by Chelsea Florence | Aug 21, 2023 | Banking
Key points
- Adyen, a money transmitter company, experienced a stock flash crash on Thursday by 39% after the company announced its slowest revenue growth on record.
- Adyen has been seen for a long as a growth stock after posting consistent revenue growth of 26% each half year since its 2018 stock market debut.
European economic slowdown caused the flash crash of Adyen stock, a payments company following news that it had slowed growth for the first time since 2018. The event claimed $20 billion from the company’s total valuation.
Slow European economic growth affects multiple companies
The Eurozone has been battling high inflation rates with the possibility of a recession being on the horizon. As a result, multiple companies have decreased productivity, anticipating a contracting market.
On Thursday, Payments Company Adyen released monetary reports indicating that it was for the first time in the first half of the year since 2018 expecting slowed revenue growth. This stock had been viewed as a growth stock as it had posted consistent 26% growth in each year’s H1 since its debut.
As a result, a massive sell-off happened, making it lose 39% of its share value, equivalent to 18 billion euros or $20 billion. Though the company comfortably weathered the pandemic turbulence, the major shift in the Eurozone macroeconomic environment has challenged its growth strategy greatly, which is to blame for the dismal performance.
Additionally, it is still expected that pain will persist in the Eurozone markets as inflation rates remain unsurprisingly high, necessitating more action from the concerned governments and central banks. However, the region is not promised how long the ‘harsh’ economic environment will last.
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by Chelsea Florence | Aug 14, 2023 | Banking
Key Points
- FedNow has showcased a new DLT-powered payments platform built on Hedera to its list that showcases service providers.
- The Federal Reserve previously indicated that it would not support or endorse any showcase providers featured on its website.
The United States Federal Reserve has showcased a DLT-powered company as a service provider on its website. The administrator said showcasing a company on the website does not necessarily mean it supports the company.
FedNow exhibits a DLT-powered payments system as a service provider
Dropp, the company in question, is a DLT services provider powered by the Hedera Hashgraph and has now appeared on FedNow’s Service Provider Showcase section. This section aims to connect financial institutions and businesses with service providers that could “help them innovate and implement instant payment products using FedNow Service.”
Though this showcasing could signal that FedNow is warming up to DLT-powered services providers, the Federal Reserve has previously stated that it doesn’t support any of the companies posted there. Also, it has said that the materials exhibited on its website are only “presented as a convenience” to potential FedNow Service participants.
“Federal Reserve Financial Services (FRFS) is merely the host for the showcase and does not support or endorse any showcase providers, and the inclusion or exclusion of a provider should in no way imply any recommendation or endorsement by FRFS.”
This development catches the crypto community divided time following the launch of PayPal’s PYUSD stablecoin. The coin has smart contract functionalities that allow for the censorship of transactions which a faction of the crypto community sees as a start to undermining crypto culture like decentralization.
Now, even with FedNow allowing DLT-powered services providers on their website, some still feel that it’s not enough indicator that crypto will be allowed to fully shape up as an alternative to the ‘flawed’ monetary systems.
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by Samuel Mbaki | Aug 11, 2023 | Banking
Key points
- The UK economy has defied all odds and posted an impressive 0.2% growth despite projections that it would contract in Q2.
- The growth came as household expenditure rose in tandem with manufacturing output.
- Economists still fear the effects of high-interest rates are not fed through, and pain is yet to be lifted from British markets.
UK economy has seen a surprise 0.2% growth in Q2 as manufacturing output and household expenditure rose though the effects of high-interest rates are still shaking the markets.
UK posts a Q2 2023 surprise growth
The UK has been on the verge of a reversed economic growth this year following its January 2020 Brexit and the post covid 19 economic challenges. The country has been battling high inflation rates of up to 12%, which has necessitated the introduction of tighter banking measures.
The BoE has hiked interest rates making borrowing more expensive for nationals and investors in Britain. While the interest rates are working to bring down the inflation levels, the economy has been hit by pain in its markets. More and more households cannot afford to pay their mortgages, while businesses have been cutting their expenditures.
These economic outlooks were expected to drag the UK economy into contraction in Q2, only to bounce back with an impressive 0.2%. The jump is due to increased manufacturing output and spending rates.
The economy expanded by 0.5% in June, beating a forecast of 0.2% and monthly GDP growth of 0.1% in May and 0.2% in April. Manufacturing output grew by an impressive 1.6%, production followed by 0.7%, and services posted a fair 0.1% growth.
On Friday, the Office for National Statistics report said that the strong growth in household and government consumption in terms of expenditure faced price pressure over three months though it was moderated in the previous quarter.
Recession bloodbath fears still looming
Though the UK economy still has ‘legs, ’ the effects of high-interest rates are not necessarily over. BoE hiked rates by 25 basis points in August to 5.25%, and inflation is still running wild, meaning further hikes will be necessary. The UK inflation rates are the highest, around 7.9%, which means the government will not meet its 2% target for the year till Q4 2024.
As such, policymakers will observe the market ahead of the September rate hike decision meeting. Ruth Gregory, deputy chief U.K. economist at Capital Economics, said in a Friday note that the consultancy still forecasts a mild recession for the country later in the year as the impact of higher interest rates is felt.
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by Samuel Mbaki | Aug 5, 2023 | Banking
Key Points
- JP Morgan, one of the largest banking institutions in the world, has called off its signal for a possibility of a recession in the US this year.
- JP Morgan had signaled that the US economy could be in danger of economic contraction due to heightened risk but has now hit a turnaround after the economy showed signs of rebounding.
JP Morgan, one of the most prominent banking institutions in the US and the world, has called off its signal that the US economy could be set for a recession in 2023 after noticing a reduction in pre-exposure risks. However, it still doesn’t believe that all risks are entirely off the table, citing the dangers of the Fed rates policy that has seen 11 hikes so far.
We doubt the economy will slip into a mild contraction in the next quarter- JP Morgan
The US economy has been rocked by high inflation in 2023 and multiple other economic maydays like the banking system collapse and debt ceiling crisis which sent signals of a possible recession. JP Morgan & Chase bank was one of the first financial services providers to signal in 2022 that a recession could be on the horizon for the world’s largest economy.
The weakening of pre-exposing factors to a recession in the United States has sent a wave of hope across international markets that the US economy would be safe from a recession after all. The country’s inflation rate is back at 3% while the labor and jobs sector remains strong. The country’s 11 fed rate hikes are sustainable without too much market constraint.
Additionally, the Banking system collapse has been partially averted, with banks providing over $110 billion in working capital credit funds to keep them afloat. Also, President Biden struck a deal with Congress to lift the US Debt ceiling till 2025 to give a chance to resuscitate the economy and avoid it being plunged into untold economic havoc.
Michael Feroli, the chief economist at JP Morgan, told their clients that recent metrics indicate that Q3 2023 would see the US economy grow at about 2.5% compared with their previous forecast of 0.5%.
“Given this growth, we doubt the economy will quickly lose enough momentum to slip into a mild contraction as early as next quarter, as we had previously projected,” Feroli wrote.
He also mentioned the aversion to the aforementioned economic crisis as an integral part of giving the US economy another chance at growth and development. He also highlighted productivity gains due in part to the broader implementation of artificial intelligence, which has seen industries grow alongside softened hirings and positive jobs market reports.
Rates still keep recession possibilities alive.
Rate hikes bring more pain to the market as investors borrow money at a higher cost. As a result, productivity decreases as investors tend to limit their expenditures. In connection with this economic concept, Ferolli said that rates hike in the US currently keep the recession possibility alive.
The country has seen 11 interest rates hike since March 2022, totaling 5.25 percentage points, yet the inflation rate remains above the Central Bank target of 2%. As such, it calls for more rates hike or sustenance of the current policy for extended periods, which means borrowing will remain expensive in the markets.
“While a recession is no longer our modal scenario, risk of a downturn is still very elevated. One way this risk could materialize is if the Fed is not done hiking rates,” Feroli said. “Another way in which recession risks could materialize is if the normal lagged effects of the tightening already delivered kick in.”
He, however, expects the Federal Reserve to start cutting rates around Q3 2024, which keeps the possibility of reversed economic growth alive. He also noted that current market pricing strongly points toward a recession.
A New York Fed indicator shows that the difference between 3-month and 10-year treasury yields indicates a chance of a contraction in the next 12 months. This concept is drawn using the inverted yield curve predictor method, which has been reliable in forecasting recessions since 1959.
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by Chelsea Florence | Aug 2, 2023 | Banking
Key Points
- Fitch announced on Tuesday that it was downgrading the US long-term foreign-currency issuer default rating from AAA to AA+.
- The US Credit Score was always on the balance of being revised downwards by Fitch following the 2023 debt ceiling crisis.
- US Stock futures fell sharply following the downgrade, starting a domino effect globally.
US Credit Score has been revised downwards by Fitch from AAA to AA+ following the highly contested debt ceiling crisis despite the US suspending it. Consequently, US, Europe, and Asian stocks are trading much lower on Wednesday.
Fitch downgrades US Credit Score from AAA to AA+
The US debt ceiling crisis threatened global economies as the world’s reserve currency issuer would have stepped into an immediate recession if it were to default on its debt. Analysts expected the US to lose at least 8 million jobs at such an event and be the first time in history that it went that route.
However, Speaker MC Carthy and President Joe Biden agreed to forge a deal that would see Congress suspend the debt ceiling till January 2025, when he gets out of office. This deal, however, did not solve anything, as government spending is still up despite inflation falling sharply to 3% in June.
Since the suspension of the debt ceiling temporarily shielded the US from an imminent downward revision of its debt default scores, government spending is up by over a trillion dollars. This has prompted Fitch to go ahead and lower the US Credit Score to AA+, a move that has yet to be well received by financial officials in the country, including Treasury Secretary Janet Yellen.
Following the news, US stock futures traded sharply lower, a fall of almost 300 points for the Dow Jones Industrial Average at Wednesday’s US market opening. Elsewhere, the Pan-European Stoxx 600 index dropped by 1.6%, with all sectors trading in the red. The Asia-Pacific region also plunged across the board at the same time.
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by Samuel Mbaki | Jul 26, 2023 | Banking
Key Points
- PacWest Bancorp shares have recovered after Bank of California struck a rescue merger deal.
- The bank’s shares had crashed 27% in hours, slumping from $10.33 to $7.50 on July 25
PacWest Bancorp has been saved from becoming the latest bank to crash in a banking system meltdown witnessed in March 2023. On July 25, its shares had fallen by as much as 25% but have now recovered to almost the initial figures at the start of the flash crash
PacWest Bancorp merges with Banc of California
PacWest Bancorp and the Banc of California have had a stock merger backed by two private-equity firms, Warburg Pincus and Centerbridge. The all-stock merger has come with the provision of $400 million in equity from the firms, which gives them a 19% stake in the combined business.
As a result, the combined PacWest Bancorp shares have returned to ‘normal’ levels. The combined bank’s business is expected to have around $36 billion in assets and over $25 billion in liabilities/ loans. As a result of the merger, PacWest shareholders will get 0.66 of a share of the Banc of California common stock.
The combined bank business will repay around $13 billion in wholesale borrowings to be funded by the sale of its assets. PacWest’s shares had also dipped by over 60% in May, which made it seem like the next bank to fail in the US after Silicon Valley Bank, Signature, and First Republic Bank.
However, the Federal Reserve saved it after giving a Bank Term Funding Program in June. While it was expected only to be utilized at 250 million, the demand for the funds grew to 120+ billion, cushioning banks in the country from further fails until PacWest got a flash crash on Tuesday.
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