We have severe shocks in the cryptocurrency market and stocks are falling because US inflation is falling too slowly. As a result, Apple is no longer the world’s most valuable company. The government bravely finds solutions to the problems it once created, and the phenomenon of real wage growth is disappearing from the economic landscape. Here are five of the most interesting developments in the economy right now.
1. The earthquake in the cryptocurrency market
The world of cryptocurrencies is having a hard time all over the world. The price of bitcoin dropped overnight to its lowest level since December 2020 below 28,000. hole. Bitcoin has lost nearly 60% since the November peak ($ 68,991). its market value. Other major cryptocurrencies look similar.
The day before, the exchange rate of one of the largest so-called stable coins, i.e. cryptocurrencies, the value of which was always to be always the same as the US dollar, collapsed. Thanks to them, investors in the cryptocurrency market do not have to return to the real dollar after closing their investments but can keep their capital in something that mimics the dollar while still being part of the cryptocurrency market. At the beginning of the week, however, a large wave of supply “peeled” the Terra-USD stable coin rate from the dollar, so that its quotations fell to 62 cents on Tuesday, and below 30 cents on Thursday.
Anyway, no matter how much the Terra-USD now costs, this instrument has lost its meaning as it no longer costs as much as the dollar. Some investors perceive it as a collapse of a significant part of the architecture of the crypto world, hence a lot of nerves and the sale of the largest “ordinary” cryptocurrencies. Coinbase, the organizer of one of the cryptocurrency exchanges, also contributed to the deterioration of the situation, informing about the publication of the results that in the event of its bankruptcy, investors will not recover their cryptocurrencies.
Another issue is that in the previous months, cryptocurrencies have not been appreciated, and the turnover on them has gradually decreased. According to some economists, capital stopped flowing towards them, because in times of interest rate increases they definitely lost their attractiveness (similar to many companies on the Nasdaq stock market).
2. The government will create for us bonds with better interest than bank deposits
Already in June, we are to be able to invest our money in bonds bearing interest better than bank deposits that the government will issue specifically to create such an alternative. The government calls these bonds “anti-inflationary “, although they will yield a profit well below inflation. However, they will still look attractive compared to other options available to savers.
The bonds are to be annual and biennial. The annual interest rates will be at the level of the main NBP rate, so today it would be 5.25%. per year, and from June it will probably be 5.75 percent. or 6 percent (The Monetary Policy Council should raise interest rates at its next meeting on June 8). The two-year ones will bear interest above the NBP rate, but it is not known how much more. We are to know more details on May 25. Inflation, meanwhile, exceeds 12%.
Introducing the idea, the Prime Minister attacked the banks again for not wanting to raise interest rates on deposits, claiming that they were behaving like this out of profit. Banks in recent months have not done this because they do not need new deposits, as there are a huge number of them on the market anyway.
This is a side effect of the anti-crisis shield in force in 2020, when the government pumped well over PLN 100 billion into the economy, saving it from a pandemic collapse. Today, people and companies keep this money in banks, so they do not have to fight with higher interest rates for additional, additional funds. The prime minister wants to use new bonds to solve the problem that he himself contributed to two years ago.
If the new bonds are of great interest, the government will be able to reduce the costs of servicing the public debt. Two-year bonds sold to banks on the wholesale market now have profitability of as much as 6.7 percent. The ones issued for us will therefore be less expensive from the government’s point of view.
3. Wages in Poland have stopped growing
The average wage in the Polish economy in the first quarter of this year was 9.7 percent. higher than a year ago and amounted to 6 thousand. 235 PLN 22 gr. Of course, gross, i.e. about 4.5 thousand. PLN on hand. An increase of 9.7% means that wages in Poland have practically stopped growing in real terms, as inflation has caught up with them. According to data from the Central Statistical Office of Poland from the following months, it was 9.4 percent. in January, 8.5 percent. in February and 11 percent. in March. This gives an average inflation rate of 9.6% in the first quarter. (more precisely 9.63 percent). In real terms, at the beginning of this year, wages in the country grew by less than 0.1 percent, which is as much as nothing.
Previously, in the fourth quarter of 2021, the growth in wages in the economy was 9.8 percent, but inflation then was 7.7 percent, so it was still a decent real growth of 2.1 percent.
Wages in Poland grew in real terms, and thus faster than inflation, for many recent years. Before the pandemic, these were even increased by 4-5 percent. Slowing their growth to zero may worsen consumer sentiment and contribute to limiting the demand in the market and thus to the economic slowdown. The advantage of this situation is that thus slowing down the real wage growth may also contribute to a gradual limitation of inflation growth.
4. US inflation has fallen, but not enough
Inflation in the United States fell to 8.3% in April. Every year. In March, it was 8.5 percent. More important than the fact that it has dropped a bit this time is that it has dropped less than expected, which is a negative surprise again. Core inflation was at the level of 6.2%, and it was expected at the level of 6%.
The data was closely watched in the financial markets because now these are the most important figures for them – the situation in the stock markets depends mainly on how strongly the US Fed will raise interest rates, and its decisions will depend on what is happening with inflation in the United States. Hence, higher than expected data triggered a negative reaction and further declines on Wall Street and other stock exchanges in the world, including the Warsaw Stock Exchange.
The S&P 500 index fell by 1.7 percent on Wednesday. and the Nasdaq by as much as 3.2 percent, to the lowest level since November 2020. Our WIG20 dropped slightly, only by 0.07 percent, but this extended the series to eight consecutive sessions of decline. Since April 14, in the last seventeen sessions, the WIG20 has experienced as many as sixteen days of decline, growing only once during that time.
5. Saudi Aramco is the biggest in the world again
Sizable declines in US technology companies led to a surprising reshuffle at the top of the list of companies with the highest market value. The largest oil producer in the world, Saudi Aramco, returned to its peak. Its value is currently $ 2.42 trillion. The Saudi company was already the largest in the world at the end of 2019 when it debuted on the Riyadh Stock Exchange, and for several weeks at the beginning of 2020. Then it was overtaken by Apple, and then by Microsoft, and for most of the last two years it was only third in the ranking. This was the result of a drastic drop in oil prices in 2020 caused by the coronavirus pandemic and the global recession.
Today, however, oil is expensive again, while interest rate hikes in the United States caused a significant sell-off of technology companies in the US. Apple shares have fallen by 17.5 percent since the beginning of this year, and Microsoft shares have fallen by 22.5 percent during this time.
As a result, the world’s most valuable company is once again a company that produces millions of barrels of oil per day.