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China tanks crypto

Good morning! The price of most cryptocurrencies crashed yesterday (the global market cap fell 17.9% over the last 24 hours) and for once it wasn't because of an Elon Musk tweet! We go in-depth in the Tech Wrap below. 👇

Market Wrap

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Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

The ASX200 (-1.9%) had its worst session since 26 February, closing at its lowest level in more than a month. In the US, the S&P500 was down 0.29% after the Fed's latest meeting minutes said: "if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases". Less stimmy, lower equity prices.

Wages rising: The ABS reported that Australia's wage price index – which excludes bonuses – increased 0.6% in the March quarter and 1.5% year-on-year. That's the second straight quarterly increase of 0.6% following a very weak period (0.2% and 0.1% in the June and September quarters in 2020), with "improved business conditions" leading "employers [to] revisit wage reviews for jobs paid by individual arrangement that had been placed on hold during the peak of the pandemic".

A drop in confidence: The Westpac Consumer Sentiment index for May declined 4.8% from recent highs but remains well above pre-pandemic levels (Westpac notes it's still "the second highest print for the Index since April 2010").

Tech Wrap

China tanks crypto

Cryptocurrencies are a threat to China's government.
Cryptocurrencies are a threat to China's government. BitcoinBestBuy

Cryptocurrency prices fell heavily yesterday after three Chinese state-backed financial associations issued a warning to their members: "The prices of cryptocurrencies have fluctuated wildly recently. Speculation has returned, which seriously damages people's asset safety and disrupts normal economic and financial order... They should not and shall not be circulated on the market as a currency."

Stepping back: China's government had already banned cryptocurrency exchanges (2017) and initial coin offerings (2019). However, crypto is still extremely popular in China – around 70% of the world's Bitcoin transactions happen using Chinese IP addresses. China's central bank is currently trialling its own digital currency, with decentralised cryptocurrencies being the biggest threat to domestic adoption – so now they're effectively illegal.

Another hurdle: China's government imposes strict capital controls on currency flows to prevent its people from moving money out of the country. Cryptocurrencies are a way around those controls, with the coordinated statement issued by the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China officially relegating cryptocurrencies to the black market in China. Given the size of the Chinese cryptocurrency market it's inevitable that such a move would have a large impact on prices, as at the margin there will be plenty of users in China who no longer think crypto is a viable method of protecting their wealth.

The Wrap Up

  • The full 2021-22 Ashes schedule was released yesterday: Brisbane (8-12 December); Adelaide (16-20 December); Melbourne (26-30 December); Sydney (5-9 January); and Perth (14-18 January).
  • Treasurer Josh Frydenberg said he has "a path to manage" the debt his government has accrued. "The key", Frydenberg said, "is to get more people into work" (250,000, according to the Budget), which would result in "more income tax receipts and lower welfare payments".
  • The federal government will build a $600 million, 660 megawatt gas-fired power station in the Hunter Valley (Kurri Kurri), to replace some of the lost output from the retiring 1,680 megawatt Liddell coal power plant. No doubt by pure coincidence, "people in the Upper Hunter, next door to where the new power station would be, are going to the polls this Saturday as part of a NSW state by-election".
  • Helen Rowell, the outgoing Australian Prudential Regulation Authority (APRA) deputy chairperson, had some choice words for Australia's superannuation system, saying that there are "too many funds overall, too many underperforming funds, fees that need to come down further, and a number of funds that probably lack the scale needed to deliver optimum member outcomes over the medium to long term". She may well be right but words are cheap and Rowell has been at at APRA for 19 years, with over 5 of those as deputy chairperson... 🙄
  • Dr. Anthony Fauci, the chief medical advisor to the US President, for at least the second time this pandemic admitted that he made public statements against his medical opinion to avoid "giving mixed signals".
  • Apparently 1.5 million COVID-19 vaccines – one in every four distributed – are sitting unused in clinics across Australia. No doubt they're all AstraZeneca, with people holding out for Pfizer/Moderna given the risk of contracting COVID-19 is low in Australia.