's key interest rate still slightly negative and nominal terms and deeply negative and inflation adjusted real terms, the ECB faces in some ways an even more difficult problem than the fed. It has to hold together the monetary union as well as managing monetary policy. Spreads between interest on German and Italian debt have blown out to 2%. Now the ECB appears to believe that they should enforce a 0% spread between Eurozone sovereign debt. To that end, they announced last month they would create a program to purchase weaker sovereign debt. Many commentators point out that this looks suspiciously like doing more QE. And whatever it actually is, the market is super skeptical. Charlie biello writes, Eurozone inflation has moved up to 8.6%. Its highest level ever. Meanwhile, the ECB is still holding interest rates at negative levels. This is perhaps the greatest disconnect between easy monetary policy and unabated rising prices that the world has ever seen. But what about Japan? Japan has been attempting to peg rates at 0.25% all the way out to the ten year bond. This is part of the policy of yield curve control that they've had since 2016. Now a quick note on this term yield curve control. QE quantitative easing, which has been the fed's strategy over the last ten years. It's about injecting liquidity by purchasing bonds on the open market. This brings the prices of those bonds up by creating a new source of demand and in so doing reduces longer term interest rates and borrowing costs. Importantly though, when the fed does this, they aren't pursuing a specific long-term rate. Yield curve control, on the other hand, is when a Central Bank sets a specific long-term interest rate target, and buys as much as it takes to actually get there. During the last month, the yen has dropped to a 24 year low against the dollar. Down 4% in June and overall, 16% for the year. The Financial Times wrote following a week of setting fresh 20 year lows, the yen continued its descent as traders bet that the bank of Japan will remain the only major Central Bank to maintain ultra loose monetary policy despite its counterparts in the U.S. and Europe, entering an interest rate raising cycle. Also from FT quote on Friday the bank of Japan, ministry of finance and financial services agency issued a rare joint statement expressing concern over the yen's steep slide against the dollar. The yen has fallen more than 20% against the dollar over the past 12 months. And this brings us back to the original debt servicing concern. Jim Bianco in April of this year wrote the biggest story that no one is talking about is the incredible pressure building in the Japanese government bond and currency markets. What happens if it blows up? The bag of Japan has been operating with yield curve control since September 2016. This Japanese government bond intervention is coming with a high cost. The Japanese yen has been collapsing. Awakening yen is very bearish for the U.S. ten year treasury. Japan owns more U.S. treasuries than any other country even China. To continue buying U.S. treasuries takes more and more yen because their currency is weakening against the dollar. So the BOJ can prevent the ten year Japanese government bond from rising or the yen from collapsing, but they can not do both. For now, the BOJ picked preventing the ten year Japanese government bond yield from rising. But if the yen keeps weakening, will the markets force them to abandon yield curve control? A couple more economic spotlights before we head out. Much of the focus during this Eurozone weakness has been on Germany. They are under pressure from increases in natural gas prices that are leading to limits on industrial production. In May, Germany printed its first trade deficit in 30 years. Indeed, it's consistently high level of export surplus had led it to be referred to as the engine of Europe. It now appears that that engine is grinding to a halt. In May they saw a trade deficit of €1 billion compared to a surplus of over €15 billion a year ago. Yasmin fahimi, the head of the German federation of trade unions, said over the weekend, entire industries are in danger of collapsing permanently because of the gas bottlenecks, aluminum, glass, the chemical industry, such a collapse would have massive consequences for the entire economy and jobs in Germany. In the UK now inflation is also at record levels. Inflation hit 9.1% in May, which was the highest level in 40 years. Energy and fuel inflation are already excessively strong and food inflation is forecast to rise to 15% over the summer. Unlike the ECB, the Bank of England has already aggressively hiked rates.