Central Banks Could Add Bitcoin to Reserves — Market Talk
1153 GMT - Bitcoin could feature alongside gold on central bank balance sheets by 2030, Deutsche Bank economists say in a note. "The case for bitcoin as a strategic reserve asset is strengthening," they say. The cryptocurrency is emerging as a more legitimized asset as its liquidity deepens and regulation matures, they say. The main argument against bitcoin is that it's too volatile for long-term value. However, volatility has fallen to historic lows, they say. Bitcoin offers diversification benefits as it's independent from governments. Like gold, it has scarce supply, low correlation to other asset classes and value as a hedge against inflation and geopolitical volatility. U.S.-led adoption could allow bitcoin to evolve from being a speculative investment, they say. ([email protected])1054 GMT - The political crisis in France could hurtmarket sentiment in Europe, Capital.com's Daniela Hathorn says in a note. France fell into a political stalemate after the Prime Minister Sebastien Lecornu resigned on Monday. "For now, spillovers to the broader euro area look contained, but sentiment will hinge on whether Macron opts for a technocratic or coalition premier or pursues snap elections," Hathorn says. ([email protected])1029 GMT - A hike in EU tariffs on imported steel is a major risk to the British steel industry, RSM UK analyst Emily Sawicz writes in a note. Brussels is set to slap 50% tariff on imports of the key metal above a certain level in a bid to protect the continent's ailing industry, The Wall Street Journal reported last week. That represents a major threat to British steelmakers, Sawicz says. The EU is the most important market for British steel, taking around 75% of total exports at a value of some 3 billion pounds, according to industry group U.K. Steel. "These tariffs risk cutting off access to the U.K.'s largest and most strategically important market at a time when the sector is already under pressure from global competition and rising energy costs," Sawicz says. ([email protected]; @joshualeokirby)1028 GMT - Japan's improving corporate governance has helped lift companies' profit margins since 2000, but the 4-5 percentage-point gap with U.S. firms is unlikely to close, Capital Economics' Marcel Thieliant says in a note. Adjusted profit margins have risen to around 6%, driven by the Tokyo Stock Exchange's tighter listing standards. However, performance-linked pay, majority-independent boards, and greater female board representation remain uncommon. Thieliant estimates that even with optimal governance, profit margins would rise by only 1.5-2 percentage points, with even less of an improvement in return on equity. That suggests Japan's profitability gap with the U.S. will persist, with Japanese companies' ROE staying well below their U.S. peers. ([email protected])1021 GMT - The desynchronisation of the global economy is leading to divergences in monetary policy direction and bond performance, broadening diversification opportunities across Asian and European countries, BlackRock says in a quarterly outlook. But these regions are not monolithic, and with no single market able to rival U.S. fixed income in size and liquidity, "the trick is turning several small wins in these regions into bigger wins," the asset manager says. Conversely, non-U.S. investors are increasingly realizing that the U.S. is simply too big a market, and a core allocation that is not replaceable, BlackRock says. "Managing diversification in a period of desynchronization could be regarded as a common goal for all investors, regardless of where they are in the world." ([email protected])1018 GMT - The cost of insuring French bank bonds against default remains elevated as France's political crisis intensifies. Financial markets are placing a political risk premium on French assets due to lingering uncertainty following the resignation of Prime Minister Sebastien Lecornu, XTB's Kathleen Brooks says in a note. BNP Paribas's five-year credit default swap spreads climbed to an almost 5-month high of 48 basis points on Monday and remain at this level, S&P Global Market Intelligence data show. ([email protected])0957 GMT - The Bank of Japan is likely to raise its interest rates in December, TD Securities says, revising its earlier expectation for an October increase. Its strategists note that Etsuro Honda, a long-time adviser of new ruling party leader Sanae Takaichi, signaled in an interview that Takaichi's administration wouldn't be against further hikes but may need some time to implement their policies. "We expect the BOJ hawks...to be comfortable in waiting just a bit longer," they say. BOJ Gov. Kazuo Ueda is also likely to send a hawkish signal in October and lay the groundwork for a December rate increase to avoid surprising the markets, they add. ([email protected])0955 GMT - The euro could come under pressure in the near term if French parliamentary elections are called before year-end following Prime Minister Sebastien Lecornu's resignation, MUFG Bank analyst Lee Hardman says in a note. Elections would extend the period of political uncertainty, raising "downside risks" for the euro, he says. "It would make it less likely that the euro would rise to our year-end target of $1.2000 although we are not convinced parliamentary elections would be sufficient on their own to trigger a sustained reversal of the strengthening trend for the euro that has been in place for most of this year." The euro falls 0.4% to $1.1663. ([email protected])0951 GMT - The Philippines' latest inflation data could give the central bank scope to pause at its Thursday meeting after three back-to-back rate cuts, says UOB. The country posted a milder than expected inflation increase in September, write economists Julia Goh and Loke Siew Ting in a note. This should allow Bangko Sentral ng Pilipinas to evaluate the effect of prior monetary-policy actions on the domestic economy, as well as monitor external developments. UOB expects BSP to resume lowering the target reverse repurchase rate in December, cutting 25 bps to 4.75%. The rate will likely hold steady throughout 2026, UOB adds, thanks to a modest inflation outlook and prevailing downside risks to growth. ([email protected])0949 GMT - U.S. Treasury yields turn higher after declines earlier in the day. Any rises remain minimal, however, with barely any impact from the continuing U.S. government shutdown. "As for financial markets, the impact [of the shutdown] has been minimal," says Columbia Threadneedle Investments' Anthony Willis in a note. The current shutdown isn't related to the debt ceiling though it does delay key data releases. "This is particularly important because the Federal Reserve is currently navigating a very data-dependent environment," the senior economist says. The two-year Treasury yield is up 0.2 basis points at 3.598%, while the 10-year yield rises 0.6 basis points to 4.167%, according to Tradeweb. ([email protected])0924 GMT - France's fresh political crisis has provided some relief to sterling against the euro amid U.K. fiscal concerns, Convera strategist Antonio Ruggiero says in a note. French Prime Minister Sebastien Lecornu resigned Monday less than a month after being appointed, weakening the euro. This allows sterling to distance itself from the "well-worn" support level of 1.1450 euros that dominated the second half of September, he says. While spillovers from French political developments onto the euro should remain contained, the Bank of England's persistent restrictive policy stance is likely to limit any sterling falls ahead of November's U.K. autumn budget, he says. Sterling rises 0.1% to 1.1517 euros after reaching a two-and-a-half-week high of 1.1528 euros Monday, LSEG data show. ([email protected])0922 GMT - The cost of insuring French 5-year government bonds against default stays at a 5.5-month high as political uncertainty in the country continues. Monday's resignation of French Prime Minister Sebastien Lecornu "reopened fears around the country's debt trajectory," Deutsche Bank Research strategists say in a note. French 5-year credit default swap spreads climbed to a 5.5-month high of 41 basis points on Monday and remain at that level, S&P Global Market Intelligence data show. ([email protected])