Capital Markets

January 5, 2018

Our Weekly Newsletter

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At Instinctif Partners’ Financial Services Team we constantly keep our eyes peeled for the key developments taking place in the financial services space, evaluating their impact on the many businesses we represent. Here we share our picks of the week’s most interesting news, as well as our expert views.

  • Millennials set for trillion-pound windfall: By 2035, Millennials are set to become the richest generation when they inherit £6 trillion-worth of assets currently being held by their Baby Boomer elders. Should the financial services sector wait a few more years before courting this generation or should it try to seize a significant opportunity? From The Guardian, 29 December 2017
  • Is Amazon tampering inflation?: A growing body of experts think Amazon.com and other online retailers are key to tempering inflation. Thanks to consumers’ ability to compare prices and shop around online, retailers are now forced to keep prices low. In turn, inflation remains in check. From Vox, 31 December 2017
  • High speed traders hit a wall: For years, black box traders have taken part in a high-speed arms race to ensure they are able to shave milliseconds off their performance time and beat the market clock. But now, as they hit the ceiling of technology and light speed, high-speed trading is looking for new ways to snag market share. From the Financial Times, 2 January 2018
  • Humans bow out: It has been a while coming, but investment houses are now relying on computing power, rather than the human brain, to manage their funds. Years of pressures on fees and under-whelming returns, coupled with the unerring competition with passive investment vehicles, mean that humans are now surplus to requirements. From The Times, 2 January 2018 
  • MiFID II is here: The long-awaited regulatory shake-up, considered by many to be the biggest of its kind to hit financial markets since the 1986 “big bang”, has finally come into force across Europe. Experts claim that the directive has already cost top global banks and asset managers £1.5bn, and is set to slash analyst jobs and shake up the economics of broker research. From City A.M., 3 January 2018

The start of a new year would not be the same without the usual forecasting from markets’ oracles. Predictions provide for entertaining, albeit at times ominous reading and (not always accurate) – and 2018’s forecasting does not disappoint.

A particularly good report this week from Reuter’s (Breakingviews) caught our attention. It’s an impressive and exhaustive assessment of 2018. If it turns out it hit the mark, we should brace ourselves for a year of thrills and spills!

Reuters predicts that some key triggers of the next market downturn are likely to come to the fore in 2018:

  • The Federal Reserve may end up changing policy faster than markets expect – unearthing high amounts of exposure to rising interest rates in unexpected places;
  • The rapid growth of ETFs may lead to higher risks – as the widening range of what they are trying to track could create a loss of confidence and worsen a future crisis;
  • Big pension funds’ attempt to safeguard investments against risk could make managed futures a popular option. However, instead of minimising losses these investments, experts alert to its potential to amplify market crashes;
  • Hedge funds’ risk-parity strategy has not been tested by a sustained bear market in bonds. Analysts say this could spell bad news for investors in case of a crisis;
  • On crypto-currencies, market players caution that hacks who exploit technological flaws or a sharp fall in demand could crash bitcoin’s price – the fallout could prove contagious to the real world;
  • Brexit will continue to be diluted and may end up being Brexit in name only. As Prime Minister May is forced to offer more concessions, Remainers may end up happier than Leavers by the year’s end.

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