Blockchain will disrupt everything from Silicon Valley to the New York Stock Exchange.
With an ever-growing need for property, renting in the UK has become go-to game for many home seekers who can’t quite make it into the mortgage market. But what does this mean for the letting side of property? Fareed Nabir, CEO of PropTech platform LetBritain discusses for Finance Monthly.
Over recent weeks we have seen the UK’s two largest political forces host their party conferences. Along with inevitable, frequent mentions of Brexit and a fair amount of scrutiny for both the Labour and Conservative leaders, it also became clear that access to housing is at the top of Westminster’s agenda at present. In this respect, the private rental sector faces particular challenges in providing homes for a growing proportion of the country’s rising population. With the UK population projected to reach 70 million people by mid-2027, PWC estimates that an additional 1.8 million households will enter the UK’s private rental sector over the next eight years.
Central to the growing importance of the private lettings sector is the rising costs associated with purchasing a home. The average value of properties in London has risen by a whopping 78% in the ten years since the onset of the 2007 global financial crisis. Add to this further figures around rising prices for Manchester, the East Midlands and Scotland and a clear picture emerges. Whilst the UK property market may be a fruitful asset class for many investors, more and more UK residents are now coming to rely on the private rental sector as the bottom of the ladder rises out of their reach.
Recognising the value of renting
Reacting to the rising number of people moving out of homeownership, leading political figures have focused on addressing feelings of insecurity expressed by voters. Both the Conservative and Labour parties share a target of building one million new homes by the end of the parliament and are considering the possibility for longer tenancies to become the norm. Labour has taken this one step further and has embraced a policy pursued in cities including Berlin, Stockholm and New York, whereby the government intervenes in various ways to restrict rents.
However, we must also remember that for many people, renting is an extremely attractive option. One of the most attractive aspects of renting is the greater flexibility offered by tenancies relative to ownership. For example, if you have to move to a new city for work, it’s nowhere near as difficult as having to list a property and wait for a sale to be processed. With the UK workforce now more globally and nationally mobile than ever before, we must remember the historic advantages of renting if we are to effectively adapt. The reasons that made renting an attractive option in the past haven’t gone away; in fact they are now truer for more people than ever.
To this end, the emergence of a rising number of tech platforms within the property sector holds significant promise. A property market that was once dependent on bricks and mortar agencies, endless reams of paperwork, lengthy phone calls and poor transparency is fast becoming more efficient; as a result both landlords and tenants are coming to expect more. It’s now possible to begin the process of securing a rental property from anywhere in the world and engage directly with a landlord or their instructed letting agent.
In short, tech has meant that the process of letting a property can be made quicker, cheaper and more transparent for all involved. Commonplace in other aspects of people professional and personal lives, people in the UK today expect tech – everything from bespoke software and apps to slick online platforms and web support – to make hitherto laborious processes far, far easier.
Delivering choice and security
Recent LetBritain research into this emerging development found that 31% of UK adults, the equivalent of 15.92 million people, now think that using high street letting agents to rent out a property is outdated and overburdened by paperwork. A further 25% were found to be relying upon unregulated online-only alternatives to source and secure a rental property. Whilst a number of challenges remain in managing this transition, the scale of public sentiment is resoundingly favourable towards harnessing the power of tech to more conveniently and efficiently facilitate property rentals.
The challenge remains for the sector to deliver choice and security across the letting market. Landlords should not feel the need to put their property at risk by renting to an unreferenced tenant just because they were sourced online, and tenants deserve to know that their legal rights will be observed. If this is achieved, the private rental sector should be able to manage the demand that it’s set to face in the years ahead, with landlords and tenants alike incentivised to be communicative, transparent and forthcoming with all necessary documentation.
As more of us move around or find it difficult to buy in our desired location, digital solutions that enhance and protect the interests of landlords and renters are vital. So while political leaders are focusing heavily on turning Generation Rent into Generation Buy, it is equally important that they promote more progressive approaches for serving all those in the rental market.
Today marks the 30th anniversary of the day when the financial bubble, that resulted in the Dow Jones reaching a record peak of 2722 in August, burst in spectacular fashion.
Following a fraught Friday on the New York Stock Exchange where the DJIA dropped sharply, the opening bell on 19th October started a selling onslaught and panic on the floor that hasn't been seen since. We take a look back at Black Monday 1987 in numbers.
Black Monday In Numbers
"It was a frightening week, more frightening than any week in '08" - Jim Chanos
19th October 1987 – The date of Black Monday.
9am – The sounding of the opening bell that began the selling that almost crashed the entire American financial system.
250 points – Points drop on the Dow Jones by 12:30pm.
508.32 points – Number the DJIA fell on 19th October 1987, it was at the time the largest drop Wall Street had seen.
4x – The amount the points drop on 19th October was bigger than the previous record.
22.76% - One Day Percentage Loss on the Dow Jones Industrial Average (DJIA). A record that still stands today.
Dow Jones Industrial Average from January - December 1987
$500 Billion – Amount of capital lost on 19th October 1987.
33% - Drop in S&P Futures on Black Monday.
604.33 million shares – Volume of shares on the New York Stock Exchange. A record at the time.
$1 Billion dollars – Value of Sell Orders reached by 10am on 19th October.
112 million – Shares lost by the Designated Order Turnaround System at NYSE as the computers buckled under the weight of sell orders.
648 - Days it took for the markets to recover.
$18.8 Billion - Market Value Lost By IBM on Black Monday. It was valued at around $62 Billion before Monday 19th October.
"Wall Street was uniformly unprepared for this magnitude of drop" - Paul Tudor Jones, October 19th 1987
23pc - Drop on the FTSE 100 on Black Monday and Tuesday combined. The biggest ever in history and a figure that has never been seen since.
60% - Percentage drop of the New Zealand Stock Market after Black Monday.
$6.7 Billion - Total in paper losses on AT&T Shares.
30.9% - Amount of American Express shares were reduced by during the trading day.
Traders react after one of the worst days the New York Stock Exchange has ever seen.
33 – Age of Paul Tudor Jones in 1987, when he and his colleague Peter Borish foresaw Black Monday.
$100 Million - Amount Paul Tudor Jones made by shorting the market and ensured his legacy on Wall Street.
$1 Billion – Amount Sam Walton, reportedly America’s Wealthiest Man lost on the day. ''It was paper when we started, and it's paper afterward.'' He said after the days trading.
$500 Million - Reported figure that Walton's Wal-Mart company value lost on Black Monday.
40% - Reduction in restaurant bookings and turnover in local businesses used by Wall Street Traders on 19th October.
$500 Million -Reported value of holdings in Allegis, Holiday, Bally and various other companies sold by future President Donald Trump in August that ensured he avoided any losses and became one of the few to make money on Black Monday.
16 hours – The time it took after the Dow Jones Closed on Black Monday for the US Federal Reserve to release a statement saying that it “affirmed today its readiness to serve as a source of liquidity to support the economic and financial system”
10 – Number of the largest banks who extended credit to traders following the Federal Reserve statement.
Traders stand bewildered after the New York Stock Exchange closed on Black Monday
2,078 – Stocks Traded on the board at the NYSE on Black Monday.
2,038 - Stocks Traded on the board at the NYSE that made a loss.
$470 – Amount Gold price per ounce increased (from $15.50) as one of the only performing stocks.
$1 Trillion – Total loss of wealth by the close of play.
$10,000 – Cash withdrawn late on 19th October from his Bank by Allan Rogers, head of government bond trading at Banker’s Trust, and hid in his loft because he was so scared the whole banking system was going down.
7% - Percentage of stocks that didn’t even open the following morning.
126 points – Rise in DJIA in the opening minutes of Tuesday 20th trading following Federal Reserve stop-gap measures.
10:00am – The rally is over and the Dow Begins to plummet once more.
11:28am – Time the Chicago Mercantile Exchange ceases trading on the S&P contract.
The crash was splashed all over the world news following a devastating day for traders.
11:15am – Time on Tuesday 20th October traders and banks like Merrill Lynch, Goldman Sachs and Salomon requested John Phelan CEO of the NYSE perform a total shutdown due to lack of buyers.
285 – Price paid by Blair Hull on MMI Futures in Chicago sparking the rally that some say prevented a full blown crash.
62% - Amount made by Tudor Investment Corp. in October.
102.27 – Dow Jones Industrial Average gain on the day for Tuesday 20th October.
23000 - Number hit by the Dow Jones on October 18th 2017, almost 30 years on from Black Monday sparking fears another equity bubble may be about to burst.
Thanks to some quick responses from the Federal Reserve and a surprise market rally, the Dow Jones rallied enough to avoid a repeat of the Great Depression that had followed the Wall Street Crash of 1929 that bore many similarities to Black Monday in 1987.
The flash crash also led to several huge changes on Wall Street including a kill-switch on trading the S&P if it drops below 7% and an overhaul of the computer systems that had caused so many issues on that fateful day to ensure that the confusion and inability to trade would no longer be an issue. And while there have been monumental crashes on trading floors across the world, none seemed to repeat the speed and fear that occurred on the New York Stock Exchange on the 19th October 1987.
Rumour and conjecture abound in the financial world that lessons may in fact not have been learned, and that we may be in line for another Black Monday, especially given the DJIA topping the 23000 figure just today. Analysts remain nervous, citing an 8-year bull market and reports of a hugely over-inflated US stock market. One thing is for certain, no one at the New York Stock Exchange will want to see the markets offer up any sort of anniversary.
All Photos: Roger Hsu
Sources: Bloomberg, NY Times, Guardian, Reuters, Washington Post
According to a report co-authored by Yandong Jia, a researcher at the Research Bureau of the People's Bank of China, alongside Jun Nie, a senior economist at the Kansas City Fed, “analysis indicates that the momentum of Chinese growth is likely to slow in the near term."
As the world’s second largest economy, China’s GDP has seen a 6.9 YoY increase, according to China’s National Bureau of Statistics (NBS). However, the above report suggests further growth to be considered bleak. "An analysis of its underlying forces suggests this momentum may not be sustainable," it reads. "In addition, strength in policy-related variables has been waning, creating additional downside risks to near-term growth."
Finance Monthly, this week spoke to several expert sources on China’s economy and prospected continued growth. Here are Your Thoughts.
Josh Seager, Investment Analyst, EQ Investors:
Every so often, investor concern about a Chinese hard landing rises. There have been numbers of catalysts for this over the past three years, from Chinese equity market sell offs to expectation of capital outflow induced currency depreciation. Most have passed without issue and are now barely remembered
The biggest cause of concern, however, has been debt. This has led many commentators to predict a large credit crisis. We believe that such concerns are overemphasised and stem from a key misunderstanding: the Chinese economy is ultimately guided by the Communist party not market dynamics. Credit crises generally happen because heavily indebted borrowers lose access to financing. In China’s case, the communist party control both the lenders (the banks) and the problem borrowers (the heavily indebted State-Owned Enterprises (SOES). Consequently, they are in a perfect position to manage the riskier debts and avoid defaults.
The real risk to China is much less exciting. Without ‘creative destruction’ where unprofitable companies are allowed to default, resources become misallocated. This means that unprofitable and unproductive companies, many of whom should be bankrupt, hoover up capital, employees and materials that could be better used by more productive firms.
This is happening in China, SOEs are hoarding resources in spite of the fact that they have get 1/3 (capital economics) of the return on them that private companies do. The route out is through supply-side reform but is difficult. It requires bankruptcy, bank recapitalisation and would probably lead to higher unemployment and increased uncertainty.
The Chinese government is financially strong and can afford to do this now. However, reform will get more difficult and expensive as the stock of debt builds. If President Xi chooses to pursue reforms we are likely to see short term pain for long term stability. If not, we will see a continuation of the status quo for the next few years but future GDP will be lower as a result.
Jonathan Watson, Chief Market Analyst, Foreign Currency Direct:
The Chinese economy has been wobbling with concerns over the pace of economic growth, which peaked at nearly 15% in 2007 but has been languishing around 6.9% lately.
Both business and consumer debt is high, and there are wider concerns that the largely export driven growth the economy has seen in the last few decades is coming to a halt.
Previously voiced concerns over the legitimacy of Chinese economic data raises questions about the extent of the trouble the economy could be in. Overlooking those fears, what appears clear is that the Chinese economy is still improving. With the global economy predicted to grow by 3.6% this year and 3.7% next year, according to the IMF, China should have little to worry about.
As a net exporter, the global economy will continue to have an effect on China’s economic growth. Any readjustments could cause turbulence but I see the trajectory as positive. Rather than hitting a wall as many have been predicting for years, I expect the Chinese economy will be building over or through one…
Erik Lueth, Global Emerging Market Economist, LGIM:
The Chinese economy is indeed likely to slow from here, but it is unlikely to hit a wall. Growth has been above the official target of 6.5% so far this year, powered by exports and a buoyant property sector. But, both of these drivers are fading.
In response to runaway house inflation in prime cities, the government tightened prudential measures over the past year or so. This has led to weaker housing demand and prices with the latter now falling in tier-1 cities. Similarly, exports seem to have peaked with PMIs in advanced economies looking stretched and the Chinese currency no longer falling in real terms. In our base case the economy would slow from around 7% this year to 6.5% in 2018 and 6.2% in 2019.
We are concerned about high debt levels, but the Chinese economy hitting a wall is a mere tail event in our forecast. To begin with, a financial crisis doesn’t look likely (as I have argued here on our investment blog, Macro Matters). China’s debts to foreigners are negligible and the capital account remains tightly managed. Key debtors and creditors are state-owned—state-owned enterprises and banks, respectively—greatly reducing roll-over risks. And, shadow banking while risky is still too small to overwhelm the state banks.
Second, China still has ample fiscal space. If it were to increase its fiscal deficit – estimated at around 12.5% of GDP – by 2 percentage points over each of the next 5 years, government debt would rise from around 70% of GDP today to 105% of GDP in 2021. This is not negligible, but certainly manageable given high savings rates and potential growth.
If something has the potential to drive China against the wall, it would be the deflation of a property bubble. As always spotting a bubble is challenging, but on balance we discount it. According to BIS data real house prices have been flat since the global financial crisis on a nationwide basis. Moves in prime cities have been anything but sideways, but at 90% over 3 years, increases remain well below the 300% witnessed in Tokyo before its bubble burst in 1990.
Dr Ying Zhang, RSM Rotterdam School of Management, Erasmus University:
China’s economic growth from the factor-driven to an efficiency-driven in the past 3 decades has not only brought China to be the world manufacturing center in the past, but also leveraged China as one of the important “spinal joints” of the world-body for the future. The reason of its importance is consistent with the global phenomena and world economy integration, as well as the interdependence between China and the rest of the world.
China’s supply-driven and quantity-based catch-up model is very effective, particularly to bring China to the category of middle-income countries; however, once stepping into such a territory, the historical evidence already shows that the chance to be trapped in there is be very high, if without proper in-time transformation.
Due to the high-interdependence, China’s reduced economic growth rate, though not pulling China’s economy moving down, has pulled exponential impact on some countries in terms of their employment rate and economic performance. Such symptom calls for worries and blaming to China, with two different messages: one, China hits the wall; second, China is transforming and preparing for the innovation-driven economic growth model.
China’s current transformation, in terms of being inclusive and quality-based and dramatic rising evidence in domestic consumption and prosperous service sector, implies that China will not be falling into the first proposition. It is also supported by the vision and the joint effort of Chinese citizens, global participants, and Chinese government to build China as an inclusive society and sustainable economy for the sake of world integration and global sustainability. In principle, this direction is presented as a paradox where China’s transformation is empowered by massive entrepreneurship and innovation in the current technology-driven and digitalization era ,while presented with a reduced GDP growth rate. The underlying matter is our perception and the angle to view it.
China’s economy does not hit the wall. Instead, it is on drive with much more power. With corrected understanding on the relationship between what China is working on and what the statistics simply presented, there would be more space for the world to grow together, for the world economy to be more stabilizing, sustainable and integrative.
Franklin Allen, Executive Director, Brevan Howard Centre for Financial Analysis:
Academics and journalists often predict that the Chinese economy’s growth will “hit a wall” and slow down dramatically. So far this has not happened. The Chinese economy has slowed down from about 10% annual real GDP growth several years ago to the current 6.5-7.0%. My own view is that this kind of growth rate is likely to continue for the next few years at least. The Chinese government still has a large degree of control over many aspects of the economy and if growth appears to be missing this target, they can ensure enough extra activity is undertaken that it hits it. There is a significant amount of debt in the Chinese economy but much of this is local government debt. The problem is that the funding of local governments is not well structured currently. They do not have taxing powers and do not receive large block grants from the central government. At some point the Chinese government will need to solve this problem. However, in the short run debt figures in China should be interpreted in a different way than equivalent numbers in Europe or the US.
In the long run, I think the Chinese economy has the capability to grow more quickly than current rates. The problem is that the financial system does not provide productive small and medium sized enterprises with the financing they need. They are the growth engines the economy requires and has used in the past during the fast growth period. If you look at the interest rates these firms are prepared to pay in the shadow banking sector, it seems likely they can grow quickly if they could obtain finance through the formal financial system. At the moment this is geared up to provide large state-owned enterprises with finance but they do not require very much. They do not have many prospects for growth. Hopefully, reforms to the financial system that have long been discussed and that will allow flows to the firms that need then will be implemented before too long.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Lee Wild, Head of Equity Strategy at Interactive Investor comments for Finance Monthly:
On the FTSE 100 rally:
There have been a number of key drivers behind the FTSE 100’s latest rally, among them a weaker pound, likely increase in UK interest rates, government housing policy and a lack of any viable alternatives for investors.
There’s an inverse relationship between sterling and the FTSE 100. A weak currency is great news for the FTSE 100’s army of overseas earners who receive a windfall when expensive dollars are converted back into sterling. The US economy is thriving too, and many UK companies, like Ferguson (the old Wolseley), InterContinental Hotels and Ashtead, make much of their money there.
A more hawkish Bank of England has been good for banks, which typically generate higher margins when interest rates rise. The government’s promise to extend the Help to Buy scheme is also a massive boost to UK housebuilders Barratt Developments, Persimmon and Taylor Wimpey.
While it’s true there are fewer bargains around, investors can still find plenty of companies trading on reasonable valuation multiples paying a generous and affordable dividend. And it’s much harder to find the level of returns on offer from equities in other liquid investments.
This should underpin confidence in the stockmarket and possibly steer the FTSE 100 to an all-time high at 7,600, especially if Brexit talks go badly or a threat to Theresa May’s leadership puts pressure on sterling.
On Bitcoin:
The value of bitcoin has almost doubled in less than a month which is clearly attracting further interest from speculators. There’s evidence of growing institutional activity, too, and if China reopens cryptocurrency exchanges after the Communist Party Congress which starts next week, some believe the price could reach $10,000 by the end of the year.
However, there could be near-term turbulence around changes to the code the bitcoin network runs on, due to be implemented in mid-November.
It is crucial that retail investors understand the many risks involved in cryptocurrency trading, not least the volatility - bitcoin has lost more than a third of its value on two occasions since June. It is clearly not for the faint-hearted.
In 2017, Aldi announced they were planning on becoming a major competitor in the US grocery store market, investing a mind-blowing $3.4 billion into current and future American endeavors. If you don't have an Aldi near you now, one might be popping up soon. So, what can you expect? Here's the fascinating history behind this up-and-coming US chain…
ICOs are like IPOs, but for new coins. By now you’ll have heard about Bitcoin and blockchain, except that by now there are already over 900 other brand-new cryptocurrencies, just like Bitcoin, competing for a cryto-market in which digital money has created its own markets, with its own B2B markets and so forth.
One of China’s latest bans involved the absolute ban on introducing new currencies, whereby neither private companies nor banks can make a move on the cryto-markets. This is widely considered, by FinTech and crypto-enthusiasts at large, as a bad move.
However, Jakob Drzazga, co-founder of Brickblock, a firm that is on the verge of its own upcoming ICO, welcomes this ban, and explains to Finance Monthly why.
The Chinese know very well that pigs get fat and hogs get slaughtered. The country’s rich list is often dubbed the 'Hogs-slaughtering List' and appearing on the list can immediately attract attention, investigation, and sometimes even prison time for financial misconduct.
Initial Coin Offerings (ICOs) seem to have suffered a similar fate – getting too fat and attracting too much attention. On 4th September 2017, People's Bank of China declared ICO as an illegal fund-raising activity following weeks of intense and critical media speculations. ICOs have reached a state of frenzy in China with reportedly USD 400 million raised since the beginning of 2017, in comparison to the global total of USD 2.16 billion. Millions were raised based on a white paper containing fancy concepts elegantly outlined, but understood by few, and scrutinized by fewer still.
The secret formula of getting rich quickly spread. For a country that has produced more millionaires than any other in the last 30 years, ICO is seen as a fast track to join the millionaire’s club.
When ICOs have become a business model, rather than a financing method for an innovative business to grow, something has to be done. The Chinese regulator has rightly done just that.
According to the regulator’s in-depth study of numerous white papers circulated in the local market, the fund-raising activities of 90% of ICO projects were distinctly dubious. Of the rest, less than 1% is genuinely invested in the technology claimed behind most ICO projects – blockchain. Therefore, there is an important distinction between China’s ICO ban and its support to the development of blockchain technology which has been included in the country’s 13th Five-Year Plan (2016-2020).
So why would Brickblock, a start-up that is just about to launch its ICO globally next month, welcome the China ICO ban?
The ban will help to tame the ICO hype and provide a healthier eco-system for genuine and committed blockchain businesses to stand out and stand up to the test.
The ban will have an adverse effect on the short-term speculative investment but not too much on long term strategic investment committed to developing sustainable blockchain businesses.
The future of asset allocation is no longer about different asset classes, not even about including crypto currencies as an asset class, it is about bridging the digital and real world asset through tokenization.
At Brickblock, we have a grand but simple vision: building a trading platform on the blockchain where transactions are done seamlessly and asset classes transcend beyond forms or borders. We believe in tokenization as the future and as the new derivative market.
Just like the internet bubble, the fittest will survive and thrive. Neither ICO hype nor ban will help or hinder us to achieve our vision. To achieve that, we need strategic partners, visionaries, talents and the community who share our passion and long-term commitment.
Between hurricane Harvey and Irma, states in the US have been truly ravaged by disaster. The effects of destruction have now left long lasting marks on local economies and the performance of markets, among many other things.
OPEC, for example, was severely impacted by the hurricanes, as we saw demand pitfall despite continued production and refining. Goldman Sachs stated that both Harvey and Irma will leave a huge dent in the oil market, leading to a global reduction in consumption of oil by 600,000 bpd in September.
We asked Finance Monthly’s expert contacts what they made of the situation, and have heard Your Thoughts on the overall impact of hurricanes on oil markets and beyond.
Nathan Sage, Market Analyst, PhillipCapital UK:
Hurricane Harvey was one of the biggest storms to hit the gulf coast in a decade with the total damages now estimated at upwards of $180 billion. The category four storm made landfall in Texas as it peaked in intensity and now holds the record for the wettest tropical cyclone to hit mainland US states. The significance of its landing is important as Texas and States along the gulf coast are a major refining point of crude oil and are responsible for around 12% of the country’s refining capacity.
Before Harvey hit, traders were already nervous, and crude, both Brent and West Texas Intermediate, ground lower until dropping as Harvey made landfall. The major moves were in the markets for distillates especially in the gasoline market which gained over 16% as fears of a fuel shortage spread across the state and surrounding areas.
The low of oil was a good buying opportunity for traders as the drop in refining would ultimately lead to higher inventories but the lasting effect of the rise would only be temporary for traders with a moderate outlook. Brent and WTI have both added 3.74% this week and 7.5% since its low last week. The short term effects of Harvey have already been seen in the data with initial jobless claims rising 62,000 in the week to September 2nd totalling 298,000 way above the expected 245,000.
The lasting effects of Harvey from the oil industry’s point of view has now largely worn off with pipelines and refineries coming back online earlier this week and business is mostly back to normal. In the same breath, traders will now be focussing on Hurricane Irma which has already devastated most of the Caribbean and is expected to make landfall this Sunday. Florida has less of a significate for oil markets but insurance companies will weigh on US stock markets as the costs from both Harvey and Irma start to mount. The full extent of the losses are yet to be seen but some are expecting the most Harvey-exposed insurers to take an earnings hit of around 25-30%. It’s no surprise that heading into the weekend risk appetite has waned and we can see US markets edging lower on the open.
Longer term and away from the storms, the overarching themes in oil markets remain focused on the global supply glut. Russian finance minister Anton Siluanov has said that Russia would benefit from extending its agreement with OPEC to limit global supply and said the benefits would extend to “everyone involved”. Without an extension of the agreement and if the world’s largest oil producers were to have full autonomy on their own output it would likely lead to a huge correction lower in prices. This would be especially true, as the recent higher oil price has allowed shale producers to become more efficient and are now able to operate at a lower breakeven point than before.
Fiona Cincotta, Senior Market Analyst, City Index:
The markets are breathing a sigh of relief as the trail of devastation left by Hurricane Irma was not quite as bad as was initially feared. Whilst Florida is still receiving a pounding from the now Category one storm, notably Miami managed to dodge the most dangerous part of the storm. So far news of catastrophic damage hasn’t come through, which is a promising sign that the markets are focusing on.
As a result of the severe but not catastrophic Hurricane Irma the dollar index enjoyed its biggest 1 day jump in 10 days, gaining 0.5% versus a basket of currencies. Meanwhile the Dow Jones futures surged over 100 points, whilst the S&P 500 futures were also pointing to a positive start for the index.
The markets were on edge in the days leading up to the hurricane given the difficulty in assessing the financial impact of natural disasters. However, although the initial assessment is that the impact of the storm is not as bad as first feared, we still expect some evidence of economic damage from this hurricane and hurricane Harvey to feed through to the economy in the form of weaker economic data such as labour market numbers, economic growth and retail sales. Therefore, investors will be paying particular attention to Thursday’s retail sales numbers. Significantly weaker than expected data could weigh heavily on sentiment.
The other point to keep in mind is that the economic impact of hurricanes tends to be short lived and often the rebuilding effort offsets the damage the hurricane caused to the economy. Therefore, if economic data is slightly weaker, this should only be a blip rather than the start of a new trend. Federal Reserve Official Dudley confirmed this last week by saying that he didn’t expect the outcome of Hurricane Irma to impact on the monetary policy outlook.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Bitcoin's recent climb above the $4,500-5,000 mark is just one example of how its market capitalization continues to gain unprecedented reach. From cannabis to technology, bitcoin has impacted industries far and wide, but analysts believe that the cryptocurrency isn't done climbing.
ChineseInvestors.com Inc. (OTC: CIIX) is one business taking advantage of bitcoin's success by setting up bitcoin payment acceptance through its wholly-owned subsidiary, Chinesehempoil.com Inc. SinglePoint, Inc. (OTC: SING) also continues to develop its bitcoin cannabis payment solutions, while technology company NVIDIA Corporation (NASDAQ: NVDA), graphics cards maker Advanced Micro Devices, Inc. (NASDAQ: AMD), and bitcoin investment vehicle Bitcoin Investment Trust (OTC: GBTC) occupy their own unique positions.
ChineseInvestors.com (OTCQB: CIIX), in July 2017, announced that its Chinesehempoil.com subsidiary was ready to accept bitcoin payments, in addition to more common payment methods such as debit cards and PayPal, in order to enable consumers to purchase its hemp-based health products online. The move marked CIIX's official entrance into the burgeoning digital currency market and enabled the company to offer its customers a heightened level of cost savings, privacy and ease of use.
By August, CIIX took its knowledge of bitcoin a step further. On par with its core operation as a provider of financial information, CIIX launched its cryptocurrency education and trading subscription service on Chinesefn.com, its dynamic financial website that provides real-time market commentary; analysis related to digital currency, trends and stocks; and education-related services to Chinese-speaking investors. The subscription service covers a spectrum of vital cryptocurrency data, including news, analysis, industry trends, price movement, sector related stocks and ETFs, and more.
ChineseInvestors.com (OTCQB: CIIX), CEO, Warren Wang, in the press release announcing the new service, described why providing this information to the Chinese-speaking population represents a significant market opportunity.
"With the use and trading of cryptocurrencies on the rise in Asia, it appears that a much wider adoption of digital assets may be right around the corner. With an estimated 85% market share, China is one of the dominant players controlling bitcoin volume, along with Japan (which recently legalized bitcoin as a form of payment) and the United States," he explained. "While many see the unique opportunity that cryptocurrency poses for investors and desire to capitalize on this market opportunity, they may not have a full understanding of the concept of digital currency or how the system works. CIIX intends to provide fundamental knowledge to Chinese speaking newcomers to cryptocurrency, including straightforward explanations of the basics of cryptocurrency, how to buy it and straightforward trading guidelines. For those with cryptocurrency experience, the Company will provide more detailed information regarding currency mining, blockchain technology, stock trends and ETFs. Through its innovative cryptocurrency education and trading subscription service, the Company endeavors to be the leading Chinese educational site providing up to date news and information on digital currencies."
Headquartered in Los Angeles with offices in New York City and Shanghai, CIIX continues to grow its core as a specialized investment services company with a 100,000+ user base, providing consultation, advertising, and public relations services to China-based companies.
SinglePoint, Inc. (OTC: SING) is another cannabis industry leader participating in the cryptocurrency phenomenon. In June 2017, the company closed a round of funding with an investor to support a bitcoin payments solution that was implemented in partnership with First Bitcoin Capital. By adding bitcoin payments to its diverse portfolio, SinglePoint is helping the cannabis industry - as well as other high-risk industries - overcome the challenges stemming from a lack of adequate banking access. SinglePoint also recently purchased $Weed from First Bitcoin Capital, a new currency in the market. WeedCoin is currently listed on three exchanges, and SinglePoint said it intends to list and market the currency on more exchanges moving forward.
Taking a step backward in the cryptocurrency process helps to understand these investment options in the alternative currency market. California-based graphics chip manufacturer and technology company NVIDIA Corporation (NASDAQ: NVDA), participates in the digital currency market by providing chips used for cryptocurrency mining. While there are numerous other uses for its chips, bitcoin miners favor graphics processing units to create new cryptocurrency units. According to several industry reports, this demand helped push sales of Nvidia's graphics card line 52% higher to $1.2 billion in the second quarter.
Likewise, Advanced Micro Devices, Inc. (NASDAQ: AMD) is benefitting from demand for its graphics card by cryptocurrency miners. In June, the chipmaker told CNBC that demand for its graphics cards was fueled by the 'newly resurgent cryptocurrency mining markets'. Earlier this week Advanced Micro Devices revealed details of its 'Radeon Software Crimson ReLive Edition Beta for Blockchain Compute' driver created to help boost the efficiency of cryptocurrency mining rigs. The beta-level driver targets graphics processors that are used for mining, or a way that new transactions are added to blockchains, addressing the demand for processors used by those tapping into the cryptocurrency market.
The growth and potential of bitcoin is further evidenced by Bitcoin Investment Trust (OTCQX: GBTC), which enables investors to gain exposure to bitcoin's price movement through a traditional investment vehicle without the challenges of buying, storing and safekeeping bitcoin. The U.S.-based, open-ended grantor trust is invested exclusively in bitcoin, and its shares are the first publicly quoted securities solely invested in and deriving value from the price of bitcoin. Bitcoin Investment Trust was recently named to OTC Markets Group's 'OTCQX Best 50' for 2017. Bitcoin digital currency has already been named an official method of payment in Japan, and it is being accepted by more and more major retailers in the United States, furthering the acceptance of bitcoin's presence as a valid payment method.
Market analysts continue to predict increases in bitcoin and digital currency in general. Cryptocurrency payments have benefited businesses and consumers in the cannabis products industry and in the graphics cards markets, driving growth in both sectors. Current trends show that it is also opening the door to markets worldwide, especially in the United States and China, with little signs of slowing down. This is true if pricing is any indication; bitcoin recently surged past $4,500.
(Source: NetworkNewsWire)
As part of Finance Monthly’s brand new fortnightly economy and finance round-up analysis, Adam Chester, Head of Economics & Commercial Banking at Lloyds Bank, provides news and opinions on UK and global markets touching on the Bank of England, Brexit and currencies.
The pound fell to an eight-year low against the euro over the past week, pushed by ongoing signs of momentum in the Eurozone and concerns over the outlook for the UK economy.
Sluggish wage growth has also fuelled concerns about the strength of the economy as a whole.
The Office for National Statistics reported that average weekly earnings grew by 2.1% year-on-year in the three months to June - equating to a 0.5% fall in real wages.
While there can be little doubt that the fortunes of the Eurozone have improved, despite Brexit uncertainty, the fall in the pound looks overdone and the UK’s position could now be shifting.
Signs of improvement
The jury remains out on the extent to which Brexit uncertainty is weighing on sentiment, but earlier indications of a sharp slowdown in economic growth have given way to signs of stability.
Undeniably, the economy slowed sharply in the first half of this year. Quarterly GDP growth averaged a below-trend 0.3% across the first six months of 2017, compared with 0.6% in the second half of 2016.
As the third round of Brexit discussions gets underway however, reports including CBI industrial trends, purchasing managers index (PMI), labour market and even retail sales are all showing signs of improvement.
While plenty of downside risks remain, for now, households and businesses are in the main managing to cope with the challenges.
Employment and exports climb
Take the latest employment report, for example.
According to the ONS, total employment rose by a further 125,000 in the three months to June, pulling the unemployment rate down to 4.3% - the joint lowest rate since 1975.
Separately, the CBI reported last week that industrial orders rose this month, approaching the 29-year high seen in June. The trade body stated that a rise in both domestic and export orders was behind this rise, with the latter fuelled by the drop in the pound and the turnaround in the Eurozone’s fortunes.
Improvements didn’t stop there. The latest UK public finances data were also better than expected. July’s public finances were back in the black for the first time since 2002, thanks to surging tax revenues.
The beleaguered retail industry also saw a return to stability. Sales rose by 0.3% in both June and July, though this could prove temporary, as the latest CBI retail trades survey suggests renewed weakness in August.
Brexit and the Bank of England
Despite these signs, Brexit uncertainty still looms large.
At its policy meeting earlier this month, the Bank of England remained studiously agnostic on the implications of Brexit. For forecasting purposes, it assumes a “smooth transition” post March 2019, but makes no judgement about what form the UK’s eventual relationship with the EU may take.
It’s clear, however, that uncertainty continued to weigh heavily on the minds of UK rate-setters when they left the bank base rate unchanged again this month by a margin of 6-2.
Alongside this decision, the bank published its inflation report, containing modest downward revisions to GDP predictions for this year and 2018. Inflation is expected to remain above its target of 2% over the next three years.
Judging by the reaction, these latest communications have been taken as evidence that UK interest rates will remain on hold for a long time.
The markets are not priced for a first quarter-point rise until mid-late 2019, and the rate is expected to be below 1.0% in five years’ time.
Potential rate rise earlier than expected
But this looks overdone.
Market participants seem to have focused on the most dovish aspects of the Inflation Report, ignoring the explicit warning the rate may rise more sharply than the market yield curve expects and forgetting the implications of the ending of the Term Funding Scheme (TFS).
The programme has been in place since last August to help provide cheap finance to the banking system.
It would be odd to increase rates while at the same time mitigating the impact through TFS, so when it ends next February an obstacle to an early rate rise will have been removed.
On balance, the recent scaling back in UK interest rate expectations, and the corresponding impact on the pound, may have gone too far. There remains a significant risk that the first rise comes earlier than the market expects – possibly by early next year.
Much will depend on how Brexit negotiations develop. One thing is certain, the markets will be watching closely for any signs of progress.
Reports indicate that in recent months, the US dollar rally may be more of a hindrance to emerging market equities than to currencies themselves. The current relationship between the US dollar and emerging market peers, according to Bloomberg, isn’t conforming with conventional wisdom.
Looking at the performance of the dollar, and compared with market equities and currencies, Finance Monthly has heard from a number of sources, in the US and beyond, on the growing relationships between these indices.
Mihir Kapadia, CEO and Founder, Sun Global Investments:
A US dollar rally may be a bigger hassle for emerging-market equities than for currencies these days.
The US dollar has had a rough year till date, having lost nearly 12% of its value this year. This is largely attributed to doubts over the Trump administration’s ability to achieve healthcare reform, tax cuts and infrastructure spending. Confidence on the US administration’s ability to deliver growth-boosting fiscal policies is low, while the positive political and economic situation in Europe has further added to the pressure on the US Dollar. It’s been a reversal of fortunes of sorts as there are somewhat reduced expectations for tighter monetary policy out of the Federal Reserve in the US and higher expectations for more tightening out of the European Central Bank.
The weaker dollar probably does not unduly worry the President as it boosts the US’s export competitiveness. Trump probably views it as a positive as it will boost the US industrial heartlands.
However, this has been a negative factor for overseas investors in US assets, increasing their costs or reducing their profits. The slump in the dollar has already dampened the spirits of currently high performing Asian equities as there is an increasing fear that the weaker dollar could make Asian exports less competitive over time.
A weaker dollar has helped EM bonds as fears that an accelerated monetary policy tightening from the Fed Reserve would put pressure on the dollar-denominated debt of Asian companies, have receded. However, these taper tantrum type fears could represent a risk factor as EM equities are highly correlated with US equities.
Daniel Harden, Head of Desk, Global Reach Partners:
The strengthening US Dollar does appear to be having a proportionately greater impact on emerging market equities at present. The key reason for this is that many emerging economies are pegged to the Dollar so when it goes up in value their own currency follows which can have a detrimental impact on exports. This can also effect emerging market companies with offshore earnings and make foreign debt repayments more expensive.
That said, the US Dollar is still in a relatively weak position and current events suggest it may remain so for the foreseeable future.
The currency had hit a 15 month low against the Euro. It then rallied following the release of an upbeat Non-Farm Payroll (NFP) report earlier this month which highlighted the creation of 209,000 jobs, a figure well ahead of expectations. It also reported a dip in unemployment to 4.3% which matches a 16 year low in the US.
The NFP Report has now provided the market with a good selling opportunity on the US Dollar. It also remains down against all G10 counterpart currencies, impacted by low inflation and interest rate differentials.
Moving forward you cannot ignore the on-gong political situation where there are serious questions of confidence over the ability of the Trump Presidency to deliver a longer term economic boost. While Mr Trump presided over an initial bull run on the Dollar, this appears to be over and there are now emerging signs that the market is losing confidence in both his administration and the Dollar.
The developing situation in North Korea, what effect this will have on the Dollar and the wider economic impact which could result from an escalation in hostilities is a big unknown variable in this whole equation. It is often the case that events which threaten global security will strengthen the US Dollar which is seen as a safer investment.
Looking at the bigger picture where we have an increasingly dovish FED, operating under an unpredictable and sometimes volatile President, with interest rate differentials against it and falling inflation, there is a strong case to suggest the dollar sell off will continue. The potential impact, including the effect this could have on emerging market equites, may therefore be over-stated.
Josh Seager, Investment Analyst, EQ Investors:
Emerging markets are especially vulnerable to a strong dollar when there has been lots of flows into emerging markets prior to the dollar strength. This is what happened prior to the Asian crisis and the taper tantrum. Generally, lots of money flows into emerging markets because of depressed returns elsewhere, imbalances build (for example an over-reliance on foreign funding), the dollar gets stronger and then investors take out their money at the same time causing a big sell off.
There are few signs of such a build-up of capital. The MSCI EM index has underperformed the MSCI World index by 50% over the past five years and flows have been coming out of emerging markets as a result. As a consequence, we aren’t so worried about a US Dollar related emerging market sell off ourselves.
The dollar is negatively correlated with commodity prices so if strong dollar causes weak commodities this can hurt emerging market equities. Emerging markets also benefit from global growth so if the dollar is strong and trade is good there is unlikely to be an issue.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
In the digital economy, trust is the new currency. Technology is changing the nature of trust – especially for banking and financial services as they strive to provide greater value and protection to customers, and deliver products to market quickly through machine learning, blockchain and pervasive encryption. Explore the rise of "digital trust” and its impact on business in an interview with global trust expert Rachel Botsman and IBM Industry Platform General Manager, Strategy & Market Development Shanker Ramamurthy. Rachel’s “digital trust” theory was named by TIME as one of the “10 Ideas That Will Change the World.”
