Mexico President Puts Unity First to Broker Compromise in Succession Race

Political

Economic

Summary:

Mexican President Andres Manuel Lopez Obrador this week intervened in the increasingly fractious race to succeed him, a move party insiders said was aimed at warding off potential division and protecting the commanding political power base he has built.

Under pressure for months from Foreign Minister Marcelo Ebrard to get contenders seeking the presidential nomination of the ruling National Regeneration Movement (MORENA) to step down before campaigning, Lopez Obrador this week finally went along with the idea, according to three party sources familiar with the matter.

In a dinner with party leaders in Mexico City on Monday, Lopez Obrador proposed that MORENA's contenders resign to ensure a level playing field, and that the party this weekend decide on rules for the selection process, the sources said.

"He's closing every loophole to prevent any disagreement," one of the sources said, speaking on condition of anonymity.

The president's office did not reply to a request for comment.

On Thursday morning, Lopez Obrador was asked about what was discussed at the MORENA dinner, and said: "We spoke of the need to remain united to guarantee the transformation of Mexico."

Ebrard, a leading contender to succeed Lopez Obrador, on Tuesday announced that he would step down next week. Ebrard's main rivals are likely to follow suit soon, the president himself suggested on Wednesday.

MORENA is expected to pick a candidate as soon as September. Mexico's next presidential election is in June 2024.

In public, the MORENA hopefuls have largely maintained a veneer of civility. But sniping between the rival camps behind the scenes has begun to erode the image of all-conquering unity the president tries to project for his party.

Under Lopez Obrador, MORENA in less than five years has replaced the Institutional Revolutionary Party (PRI) as the establishment party. On Sunday, it captured Mexico's most populous state after nearly a century of PRI rule.

However, in another election in the northern state of Coahuila that day, MORENA suffered a crushing defeat after infighting split its vote.

Lopez Obrador has been urging MORENA to fight for a two-thirds congressional super-majority next year.

That could allow him to push through contentious constitutional changes to the judiciary, which has persistently impeded his efforts to increase state control over the economy, before he leaves office on Sept. 30, 2024.

If MORENA is roiled by internal dissent, the prospect of such control looks remote.

Unity

MORENA now controls the federal Congress, over two-thirds of Mexico's states, and opinion polls make it the hot favorite to win the 2024 presidential election.

Lopez Obrador's personal popularity has bolstered support for his party. But under Mexican law, presidents may only serve a single six-year term.

Because of MORENA's dominance, the contest to secure the party's candidacy has become a virtual de facto presidential election in the eyes of many analysts.

Most recent polling gives Mexico City Mayor Claudia Sheinbaum a slight edge over Ebrard in the succession battle, and senior aides to the president have told Reuters they believe she is Lopez Obrador's preferred candidate.

He has repeatedly denied this, and insisted that the process be transparent and beyond reproach.

Ebrard, a veteran aide of Lopez Obrador who succeeded him as Mexico City mayor in 2006, has aired concerns that rivals such as Sheinbaum with domestic political mandates have an advantage, and that all contenders should therefore give up their office.

Those concerns have fed the impression that Ebrard might leave MORENA for another party, which the president is eager to avoid, said Andres Rozental, a former deputy foreign minister.

Ebrard has dismissed talk he could leave MORENA.

"The most important thing for Lopez Obrador right now is to keep his movement united and alive," Rozental said.

As recently as Monday, Sheinbaum was saying she had no intention of stepping down before the MORENA selection process had concluded. She was unaware what the president would propose that very evening, according to one of the party sources.

Her office had no immediate comment.

Having to resign would take away Sheinbaum's main platform, working to Ebrard's advantage, Rozental said.

But he still expected her to prevail in the end - and for the president's exhortations for the contenders to play by MORENA's rules, and remain civil, to be obeyed.

Not to do so, he said, would be "almost suicidal."

Source: Reuters

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Warren Takunda

Cryptocurrency

In a stunning revelation that has sent shockwaves through the cryptocurrency community, Binance, one of the world's largest cryptocurrency exchanges, has come under fire for its alleged involvement in a money trail totaling a staggering $70 billion. According to a recent article published by Gulf News, Binance and related entities are believed to have shuttled this vast sum of money through accounts at now-defunct Silvergate Bank and Signature Bank from 2019 until present¹.

The Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, citing "blatant disregard" for US securities laws, which include allegations of mishandling customer funds and misleading investors and regulators¹. These allegations pose a significant threat to the reputation and operations of Binance, a platform that has played a pivotal role in the global cryptocurrency market.

Silvergate Bank, once a prominent financial institution catering to cryptocurrency users, met an unfortunate demise earlier this year. The collapse of Silvergate Bank in March 2023 was precipitated by a sharp decline in cryptocurrency prices and the bankruptcy of FTX, another major player in the digital asset space²⁵. Signature Bank, headquartered in New York, is another institution that has served crypto clients, and it appears to have been involved in facilitating the substantial money transfers connected to Binance¹.

The revelation of this colossal money trail has raised concerns about the transparency and compliance practices within the cryptocurrency industry. With the SEC's lawsuit against Binance, regulatory bodies are likely to intensify their scrutiny of exchanges and platforms, aiming to ensure investor protection and maintain the integrity of the financial markets.

The $70 billion figure underscores the scale and magnitude of Binance's operations, as well as the potential risks associated with the unregulated nature of the cryptocurrency ecosystem. The ease with which such substantial amounts of money were transferred raises questions about the effectiveness of existing anti-money laundering (AML) and Know Your Customer (KYC) protocols within the industry.

While Binance has yet to issue an official statement regarding the allegations made by the SEC, the outcome of this legal battle could have far-reaching implications for the exchange and the broader cryptocurrency market. Investors and users are likely to closely monitor the proceedings, as the outcome may impact their trust in Binance and other similar platforms.

As the cryptocurrency market continues to evolve and gain mainstream recognition, regulatory authorities worldwide face the challenge of striking the right balance between fostering innovation and protecting investors. The Binance case represents a crucial test for regulators to demonstrate their ability to maintain fair and transparent markets within this rapidly expanding industry.

It remains to be seen how Binance will navigate through these troubled waters. However, this latest development serves as a stark reminder of the need for greater regulatory oversight and scrutiny in the cryptocurrency space to safeguard the interests of all stakeholders involved.

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Alex

Economic

Wealth increase led by equity market gains

The value of assets held by U.S. households increased by $3.05tn in the first three months of the year, taking the total assets held by the household sector to $168.5tn. Liabilities rose just $23bn to $19.6tn, leaving net household worth at $148.8tn. Rising equity markets was the main factor leading to the increase, but holdings of debt securities increased $893bn. These factors more than offset the $617bn drop in household wealth in real estate and the $415bn decline in cash, checking and time savings deposits held by U.S. households.

Excess savings are dropping

We have to remember that March saw the collapse of Silicon Valley Bank and Signature Bank with deposit flight hitting many of the small and regional banking groups. We have subsequently seen this situation stabilize although some money that would typically be left in banks has been switched to money market funds. Nonetheless, we do appear to be seeing much of the excess saving built up during the pandemic via stimulus payments and extended and uprated unemployment benefits being eroded – it is now "only" around 1.8tn above where we would expect it to be based on long run trends. This is especially the case now that households have an apparent appetite to spend, particularly on services. U.S. Household Wealth Rose $3tn in the First Quarter_2

U.S. Household Wealth Rose $3tn in the First Quarter_2

Household balance sheets in a good position to help limit the downside from a recession

After the most rapid and aggressive period of interest rate hikes seen in over 40 years plus the tightening of lending conditions currently being experienced in the U.S., recession fears are mounting. Households will play a huge role in how prolonged and deep any downturn will be given consumer spending accounts for more than two-thirds of economic activity in the United States.

U.S. Household Wealth Rose $3tn in the First Quarter_3

Household assets are 860% of disposable income while liabilities are 'just" 100% of disposable incomes. While this is down on the peak seen in 1Q 2022 and there are questions over wealth concentration, this is a much better position than any previous recessionary environment and means that the consumer sector should be better able to withstand intensifying economic headwinds. Consequently, we remain hopeful that a likely 2023 recession will be modest and short-lived assuming a swift easing of monetary policy from the Federal Reserve.

Source: ING

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FastBull Featured

Daily News

[Quick Facts]

1. U.S. initial jobless claims hit a 1-1/2 high last week.

2. Britain and the U.S. reach a number of agreements but failed to secure a free trade deal.

3. Inflation drags the Eurozone into recession.

4. A "soft landing" is possible now.

5. Canada's recent rate hikes have triggered chain reactions.

[News Details]

U.S. initial jobless claims hit a 1-1/2 high last week

The U.S. Labor Department announced on Thursday that initial jobless claims surged by 28,000 last week to a seasonally adjusted 261,000, the highest level in more than a year and a half. It was driven mainly by increases in Ohio, Minnesota, and California. Continuing jobless claims, a hiring barometer, fell by 37,000 to 1,757,000, the lowest level since February.

But layoffs are probably not accelerating as the data covered the Memorial Day holiday, which could have injected some volatility.

The jump in claims could be a sign that layoffs are picking up. But given that claims fluctuate from week to week, it's too early to draw that conclusion.

Britain and the U.S. reach a number of agreements, but failed to secure a free trade deal

British Prime Minister Rishi Sunak left Washington at the end of a two-day visit to the United States. U.S. President Joe Biden backed Sunak's efforts on artificial intelligence and signed a deal with him for closer economic cooperation to support green industries and supply chains. The two leaders agreed to begin work on a deal that could eventually enable British manufacturers to receive the substantial U.S. subsidies and tax breaks contained in Biden's signature Inflation Reduction Act. The two countries also agreed to recognize each other's data protection regimes. However, the U.S. and U.K. are still far from reaching a comprehensive free trade deal.

Inflation drags the Eurozone into recession

The Eurozone economy fell into recession earlier this year due to high energy and food prices after the Russia-Ukraine conflict, which hit household spending. Eurostat had predicted that the Eurozone economy would grow slightly in the first quarter, but the sharp changes in German and Irish data sent the Eurozone economy into contraction. This also made the region's output shrink for two consecutive quarters, in line with the official definition of recession. Economists expect the economy to return to growth in the three months to June as lower energy prices ease pressure on household budgets, but any rebound is likely to be tepid. While energy prices have returned to normal from their 2022 peak, food prices continue to rise rapidly, which in turn has weakened household spending on other goods and services.

A "soft landing" is possible now

As the first half of 2023 comes to a close, the widely predicted U.S. recession is still not in sight. The consumer sector, which has driven the U.S. economy's remarkable recovery from the pandemic, however, may have shown signs of weakness.

For now, the signals economists use to judge a possible recession are conflicting. The yield curve remains heavily inverted, and manufacturing surveys have been signaling recession for months. But so far, layoffs concentrated in the technology sector have not spread widely, and consumer sectors such as travel appear to be booming.

As the market expects the Federal Reserve will not raise interest rates at its June meeting, it's again possible for the U.S. economy to achieve a so-called "soft landing." On Tuesday, Goldman Sachs reduced the likelihood of a U.S. recession to 25% in the next 12 months.

Canada's recent rate hikes have triggered chain reactions

The Bank of Canada was the first central bank among the G7 to stop raising rates in March, but it had no choice but to restart rate hikes again. On June 7, local time, the Bank of Canada unexpectedly raised interest rates by 25 basis points. The Bank did not publish forward guidance on interest rates, suggesting that there is disagreement within the central bank over rate hikes.

The Bank of Canada's unexpected rate hike triggered chain reactions. The market is more convinced that the Fed's rate hike cycle has not yet ended. Even if the Fed suspended rate hikes in June, it may also restart hiking rates in July.

It is important to note that the Bank of Canada was not the only one to unexpectedly raise rates this week. At a time when inflation is well above target and labor costs are soaring, the Reserve Bank of Australia also "unexpectedly" raised its key interest rate and is open to further rate hikes.

[Focus of the Day]

UTC+8 18:45 ECB Governing Council member Hernandez de Cos speaks

UTC+8 20:30 Canada Unemployment Rate (SA) (May)

UTC+8 00:00 ECB Governing Council member Centeno speaks

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Economic

In a surprising turn of events, the Eurozone economy has entered a small technical recession, with the GDP growth rate shrinking by 0.1% in the first quarter of 2023. This contraction comes as a stark contrast to the initial estimates of a modest 0.1% rise, revealing a worrisome downward trend in the region's economic performance. Furthermore, the figures for the final quarter of 2022 were revised to show a 0.1% fall instead of a previously reported flat reading, exacerbating concerns about the Euro Area's economic stability.

Several factors contributed to the recessionary pressures witnessed in the Eurozone during Q1 2023. Notably, household expenditure experienced a decline of 0.3%, marking a slight improvement from the 1% drop witnessed in Q4 2022. This reduction can be attributed to the impact of high inflation and borrowing costs, which weighed heavily on consumer spending. In addition, public spending saw a significant decline of 1.6% compared to the previously reported increase of 0.8%. Governments in the region rolled back stimulus measures that were initially intended to partially offset the adverse effects of rising energy costs.

However, it's worth noting that not all components of the Eurozone economy experienced negative growth. Gross fixed capital formation rebounded with a 0.6% increase, providing a glimmer of hope amidst the overall economic downturn. Moreover, the export sector recorded a minor decline of 0.1%, while imports fell by a larger margin of 1.3%. These dynamics suggest a possible adjustment in trade flows, which could have implications for the Eurozone's economic recovery.

Examining the performance of the bloc's major economies, Germany and the Netherlands faced significant contractions in their GDP. Germany, the Euro Area's largest economy, saw its GDP shrink by 0.3%, while the Netherlands experienced an even steeper decline of 0.7%. On the other hand, France managed to achieve a modest expansion of 0.2%, offering some respite amidst the overall economic downturn. Italy and Spain also recorded positive growth rates, with Italy experiencing a 0.6% increase and Spain posting a 0.5% expansion.

The Euro Area's descent into a technical recession raises concerns about the region's economic prospects. It underscores the challenges posed by factors such as high inflation, borrowing costs, and rising energy expenses. Governments' decision to scale back stimulus measures further adds to the complexity of the situation. As the Eurozone grapples with these economic headwinds, policymakers and central banks will likely need to adopt measures to stimulate growth, mitigate inflationary pressures, and foster stability in the financial markets.

The Eurozone's economic performance in the coming months will be closely monitored by market analysts and policymakers alike. Efforts to reignite growth and address the underlying structural issues will play a crucial role in determining the region's ability to navigate through this challenging period.

To stay updated on all economic events of today, please check out our Economic calendar

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Thomas

Stocks

A big dollar fall, historically low volatility, lower bond yields, and Wall Street on the march with the S&P 500 joining the Nasdaq in bull market territory - Thursday's global market moves augur well for a strong end to the week in Asia on Friday.

Any optimism could be punctured, however, by inflation data from China. If they are in line with other indicators lately that show Asia's biggest economy is sputtering, China's stocks, bonds and currency may come under renewed heavy pressure.

China Inflation Could Spoil the Weekend Party_1

Consumer prices are expected to decline 0.1% in May and rise 0.3% year on year. April's CPI report showed inflation virtually evaporated, highlighting Beijing's challenge to stimulate enough economic activity and growth to kill the threat of deflation.

It is proving to be a major headache - outright producer price deflation is expected to have intensified in May, with the annual rate of price falls accelerating to 4.3%, according to a Reuters poll. That would be the fastest rate of PPI decline since March 2016.

China Inflation Could Spoil the Weekend Party_2

China's yuan has been sliding to fresh 2023 lows nearly every day for the past three weeks and the main stock indexes have followed a similar pattern, but it's a different story elsewhere.

Revised figures on Thursday showed Japan's economy grew much faster than initially thought over the January-March period, as a post-pandemic pickup in domestic spending and company restocking offset the hit to exports from slowing global demand.

The Japanese yen rallied strongly, also propelled further by a soft U.S. employment indicator to its best day in a month. The weak jobless claims figures torpedoed the dollar more broadly, sank Treasury yields, and cooled Fed rate hike expectations.

China Inflation Could Spoil the Weekend Party_3

This is usually a healthy mix for risk appetite, and so it proved on Thursday. Both the MSCI World index and MSCI Asia ex-Japan indices are course for their second consecutive weekly rise, something neither has managed since March, and Wall Street jumped.

Remarkably, the main measure of U.S. stock market volatility is at a pre-pandemic low, and implied global FX volatility is its lowest in over a year too. That should give Asian markets the platform for a positive day on Friday.

Here are three key developments that could provide more direction to markets on Friday:

- China CPI inflation (May)

- China PPI inflation (May)

- South Korea current account (April)

Source: Yahoo

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Warren Takunda

Traders' Opinions

In a recent move that showcases confidence in Coinbase Global Inc. despite ongoing regulatory challenges, Cathie Wood's funds have reportedly boosted their holdings of the cryptocurrency exchange's shares. This development comes on the heels of the Securities and Exchange Commission's (SEC) accusations against Coinbase and Binance Holdings Ltd., alleging the operation of unlawful exchanges¹.

As reported by Bloomberg¹, Cathie Wood's investment firm held over 11.7 million Coinbase shares, equivalent to 6.3% of the total outstanding shares, as of March 31. Wood's decision to increase her stake in Coinbase even as the SEC intensifies its scrutiny reflects her belief in the long-term potential of the company.

Coinbase, one of the most prominent cryptocurrency exchanges globally, has faced growing regulatory scrutiny as authorities seek to address potential risks and ensure investor protection within the crypto market. The recent accusations by the SEC have sent shockwaves through the industry, as major players like Coinbase and Binance find themselves in the regulatory crosshairs.

Responding to the SEC's allegations, Coinbase has taken a bold stance, expressing its willingness to pursue legal avenues, even up to the Supreme Court¹. This indicates the company's commitment to defending its position and seeking clarity regarding the legal framework within which it operates.

Cathie Wood's decision to bolster her holdings in Coinbase amidst these challenges adds weight to the belief that the company can navigate the regulatory landscape successfully. Wood's investment firm, known for its focus on disruptive technologies and innovation, has gained considerable attention due to her successful bets on companies like Tesla and Square.

The actions of prominent investors such as Cathie Wood often signal their confidence in the future prospects of a company. By increasing her stake in Coinbase, Wood is displaying her conviction that the ongoing regulatory issues will eventually be resolved and that Coinbase can continue to grow and provide value to its shareholders.

The SEC's widening crypto crackdown, which now encompasses both Coinbase and Binance, underscores the importance of regulatory compliance within the rapidly evolving cryptocurrency ecosystem. Market participants are closely watching how these regulatory challenges unfold and how they may impact the future of the industry.

As the legal battle between Coinbase and the SEC continues, the outcome will have far-reaching implications for the broader crypto market. Investors, industry stakeholders, and enthusiasts will be eagerly awaiting further developments, looking for signs of regulatory clarity and the potential impact on the overall adoption and acceptance of cryptocurrencies.

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