Symax Fintech Daily Insights 22.08.23

Arm filed for an IPO on the Nasdaq, taking a step toward what’s set to become the biggest US initial offering of the year. It didn’t disclose terms but is expected to start its roadshow in the first week of September. Arm lined up 28 banks, with Morgan Stanley the only major omission. A successful debut may prompt IPOs by Instacart and others. BB

China is ramping up the fight with yuan bears on two fronts to stop the selloff from spiraling. The PBOC once again set a stronger-than-expected reference rate at its daily fixing. Earlier, authorities pushed up funding costs in the offshore market. BB

In quiet summer FX markets, the top story remains Chinese authorities’ defence of the renminbi, This stands to be a long campaign given that USD/CNY is trading near 7.30 for good reason. Elsewhere, tech stocks are making US equities look bid even though steadily higher US Treasury yields pose a challenge. And looks out for BRICS expansion news today. ING

The US bond-market selloff resumed Monday, driving 10-year yields to a 16-year high, as the persistently resilient economy has investors positioning for interest rates to remain elevated even after the Federal Reserve winds up its hikes. The selling pressure weighed on typical Treasuries as well as those that provide extra payouts to cover inflation, signaling bondholders are bracing for the risk that monetary policy will remain tight as the central bank guards against a re-acceleration in inflation. Japan’s 10-year government bond yield reached a new nine-year high Tuesday amid upward pressure in global interest rates.  BB

US 10-year TIPS yields pushed at the 2% level Monday, a psychological barrier not seen since 2009. And it’s not alone. In country after country, inflation-linked bond yields are climbing to new highs. They may have further to go in this selloff, but they won’t stay this high for long.

Real yields reflect two things: the pace of growth in an economy and inflation expectations. Nominal yields are basically a reflection of interest-rate expectations plus a premium for uncertainty. Real yields are the nominal yield minus expected inflation. But they also represent the true cost of funding in an economy: how strongly traders think the central bank needs to keep the brakes on in order to meet its inflation targets.

Of course, 10-year yields should theoretically look through economic cycles, but in practice they don’t. And there is a school of thought that rising borrowing needs will drive up real yields in coming decades, as JPMorgan economists Alexander Wise and Jan Loeys recently argued. That may be true. But in the meantime, economic data will start to deteriorate and the Fed will start lowering rates.

The neutral rate of interest may well be — in fact probably is — higher than during the slowflation, new normal years following the GFC, as Nick Timiraos argued in a WSJ article Monday. That doesn’t mean the yield on 10-year TIPS can sustainably remain a full percentage point higher than its peak in that period even as the economy slows. BB

Markets fear a “perfect storm” may sap gains, Barclays said. Rates jitters, poor summer liquidity and China troubles are adding to economic growth worries. Similar story for US stocks, which has two of Wall Street’s top strategists at odds. BB

Chief executives of Britain’s biggest companies saw an above-inflation pay boost last year but still earned less than before the pandemic, a report showed. Median pay for FTSE 100 CEOs increased 16% year on year to £3.9 million, which is still £70,000 short of pay packages seen in 2017. BB

The wage floor for American workers is rising and recently hit a record high, according to a Federal Reserve Bank of New York survey. The lowest annual pay that workers would accept to take a new job increased to $78,645 in July, according to the New York Fed’s most recent Survey of Consumer Expectations. That’s up from about $72,900 a year earlier and $69,000 in July 2021. BB

Xi Jinping’s quest to rewrite the playbook that drove China’s economic miracle for a generation is facing its sternest test yet. The $18 trillion economy is decelerating, consumers are downbeat, exports are struggling, prices are falling and more than one in five young people are out of work. BB

The crowds of travelers filling airports in many parts of the world this summer are a telltale sign of what’s ahead for tourism. By 2033, travel is set to become a $15.5 trillion industry—accounting for more than 11.6% of the global economy. This represents a 50% increase over its $10 trillion value in 2019, when travel represented 10.4% of the world’s gross domestic product. BB

The grouping of Brazil, Russia, India, China and South Africa, whose original acronym BRIC was coined by former Goldman Sachs chief economist Jim O’Neill in 2001, is mounting what could be its second most serious attempt to rival the Group of Seven since its formation in 2009-10.

More than 40 heads of state and government from the Global South, many of whom have for years denounced the Western-led international order for sidelining them, will gather in South Africa’s commercial capital of Johannesburg for the 15th annual leaders’ summit of the BRICS alliance starting Tuesday.

Almost two dozen Global South nations have formally requested to join the bloc, and several others have expressed interest. The group hasn’t had any new admissions since South Africa in 2010.

“An expanded BRICS will represent a diverse group of nations with different political systems that share a common desire to have a more balanced global order,” said South Africa’s President Cyril Ramaphosa.

It could generate about half of global output by 2040 if aspiring members such as Indonesia, the world’s largest producer of palm oil, and Saudi Arabia, the biggest exporter of oil, join, Bloomberg Economics estimates show, bolstering the alliance’s global clout. The G-7, by comparison, would provide about a quarter of global gross domestic product, effectively a reversal of their respective shares of output compared to 15 years ago. 

An enlarged BRICS would also account for almost half the global population, up from 42% currently, according to Anil Sooklal, South Africa’s ambassador to the bloc.

Unease that a bigger BRICS will become a mouthpiece for China and weaken other members’ status. Optimism that it will provide a voice for emerging countries amid a fractured and increasingly polarized world where Russia’s war in Ukraine and US trade tensions with Beijing are among the biggest flash points.

It’s also led to skepticism on whether an expanded and far more heterogeneous BRICS would be able to translate economic and demographic might into a political force challenging the G-7. The club’s politically disparate members are facing deep challenges at home and have repeatedly failed to forge a united position on global issues from the war in Ukraine to climate to trade. BB