By Sascha Ragtschaa, CEO and Co-Founder of Chainium
Pulling the Trigger
Sourcing information on a global business takes seconds. In fact, the ubiquitous Google now processes over 40,000 search queries every second. This equates to over 3.5 billion searches a day and an almost inconceivable 1.2 trillion searches per year worldwide. However, pulling the trigger to invest in a global business is a whole different ball game.
Whilst the FTSE in London hit a record high of 7,778.64 on the 12th January, this is masking a wider problem. Expensive, intricate and restricting, buying and selling shares between businesses and investors has significantly fallen behind advancing developments within the wider financial sector. Especially when you compare it to the latest cryptocurrencies, with the famed Bitcoin hitting a high of close to $20,000 in December last year, prior to its recent readjustment.
Disruption of the Status Quo
As one of the most vital areas of the market economy, it is essential the equity market drags itself into the 21st century. The simple truth is that when the global equity market was created two hundred years ago with the founding of the London and New York Stock Exchanges, the world was a very different place. Whilst country-specific stock exchanges made sense at the time, today the world has got a lot smaller and the equity market needs to take advantage of a global investment pool.
To become relevant for the modern investor, a certain amount of disruption of the status quo is required. The sector needs to ensure that trading becomes a more seamless experience and promote continued digital transformation within the industry, rather than resisting against it.
The solution could well be the blockchain. The technology that underpins the main cryptocurrencies such as Bitcoin and Ethereum has the advantage of being transparent enough to ensure democracy and visibility, whilst being private enough to protect businesses and investors alike. The technology is an enabling force to being able to remove the middle layers, administration and reconciliation steps required in today’s global equity market solutions. This means that businesses and investors can be connected directly, without the need for middlemen.
To become truly transformative in 2018, any new equity market solution needs to be built with security at its core. The recent string of high profile data breaches – coupled with the impending Global Data Protection Regulation (GDPR) which comes into force on 25th May – have heightened the awareness among consumers regarding information security; especially when payments of any kind are involved. Blockchain can not only protect the individual, but also allow for enough transparency to ensure equity decisions, voting and resolutions are fully transparent.
Removing the shackles
A modern equity network needs to be built with the interests of both investors and business owners at its core. By democratising equity, it can bring influence and power back to the individual investor through de-centralisation, blockchain technology and crypto payments. Meaning the network becomes completely removed from the shackles of traditional stock exchanges, government regulation and the institutional and corporate stranglehold.
By using blockchain to revolutionise the way we all buy and sell shares, a global equity market worth US$76 trillion can truly be unlocked. Not only that, but the 400 million private companies that there are worldwide – representing 99% of total global businesses – can begin to seek potentially transformative investment for the first time.
Back to basics
This back-to-basics approach to raising capital reduces bureaucracy; with blockchain technology removing duplication and eliminating errors. This allow investors and businesses to exchange digital share certificates for fiat or crypto-currency in a transparent, tamper proof and immutable distributed ledger. No intermediary or other reconciliation steps are involved in transactions, cutting through hundreds of legacy systems and solutions from the old world.
Business owners, of private and public businesses, can now sell shares directly to investors. Cutting out the middlemen in issuing and trading shares helps to give complete control back to the businesses and investors alike and help them become indelibly linked.
A transformation is needed
A transformation of the global equity market is needed to promote innovation and reinvent the processes involved in trading shares. No more stock exchanges. No more trading through banks, brokers and intermediaries. No more expensive fees and slow clearing processes. No more share registrars, transfer agents or middlemen.
We have seen AirBNB, Ethereum and Uber all become the pinnacle of digital transformation in their industries, we are now seeing the same beginning to happen in the global equity market too. A step change was needed to ensure investment in the best ideas continues for decades to come. By removing the multiple barriers to investment means that the next Apple, Google or Microsoft won’t be left on the scrapheap, but receive the investments they need to thrive.
ECB still in wait-and-see mode as yields rise
FRANKFURT (Reuters) – The European Central Bank is monitoring the recent surge in government borrowing costs but will not target specific levels in bond yields or mechanically react to market moves, two ECB policymakers said on Friday.
Government bond yields around the world have rebounded from some of their lowest levels in history in recent weeks, mostly reflecting expectations of faster price growth in the United States.
Investors have been pondering at what point the ECB will increase the pace of its bond purchases to rein in yields, in keeping with its pledge to maintain financing conditions favourable for pandemic-stricken governments, companies and households.
Verbal intervention by ECB President Christine Lagarde last week failed to stem the bond selloff. Then Chief Economist Philip Lane’s and fellow board member Isabel Schnabel tried to calm investor nerves. But both inserted caveats in their messages.
“At this stage, an excessive tightening in yields would be inconsistent with fighting the pandemic shock to the inflation path,” Lane said in an interview with ExpansiÃ³n.
“But at the same time, it is crystal clear that we are not engaged in yield curve control, in the sense that we want to keep a particular yield constant”.
Lane added that while inflation was indeed recovering, the increase was not yet what the ECB was looking for after a decade of undershooting its target.
Ten-year Bund yields, a key benchmark for the 19-country euro zone, now yield -0.223%, up from around -0.60% at the start of the year.
Schnabel reaffirmed that higher long-term real yields, which are adjusted for inflation, in the early part of an economic recovery could choke growth and would warrant a reaction by the ECB.
But she said a gradual rise in bond yields would even be welcome if it reflected higher inflation expectations, showing the ECB’s stimulus is working.
“For example, a rise in nominal yields that reflects an increase in inflation expectations is a welcome sign that the policy measures are bearing fruit,” Schnabel said.
“Even gradual increases in real yields may not necessarily be a cause of concern if they reflect improving growth prospects.”
(Reporting by Balazs Koranyi and Francesco Canepa; editing by Shri Navaratnam, Ana Nicolaci da Costa, Larry King)
European shares drop as bond rout sparks profit taking
By Shashank Nayar
(Reuters) – European stocks fell on Friday as investors booked profits in high-flying technology shares due to concerns over rising inflation and interest rates on the back of a jump in bond yields.
The benchmark European stock index was down 0.6%, paring earlier losses but still on track to record its first weekly fall this month. London’s FTSE 100 slipped 0.2% and Germany’s DAX lost 0.1%, both well off session lows.
“Equity markets across the U.S. and Europe are quite expensive now and with bond yields constantly rising, the fixed income market is proving to be more attractive than the riskier equity market,” said Roland Kaloyan, a strategist at SocGen.
“Investors are actually looking at the pace at which yields drop and the current speed is quite concerning for equity markets.”
Asian markets fell to a one-month low, while the dollar rose from a three-year trough as the 10-year U.S. Treasury yield hit a one-year high, sparking fears the heavy losses could trigger distressed selling in other assets. [MKTS/GLOB] [FRX/]
Euro zone government bond yields, however, stabilised on Friday, although Germany’s benchmark yield was still headed for its biggest monthly jump since 2016.
Technology stocks bore the brunt of this week’s sell-off after powering the global stock market recovery last year as assurances from European Central Bank chief Christine Lagarde and other policymakers failed to stem the rise in yields.
Still, the benchmark STOXX was tracking its best monthly gain since November, helped by a rotation into energy, banking and mining stocks on expectations of a pickup in business activity following vaccine rollouts.
Better-than-expected fourth-quarter earnings have also reinforced optimism about a quicker corporate rebound this year. Of the 194 companies in the STOXX 600 that have reported quarterly earnings so far, 68% have beaten analysts’ estimates, according to Refinitiv.
“As recovery hopes gain ground with the economy re-opening and vaccines coming up, coupled with earnings being relatively positive, the near-to-mid-term outlook for equities seems positive with yield movements still a part of the equation,” said Keith Temperton, an equity sales trader at Forte Securities.
Germany’s Deutsche Telekom gained 0.3% after it reported forecast-beating fourth-quarter results as its merged U.S. unit T-Mobile continued to drive growth.
British Airways-owner IAG gained 3.2% even after it recorded a 7.43 billion euro ($9 billion) loss last year and warned it could not say when normal flying conditions would return.
(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila)
Bond markets left smarting from worst rout in years as reflation goes global
By Dhara Ranasinghe
LONDON (Reuters) – From the United States to Germany and Australia, government borrowing costs on Friday were set to end February with their biggest monthly rises in years as expectations for a post-pandemic ignition of inflation gained a life of their own.
Australia’s 10-year bond yield and Britain’s 30-year yields were set for their biggest monthly jump since the 2009 global financial crisis. Long-dated New Zealand yields were flirting with their biggest monthly surge since 1994.
The move, which began in the U.S. Treasury market at the start of the year on prospects for a huge fiscal boost and economic recovery, has spread globally.
Even after a Friday respite from this week’s brutal drubbing, Australia’s 10-year yield is up 70 basis points in February and New Zealand’s 10-year yield is up almost 77 bps.
(Graphic: Australia’s 10-year bond yield set for biggest monthly rise since 2009: https://fingfx.thomsonreuters.com/gfx/mkt/xklpyoogmpg/AU2602.png)
Australia’s 10-year bond yield has soared almost 40 bps this week alone to 1.8%, its biggest weekly jump since 2013 .
And as three-year bond yields moved above their 0.1% target, the Reserve Bank of Australia on Friday made an unscheduled offer to buy A$3 billion ($2.35 billion) of three-year bonds, on top of a similar amount on Thursday, to calm markets.
“Given how expensive bonds have been, meaning yields have been depressed, it was expected that when the selloff came it would move at great speed,” said Seema Shah, chief strategist at Principal Global Investors.
“This is a move driven by the U.S. and that has fed out to other markets, but large elements of the selloff in recent days are not just about the improvement in growth fundamentals but technical factors, too.”
(Graphic: Monthly change in bond yields: US, UK, Germany: https://fingfx.thomsonreuters.com/gfx/mkt/dgkplzzwepb/febyields2602.png)
For the United States and some European markets, the bond selloff was on the scale of late 2016, when Donald Trump’s election as U.S. President last triggered so-called reflation bets.
U.S. 10-year bond yields, up more than 35 bps this month and near one-year highs above 1.45%, are set for their biggest monthly jump since November 2016.
Britain’s 10-year bond yield, up 45 bps in February, was also set for its biggest monthly jump since 2016. Thirty-year yields headed for their biggest monthly leap since 2009 after rising 48 bps.
Rising government bond yields pose a challenge for central banks trying to steer economies through the COVID-19 crisis. They feed through to the real economy by raising the rates at which banks lend and consumers borrow, thereby tightening financial conditions.
Japan, which targets long-dated bond yields at around 0%, has seen 10-year yields rise almost 10 bps this month to 0.15%. That puts it on track for the biggest monthly gain since March 2020, the peak of the COVID-19-induced market turmoil.
In the euro area, where German Bund yields were set for their biggest monthly jump in three years, the European Central Bank has said it is monitoring the rise in rates closely.
“Seen from a fundamental angle, the ultra-low yields of 2020 made much less sense than the less depressed yields to which markets are heading now,” said Berenberg chief economist Holger Schmieding.
Schmieding said 10-year U.S. yields were likely to rise to 2% by the end of the year as investors price in strong growth and a rebound in underlying inflation. German Bund yields could reach 0%, “with risks tilted to the upside.”
(Graphic: Where will bond yields end this year?: https://fingfx.thomsonreuters.com/gfx/mkt/qmyvmwwgwvr/DEUS2602.png)
(Reporting by Dhara Ranasinghe; Editing by Tommy Wilkes and Larry King)
G20 to show united front on support for global economic recovery, cash for IMF
By Michael Nienaber and Andrea Shalal BERLIN/WASHINGTON/ROME (Reuters) – The world’s financial leaders are expected on Friday to agree to...
Bank of England’s Haldane says inflation “tiger” is prowling
By Andy Bruce and David Milliken LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that...
Exclusive: China’s Huawei, reeling from U.S. sanctions, plans foray into EVs – sources
By Julie Zhu and Yilei Sun HONG KONG/BEIJING (Reuters) – China’s Huawei plans to make electric vehicles under its own...
ECB still in wait-and-see mode as yields rise
FRANKFURT (Reuters) – The European Central Bank is monitoring the recent surge in government borrowing costs but will not target...
Facebook switches news back on in Australia, signs content deals
By Renju Jose and Jonathan Barrett SYDNEY (Reuters) – Facebook Inc ended a one-week blackout of Australian news on its...