Zcash Moderates After Setting New High — Market Talk
1052 ET - Privacy coin Zcash set a new all-time high over the long weekend, climbing to $1,246 Sunday. The crypto token has since pared those gains, and is now trading around $1,165. Enthusiasm around Zcash is centered on its "zero-knowledge cryptography," which hides both transacting addresses and the amount being transferred, and could serve to mitigate the power of AI to de-anonymize user addresses on older blockchains like bitcoin. "We expect AI to create new threats to financial privacy, and to motivate a search for new solutions," says Zach Pandl of Grayscale in a recent note. Major cryptocurrencies are mixed, with bitcoin down 1.2% to $78,313, ethereum off 0.7% to $2,477, XRP up 0.6% to $1.41, and solana down 1.1% to $102.96. ([email protected])1028 ET - The Bank of England is set to keep its policy rate on hold at 3.75% next week, with guidance unchanged amid a growing schism between policymakers who want to act and those that prefer to 'wait-and-see', BNP Paribas's Dani Stoilova and Katherine Yoon say in a note. They now believe the BOE will hike in November, rather than September, coming after Andy Burnham's first budget and alongside refreshed macroeconomic projections. "The U.K economy has shown remarkable resilience, and the energy-price shock has been sufficiently persistent for second-round effects to build over time and justify a rate hike," the economists say. But that will mark a single "insurance" hike, given policymakers' recent argument that additional tightening needn't start a new hiking cycle. ([email protected])1014 ET - The Bank of England's gilt sales program, also referred to as quantitative tightening, could keep gilt yields elevated over the long term, Capital Economics Paul Dales says in a note. Quantitative tightening is the process through which the BOE reduces its gilts holdings purchased during previous periods of quantitative easing. "Although QT is making the public finances less sensitive to future rises in interest rates and bond yields, this is coming at the cost of structurally higher term premia and gilt yields," he says. Capital Economics expects the BOE to slow the pace of QT to around 50 billion pounds ($67.7 billion) during the year from October, from 70 billion pounds currently. ([email protected])1004 ET - Risk appetite across markets is being tested as Houthi attacks in Saudi Arabia boost crude oil prices and challenge hopes that the conflict can end soon. Instead, the continued fighting and the implementation of new tariffs on U.S. goods by Canada has investors paring back exposure to risk and volatility in assets like bitcoin. How long the risk-paring trade dominates may be linked to expectations around a potential rate hike next week from the Federal Reserve. Bitcoin falls 1.1% to $78,337, ethereum slides 1% to $2,472, and XRP is slightly up 0.1% to $1.40. ([email protected])0929 ET - Additional European Central Bank rate hikes following an expected increase this week would mean a deliberate move into restrictive territory, Vontobel's Gregor Kapferer says in a note. A deposit rate of 2.50%, where markets expect it to sit following a 25 basis-point hike on Thursday, is generally viewed as the upper limit of a neutral range, Kapferer says. Further hikes to combat the energy-supply shock, over which monetary policy has no influence, would therefore mean policy was having a restrictive impact on the economy, Kapferer says. "Our baseline scenario therefore remains that there will be no further rate hikes [beyond September], barring a renewed acceleration in core inflation or wage inflation," the head of developed markets debt says. ([email protected])0912 ET - A quarter-point rate hike by the European Central Bank on Thursday is considered virtually certain, Aberdeen Investments' Felix Feather says in a note. "Crucial for the markets will be whether the central bank frames this increase as the next step in a prolonged tightening cycle or keeps all monetary policy options open," the economist says. The ECB is likely to adopt a hawkish tone as economic activity in the eurozone has proven more robust than the central bank anticipated, he says. At the same time, high energy prices, indicators pointing to stronger future wage growth and a slight rise in market-based inflation expectations are likely to keep policymakers focused on upside risks. Aberdeen expects the ECB to raise its growth forecasts. ([email protected])0845 ET - Treasury yields stabilize from overnight highs and trade around Friday's settlement levels, as markets brace for central bank decisions and inflation data. The ECB is expected to raise interest rates Thursday, while U.S. consumer inflation is forecast to remain hot when August CPI is released Friday. Renewed hostilities in the Middle East cause oil prices to rise, with WTI up 2% to $93.51. The WSJ Dollar Index is flat. The 10-year yield is at 4.782%, down from 4.812% overnight. The two-year slips to 4.366% from 4.387%. ([email protected]; @ptrevisani)0812 ET - The setback for German exports in July were directly caused by volatility in trade policies, the DIHK Chamber of Commerce and Industry's Volker Treier says. Exports declined 0.8% on month after five months of rises. "A relatively weak global economy and an immense surge in Chinese competition are pressuring German exporters," he says. However, exports to the U.S. increased due to the Trump administration's 10% tariff announced July on imports from the European Union. Still, the much-needed boost from improved site conditions in Germany and Europe is still lacking, Treiersays. ([email protected])0621 ET - The strengthening in the Japanese yen is looking persistent,Saxo analysts say in a note. The yen has continued to strengthen, hitting a six-month high of 152.89 yen per U.S. dollar earlier Tuesday, before trimming some of its gains. This leaves the dollar close to testing the 152.10 low for the year, less than a week after rising above the 160.00 level, the analysts say. "It's the most persistent strengthening move, now in its fifth day, in over a year," they say. The dollar last trades 0.2% lower at 154.05 yen. ([email protected])0615 ET - Recent pledges by U.K. Prime Minister Andy Burnham and Treasury Chief John Healey that they will maintain fiscal discipline could support the performance of U.K. government bonds, RBC Capital Markets strategists say in a note. Healey, in a speech this week, reiterated the government's commitment to fiscal responsibility, easing investors' concerns ahead of the budget on October 28, the strategists say. The U.K. sells January 2056 gilts via syndication on Tuesday, which could test demand for U.K. government debt. "This backdrop should be supportive for demand at [Tuesday's] syndication," they say. ([email protected])0614 ET - U.S. Treasury yields rise, responding to higher oil prices and an increased likelihood of a rate hike next week following recent stronger-than-expected jobs data. "Even if we do not believe there will be a hike next week, we still think the current pricing (with close to even odds between a hike and hold) is well justified," Danske Bank analysts say in a note. Danske, however, still expects the Fed to hike rates twice later, in December and March. The dollar eases against a basket of currencies, however, due to further gains in the Japanese yen. The 10-year Treasury yield rises 1.8 basis points to 4.802%, according to Tradeweb. The DXY dollar index falls 0.2% to 98.989. ([email protected])0547 ET - Taiwan inflation's return to target gives the central bank an excuse to stay on hold this month, ING's Lynn Song says. The decline in August's headline print adds uncertainty to ING's September rate-hike call but doesn't rule it out. Conditions for tightening remain in place, with GDP growth strong and underlying inflation pressures intact. August's food-led moderation doesn't change the bigger picture, says Song. Core inflation is fairly steady, and PPI inflation too high. But it does offer the central bank flexibility to push back a hike, especially with local elections coming. A hold or dovish hike from the Fed, which meets a day earlier, could factor in too. Still, Song thinks that even if the central bank holds this month, it will likely hike at its next meeting in December. ([email protected])