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Coinbase War Chest vs. SEC Wells Notice

Coinbase War Chest vs. SEC Wells Notice

The Bank of England is hiking in solidarity with Powell, raising the BoE's interest rates by another 25 bps.

Alex Davis & Litquidity Capital
March 23, 2023

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Good afternoon,

The SEC just cut the crypto rally short in a Wells notice to Coinbase. The news sent Coinbase’s stock plummeting, and every “.eth” Twitter username running to its defense.

In another regulator battle, Treasury Secretary Yellen announced the US “isn’t considering insuring all uninsured bank deposits.” Might not have been news, if Fed Chair Powell hadn’t said at the same time that “Depositors should assume that their deposits are safe.”

Let’s dive in.

Economy Heat Check

As of 3/22/2023 market close, unless otherwise stated.

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Briefings

SEC plans lawsuit against Coinbase (WSJ)
Block, co-founded by Jack Dorsey, falls after short-seller Hindenburg says it’s short the stock (BBG)
SpaceX plans new funding with backing from Saudi and UAE investors (TI)
SoFi to increase FDIC insurance coverage from $250K to $2M (MW)
Indeed cuts 2,200 positions as tech sector cools (BBG)
Revolut alumni poaching ChatGPT employees for new crypto banking startup (EF)

Performance Review

Firm updates your bank may be less inclined to disclose.

Credit Suisse risks losing tens of thousands of jobs after UBS takeover (FT)
Vanguard to shutter business in China, exiting $3.9T Ant venture (BBG)
Citi EMEA departs for cloud infrastructure fintech, Thought Machine (EF)
Apollo, Carlyle scour bankrupt SVB financials for loan deals (BBG)
SVB’s loans to insiders tripled to $219M before it failed (BBG)
PacWest bolsters liquidity after clients pull 20% of deposits (BBG)
TikTok CEO and former Goldman banker appears before a House panel today to argue against a ban (WSJ)

Expectations Reset

The week in review.

FOMC Rate Decision

The Fed raised rates another 25 bps in a unanimous FOMC decision. But recent banking turmoil may cut its hike shorter than it seemed just two weeks ago.

Markets were positive as Powell began his press conference addressing the banking crisis. Six minutes in, he brought up inflation. That ended the quickest fever dream ever. Markets quickly slumped on Powell’s cool outlook. Financial stocks fell specifically, continuing the month’s downward spiral.

The decision yesterday marked the Fed’s ninth consecutive rate increase aimed at battling inflation over the past year. It will bring its benchmark federal funds rate to a range between 4.75% and 5%, the highest level since September 2007.

New projections showed almost all 18 officials who participated in the meeting expect the fed funds rate to rise to at least 5.1%, implying one more quarter-point increase and no rate cuts this year. The quarterly projections were little changed from those released in December.

BoE Rate Decision

The Bank of England (BoE) raised interest rates by 25 bps this morning – its 11th consecutive rate hike. It’s the same story, different font as the Fed’s explanation for its own hike. Despite strains to the banking system, it seems central banks are almost as sick of inflation as we are.

As a reminder, last month, the BoE signaled it might finally be done with tightening. The Bank said it would monitor indicators of “inflation persistence” – code for being less swayed by month-to-month swings in single data points.

But, just a day earlier, annual inflation unexpectedly edged higher to 10.4% in February’s CPI print. It jumped from 10.1% in January, marking the first increase in four months. Forecasts had anticipated a slight decrease to 9.9%. Core CPI, which is watched closely by the BoE, rose to 6.2% from 5.8% in January. Forecasts expected a decline to 5.7%.

In the UK spring budget announcement last week, Chancellor Hunt confirmed that the OBR (Office for Budget Responsibility) sees inflation falling to 2.9% by the end of the year. Looks like UK CPI gave up and decided to just copy and follow the side of the road Britons drive on – the wrong direction.

US Housing Market Update

US home prices fell in February for the first time in 11 years. In probably some of the only Powell praise you’ll see this week, it looks like the Fed's interest rate hikes have paid off somewhere. The price drop has led to a surge in home sales, with buyers taking a breath at the slight improvement in affordability.

Key word – slight. Current low mortgage rates mean homeowners are hesitant to give them up for higher rates on a new home. This reluctance to sell, combined with low inventory, could prevent steep price declines. The West and Northeast have seen a decline in median prices. But for those of you in Miami for Ultra or tennis – no need to waste your time on open houses. Both the South and Midwest have seen a growth in prices.

Meanwhile, US mortgage rates fell to a five-week low of 6.48%. The slump assisted in driving a third-straight advance in applications to buy a home, according to Wednesday’s MBA report. The 23 bps drop was its biggest in four months.

The group’s index of mortgage applications for home purchases rose 2.2% in the week ended March 17 to 169.3 – the highest since early February. But with a potential recession looming, it remains to be seen if the housing market will continue its upswing or if the bubble will finally burst.

Still to Come: Eurozone & UK Flash PMIs

As the week has rolled on, Flash PMIs will no longer be as much about the numbers released as about what Lagarde says after. ECB President Lagarde is set to speak at the European Council meeting in Brussels on Friday. All eyes will be on what she has to say regarding the banking system.

Both regions’ surveys will be looked at for clues about how businesses are viewing the recent banking crisis. But it’s most likely too soon for those concerns to be reflected in March’s data.

As a briefer, the Composite Purchasing Managers’ Index (PMI) takes the weighted average of a region’s manufacturing and service sectors. A reading above 50 indicates expansion in the sector; a reading below 50 indicates contraction.

The Eurozone’s Flash PMI data for March isn’t promising much. The consensus looks for the manufacturing gauge to improve to 49.0 from 48.5. The services measure is expected to fall slightly to 52.6 from 52.7. That would leave the composite unchanged at 52.0.

The UK’s Flash PMI data for March may promise a bit more entertainment. Analysts are watching to see if the upside surprise seen in February can be sustained. The composite rose 4.6 points to 53.1 in February – the first time the index had been above the 50 mark since July 2022.