Raphael Stevens

In a speech Wednesday, Cunliffe likened the rate of growth of the cryptoasset market, from $16 billion five years ago to $2.3 trillion today, to the $1.2 trillion subprime mortgage market in 2008.
Regulators around the world have begun work to establish a public policy framework through which to manage the exponential growth of cryptoassets, but Cunliffe said this must be pursued as a matter of urgency.

A passageway near the Bank of England (BOE) in the City of London, U.K., on Thursday, March 18, 2021.
Hollie Adams | Bloomberg | Getty Images

The Bank of England’s deputy governor for financial stability, Jon Cunliffe, has warned that cryptocurrencies could spark a global financial crisis unless tough regulations are introduced.
In a speech Wednesday, Cunliffe likened the rate of growth of the cryptoasset market, from $16 billion five years ago to $2.3 trillion today, to the $1.2 trillion subprime mortgage market in 2008.

“When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability authorities have to sit up and take notice,” he said.
Cunliffe acknowledged that governments and regulators must be careful not to overreact or classify new approaches as “dangerous” simply because they are different, and also noted that crypto technologies offer a prospect of “radical improvements” in financial services.
However, he contended that although financial stability risks remain limited for now, the current applications of cryptoassets pose a financial stability concern since the majority “have no intrinsic value and are vulnerable to major price corrections.”
Bitcoin and ethereum, the two largest cryptocurrencies, plunged more than 30% in value earlier this year before recovering, and have proven extremely volatile since their creation. Prices are susceptible to a variety of external triggers, from comments by Tesla CEO Elon Musk to regulatory crackdowns by the Chinese government.
“The crypto world is beginning to connect to the traditional financial system and we are seeing the emergence of leveraged players. And, crucially, this is happening in largely unregulated space,” Cunliffe said.

His comments echo those of Bank of England Governor Andrew Bailey in May, who cautioned that cryptocurrency investors should be prepared to lose all their money due to the assets’ lack of “intrinsic value.”

The U.K.’s Financial Conduct Authority has also warned of the risky nature of crypto investment.
Cunliffe said the risk to financial stability could grow rapidly if the market continues to expand at such a pace, but the scale of those risks will be determined by the speed of response by regulators and governments.
The price of bitcoin has fallen by 10% in a single day on almost 30 occasions in the past five years, he pointed out, the largest of which was a fall of nearly 40% after a cyber-incident at Seychelles-based bitcoin and cryptocurrency exchange BitMEX.
“The forward looking question is what could result from such events, if these cryptoassets continue to grow at scale, if they continue to become more integrated into the traditional financial sector and if investment strategies continue to become more complex?” Cunliffe said.
Central to whether major price corrections can be absorbed by the system, saddling some investors with painful losses but avoiding a knock-on impact on the real economy, depends primarily on interconnectedness and leverage, Cunliffe argued.

Both of these were present in the subprime mortgage market prior to 2008, enabling the knock-on effects that ultimately brought the global economy to its knees, and both are becoming increasingly prominent in the crypto space, Cunliffe suggested. He said it will be down to authorities to manage this increasing risk and ensure that the system is resilient to major corrections.
“Although crypto finance operates in novel ways, well-designed standards and regulation could and should enable risks to be managed in the crypto world as they are managed in the world of traditional finance,” Cunliffe said.
Many regulators around the world have begun work to establish a public policy framework through which to manage the exponential growth of cryptoassets, but Cunliffe said this must be pursued as a matter of urgency.
“Technology and innovation have driven improvement in finance throughout history. Crypto technology offers great opportunity. As [Ralph Waldo] Emerson said: ‘if you build a better mousetrap the world will beat a path to your door’,” he said.
“But it has to be a truly better mousetrap and not one that simply operates to lower standards — or to no standards at all.”

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U.K.-based payment processor SumUp has acquired U.S. marketing start-up Fivestars for $317 million.
SumUp, best known for its small credit card readers, has 3 million merchants signed up across Europe, the U.S. and Latin America.
The firm competes with Sweden’s iZettle, which was acquired by PayPal in 2018, as well as Jack Dorsey’s Square.

A customer uses a SumUp payment card reader in Lisbon, Portugal, on Sept. 13, 2019.
Angel Garcia | Bloomberg via Getty Images

LONDON — SumUp, a U.K.-based payment processor, has acquired marketing start-up Fivestars in a bid to expand its reach across the U.S. and take on giants like PayPal and Square.
The company said Thursday it was buying Fivestars for $317 million in a mix of cash and stock. San Francisco-headquartered Fivestars helps merchants set up rewards schemes and promotions for customers. The deal gives SumUp access to Fivestar’s 12,000 customers and $3 billion in sales per year.

Founded in 2012, SumUp is best known for its mobile credit card readers that let small businesses accept payments. The company also provides other payment tools, including the ability for merchants to set up their own online stores. It has over 3 million merchants signed up across Europe, the U.S. and Latin America.
SumUp competes with Sweden’s iZettle, which was acquired by PayPal in 2018, as well as Jack Dorsey’s Square. As the start-up plots an expansion in the U.S., rivalry with those big players is set to intensify. But SumUp thinks there’s enough room for a number of different companies to co-exist.
“I would say where we focus and excel is truly on the smallest merchants,” Andrew Helms, U.S. managing director at SumUp, told CNBC. “We’re not looking to go into enterprise, we’re not going more upstream.”
Helms said the U.S. market has seen a shift in spending patterns during the coronavirus pandemic, with payment options like non-physical transactions, invoicing and payment links seeing increased growth.
However, “we’re probably underestimating the shift back to in-store and brick and mortar” as Covid restrictions are lifted and people are meeting in-person again, he added.

Prior to the deal with SumUp, Fivestars had raised a total of $115 million and won backing from investors including Lightspeed Venture Partners and Menlo Ventures, according to Crunchbase.
SumUp, meanwhile, has raised a total of $1.4 billion in equity and debt financing since its inception. The company has been backed by the likes of Goldman Sachs, Singapore’s Temasek and Bain Capital.

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Elon Musk’s Tesla sold more than 200,000 electric cars in China during the first three quarters of the year, China Passenger Car Association data showed Wednesday.
On a monthly basis, the best-selling electric car in China in September remained the budget Hongguang Mini, a tiny vehicle developed by General Motors’ joint venture with Wuling Motors and state-owned SAIC Motor.
Sales of new energy vehicles in China have climbed amid Beijing’s support for the industry, while passenger car sales overall slumped for a fourth-straight month in September.

A Tesla salesperson (L) speaks to a visitor as they sit in a Tesla Model Y car at a Tesla showroom in Beijing on January 5, 2021.
Wang Zhao | AFP | Getty Images

BEIJING — Tesla took two of the top three spots for best-selling electric car models in China, industry data for the first three quarters of the year showed.
That’s well ahead of start-up rivals like Xpeng and Nio, according to data released by China Passenger Car Association on Wednesday.

Here’s the association’s list of the 15 best-selling new energy vehicles in China for the first three quarters of 2021:
1. Hongguang Mini (SAIC-GM-Wuling)2. Model 3 (Tesla)3. Model Y (Tesla)4. Han (BYD)5. Qin Plus DM-i (BYD)6. Li One (Li Auto)7. BenBen EV (Changan)8. Aion S (GAC Motor spin-off)9. eQ (Chery)10. Ora Black Cat (Great Wall Motor)11. P7 (Xpeng)12. Song DM (BYD)13. Nezha V (Hozon Auto)14. Clever (SAIC Roewe)15. Qin Plus EV (BYD)
Elon Musk’s automaker sold more than 200,000 electric cars in China during those three quarters — 92,933 Model Ys and 111,751 Model 3s, according to the passenger car association. 
China accounted for about one-fifth of Tesla’s revenue last year. The U.S.-based automaker began delivering its second China-made vehicle, the Model Y, early this year. The company also launched a cheaper version of the car in July.
Tesla’s shares are up nearly 15% so far this year, while the U.S.-listed shares of Nio are down more than 25% and Xpeng’s lost nearly 7% during that time.

On a monthly basis, the data showed the best-selling electric car in China in September remained the budget Hongguang Mini — a tiny vehicle developed by General Motors’ joint venture with Wuling Motors and state-owned SAIC Motor.
Tesla’s Model Y was the second best-selling electric car in China in September, followed by the older Tesla Model 3, the passenger car association data showed.
Sales of new energy vehicles — a category that includes hybrids and battery-only cars — climbed amid Beijing’s support for the industry. However, passenger car sales overall slumped year-on-year for a fourth-straight month in September.

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Chinese battery and electric car company BYD dominated the new energy vehicle best-sellers’ list in September, accounting for five of the top 15 cars sold, the passenger car association data showed.
Xpeng’s P7 sedan ranked 10th, while none of Nio’s models made the top 15 list. In fact, Nio hasn’t been on that monthly list since May, when the Nio ES6 ranked 15th.
Some in China’s auto industry have cast doubt on the accuracy of the association’s figures.

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Inflation, whipped up by the supply chain crisis, will push bond yields higher over the next several weeks, according to Wells Fargo Securities’ Michael Schumacher.
The firm’s head of macro strategy believes the benchmark 10-year Treasury Note yield could reach 1.9% before year-end — a 23% jump from Wednesday’s close.

“Number one is inflation. It’s everywhere,” he told CNBC’s “Trading Nation” on Wednesday.
Schumacher also sees anticipation surrounding how the Federal Reserve will react as an upward driver for yields.. He notes a few central banks, including Norway and New Zealand, have already adjusted their policy rates.
“The Fed is probably going to taper [and] announce it next month,” he said. “It’s going to push yields up in our view. It will go up a bit more, and then probably drop in December.”
That’s when Schumacher he expects investor jitters over the debt ceiling and government funding will make a comeback and drive yields lower.
But Schumacher, who’s bearish on bonds, believes a move lower would be temporary.

“This all goes back to inflation,” he said. “It’s going to be here for a while, and this is really coloring our market outlook.”
The latest economic numbers spell hotter than expected inflation. The Labor Department reported on Wednesday the consumer price index increased 0.4% last month — a year-over-year gain of 5.4%. It’s the highest year-over-year gain in more than three decades.
“[This is] not just the U.S. issue. It really relates to the entire industrialized world at this point,” Schumacher noted.
Despite his inflation concerns, Schumacher is not in the stagflation camp, which refers to pressures that push prices higher during periods of slowing growth.

Stagflation is ‘overplayed’

“It’s overplayed, frankly,” he said. “People say, ‘Well, gee, growth is going to be slower next year that this year.’ Well, okay, that’s true. But the question is by how much, and is growth really going to be seriously disappointing in 2022? We think not. And, if you have growth in the U.S. that’s 2[percent]-plus. It’s probably not really stagflationary.”
He has been bullish on economic growth since the throes of the pandemic. Last December, Schumacher told “Trading Nation” the Covid-19 vaccines would dramatically boost confidence in the economy and push Treasury yields higher. Since his interview, the 10-year yield is up 72%.
From an investment standpoint, Schumacher would only consider owning a long duration bond as a short-term place to hide out from stock market volatility. He finds Treasury yields unattractive for long-term investors because they’re not keeping up with inflation.
“The Fed is very concerned about this, and Chairman Powell has made this pretty clear,” Schumacher said. “We do think that’s going to push Mr. Powell to argue for tapering in a couple weeks.”
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Traders work on the floor at the New York Stock Exchange.
Brendan McDermid | Reuters

U.S. stock futures were little changed Wednesday night after the S&P 500 snapped a three-day losing streak as companies kicked off the quarterly earnings season.
Dow Jones Industrial Average futures rose 46 points, or 0.13%. S&P 500 and Nasdaq 100 futures inched up 0.18% and 0.24%, respectively.

The major averages were little changed by the end of the regular session. The Dow was flat at 34,377.81, the S&P 500 gained 0.3% and the Nasdaq Composite ticked up 0.7%.

Minutes from the Federal Open Market Committee’s September meeting, released Wednesday afternoon, showed that the central bank could begin the tapering process in mid-November or mid-December.
“We still think November but one month isn’t going to matter to markets at this point,” said Lawrence Gillum, fixed income strategist for LPL Financial. “There was some interesting discussion on lift-off though and it looks like the Committee remains divided. The future make-up of the Committee only adds uncertainty to when lift-off will actually take place.”
Earlier in the day, JPMorgan kicked off big bank earnings with stellar results that exceeded expectations on a $1.5 billion boost from better-than-expected loan losses. Still, shares fell by 2.6% and other bank stocks slid too.

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Bank of America, Citigroup, Morgan Stanley and Wells Fargo are all scheduled to report earnings before the bell Thursday. Dow member UnitedHealth Group is also on deck, as well as Domino’s Pizza.

Earlier Wednesday, the Labor Department reported the core Consumer Price Index, which excludes food and energy, rose 0.2% month over month in September and 4% over the last 12 months, compared to estimates of 0.3% and 4%, respectively.
September producer price index data and weekly jobless claims will be released Thursday.

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 The Federal Reserve could begin reducing the pace of its monthly asset purchases as soon as mid-November, according to minutes from the September meeting,
The summary, released Wednesday, indicated the tapering process could see a monthly reduction of $10 billion in Treasurys and $5 billion in mortgage-backed securities.
Officials at the meeting expressed concern about inflation, saying it could last longer “than they currently assumed.”

Federal Reserve officials could begin reducing the extraordinary help they’ve been providing to the economy by as soon as mid-November, according to minutes from the central bank’s September meeting released Wednesday.
The meeting summary indicated members feel the Fed has come close to reaching its economic goals and soon could begin normalizing policy by reducing the pace of its monthly asset purchases.

In a process known as tapering, the Fed would reduce the $120 billion a month in bond buys slowly. The minutes indicated the central bank probably would start by cutting $10 billion a month in Treasurys and $5 billion a month in mortgage-backed securities. The Fed is currently buying at least $80 billion in Treasurys and $40 billion in MBS.
The target date to end the purchases should there be no disruptions would be mid-2022.
The minutes noted “participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate.”
“Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December,” the summary said.

The Fed next meets Nov. 2-3. Starting the tapering process in November is on the aggressive side of market expectations.

The minutes said members’ estimates “were consistent with a gradual tapering of net purchases being completed in July of next year.”
“If they announce [tapering] in November, I don’t see why they would wait. Just go ahead and get going,” said Kathy Jones, chief fixed income strategist at Charles Schwab. Jones said she was a bit surprised by a notation in the minutes that “several” members “preferred to proceed with a more rapid” tapering pace.

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“That would be pretty aggressive,” she said. “There must be some outspoken people who are pretty concerned that they need to move even faster.”
St. Louis Fed President James Bullard is one such member, telling CNBC on Tuesday that he thinks tapering should be more aggressive in case the Fed needs to rate interest rates next year to combat persistent inflation.
At the September policymaking session, the committee voted unanimously to hold the central bank’s benchmark short-term borrowing rate at zero to 0.25%.
The committee also released the summary of its economic expectations, including projections for GDP growth, inflation and unemployment. Members scaled back their GDP estimates for this year but upped their outlook for inflation, and indicated they expect unemployment to be lower than earlier estimates.

Concerns about inflation

In the “dot plot” of individual members’ expectations for interest rates, the committee indicated it could begin raising interest rates as soon as 2022. Markets currently are pricing in the first rate hike for next September, according to the CME FedWatch tool. Following the release of the minutes, traders increased the likelihood of a September hike to 65% from 62%.
Officials, though, stressed that a tapering decision should not be seen as implying pending interest rate hikes.
However, some members at the meeting showed concern that current inflation pressures might last longer than they had anticipated. Traders are pricing in a 46% chance of two rate hikes in 2022.
“Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labor shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed,” the minutes stated.
The document noted that “a few participants” said there could be some “downside risks” for inflation as long-standing factors that have kept prices in check come back into play. The majority of Fed officials have been holding to theme that the current price increases are transitory and due to supply chain bottlenecks, and other factors likely to subside.
Inflation pressures have continued, though, with a reading Wednesday showing that consumer prices are up 5.4% over the past year, the fastest pace in decades.

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