Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we’re looking at China’s rare earth export restrictions, the FCA opening the door to crypto assets, and mixed messages from Wall Street on the economic outlook.

But first, our number of the week…

100%

That’s what the world’s public debt to GDP ratio will reach by the end of this decade, according to the latest forecasts from the International Monetary Fund. That would be the highest level since just after World War II.

Sidekick Takeaway: In the near term, government debt is on the rise due to rising interest rates. But in the long term, this is a story about demographics, with an aging global population leading to a smaller tax base and rising pension and healthcare costs. 

Only have a minute to read? Here’s the TL;DR:

• China introduced new export restrictions on rare earth metals essential for advanced technology manufacturing, prompting Trump to threaten 100% retaliatory tariffs. The move has sparked an emerging international coalition, with several countries considering a joint response. China controls roughly 70% of global rare earth supply.
• The FCA’s new rules allowing retail investors limited access to crypto exchange-traded notes went into effect this week, ending a previous ban. While no cETNs are yet listed, major institutions like BlackRock are preparing offerings. These assets could provide access to crypto exposure without self-custody risk.
• JPMorgan announced its highest anticipated credit losses since the Covid pandemic, with CEO Jamie Dimon warning of worsening credit quality. However, rivals Wells Fargo and Bank of America reduced their loan loss provisions, highlighting Wall Street's conflicted outlook on the future path of the economy. 

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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Chokepoint: China Triggers Global Pushback on Rare Earths

In recent weeks, America’s global trade war had seemed to be cooling down. But just when things seemed calm, a renewed spat with China has breathed fresh life into the conflict. 

Last week, China introduced new export restrictions on a wide range of rare earth metals. 

These metals, which include elements like terbium, neodymium, and yttrium, may not be household names. 

But many of them are indispensable for producing modern technology like smartphones, semiconductors, and batteries. 

That move sparked a furious response from the US. President Donald Trump threatened China with retaliatory tariffs of 100%.

Pushback against China, however, may not come from the US alone.

China’s rare earths gambit threatens to alienate partners

China’s new export restrictions don’t just impact the US. Trading partners around the world are affected, including Australia, Japan, and Europe.

In fact, an emerging coalition hints that China may have overplayed its hand:

• China’s rare earth dominance could threaten tech supply chains around the world – the country accounts for roughly 70% of global supply. 
• Japan’s finance minister called for G7 countries to ‘unite and respond’ to China’s moves, while German officials floated the potential for a joint EU plan.
• US Treasury Secretary Scott Bessent stated that America is ‘speaking with our European allies, with Australia, with Canada, with India and the Asian democracies,’ to formulate a response. 

China’s latest export restrictions may have been triggered by frustrations with America. But they could have truly global ramifications. 

Sidekick Takeaway: The emerging joint response to China’s gambit is particularly ironic, considering that China was attempting to coordinate international pushback to US tariffs earlier this year. With Trump and Xi expected to meet later this month, rare earths will be at the top of the agenda. 

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Change of Tune: FCA Cautiously Opens Door to Crypto Assets

UK regulators have long been sceptical of retail exposure to crypto assets. Slowly, however, that attitude seems to be fading. 

This week, the Financial Conduct Authority’s new rules on crypto exchange-traded notes (cETNs) went into effect. 

Formerly, cETNs were banned entirely for retail investors. Now, many everyday individuals will be allowed to invest in them (albeit with some continuing restrictions). 

So far, there are no listed cETNs for investors to purchase. But major institutions like BlackRock are reportedly preparing offerings, indicating that could change soon.

What are cETNs?

cETNs function similarly to ETFs – they’re listed assets that trade on an exchange. 

But instead of stocks or bonds, these instruments are specifically built to provide exposure to the crypto market: 

• cETNs are technically debt instruments, being an obligation of the financial institution that issues them.
• But the price of these notes is tied to the performance of a major token like Bitcoin and Ethereum. 
• cETNs could provide a way for investors to access crypto exposure without needing to own the underlying assets, which introduces self-custody risk. 

Along with price volatility, cETNs do introduce credit risk tied to the issuing institution. But despite these considerations, they could offer traditional access to non-traditional assets.

Sidekick Takeaway: Crypto assets are unlikely to be a primary wealth-building tool for nearly any investor. However, major tokens have served as a surprisingly useful store of value and source of diversification during recent market sell-offs. cETNs could provide an easier way to access these potential benefits. 

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Morgan’s Warning: Wall Street Conflicted Over Economic Pain

Each quarter, Wall Street banks need to set aside a certain amount of money in expected credit losses.

When the economy is good, these numbers are typically small. But when a recession looms, banks need to prepare.

This week, JPMorgan Chase announced that its anticipated credit losses are now the highest since the Covid pandemic. 

That might seem to indicate a worsening outlook. But not all of the bank’s competitors are so pessimistic. 

What explains Wall Street’s mixed messages?

JPMorgan CEO Jamie Dimon warned that credit quality is worsening, especially following a string of high-profile corporate bankruptcies. 

But despite these warnings, some rivals have actually cut their loan loss provisions compared to previous quarters:

• Wells Fargo and Bank of America both reduced the amount of credit losses they expect going forward.
• Similarly, Morgan Stanley saw no need to adjust its loan loss provision, indicating a relatively stable outlook.
• Citigroup CEO Jane Fraser acknowledged that while growth appeared to be ‘cooling somewhat,’ the economy has proved resilient. 

It’s no secret that the US labour market has been under stress, which helped justify a recent rate cut from the Federal Reserve. But according to Wall Street, that doesn’t mean a recession is inevitable. 

Sidekick Takeaway: With data integrity concerns around the world making government figures less reliable, investors have increasingly turned to corporate guidance for insight on the future path of the economy. As these mixed messages indicate, however, interpreting that guidance isn’t always so clear-cut.

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Notices

Sidekick Money Ltd is a company registered in England and Wales (No. 13882980). Sidekick Money Ltd is authorised and regulated by the Financial Conduct Authority (FRN 984829). Our address is 21-33 Great Eastern St, London, EC2A 3EJ.

𝘗𝘭𝘦𝘢𝘴𝘦 𝘳𝘦𝘮𝘦𝘮𝘣𝘦𝘳, 𝘪𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘴𝘩𝘰𝘶𝘭𝘥 𝘣𝘦 𝘷𝘪𝘦𝘸𝘦𝘥 𝘢𝘴 𝘭𝘰𝘯𝘨𝘦𝘳 𝘵𝘦𝘳𝘮. 𝘠𝘰𝘶𝘳 𝘤𝘢𝘱𝘪𝘵𝘢𝘭 𝘪𝘴 𝘢𝘵 𝘳𝘪𝘴𝘬 - 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘰𝘧 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵𝘴 𝘤𝘢𝘯 𝘨𝘰 𝘶𝘱 𝘢𝘯𝘥 𝘥𝘰𝘸𝘯, 𝘢𝘯𝘥 𝘺𝘰𝘶 𝘮𝘢𝘺 𝘨𝘦𝘵 𝘣𝘢𝘤𝘬 𝘭𝘦𝘴𝘴 𝘵𝘩𝘢𝘯 𝘺𝘰𝘶 𝘱𝘶𝘵 𝘪𝘯.