Investors had a busy week this week. After facing a potential Armageddon at the start and then enjoying a post-Federal Reserve rally at the end of the week to finish with modest gains.
Throughout the week, investors learned more about the state of the housing market through reports on building permits and housing starts on Tuesday and new home sales on Friday. All reports came in better than expected.
Further, the Fed stayed the course on Wednesday, electing to leave rates the same while strongly suggesting that a taper of asset purchases could be just around the corner.
The week's shaky start was mostly due to troubled China real-estate firm Evergrande’s debt crisis after the company said that it might not be able to make payments on debts this Thursday. (Surprise, they didn’t!) This news initially reminded investors of the Lehman Brothers’ collapse during the Great Financial Crisis, though thankfully, the similarities between the two faded quickly and Evergrande isn't expected to cause contagion, or at least not to the U.S.
As if this wasn’t enough news coming out of China for one week, the country ended the week by expanding it's crypto ban to essentially ban all things blockchain by declaring all cryptocurrency transactions illegal. This may be essentially the final nail in the blockchain’s coffin in China
Crypto Crackdown
As noted above, China essentially took the final step towards ending cryptocurrency presence in the country through its latest action on digital currencies. This ban expanded on previous bans by declaring all crypto transactions and mining activity to be illicit financial transactions.
Leading into the announcement, Bitcoin was trading at $45,070 and dropped sharply over the two hours following the ban to $42,363. Bitcoin reached as low as $40,936 but has since pared some of those losses at $42,454, which is about a 5% loss over the past 24 hours.
While the blockchain ban definitely elicited a selling response and is certainly not great for cryptocurrencies in the short term, there remain some positive notes for crypto investors.
First, remember when Alibaba (BABA) got a record fine and then jumped nearly 10%? Well, despite the fine being bad, investors were just happy that it wasn’t worse and that the four-month investigation could finally end and uncertainty about how bad the punishment would be was gone. A crypto ban has slowly been emerging as China has attacked nearly every aspect of the space. So take a deep breath Bitcoiners, the attack is over and while losing billions of potential Chinese users isn't great, the flow of negative headline from China is likely to stop here.
Second, China is the most centralized country in the world and insists on control over nearly every aspect of the economy. So a platform that is harder to monitor and frees you from relying on China-approved banks never really fit the country’s goals anyway. So while there may be less demand for cryptos today because of this ban, there could be more reliable demand tomorrow. This could help the space achieve lower volatility, which would, in turn, make it more attractive and lead to wider acceptance.
The Fed
Another big event this week was the Federal Reserve Meeting. The FOMC released its usual statement Wednesday and was largely in line with expectations with not changes to policy.
The statement also said, if the economy continues to recover as expected, the time for “moderation in the pace of asset purchases” might be soon. This wasn’t surprising, as that particular statement has essentially become a tradition at this point, but the Fed took step further this time.
Fed Chair Jerome Powell said, for him, “it wouldn’t take a knockout, great, super-strong employment report” for him to feel that the test of "substantial further progress" is met. Powell added that he just needs a “reasonably good employment report” that shows “accumulated progress” to feel it is time to taper.
All told, The S&P 500 rose 0.51%, while the Dow added 0.62%. The Nasdaq eked out a gain, of 0.02% this week, while the Rusell 2000 added 0.50%.
