Enthusiasts Eagerly Anticipate Bitcoin's 'Halving' Event

Bitcoin enthusiasts were eagerly waiting for bitcoin's 'halving' on Friday - a change to the cryptocurrency's underlying technology designed to cut the rate at which new bitcoins are created.

The halving, which happens roughly every four years, was written into Bitcoin's code at its inception by pseudonymous creator Satoshi Nakamoto as a way to reduce the rate at which bitcoins are created.

Chris Gannatti, Global Head of Research at asset manager WisdomTree, which markets bitcoin exchange-traded funds, called the halving "one of the biggest events in crypto this year".

According to CoinGecko's countdown clock, the halving is scheduled to happen in the early hours of Saturday GMT.

For some crypto fans, the halving will underscore bitcoin's value as an increasingly scarce commodity - Nakamoto capped bitcoin supply at 21 million tokens - while sceptics see it as little more than a technical change talked up by speculators to inflate the virtual currency's price.

The halving works by halving the rewards cryptocurrency miners receive for creating new tokens, making it more expensive for them to put new bitcoins into circulation.

It follows a surge in bitcoin's price to an all-time high of $73,803.25 in March, having spent much of 2023 slowly recovering from 2022's dramatic plunge. On Thursday the world's biggest cryptocurrency was trading at $63,800.

Bitcoin and other cryptocurrencies have been supported by excitement around the U.S. Securities and Exchange Commission's decision to approve spot bitcoin exchange-traded funds in January, as well as expectations that central banks will cut interest rates.

Previous halvings occurred in 2012, 2016 and 2020. Some crypto fans point to price rallies that followed them as a sign that bitcoin's next halving will boost its price, but many analysts are sceptical.

"We do not expect bitcoin price increases post halving as it has been already priced in," JP Morgan analysts wrote this week.

They expect bitcoin's price to fall after the halving, because it is "overbought" and venture capital funding for the crypto industry has been "subdued" this year.

Financial regulators have long warned that bitcoin is a high-risk asset, with limited real-world uses, although more have begun to approve bitcoin-linked trading products.

Andrew O'Neill, a crypto analyst at S&P Global, said he was "somewhat sceptical of the lessons that can be taken in terms of price prediction from previous halvings."

"It's only one factor in a multitude of factors that can drive price," he said.

Bitcoin has struggled for direction since March's record high and fallen in the last two weeks as geopolitical tensions and expectations central banks will keep rates higher for longer unnerved global markets.

The volume of goods sold in stores and online was unchanged in March after a revised 0.1% gain the month before, the Office for National Statistics said on Friday. Economists had expected an 0.3% increase.

The figures add to evidence of a lackluster recovery from last year's recession. Consumers are still suffering from a cost-of-living crisis that forced them to pay more for the same amount of goods. While wages are rising rapidly and the Bank of England is expected to reduce interest rates, those forces have yet to fully feed through to people's finances.

“Hardware stores, furniture shops, petrol stations and clothing stores all reported a rise in sales,” said Heather Bovill, senior statistician at the ONS. “However, these gains were offset by falling food sales and in department stores where retailers say higher prices hit trading.”

The pound was little changed after the data, holding on an earlier drop of 0.3% to $1.2405. Traders added to bets on interest rate cuts later this year and have fully priced in the first quarter-point reduction from the BOE in September.

Retail sales grew 1.9% in the first quarter, meaning the sector contributed 0.09 percentage point GDP during the period, the ONS said. The economy as a whole is expected to have expanded 0.2%, according to the median of forecasts in a Bloomberg survey.

Fuel sales provided a lift for the weak figures. Excluding auto fuel, overall sales fell 0.3% in March, erasing a gain of the same size the month before.

“Today's retail sales data was somewhat of a damp squib, cracking retailers hopes of an Easter bounce-back in footfall,” said Phil Monkhouse, UK country manager at the financial services firm Ebury. “With retailers now getting to grips with two months of stagnation in a row, it seems the glimmer of hope after January's unexpectedly impressive rebound is now starting to dim.”

The figures were impacted by heavy rainfall in the first half of March, which carried on from the wettest February on record. Retailers say they're seeing more normal spending patterns than during the years interrupted by Covid-19.

“Large ticket items like furniture continued to sell badly as consumer spend remains restrained by the high cost of living,” said Kris Hamer, director of insight at the British Retail Consortium. “Footwear sales were impacted by the poor weather.”

Prime Minister Rishi Sunak is relying on a “feel good factor” from higher living standards, with his Conservative Party trailing in opinion polls ahead of a general election expected later this year.

Retailers including the UK's largest grocer Tesco Plc have resorted to price cuts to attract shoppers — reducing inflation in UK stores to its lowest level in more than two years.

“Consumer confidence remains fragile, and households continue to keep a close eye on where their tight budgets are being spent,” Linda Ellett, head of consumer markets, leisure & retail at KPMG UK, said in a statement released by the British Retail Consortium last week.

Amid escalating tensions in the Middle East, Asian stock markets experienced significant sell-offs on Friday. Reports of Israel launching a retaliatory attack against Iran triggered a wave of investor unease, with Japan's Topix leading losses by shedding 1.9 percent. The index had initially dropped by as much as 3 percent earlier in the trading day. The South Korean won emerged as the region's weakest currency, sliding by as much as 1.4 percent against the dollar to Won 1,392.91.

Gold, a traditional safe-haven asset during times of geopolitical uncertainty, surged by as much as 1.6 percent to $2,417.89 per troy ounce. Similarly, futures for Brent crude, the international oil benchmark, spiked by up to 4.2 percent to $90.75 per barrel, reflecting concerns about potential disruptions to the global oil supply.

In terms of market performance, the Hang Seng index experienced a decline of 1.4 percent, bringing its year-to-date (YTD) performance to a loss of 5.2 percent. The CSI 300, representing China's major stocks, also saw a dip of 0.8 percent, although it maintained a positive YTD return of 3.2 percent. The Topix index's drop of 1.9 percent further extended its negative YTD performance to 11.0 percent. The Kospi index in South Korea mirrored the general trend, decreasing by 1.6 percent, while its YTD performance remained slightly negative at -2.4 percent. The Nifty 50 index in India also experienced a minor decline of 0.6 percent, with a marginal positive YTD return of 0.6 percent.

From a technical standpoint, the heightened tensions in the Middle East can have significant implications for global markets. Geopolitical events often introduce uncertainty, which can lead to increased volatility in financial markets. Investors tend to react swiftly to such events, adjusting their portfolios to mitigate potential risks. In this case, the fear of a broader conflict in the Middle East could impact various sectors, including energy, defense, and transportation.

The spike in oil prices, as reflected by the surge in Brent crude futures, underscores concerns about potential disruptions to the oil supply chain. Any escalation of hostilities in the Middle East could threaten key oil-producing regions and disrupt the flow of crude oil to global markets. This could result in higher energy costs, affecting both consumers and businesses worldwide. Additionally, heightened geopolitical tensions may impact investor sentiment, leading to increased market volatility and a flight to safe-haven assets like gold.

In response to the geopolitical developments, market participants may adopt defensive strategies, such as reducing exposure to equities and increasing allocations to assets perceived as safer havens. Government bonds, particularly those issued by stable economies, could attract increased demand as investors seek refuge from market uncertainty. Similarly, currencies of countries perceived as less exposed to geopolitical risks may strengthen relative to those of nations directly involved in the conflict.

Furthermore, geopolitical tensions can have broader economic implications beyond financial markets. Uncertainty stemming from geopolitical events may weigh on business confidence and investment decisions, potentially dampening economic growth prospects. Businesses may delay capital expenditures or expansion plans until there is greater clarity regarding the geopolitical situation. Moreover, heightened tensions could disrupt global trade flows, leading to supply chain disruptions and higher costs for businesses reliant on international trade.

Despite the immediate market reactions to geopolitical events, it's essential to recognize that investor sentiment can be highly fluid. Market participants may reassess their positions as new information emerges or as geopolitical tensions evolve. Moreover, the impact of geopolitical events on financial markets can vary depending on a range of factors, including the duration and severity of the conflict, diplomatic efforts to de-escalate tensions, and broader macroeconomic conditions.

The recent sell-off in Asian stock markets, driven by escalating tensions in the Middle East, underscores the significant impact that geopolitical events can have on global financial markets. Heightened uncertainty has prompted investors to reassess risk exposures and seek refuge in traditional safe-haven assets. However, it's crucial to monitor developments closely and consider the broader implications for both financial markets and the global economy.

“We work very closely with Governor Perry in order for us to be able to adjust the macro stance to adapt with this new level of pressure,” Finance Minister Sri Mulyani Indrawati said in a Bloomberg Television interview on Thursday, referring to Bank Indonesia's top policymaker.

Indonesia is focused on ensuring that fiscal policy can work as “an effective and credible shock absorber,” she said on the sidelines of the International Monetary Fund and World Bank Group meetings in Washington, DC.

Governor Perry Warjiyo said in a statement from DC that the BI — whose key mandate is to ensure currency stability — will also continue to support the rupiah “with foreign exchange interventions and other necessary measures.” Hours later, the central bank said it's intervening “more boldly” in FX markets.

The comments came as news of Israel's retaliatory strike against Iran roiled markets, pushing currencies including the rupiah to multi-year lows against the dollar on Friday. Indonesia's currency has been among the hardest hit in Asia this month, extending its decline to more than 2.5% in April to a four-year low.

The rupiah dropping beyond the key level of 16,000 versus the greenback — for the first time since 2020, prompted the BI to step up its interventions in the market to stem the fall. It's also adding pressure on the central bank to raise the benchmark rate further on April 24.

“The increasingly all-of-government response is revealing a level of concern that implies a higher risk of a larger, 50bps hike (to 6.5%),” Barclays Plc economist Brian Tan wrote in Friday note.

If the BI holds at 6%, it will likely sound hawkish and hint at the possibility of future hikes, Barclays said. Only six of 21 economists surveyed by Bloomberg so far expect the central bank to hike by 25 basis points on Wednesday, with the rest predicting a hold.

The governor, who surprised markets with a tightening in October amid the rupiah's rout, earlier this week said that the central bank is always in the market. In the statement dated Friday, he said the BI will manage foreign flows in a market-friendly manner, underscoring the importance of stabilizing exchange rate for the nation's resilience.

Southeast Asia's biggest economy on Thursday told its state-owned enterprises to refrain from making large dollar purchases for its import or debt servicing requirements to avoid adding pressure on the rupiah. Natural-resource exporters were also reminded to comply with rules to repatriate dollar earnings to shore up the nation's currency reserves.

Indrawati, during the interview in DC, said that while the strong dollar can increase the revenue from exports, it also risks adding inflationary pressures through imports.

Doubts over the incoming government's fiscal policy have also been keeping the rupiah under pressure, with foreign investors sidestepping Indonesia's debt market on concerns over Pesident-elect Prabowo Subianto's free-lunch program.

Without a clear financing strategy, the program could put Indonesia's debt load at risk and threaten its investment-grade sovereign rating, which was recently affirmed by Fitch Ratings and Moody's Ratings.

Indrawati, who will end her tenure as finance minister in October, said the budget deficit will remain under 3% and that Indonesia can sustain its 5% economic growth this year amid the higher-for-longer interest rate environment.

“Fiscal policy that is adjusting to many structural issues, but at the same time maintained in prudent principle is going to be very important,” Indrawati said.

Oil and gold jumped on rising geopolitical tensions after Israel struck targets in western Iran as a response to last weekend's attacks. One of the concerned cities is Isfahan, home to several military bases and facilities, but also to nuclear facilities including the main technology center. Iran said that the nuclear site is safe. Bloomberg journalists highlighted that as Iran's weekend attack – which was designed to warn rather than to destroy – Israel bombing remained in the 'realm of gaming out 'calibrated' actions to send messages without raising stakes. But uncertainty looms. Brent crude traded above the $90pb before easing to around $88.50 at the time of writing, US crude shortly trade past the $86pb level, wheat futures jumped 2%, gold rebounded to a near-record level and Swiss franc gained. We will likely see a further flight to safety before the weekly closing bell on fear of further escalation of tensions during the weekend. Shorting oil and gold is risky as Middle East is boiling. Having exposure to these commodities is a good hedge against the rising geopolitical tensions in the region.

In other hot commodity news, cocoa futures jumped close to 10% yesterday to above $11'000 per ton, and a hedge manager called Pierre Andurand said that the shortages will push the price of a ton of cocoa to $20K. For those who love speculation and adrenaline, cocoa futures is the place to be.

Elsewhere, tech investors didn't necessarily bought into TSM's better-than-expected revenue and earnings compared to the same time last year. They were rather disappointed with a 5% decline in revenue and income compared to the last quarter. The company dialed back its outlook for the chip market expansion due to weakness in smartphones, personal computers and car industry but said that accelerating demand for AI chips should compensate for that weakness and justify spending for capacity expansion and upgrades. They expect their revenue to grow at least 20% this year. But alas, anything less than mind-blowing is not enough for the chip rally to continue given the latest exponential rise. TSM shares fell nearly 5% after the results yesterday, while Micron Technology, which was up pre-market on news that they will get more than $6 billion in grants from the US government for their domestic factory projects, ended up falling almost 4%. The S&P500 extended losses and Nasdaq 100 retreated to near its 100-DMA.

Netflix reported results after the closing bell yesterday and surprised with a third month of blowout subscriptions growth. The company added more than 9 million new watchers in Q1 2024 and posted its best start to a year since the pandemic. The password sharing ban continued to boost Netflix subscriptions as company estimated that they were around 100 mio people using an account without paying for it. Apparently, the password sharing ban convinced a lot of them that Netflix is worth paying for. Unfortunately, Netflix lost almost 5% in the afterhours trading as its Q2 revenue forecast failed to impress. They also said that they will stop reporting quarterly subscribers next year… What a disappointment, that was the most interesting thing to watch in Netflix quarterly results… In terms of market price, Netflix will slip below its 50-DMA today and the toppish signs goes beyond Netflix.

US jobless claims came in lower than expected, the Philly Fed manufacturing index unexpectedly jumped . Fed's Raphael Bostic said that he doesn't expect a rate cut until the end of this year, Neel Kashkari said that the Fed could 'potentially' hold its rates steady all year and John Williams said that there is no urgency to cut rates and that he doesn't rule out a rate hike, though this is not his base case scenario. But the US 2-year yield remained capped near the 5% psychological mark despite strong data and hawkish comments indicating that investors are hesitant to give up their final hope of seeing the Fed loosen its policy.

The EUR/USD is under a renewed downside pressure as the divergence between the hawkish Fed and dovish ECB expectations justifies a further weakness in the single currency. The USD/JPY remained offered as core inflation in Japan eased more than expected by analysts to 2.6%. We are still waiting for the Japanese authorities to stop the bleeding as they said they would if the selloff became unsustainable…

The US futures are in the negative at the time of writing. The rising hawkish voices from the Fed back further weakness in stocks, especially the rate-sensitive tech stocks. Unfortunately, the quarterly results from the world's leading chip and chip equipment makers failed to satisfy this week and set the tone for a – maybe – challenging earnings season for chip companies. And if that's the case, we could see the risk rally fade into May… which is known to be the month where investors sell and go away.

The United States is an outlier among advanced economies, so how much signal should policymakers elsewhere take from recent upside surprises on US inflation? Less than some people seem to think.

Perhaps the issue didn't strike them as pertinent to a conversation with an Australian. Still, I could not help noticing that none of the offshore customers I have spoken with over the past two weeks were that shocked by the recent upside surprises on US inflation and retail sales. After all, it's not hard to end up with high inflation when your government is running a deficit of 6% of GDP, growth is above average and the labour market is already tight. So despite the 'shock and awe' reaction in financial markets, perhaps people were not that surprised after all.

As discussed last week, the US fiscal and consumer situations stand in contrast to Australia. In many respects, the United States is an outlier among advanced economies.

How much signal, then, should policymakers elsewhere take from recent US inflation surprises? It does highlight that, once inflation becomes domestically focused and driven by a high level of domestic demand, it can be sticky and hard to return to target rates. This is the source of the RBA's concern about market services inflation. While services inflation has so far declined in line with the RBA's earlier forecasts, the RBA is mindful that progress could stall, as it seems to have done in the United States. That said, as highlighted this week by Westpac's Head of International Economics Elliot Clarke, current high rates of services inflation in the United States have less to do with the components related to discretionary spending and more to do with slower-moving components such as insurance and medical services. Discretionary spending is high but lacks further momentum. So there are downside risks here as well as upside risks.

Another point of comparison is the role of housing-related inflation. In the US CPI, this relates only to rents, scaled up and adjusted to include imputed rents for owner-occupiers. In Australia (and Canada and New Zealand) rental inflation's weight in the total relates only to rents actually paid by renters. The contribution of owner-occupied housing to inflation is captured by the 'acquisitions method' – in other words, home-building costs. These, too, have increased significantly and in Australia they continue to escalate at an above-average pace.

The question is how long housing-related inflation will stay high. Across this group of economies, we have seen surges in population growth adding to demand for rental housing. At the same time, housing construction industries remain supply constrained, with domestic supply chains an issue in some cases. There is also a question of how much of the increased demand for housing represents a longer-lasting effect of increased working from home, which has seen some households needing more space than before.

If – as is the case for Australia and Canada – the population surge is largely a catch-up from pandemic-era restrictions, it should normalise over the next year or so. Indeed, this is Westpac Economics' projection for Australia's population growth, returning to the pre-pandemic norm of 1½% or a little above that in 2025. The rent component of CPIs relates to the stock of all rented properties, so it is slow-moving compared with most other components of inflation. But if we are right about the population surge in Australia being mostly a post-pandemic catch-up, then the burst of rental inflation should subside over time as well. (It would normalise even faster if the construction industry found a way to recover from current supply constraints.) The drivers of US population growth are somewhat different, and a slowing is not already baked into the dynamics there. This means that a slowing in US rent growth is less assured.

The upside risks to domestic inflation in countries such as Australia and Canada should not be dismissed. Given the nature of the housing-related inflation and the state of the consumer, though, neither should they be overblown. Recall that the Australian household sector has pulled back on consumption per capita in a way not seen elsewhere. Population growth initially masked this pullback from the perspective of the business sector. More recently, surveys are suggesting that businesses are now seeing the softness in demand and reacting to it, including in their pricing strategies.

We therefore cannot rule out – as a risk scenario, not currently our central case – that the conditions for withdrawing some of the restrictive stance of monetary policy will be met in Australia and some other economies before they are met in the United States. As we have explained previously, the RBA and other central banks do not need to wait for the Federal Reserve to move before they can do so. The RBA was cutting rates in the years leading up to the pandemic while the Federal Reserve was raising them. The signal from the US experience is as an example of what could happen elsewhere, not a direct linkage between rates decisions. It is also not the only such example. For this reason, watch the outcomes in Canada and Europe, not just the United States.