Fed Warns of Risks of Risky Asset Prices as Stocks and Bitcoin Hit Record Highs – Business | Companies

Good morning and welcome to our ongoing coverage of the global economy, financial markets, euro zone and business.

The rise in the prices of risky assets this year has made them increasingly vulnerable to slumps as economic growth deteriorates, the pandemic escalates, or investor confidence is lost.

That is the message from the US Federal Reserve, which is also concerned about the surge in stablecoins that are propping up the cryptocurrency market.

In its latest financial stability report, the Fed notes that risky asset prices have generally continued to rise since its last report six months ago.

Despite concerns about the spread of the delta variant of the virus that is causing COVID-19, asset prices have been supported by increased earnings expectations and low government bond yields.

In a warning to the markets, they say:

Risky asset prices have generally risen since the last report, and prices in some markets are high compared to expected cash flows. Real estate prices have risen rapidly since May and continue to outperform rent increases. Despite rising real estate valuations, however, there is little evidence of deteriorating credit standards or heavily leveraged investment activity in the residential real estate market.

Asset prices remain vulnerable to sharp falls should investor risk sentiment deteriorate, advances in containment fail, or economic recovery stalling.

But are investors taking the message to heart?

Last night, the US stock market closed at a new record high, extending its pandemic rally as investors continue to shake off concerns about rising inflation, supply chain problems and the ongoing pandemic.

Ryan Detrick, CMT
(@RyanDetrick)

The S&P 500 hit a new all-time high in the first 6 trading days of November.

This is the longest high ever, starting in a month since January 6, 2018.

In fact, a month in history has started only once with 7 consecutive all-time highs, in July 1964.

November 8, 2021

And Bitcoin hit a new record high this morning – it hit $ 68,550 for the first time as crypto assets continue to rise.

The price of Bitcoin this year Photo: Refinitiv

Critics point out that the Fed’s own policies helped fuel the rally in risky assets.

It has kept interest rates at record lows since the pandemic began, pumping $ 120 billion a month through its bond-buying stimulus plan into the system, which is just being dismantled.

The Fed’s financial stability report reveals concerns about the rise in stablecoins – cryptocurrencies [such as tether] trying to link their market value to an external reference such as the US dollar.

The Fed notes that the sector has grown rapidly and warns that “some stablecoins are vulnerable”.

Policy makers are concerned about the consequences if a stablecoin fails to hold its value.

The value of the outstanding stablecoins has increased roughly fivefold in the past 12 months and was around $ 130 billion in October 2021

Certain stablecoins, including the largest, promise to be redeemable at a stable value in US dollars at any time, but are partially backed by assets that can lose value or become illiquid. If the assets that support a stablecoin lose value, the issuer may not be able to make the repayments at the promised stable value.

Christophe Barraud
(@C_Barraud)

🇺🇸 #Fed warns of dangers ahead of risky asset prices, #Stablecoins – Bloomberg
* Direct link: https://t.co/Xa6SsuQ14dhttps://t.co/Khp6ezRdEY

November 9, 2021

Today also comes:

Rolls-Royce is advancing a multi-billion pound plan to introduce a new generation of mini-nuclear reactors after securing more than £ 450 million from government and investors.

The engineering firm, in partnership with investors BNF Resources and US generator Exelon Generation, will set up a company focused on the development of small modular nuclear reactors, or SMRs, with a combined investment of £ 195 million to fund plans over the next three Years.

On the data front, the latest poll from US producer prices will show whether inflationary pressures are building up in the American economy.

the CALL The survey on economic confidence will show whether German investor confidence has improved after falling over the past four months.

Central bankers will be busy; the Bank of Canada, the Bank of England, the Board of Governors of the Federal Reserve System and the European Central Bank are hosting a conference on diversity and inclusion in the economy, finance and central banks.

The agenda

• 7 a.m. GMT: German trading data for September
• 10 a.m. GMT: ZEW index of German economic sentiment
• 1 p.m. GMT: ECB President Christine Lagarde speaks at the 4th ECB Forum on the Banking Supervision Forum: “Banking of tomorrow: navigating change”
• 1.30pm GMT: US PPI index of producer prices released
• 2pm GMT: Fed Chairman Jerome H. Powell opens the conference on Diversity and Inclusion in Business, Finance and Central Banks
• 3:30 p.m.: Bank of England Deputy Governor Ben Broadbent speaks to the EFRA Committee: Labor shortages in the food and agriculture sectors
• 16:00 GMT: Andrew Bailey, Governor of the Bank of England, on a panel discussion on Central Banks and Inequality at the conference on Diversity and Inclusion in Economics, Finance and Central Banking