“Bitcoin Futures Contracts…..”

Bitcoin Futures Contracts

On Sunday the trading in bitcoin futures started on Cboe Global Markets Inc.  This is a milestone in the digital currency world which has been spurred in part by bitcoin’s rise this year.  What are futures contracts?  Futures contracts derive their value from some underlying asset such as corn, wheat and in this case a digital currency.  With a futures contract, a buyer is to pay for something at an agreed-upon price at a certain date in the future.  They can be used to speculate on how the price of a product will move.  Futures can also be used to short a market.  Three of the largest US exchange companies all overseen by the Commodity Futures Trading Commission are launching bitcoin futures contracts.  Cboe is getting its contract to market first, meanwhile CME on the 18^th December will be offering a competing product.  Nasdaq is planning to introduce bitcoin futures next year.  Exchanges want to cater for what people want to trade and bitcoin has become very popular.  One key feature of bitcoin is the unpredictable price movements.  For example on Coinbase GDAX exchange price touched the $20,000 from $ 16,000 in only about 90 minutes before plummeting back down.  While some enthusiasts about bitcoin call it a currency, some sceptics view it as a commodity without intrinsic value with demand driven by novelty and scarcity imposed by the software’s protocols which will cap its production.  Whilst some analysts think it will trade as a volatile stock others expect it to develop into a new asset class.

US – Government Shutdown

A shutdown was avoided as Congress sent President Donald Trump a bill extending federal funding for government spending to December 22.  Trump’s signature extends government spending at current levels and sets the clock for challenging negotiations among Democratic and Republican congressional leaders and the White House.  If Trump and lawmakers agree on overall budget limits over the next two weeks, one option would be to include that into yet another short-term spending bill to keep the government open until sometime in January.

US – Tax cuts

President Donald Trump insisted that the tax cut plans are about helping the middle class.  Two Republican senators have criticized tax cuts for the highest earners.   Their opposition could kill the bill.  GOP leaders are working on putting together different bills passed by the House and the Senate in one final compromise package.  This week details of their provisions have begun leaking including a plan to cut the top individual income tax rate to 37 percent from 39.6 percent.  This move would benefit those with incomes above the $470,000 a year.  The change in the top rate was one of the revisions that emerged as GOP leaders are finalising the tax legislation in time for Trump to sign it next week as part of his effort to secure a legislative victory before year end.

Brexit Progress

The Irish border was one of the three big issues besides the financial terms of the divorce and citizens’ rights that required progress before trade negotiations between the UK and the EU could start.  A broad agreement was reached on 8 December, but effectively it parked the Irish dilemma until later in the negotiations when the shape of a future deal is more clear.   Theresa May has reassured that there will be no barriers between Northern Ireland and the rest of the UK.   The Democratic Unionist Party (DUP) which is Northern Ireland’s biggest political party is adamant that Northern Ireland will leave the EU on the same terms as the rest of Britain.   On the 8^th December, the Irish government welcomed the agreement, while leaders from Scotland and London have complicated the situation by wanting a special deal to stay in the single market and customs union if Northern Ireland is given one.  In 2016 referendum, Scotland, London and Northern Ireland all voted to remain in the EU.  On Wednesday, Prime Minister Theresa May suffered a setback in parliament when members of her own party voted against her government’s planned Brexit legislation.  This means that lawmakers now have a chance to vote on and possibly defeat the final deal, a situation May was trying to avoid.  Theresa May on Thursday was in Brussels for a European leaders’ summit.

Some key points of the Brexit Breakthrough

The UK will contribute to EU budgets for 2019 and 2020 as if it had remained in the Union and will contribute its share of financing of EU budgetary commitments outstanding as at 31 December 2020.  Furthermore it will contribute its share of the financing of the EU liabilities incurred before 31 December 2020.  With regards to the citizen’s rights part of the final Withdrawal Agreement is to be interpreted in line with the case law of the Court of Justice of the European Union.  In the context of the application or interpretation of those rights, UK courts shall have due regard to relevant decisions of the ECJ.  A mechanism will be in place whereby, it will enable UK courts to ask the ECJ questions of interpretation which will last eight years.  The UK will further either propose a solution for keeping the Irish border open that will be acceptable to the EU, or continue by EU’s single market and customs union rules “which now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 Agreement”.

Oil and the crack in Forties Pipeline System

A hairline crack was found in one of the world’s most important oil conduits.  The Forties Pipeline System is being shut after the fault was found near Aberdeen, Scotland.  The news pushed the global benchmark Brent futures over $65 a barrel for the first time since June 2015.  The UK link is crucial because flows through it make up the single largest constituent part of so-called Dated Brent Crude, which helps settle more than half of the world’s physical oil prices.  Outside Europe the halt in Forties supply is expected to lift the demand for other light-sweet crudes that have a lower sulphur content.

Gas and the explosion in Austria’s hub

The UK natural gas prices jumped the most in eight years after an explosion at one of Europe’s biggest supply hubs. A blast at the Baumgarten hub in Austria killed at least one person and injured 18.  The facility which is 50 kilometres northeast of Vienna, transports the equivalent of about a 10^th of Europe’s gas demand.

Inflation in the UK

Inflation in the UK unexpectedly accelerated in November at 3.1 percent which is the strongest than economists had forecasted and the highest since March 2012.   According to the Office for National Statistics the increase was driven by the cost of air fares and computer games. The ONS showed that core inflation, which excludes volatile food and energy prices, was unchanged at 2.7 percent in November, the highest since 2012.   The Bank of England increased its benchmark interest rate last month for the first time in a decade stating that low unemployment and a squeeze on supply could fuel faster wage growth.    With the latest data, Bank of England Governor Mark Carney, will have to explain to Chancellor of the Exchequer Philip Hammond why the price growth has exceeded by 1 percent the official target of 2 percent.  The letter will be published in February alongside the BOE’s decision policy.  Markets are not expecting any further increases in interest rates until late 2018.

New York’s terror attack

On Monday an attempted terrorist attack in the heart of the city ended up with serious injuries only to the perpetrator.  The suspect Akayed Ullah, a 27 year old immigrant from Bangladesh living in Brooklyn was wearing a pipe bomb which detonated in an underground subway passage during the morning rush hour.  He was apprehended and taken to hospital with three other people who experienced minor injuries.  It was reported that Ullah was inspired by the violent ideology of the Islamic State.  He aimed at both commuters and tourists.  The explosive detonated in a block-long subterranean passage which links the subway station at the Port Authority with the one at Times Square.  This incident came a little more than a month after an attack killed eight people on the west side of Manhattan where an immigrant from Uzbekistan drove a  truck down a bicycle path, deliberately mowing down cyclists and pedestrians.  In response to the attack, President Donald Trump urged Congress to make changes to the immigration policy as according to him, the current system, “allows far too many dangerous, inadequately vetted people” into the country.  He specifically called for the ability of US citizens to sponsor their relatives.

Central Bank Day

    –  United States

As expected the Federal Reserve has tightened monetary policy and raised rates by a quarter percentage point.  The 7-2 vote, raises the benchmark lending rate by a quarter percentage point to a target range of 1.25 percent to 1.5 percent. This is the Fed’s third one this year  The Fed also confirmed that it would step up the monthly pace of shrinking its balance sheet, as scheduled, to a $20 billion beginning in January from $10 billion. Following the announcement the yield on 10 year US Treasury notes fell.   The FED raised the forecast for economic growth in 2018.  Chair Janet Yellen told reporters that, “this change highlights that the committee expects the labour market to remain strong, with sustained job creation, ample opportunities for workers and rising wages”.  Yellen also noted that her successor Jerome Powell, has been part of the decision shaping the strategy of a gradual increase in the interest rate.

    –  China

Meanwhile China’s central Bank increased its borrowing costs by an unexpected move, and increased the rates it charges in open-market operations and also on its medium-term lending facility, though making smaller adjustments than the US.   According to the PBOC the adjustments in the rate “will help markets form reasonable expectations for interest rates”.  It further added that it prevents financial institutions from adding excessive leverage and expanding broad credit supply.  The cost of the seven-day and 28 day reverse –repurchase agreements was raised by five basis points.  This followed an increase in mid-March.

    –  ECB

Mario Draghi the European Central Bank President announced publicly the economic projections that showed stronger growth over the next three years but only slowly improving consumer-price gains.  Inflation will average 1.7 percent in 2020, below the goal of just under 2 percent.  Policy makers left interest rates and their quantitative easing settings unchanged.  According to Draghi an “ample degree” of stimulus is still needed.  He further added that “Domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend.”  Improved conditions in the labour market should increase pressure on nominal wages, which is a key driver of underlying price pressures.

    –  Switzerland

The Swiss National Bank has left the rates unchanged with a promise to intervene on currency markets if the need arises.

     –  United Kingdom  

On Thursday the Bank of England kept its main interest rate unchanged at 0.5 percent.  The decision was widely anticipated although this week showed annual inflation rising further above the bank’s 2 percent target to 3.1 percent.

Europe and PMI

The economy of the euro area is set to end on a high note and continue with its strong performance achieved in 2017 after economic momentum in the euro area accelerated to its fastest pace in almost seven years.  Manufacturing posted record growth at the end of 2017.  According to IHS Markit, a composite Purchasing Managers’ Index rose to 58 from 57.5 in the previous month.  Germany is the leading nation in economic growth bolstered by unprecedented expansion in manufacturing.  A Purchasing Managers’ Index of factory activity unexpectedly jumped to 63.3 in December from 62.5 in November which is the strongest reading in more than six and a half years.  With unemployment at a record low, solid global demand for its exports and continued support from the expansionary ECB policy, Germany is making up for the uncertainty being created by the struggle of Chancellor Angela Merkel to form a new government.

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