Fed warns of rising risky asset prices, as stocks and bitcoin hit record highs – trade live

Good morning, and welcome to our rolling coverage of the world economy, financial markets, eurozone and trade.

The spurt in risky asset prices this year has left them vulnerable to sharp falls if economic growth turns worse, the pandemic escalates, or investor confidence is lost.

This is the message from the US Federal Reserve, which is also concerned about the rise of stablecoins underpinning the cryptocurrency market.

In its latest Financial Stability Report, the Fed indicated that the prices of riskier assets have generally moved higher since its last report six months ago.

Despite concerns about the spread of the delta version of the virus that causes COVID-19, asset prices have supported growth expectations and lower Treasury yields, it says.

In a warning to the markets, he says:

The prices of riskier assets have generally increased since the last report, and, in some markets, prices are higher than expected cash flow. Home prices have risen sharply since May, with rents continuing to be outpaced by hikes. Yet, despite rising housing valuations, there is little evidence of deteriorating credit standards or highly leveraged investment activity in the housing market.

Asset prices remain vulnerable to significant declines if investor risk sentiment worsens, progress on depressing viruses slows, or economic recovery stalls.

But are investors heeding the message?

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

And bitcoin has set a new record this morning – reaching $68,550 for the first time ever, as the crypto asset continues to rise.

Critics say the Fed’s own policies have helped accelerate the rise in riskier assets.

It has kept interest rates at a record low since the start of the pandemic and pumped $120bn per month into the system through its bond-buying stimulus program, which it is just starting to take off.

Fed’s Financial Stability Report Reflects Concerns Over the Rise of Stablecoins [such as tether] Those who try to link their market value to some external reference, such as the US dollar.

Fed tells sector is bullish, and warns ‘some stablecoins are weak’

Policymakers are concerned about the consequences if a stablecoin cannot hold its value.

The value of outstanding stablecoins has increased nearly five-fold over the past 12 months to nearly $130 billion by October 2021.

Some stablecoins, including the largest, promise to be redeemable at any time at a fixed price in US dollars, but are partially backed by assets that may lose value or become liquid. If an asset backed by a stablecoin drops in value, the issuer may not be able to meet the redemption at the promised stable price.

Still coming today:

Rolls-Royce is moving forward with a multi-billion pound plan to roll out a new breed of mini nuclear reactors after securing more than £450m from the government and investors.

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

On the data front, the latest survey of US manufacturer prices This will show whether inflationary pressures are still building up in the US economy.

NS Call The Survey of Economic Confidence will show whether German investor confidence has improved after declining over the past four months.

Central bankers will be busy; bank of canada, bank of englandThe Board of Governors of the Federal Reserve System and the European Central Bank are holding a conference on Diversity and Inclusion in Economics, Finance and Central Banking.

work schedule

• 7am GMT: German trade data for September
• 10am GMT: ZEW Index of German Economic Sentiment
• 1pm GMT: ECB President Christine Lagarde said Fourth ECB Forum on Banking Supervision Forum: “Banking of Tomorrow: Navigating Change”
• 1.30pm GMT: US PPI index of producer prices released
• 2pm GMT: Fed Chair Jerome H. Powell delivers opening remarks Conference on Diversity and Inclusion in EconomicsFinance and Central Banking
• 3.30 pm: Bank of England deputy governor Ben Broadbent gives evidence to the EFRA committee: labor shortages in food and agriculture
• 4pm GMT: Bank of England Governor Andrew Bailey on a panel on “Central Banks and Inequality” at the Conference on Diversity and Inclusion in Economics, Finance and Central Banking