Prior -8.3% Market index 351.8 vs 343.1 prior Purchase index 244.4 vs 234.7 prior Refinancing index 932.3 vs 930.7 prior 30-year mortgage rate 5.36% vs 5.37% prior Mortgage activity in the US saw a bit of a rise in the past week but it doesn’t take away from the sharp declining trend amid the surge in rates since the turn of the year. The 30-year mortgage rate is seen moderating as yields also stall somewhat ahead of the Fed but alongside higher house prices in general, this still sends some mixed signals about the housing market. US dollar

Thinks that inflation will come back down but have to be vigilantDeterioration in consumer climate could weigh on economyA strong franc helps against inflation, helps to reduce the price of importsDespite rising market interest rates, we remain in a world of very accommodative financial conditionsIt’s not exactly a shift in thinking in the SNB. Maechler is just mainly alluding to the fact that the franc has remained ’strong‘ and inadvertently that is helping the Swiss economy guard against inflation pressures.

There’s only one notable expiry on the board for today, as highlighted in bold.But even then, the one for EUR/USD at 1.0600 should not be of much significance in all honesty. It is all about the Fed today and price action in the lead up to the main event is likely to stay more subdued overall. As such, the expiry should roll off without a hitch and without much interest considering the nature of today’s market.For more information on how to use this data, you may refer to this post here.

Prior +0.3%; revised to +0.4%
Retail sales +0.8% vs +1.4% y/y expected
Prior +5.0%; revised to +5.2%

Euro area retail sales fell by more than expected in March as price pressures start to bite at consumption activity in the region. Looking at the details, the volume of retail trade decreased by 2.9% on the month for
automotive fuels, and by 1.2% for non-food products, while it increased by 0.8% for food, drinks and tobacco.

The ‚zero COVID‘ policy continues in China. We’ll see how much more they can tolerate this but as mentioned earlier in the week:“At this point, one has to wonder if China will ever draw the line on the economic costs of its current ‚zero COVID‘ policy. But considering its sense of pride and ego, it may not be until when the infection becomes much more endemic to the global audience. Otherwise, it would look as though that Xi’s strategy has failed and that is something which he surely will not allow.For markets, that just means more disruptions to supply chains in general and the reverberations of higher costs and inflation in terms of raw materials and shipping will continue to play out for a more prolonged period.“

Today, investing in
stocks via computer or smartphone has become mainstream. But in the past, when stock investments were not entirely digitized,
companies needed to issue paper-based stock certificates to provide their
shareholders evidence of their stock ownerships. 

 

Stock Certificates Explained

 

Stock certificates are
proof of ownership of shares provided by the issuing company to its
shareholders. Before the internet and electronic trading platforms, investors
had to buy and sell shares in person or through their brokers.

 

Trading commissions
back in the day were pretty expensive, and once the stock purchase is complete,
the investor receives a stock certificate that contains important details,
including:

·      Shareholder’s name

·      Number of shares owned

·      Type of Stock

·      Date of purchase

·      The Committee on
Uniform Securities Identification Procedures (CUSIP) number

·      Signature of the
individual authorized to issue the certificate

·      Corporate seal

 

Prior to digitizing
transaction records, investors only had stock certificates as evidence of
owning shares of stock. If they were looking to sell the shares, they first
needed to show these paper-based documents to a broker. The broker would then
return the certificates to the issuing company for sale.

 

Stock Certificates in
the Present Day

 

Today, stock
certificates are not as common as they were many years ago. They now even have
significant costs to delay or cancel a request. In addition, as the investing
and trading space transforms digitally, many companies are slowly putting an
end to issuing stock certificates.

 

It is still possible to
own a stock certificate in some cases, although you need to do two things.
First, find a company that still provides stock certificates. Second, find out
whether the advantages and disadvantages of having a stock certificate would
work for your needs.

 

As for the issuing
company, they are two ways they obtain this type of paper document: With the
broker you bought the shares from or directly through the transfer agent.

Brokers: Brokers keep records
of all the purchases necessary to secure a stock certificate on their clients’
behalf. You can contact the broker via the customer service department and
inquire about the process you need to go through to exchange your electronic
shares for paper-based stock certificates.

 

Transfer Agents: Transfer agents allow
you to obtain stock certificates directly. You can find a transfer agent’s
contact information on the investor relations section of the company’s website
or by contacting the investor relations department.

 

Once you have the
transfer agent’s contact details, you can get in touch with them to learn the
process and costs of converting your electronic shares to paper stock
certificates.  

 

Found an Old Stock
Certificate, What to Do?

 

Old stock certificates
may either still be valuable or have value as collectibles. First, check
whether the company on the certificate is still operating. If it is, you can
reach out to the investor relations department to ask about the stock
certificate’s validity and value.

 

Keep in mind that there
is a high possibility that paper stock certificates have been converted to
digital shares.

 

If you’re having a
tough time finding the company, you can ask your online broker for help. Your
broker can try looking for the company with CUSIP, as it is related to the share’s
genetic code and has all the information on a trade.

 

Perhaps online brokers
provide such a service because they expect their clients to transfer the assets
in their brokerage accounts.

 

If the stock
certificate has no value anymore, the issuing company might consider buying it
as a collectible, a practice known as scripophily.

The Fed is stealing the spotlight but let’s not forget that the BOE is another major central bank that will be announcing its policy decision this week. In case you missed their previous decision in March:

BOE raises bank rate by 25 bps from 0.50% to 0.75%
Sterling falls as traders sense BOE hesitancy

In some sense, the lack of firm conviction in tightening more aggressively has contributed to the pound’s recent demise (alongside a surging US dollar) with GBP/USD having sunk from 1.3200 all the way to test 1.2500 in the past few sessions.
At this stage, the BOE needs to hike the bank rate by another 25 bps to 1.00% purely out of credibility. As much as policymakers are seemingly hesitant to commit to much more or be even more aggressive, they can’t ignore the sort of ideals that they have vouched for to begin this tightening cycle.
The BOE was one of the early adopters in justifying that rate hikes are needed to combat inflation and since then, there hasn’t been much let up in price pressures to dissuade them of that view. Instead, it is the economy and the cost-of-living crisis that is putting them between a rock and a hard place now, considering that rate hikes won’t do much to resolve the inflation issue.
It will be interesting to see how they balance that out and if they will be one of the first central banks to advocate for rate hikes and then back away as quickly as you can say ‚transitory‘. I mean that may very well be the case for higher rates at the end of the day. Talk about irony.

While an initial public
offering (IPO) is the most common way to take
a company public, other options exist for making a firm’s shares available
to the public markets. One of those is through a reverse takeover (RTO) or
reverse merger.   

 

Reverse Takeover
Explained

 

An RTO or reverse
merger is a process where a private company goes public by acquiring a
publicly-held shell business. The acquisition makes the owners of the private
firm the controlling shareholders of the existing public business.

 

Upon completing the
transaction, the owners absorb the once private entity through reorganization
of the public company’s assets and operations. In other words, the private
company is restructured or eliminated, making the already public shell business
the sole entity.

 

Reverse Takeover and
Initial Public Offering

 

Many companies decide
to make a public listing, so they can sell their shares to the overall
investing community to become more well-known and tap on financial sources that
were previously inaccessible to them as a private business.

 

That is where an IPO
usually comes in. However, this approach can be complicated and time-consuming
and often requires assistance from investment banks in underwriting the
agreement and issuing shares.

 

Moreover, the IPO
involves broad due diligence, a great deal of paperwork, and regulatory
assessments. And once that is all done, there are poor market situations that
are out of the company’s hands to consider since such unfavorable conditions
can get in the way of a successful IPO.

 

But in an RTO, private
companies don’t need to undergo such a comprehensive process, which allows them
to go public more quickly than they can with the traditional IPO route.

 

That is a huge help for
private entities that cannot perform an official IPO. Plus, they can take
themselves public through reverse mergers with a relatively small amount of
money.

 

How a Reverse Takeover Works

 

Many publicly-listed
companies‘ ongoing operations or assets, which usually trade over-the-counter
(OTC), can be quite few or sometimes none at all. Such entities are referred to
as shell companies, and they are the ones commonly used for RTOs.

To conduct a reverse
merger, owners of the public firm must first purchase approximately 51% of the
shell company’s shares.

 

Once they have a
majority stake, they exchange the private entity’s shares for the public shell
company’s existing or new shares. The private company then becomes the shell
company’s wholly-owned subsidiary.

 

Unlike an IPO, reverse
mergers allow companies to go public without generating new capital, making the
process easier and faster to complete. It also eliminates the need to raise
publicity and capture institutional or retail investors‘ interests.

 

The Major Risk of a
Reverse Takeover

 

Considering the
regulatory oversight and number of investors are less in an RTO, this method
can carry fraud and compliance risks.

 

That is why a reverse
merger needs more due diligence than a conventional IPO. Additionally, RTOs
tend to fail because many of the companies that take this route only do so when
they can’t raise funds in private markets and don’t have sufficient publicity
to conduct an IPO.

 

The Securities and
Exchange Commission (SEC) has indicated the fraud risks of some RTOs, saying
public firms that were a product of an RTO can collapse or otherwise have a
hard time staying attractive and valuable.

 

Despite that, several
companies still try to perform a reverse
merger. The method could work best for companies that are not in a rush to
raise new capital and have enough profits to counter the costs of being
publicly listed.

There isn’t anything significant on the board rolling off for today, with little interest being shown ahead of the Fed tomorrow.Depending on the outcome of the FOMC meeting and the market reaction, we might see the larger expiries on Thursday and Friday coming into play. For now, the lack of conviction and appetite will carry through until we get to the main event on Wednesday.For more information on how to use this data, you may refer to this post here.

Forex traders pay close attention to monetary policy because interest
rates play a pivotal role in the fluctuations of currency pairs.

The policy rate sets the tone for the bond rates. And the relative attractiveness
of bonds is what drives investors to buy or sell given currencies. Generally,
the higher the relative bond yields in a currency, then the stronger the
currency will be.

That has been a very simplistic description of conventional wisdom. But
in the post-pandemic world, that could be changing.

That said, trading strategies may need to be modified to suit the new
reality. It could explain why some trading strategies aren’t as effective. So,
let’s go over why this is happening, and whether we are looking at a new
normal.

It’s not just the interest rate

Most economies in the world spent a lot of money dealing with the
effects of the pandemic, expanding the monetary base. But they didn’t all do it
in the same way, or in the same amount.

So, while inflation around the globe is generally rising in part due to
fiscal policy, it’s not the same in every country. And the means to deal with
that aren’t necessarily the same, either.

The classic way that central banks reduce liquidity is by raising interest
rates, making borrowing money more expensive.

Money in the modern world is essentially created through debt issuance.
Therefore, if debt is more expensive, then less people will take out loans, and
there will be less circulation. That’s the theory.

But central banks aren’t always right. Case in point, the current
inflation situation, where we are well into month 10 of „transitory“
high inflation.

So, why the disconnect

During the pandemic, interest rates were low, so a lot of companies
took advantage to issue debt.

Sure, there were many firms who went into the pandemic with high leverage
and had to reduce their debt holdings (or simply went bankrupt). Nevertheless,
the total amount of corporate debt increased substantially over the last couple
of years.

Now, the companies that needed money have all stocked up on debt. And
with interest rates rising, they are less inclined to borrow more. Meanwhile,
central banks have been snapping up corporate debt, particularly in Europe, but
not so much in the US.

In the US, the Federal government issued a lot of short-term debt as it
faced down a debt ceiling towards the end of the pandemic. It now must roll
over that debt as interest rates are rising.

It’s supply and demand

On a basic level, prices are determined by supply and demand. With less
corporate issuance, then corporations could demand better terms (that is, lower
interest rates).

However, central banks are pushing to raise rates, meaning that better
terms are not available. So, interest rates are rising, but not
„organically“.

In other words, bond yields aren’t reflecting the market so much as
they are reflecting a push by regulators. And that distortion can have some
unexpected effects down the line, which is where forex comes in.

Central banks regulate interest rates by buying up bonds or selling
bonds. Therefore, if central banks want higher rates, they have to withdraw
capital from the bond market. That is, stack the table in favor of bond buyers.
Those are the people with cash, who hunt around for the best bond yields where
they can park their money.

Figuring out the market forces
gap

It’s natural for capital to flow toward higher interest rates, which
means buying that currency and pushing it higher. That’s normally how forex and
bond yields are connected. But that assumes that interest rates will stay
higher.

Right now, the consensus is that central banks are raising rates to
deal with inflation. Once that’s achieved, then rates would likely moderate. That
said, near-term rates could go higher than longer-term rates (the infamous
„curve inversion“).

When the disconnect happens

Investors generally move their funds based on where interest rates are
expected to be, not necessarily where they are. So even if rates are rising at
the moment, the potential for a retracement in yields in the near term as
central banks moderate their tightening and turn to a more neutral stance,
could be the driving force between currencies.

Thus, it isn’t surprising to see some headlines about how a particular
currency didn’t get stronger despite rising yields. The issue might be that
investors don’t think those higher yields are sustainable. Particularly as more
analysts start hinting that a new recession is coming, and central banks will be
forced to cut rates.