Hello and welcome to our continued coverage of the global economy, financial markets, euro area and business.
The surge in risky asset prices this year has made them increasingly vulnerable to a drop if economic growth worsens, the pandemic escalates, or investors lose confidence.
That’s the message from the US Federal Reserve, which is also concerned about the rise of stablecoins that underpin the cryptocurrency market.
In its latest financial stability report, the Fed noted that the prices of risky assets have generally risen further since its previous report six months ago.
Despite concerns about the spread of the Delta variant of the virus that causes COVID-19, asset prices have been supported by expectations of increased earnings and low yields from the Treasury, he says.
In a warning to the markets, they say:
The prices of risky assets have generally increased since the previous report and in some markets prices are high relative to expected cash flows. House prices have risen rapidly since May, continuing to exceed rent increases. Nevertheless, despite the rise in house valuations, there is little evidence of a deterioration in credit standards or of highly leveraged investment activity in the housing market.
Asset prices remain vulnerable to significant declines if investor risk sentiment deteriorates, if progress in containing the virus is disappointing, or if the economic recovery stalls.
But are investors heeding the message?
The U.S. stock market closed at a new high last night, prolonging its pandemic rally, as investors continue to ignore concerns about rising inflation, supply chain issues and the ongoing pandemic.
And bitcoin hit a new high this morning – hitting $ 68,550 for the first time, as crypto assets continue to rise.
Critics would point out that the Fed’s own policies helped spur the rally in risky assets.
Since the start of the pandemic, it has kept interest rates at record highs and injected $ 120 billion per month into the system through its bond-buying stimulus program, which it is just starting to build. reduce.
Fed Financial Stability Report Shows Concerns Over Rise in Stablecoins – Cryptocurrencies [such as tether] that try to tie their market value to an external benchmark, such as the US dollar.
Fed stresses sector has grown rapidly, warns “some stablecoins are vulnerable”
Policymakers are concerned about the consequences if a stablecoin cannot hold its value.
The value of stablecoins in circulation has increased fivefold over the past 12 months and stood at around $ 130 billion in October 2021.
Some stablecoins, including the larger ones, promise to be redeemable at any time at a stable US dollar value but are, in part, backed by assets that may lose value or become illiquid. If the assets backed by a stablecoin lose value, the issuer may not be able to meet repayments at the promised stable value.
Also coming today:
Rolls-Royce is moving forward with a multibillion pound plan to deploy a new generation of mini nuclear reactors after securing more than Â£ 450million from the government and investors.
The engineering company will set up a business focused on developing small modular nuclear reactors, or SMRs, in partnership with investors BNF Resources and US generator Exelon Generation with a joint investment of Â£ 195million to fund plans over the course of the next three years.
On the data front, the latest survey by Producer prices in the United States will show whether inflationary pressures continue to build in the US economy.
The ZEW The Economic Confidence Survey will show whether German investor confidence has improved, after falling in the past four months.
Central bankers will be busy; the Bank of Canada, the Bank of England, the Board of Governors of the Federal Reserve System and the European Central Bank are hosting a conference on diversity and inclusion in economics, finance and central banking.
- 7:00 GMT: German trade data for September
- 10am GMT: ZEW index of German economic sentiment
- 1 p.m. GMT: ECB President Christine Lagarde speaks at the 4th ECB Forum on Banking Supervision Forum: “The bank of tomorrow: navigating change”
- 13:30 GMT: publication of the US PPI producer price index
- 2:00 p.m. GMT: Fed Chairman Jerome H. Powell delivers the keynote address at the Conference on Diversity and Inclusion in Economics, Finance and Central Bank
- 3:30 p.m .: Bank of England Deputy Governor Ben Broadbent testifies before EFRA panel: Labor shortages in food and agriculture
- 4:00 p.m. GMT: Bank of England Governor Andrew Bailey at a panel on ‘Central Banks and Inequality’, at the Diversity and Inclusion in Economics, Finance and Central Banking Conference