Meltdown and then Some
Sam Bankman-Fried told investors in crypto exchange FTX on Wednesday that without a cash injection, his company would need to file for bankruptcy, according to a person with direct knowledge of the matter. On a call before Binance pulled an about-face and bailed on its takeover offer, Bankman-Fried informed investors his crypto exchange faced a shortfall of up to $8 billion and needed $4 billion to remain solvent. FTX is attempting to raise rescue financing in the form of debt, equity, or a combination of the two. The situation may turn for the worse after the Justice Department was reported to be looking into the turmoil and the liquidity crisis that has pushed FTX to the brink.
Struggle for Control
The struggle for control of the US Senate boiled down to three races, with each party needing to win two of those states to secure a majority, as fractious Republicans limped along toward a tenuous hold on the House. Republicans didn’t achieve the midterm wave election wave they expected, and some House conservatives expressed frustrations with party leaders for failing to deliver a larger majority. Overall, US President Joe Biden likely will be able to claim the best midterm performance for an incumbent president’s party in 20 years, though it still means his agenda will be blocked with Republicans poised to control the House of Representatives.
US Inflation
US inflation probably moderated just slightly in October data due Thursday, and yet another above-forecast reading may dash expectations for the Federal Reserve to downshift from steep interest-rate hikes. Economists project the consumer price index and the core measure that excludes food and energy both cooled on an annual basis, but the rate is still consistent with persistent and elevated inflation. The overall CPI is seen rising from a month earlier by the most since June. That’s keeping a fifth-straight 75 basis-point increase in interest rates on the table for the Fed’s meeting next month. Meanwhile, Biden said he is optimistic the US isn’t nearing a recession, but said that his actions to lower inflation would need more time to take effect.
Margin Calls
Crypto markets face weeks of deleveraging in the fallout from the crisis at FTX, a period of upheaval that could push Bitcoin down to $13,000, according to JPMorgan strategists. A “cascade of margin calls” is likely underway given the interplay between the exchange, its sister trading house Alameda Research and the rest of the crypto ecosystem, a team led by Nikolaos Panigirtzoglou wrote in a note. Digital-asset investors are still coming to terms with the rapid unraveling at FTX and the concerns swirling around Alameda Research, both founded by 30-year-old Bankman-Fried. There are fears that the potential bankruptcy of FTX could lead to contagion that takes down other crypto outfits.
Coming Up…
European shares are on track to follow their global peers lower ahead of the key US inflation reading. Other expected data include Norway inflation and Italian industrial production. A slew of ECB, Bank of England and Fed officials speak at events. The ECB also publishes its Economic Bulletin. The UN unveils its “Food Outlook” report against a backdrop of supply disruptions caused by the war in Ukraine.
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(Source: Bloomberg, Nov. 10-2022)