August 16, 2019
Our Weekly NewsletterContact
Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.
Google, can I afford take out?
NatWest is the first UK bank to trial “voice-only banking” – in collaboration with Google Home. Those with the smart Google speakers in their homes will now be given direct access to their bank accounts, and able to ask the voice assistant questions like “What’s my balance?” or “What’s my pending transactions?” While only basic account information will be available under the trial, NatWest said the technology may in future allow customers to instantly transfer money and pay bills simply by talking to Google devices. (From Which?, 12 August 2019)
Stealth insurance charge driven through the roof
Car insurers are using a net of hidden charges to make extra money from consumers – and the costs associated are rising. Written in the small print of a contract, car insurers hide the extra charges that apply to people doing anything from changing jobs to moving house, getting married or just asking for a spare copy of the documents. GoCompare found that the charge for these admin costs is soaring, and can differ greatly from insurer to insurer – with some seeing a difference as big as £7.50 to £70.50. (From The Daily Mirror, 12 August 2019)
Pension cap bypass
Splitting your pension into smaller pots while drawing down can trigger the Money Purchase Annual Allowance (MPAA) – something few savers are aware of. After the allowance was cut from £10,000 to £4,000 in April 2017, in this new age of pension freedoms, analysis has now shown that this may heavily impact those accidentally accessing the wrong pension pot. (From FTAdviser, 14 August 2019)
World’s first negative mortgage launched
Danish Jyske Bank has launched the world’s first negative interest rate mortgage, with charges of minus 0.5% a year. Borrowers who opt for the negative mortgage will make a monthly repayment as usual, the difference being that the outstanding amount will be reduced each month by more than the borrower has paid. (From The Guardian, 13 August 2019)
Catch-22 for e-scooter insurance
With the jury still out on e-scooters, the Met Police are continuing to seize the devices for not having the equivalent of car insurance. However, insurers are refusing to cover the e-scooters, citing their illegality as the reason behind the decision, creating a Catch-22 situation for the future of the newest mode of transport. However, the future of electric scooters is not set in stone, as the devices could soon get approved for use on roads, helping them to qualify for insurance. (From The Daily Telegraph, 14 August 2019)
Are the curves pointing to a recession?
This week, the bond markets in the UK and the US went into high alert after the yield curves inverted, in what many economists see a clear precursor to a recession. But is this a sure sign of problems to come or just an economic red herring?
This week, the yield on 30-year US treasuries dropped below 2% for the very first time as the flight from stocks into bonds pushed down yields on long term T-bills. The UK 30-year Gilt also set a record by falling by more than 1%.
The race to long-term fixed-income safety is so pronounced that yields on 2 and 5-year bonds are now higher than those on 30-year bonds, inverting the yield curve. The theory assumes that investors have lost faith in stocks and commodities and expect weaker growth in the market, driving down the yields of the longest-dated bonds significantly.
Many economists see this rush to safety as a precursor to a recession. Historically, the last few recessions have been heralded by a drop in long-term bond yields and experts think that it’s a sure-fire way to pre-empt a full recession. On average, a recession has followed an inverted yield curve after 14 months.
Further proof of the ‘flight to safety’ can be seen in the gold market, as the precious metal has gained more than $100 in the last month.
But others think the inverted yield curve is not representative of the wider economy. The US economy is showing many signs of strength and it could be a weakened European economy that is causing global ructions in the bond market. The former Fed chair Janet Yellen pointed to global uncertainties over trade as the reason for the inversion, as opposed to weak economies.
That said, the fear of recession could be a self-fulfilling prophecy as worried investors dump shares – all major global indices fell after the news of the inverted yield curve. As one analyst noted, the inverted yield curve is “crying timber” as investors run out of the way.
It may be that this latest red flag is the precursor to a recession, but as experts note, the last two recessions were the result of unforeseen “human folly” in the dotcom bubble and the subprime mortgage crisis. Also, the track record of economists’ ability to foresee downturns is historically terrible. But, markets are built on confidence and fear and it may be that after a decade of bullishness, fear is now driving decision-making.