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Fed piloting another tricky soft-landing

The Fed is close to delivering a rare soft landing for the US economy but it faces yet another fraught challenge: reducing cash in the financial system without disrupting markets. With the Fed having already removed some $1.4 trillion as it shrinks its balance sheet to end pandemic-era support, the focus is increasingly turning to when it should stop. The worry is that if cash in the banking system, called reserves, breaches a certain minimum level, markets will freeze up. But no one knows what the right level is. (Reuters | Mar 28) see also Fed's operating losses swelled to a record $114.3 billion in 2023 (Bloomberg Economics - Central Banks | Mar 26)

Regulation should consider bank, nonbank links

Close linkages between bank and non-bank intermediaries and the migration of activities across these sectors warrant a “holistic view” of the functioning and stability of the financial system, according to a Federal Reserve Bank of New York staff report published Tuesday. Non-bank financial intermediaries hold about 50% of global financial assets from 42% in 2008, driven partly by tighter regulation of banking activities. While global financial flows have expanded in parallel to the globalization of the real economy, financial markets are also “prone to exuberance and fragility with regard to adverse shocks” and can have negative implications. (Federal Reserve Bank of New York | Mar 26)

US faces Liz Truss-style market shock as debt soars, warns watchdog

The US faces a Liz Truss-style market shock if the government ignores the country’s ballooning federal debt, the head of Congress’s independent fiscal watchdog has warned. Phillip Swagel, director of the Congressional Budget Office, said the mounting US fiscal burden was on an “unprecedented” trajectory, risking a crisis of the kind that sparked a run on the pound and the collapse of Truss’s government in the UK in 2022. (Financial Times | Mar 26) see also Warren Buffett’s favorite market indicator is flashing red (CNN | Mar 27)

Corporate bonds are the safest they’ve been in almost a decade

The quality of the global high-grade credit market hasn’t been this good since the early stages of the easy money era. Safe single-A bonds are close to becoming the biggest part of investment grade indexes for the first time in about ten years. At the same time, there are fewer risky bonds in the group. That means investors are buying a higher-quality basket overall, and supports the view of some market participants that valuations aren’t as stretched as they seem. (Bloomberg Markets | Mar 26)

Progress still slow in affirmation rates improving ahead of T+1 in May

Affirmations by 9:00 pm ET on trade date only increased marginally in February to 74.5%, according to data from the DTCC, which is still aiming for an overall 90% rate before T+1 comes into force in the US on 28 May. In today’s T+2 environment, approximately 90% of all trades are affirmed by 11:30 am ET on T+1 — the current affirmation cut-off point, and DTCC feels a similar target rate for a T+1 environment would be appropriate to ensure settlement efficiency remains high in the market. (The Trade - UK | Mar 25)

A SpaceX Falcon 9 rocket on NASA's Plankton, Aerosol Cloud Ocean Ecosystem mission lifts off from Space Launch Complex 40 at the Cape Canaveral Air Force Station in Cape Canaveral, Florida. John Raoux | Associated Press

Officials plan for new age of cyber threats to satellites

Hackers can upload malware to satellite terminals that give them control of the devices, shut them down, or cut off communication with the ground. A cyberattack could even force a satellite to overheat until it explodes in a “kinetic boom.” Any widespread attack against satellites could take down everything from GPS navigation to text message services to weather forecasting — and hackers could achieve that without a huge budget or years of expertise.

— Politico

Impersonation, phishing getting trickier with AI, Treasury warns

Artificial intelligence is making it easier for fraudsters to carry out more sophisticated attacks on financial firms, the Treasury Department said in a report Wednesday. Recent advancements in AI mean criminals can more realistically mimic voice or video to impersonate customers at financial institutions and access accounts, the agency wrote. They also allow bad actors to craft increasingly sophisticated email phishing attacks with better formatting and fewer typos, according to Treasury. 

— Bloomberg Technology

DOJ reward: $10 million

The Justice Department of Justice is offering up to $10 million for information leading to the identification of state-backed hackers using BlackCat ransomware. BlackCat, in use since November 2021, was linked to the February attack on UnitedHealth Group's Change Healthcare. The ALPHV BlackCat ransomware-as-a-service group compromised computer networks of critical infrastructure sectors in the US and worldwide, deploying ransomware on the targeted systems, disabling security features within the victim’s network, stealing sensitive confidential information, demanding payment to restore access, and threatening to publicize the stolen data if victims do not pay a ransom.

— Department of Justice

Illustration: Kenneth Andersson | Financial Times

Covid still warps our sense of time

The way our sense of time was warped during the pandemic has been well-documented worldwide. Italians thought time dragged. Some Britons thought it sped up. In the Australian state of Victoria, a lockdown hotspot, researchers compared the distortion with jet lag. But it is almost a year since the World Health Organization declared Covid-19 no longer a global public health emergency, so shouldn’t we have reset by now? Not necessarily, say academics.

— Financial Times

Your favorite trashy cocktail is now incredibly highbrow

So-called lowbrow drinks are nostalgic and, no surprise, oftentimes tasty. But a little effort to elevate these cocktails can go a long way — swap in better liquors/liqueurs and fresh juices, find some balance among the ingredients, and you can still enjoy a 7&7, Miami Vice, Nutcrackers, Lychee Martini, or Long Island Iced Tea.

— InsideHook

Climate change could affect timekeeping, study says

Accelerating melt from Greenland and Antarctica adds extra water to the world's seas, redistributing mass. That is slowing the Earth's rotation very slightly. But the planet is still spinning faster than it used to. The effect is that global timekeepers may need to subtract a second from our clocks later than would otherwise have been the case.

— BBC