February 2023 Wrap Up

What’s the buzz in the markets for February?

Fed not backing down in the face of inflation

The meeting minutes released this past Wednesday show that Fed officials are still concerned about high inflation rate and believe that ongoing interest rate hikes will be necessary, in spite of some signs that indicate inflation is cooling down.

At their Jan 31st-Feb 1st meeting, the Fed approved a rate increase of 0.25 percentage point, which was the smallest hike so far since the beginning of the tightening cycle back in March 2022. As a result, the Fed funds rate was brought to a 4.5%-4.75% range.

However, the minutes noted that there is a high level of concern surrounding the reduced pace since inflation remained well above the Fed’s 2% target. The minutes also revealed that although some members believe the risk of a recession is high, others believe that the Fed can prevent a recession and achieve a “soft landing” for the economy, where growth slows considerably but does not decline.

Developing countries’ debts nightmare in the shadow of pandemic and strong dollar

According to the Institute of International Finance, developing countries’ debts hit a record high of $98tn at the end of December 2022. The debt burden for the combined 30 large low- and middle-income countries rose from $96tn a year earlier and from $75tn in 2019 (pre-pandemic), as reported by IIF in their Global Debt Monitor.

As the strong dollar has caused an increase in the cost of meeting existing debt obligations (which are mostly in US currency), there are raised concerns over sovereign defaults in these developing countries. Among the 30 listed countries, Pakistan and Egypt are at high risk of default as both countries sharply devalued their currency against the dollar in January.

The overall debt of advanced economies dropped by almost $6tn to slightly below $201tn, resulting in a slight decrease in the global debt burden from $303tn at the end of 2021 to under $300tn by the end of last year.

Hong Kong gives crypto a retail therapy: Plans for retail trading revealed

As Hong Kong continues pushing forward to reclaim its status as a global crypto hub, Hong Kong’s Securities and Futures Commission has unveiled a plan last week to allow retail investors to trade cryptocurrencies like bitcoin and ether on licensed exchanges.

This proposal will be a 6-week consultation with interested parties and the conditions include that investors must have a good understanding of virtual assets, and only 2% of client funds can be stored in “hot wallets.” The move aims to compete with the rival Singapore as a digital assets hub, where Singapore has already allowed retail trading but also seen its share of crypto controversies last year.

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