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Minutes of the Federal Open Market Committee, June 14-15, 2022
July 6, 2022--Developments in Financial Markets and Open Market Operations
The manager of the System Open Market Account (SOMA) turned first to a discussion of financial developments.
Over the intermeeting period, there were significant swings in asset prices, and financial conditions tightened, on net, as market participants assessed incoming information about the economy.
In the United States, near-term policy rate expectations shifted markedly toward the end of the period, particularly after the release of the May consumer price index (CPI) report. Ahead of the release of the report, market expectations reflected a broad consensus that there would be 50 basis point rate increases at both the June and July FOMC meetings.
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Source: federalreserve.gov
CBO-H.R. 5910, Holding SPACs Accountable Act of 2021
July 6, 2022--Summary
H.R. 5910 would exclude all special purpose acquisition companies (SPACs) from safe harbor protections. (SPACs are companies without commercial operations that exist solely to raise capital through initial public offerings to later engage in mergers or acquisitions.)
Under current law, most public companies are shielded from liability by safe harbor protections when prospective information published by the company-such as projections of revenues, income, and earnings per share-proves to be false or misleading. Currently, only SPACs that issue penny stocks, equity securities that trade for less than $5 per share, are excluded from those protections.
CBO estimates implementing the bill would cost the Securities and Exchange Commission (SEC) less than $500,000.
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Source: Congressional Budget Office (CBO)
Global X ETFs Expands its Lineup of Options-Based Strategies with Two Innovative Actively Managed Funds
July 6, 2022--Global X ETFs, the New York-based provider of exchange-traded funds (ETFs), today announced the launch of the Global X Interest Rate Hedge ETF (IRHG) and the Global X Interest Rate Volatility & Inflation Hedge ETF (IRVH). These two funds represent Global X's latest additions to its options-based ETF suite, which now includes 14 funds totaling over $9.7 billion in assets under management.[i]
Currently, inflation seems to be spreading across the entire supply chain, from components and commodities, all the way to end consumer products. With a tight labor market, high energy prices, supply chain issues and a strong consumer, elevated levels of inflation are unlikely to dissipate in the near-term. In response to this persistently high inflation, central banks are aggressively raising rates and rolling back bond buying programs. Rising interest rates are increasing costs for companies globally and putting pressure on the broader markets
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Source: Global X Management Company LLC
Fidelity to open direct indexing to the masses
July 5, 2022--Once limited to wealthy investors, the offering requires users to invest just $1 in each stock
Asset manager Fidelity plans to roll out a direct indexing tool in the US that will require investment of as little as $1 per stock, in a significant move to open up the concept to small investors.
The direct indexing concept, which allows investors to create bespoke portfolios tailored to their personal preferences, is widely seen as a long-term threat to traditional pooled vehicles such as mutual and exchange traded funds.
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Source: ft.com
If the U.S. Is in a Recession, It's a Very Strange One
July 4, 2022--Economic output is down but the job market is strong, unlike in previous recessions
The U.S. economy has experienced 12 recessions since World War II, and each one included two features: Economic output contracted and unemployment rose.
Today, something highly unusual is happening
Economic output fell in the first quarter and signs suggest it did so again in the second. Yet the job market showed little sign of faltering during the first half of the year. The jobless rate fell from 4% last December to 3.6% in May.
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Source: wsj.com
IMF Working Paper-From Polluting to Green Jobs: A Seamless Transition in the U.S.?
July 1, 2022--Summary:
What are the implications of the needed climate transition for the potential reallocation of the U.S. labor force? This paper dissects green and polluting jobs in the United States across local labor markets, industries and at the household-level. We find that geography alone is not a major impediment, but green jobs tend to be systematically different than those that are either neutral or in carbon-emitting industries.
Transitioning out of pollution-intensive jobs into green jobs may thus pose some challenges. However, there is a wage premium for green-intensive jobs which should encourage such transitions. To gain further insights into the impending green transition, this paper also studies the impact of the Clean Air Act. We find that the imposition of the Act caused workers to shift from pollution-intensive to greener industries, but overall employment was not affected.
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Source: imf.org
Existential Crisis in Bonds Fuels Wall Street's Income ETF Boom
July 1, 2022--Wave of payout-focused ETFs on way as bond volatility builds
Skeptics warn new funds simply increase equity-risk exposure
In an inflation-lashed world where bonds are posting record losses, Wall Street issuers are betting investors hungry for income will instead lavish their millions on ETFs that ride stocks in order to deliver payouts.
At least four issuers have filed plans for so-called income exchange-traded funds in the past few weeks, while three more such products have started trading in the same period. The vehicles target a steady stream of income using a range of equity-based strategies, like buying dividend-paying companies or selling call options on the S&P 500.
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Source: bloomberg.com
BondBloxx Launches Duration-Focused Emerging Market Fund in Response to Rising Interest Rates
June 30, 2022--BondBloxx Investment Management announced the launch of the BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD), which begins trading today on CBOE. The fund tracks the J.P. Morgan EMBI Global Diversified Liquid 1-10 Year Maturity Index and includes US-denominated fixed-rate and floating-rate instruments with at least $1B in outstanding debt issued by sovereign and quasi-sovereign entities in index-eligible countries.
"As a truly novel product with a compelling risk / return profile, we believe XEMD is a valuable addition to the marketplace because it enables emerging market exposure while simultaneously addressing creeping duration risk1," said Paul Van Gilder, Investment Officer and Portfolio Manager, Municipal Employees' Retirement System (MERS) of Michigan. "As rates continue to rise, we think these kinds of tools will become even more critical."
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Source: BondBloxx
Inflation Protection ETF "CPII" Launches from Ionic Capital Management(R) LLC and Tidal ETF Services
June 29, 2022--The fund seeks to generate positive returns during periods of elevated inflation and rising interest rates
With the most recent inflation print at a 40-year high, Ionic Capital Management LLC (Ionic) in partnership with Tidal ETF Services, LLC (Tidal) launches the Ionic Inflation Protection ETF (NYSE: CPII). The actively managed fund seeks to generate positive returns during periods of elevated and/or rising inflation and inflation expectations as well as during periods of increasing interest rates and fixed income volatility.
"While the world has been in a deflationary environment for the past few decades, it now appears that period has ended. We have shifted to an inflationary environment that will persist at elevated levels even if current readings ultimately prove to be peak levels. It is critical that institutional and retail investors find ways to mitigate the destructive elements of sustained elevated inflation," says Doug Fincher, Portfolio Manager at Ionic."Now is the time to seek protection from the destruction of purchasing power caused by inflation."
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Source: Ionic Capital Management
Grayscale Sues SEC Over Bitcoin ETF Application Rejection
June 29, 2022--The SEC rejected Grayscale's application to convert its Grayscale Bitcoin Trust to an exchange-traded fund earlier Wednesday.
Grayscale Investments has sued the U.S. Securities and Exchange Commission (SEC) barely an hour after the regulatory agency rejected its application to convert its flagship Grayscale Bitcoin Trust product to an exchange-traded fund (ETF).
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Source: coindesk.com
