Overview: A weak close in US equity trading yesterday and the widening of China's "cultural revolution" for a two-month investigation of the financial sector stopped a three-day advance in the MSCI Asia Pacific Index. China, South Korea, and Taiwan saw more than a 1% decline in their major indices. All the major indices weakened. South Korea's Kospi fell to a new marginal low for the year and took the won with it. The Dow Jones Stoxx 600 in Europe is off around 0.2%, and US indices have recouped their earlier losses after yesterday's poor close. The bond market is quiet, leaving the US 10-year yield a little above 1.60%. European yields are softer after, setting new three-month highs. The dollar is slightly lower against most of the major currencies. Emerging market currencies are mixed. The Turkish lira is at new record lows. Thailand is a standout with a 1.3% gain. The easing of the quarantine and resumption of tourism helped lift the baht to a two-week high. The JP Morgan Emerging Market Currency Index is trying to snap a six-session drop. Before today, it has risen only twice since the FOMC meeting concluded on September 22. Crude oil is firm, but both Brent and WTI are consolidating below yesterday's lows. Natgas is trading lower for the third consecutive session, while coal rose to a new record high in China. Iron ore extended its rally for the fifth session while copper is snapping a three-day advance. A base in gold near $1750 is holding. Ahead of a report from the US Department of Agriculture, core and soy have edged lower.
Since the last FOMC meeting, in which the Fed indicated its bond purchases would end around the middle of next year, the dollar has appreciated by almost 4% against the Japanese yen. It traded above JPY113 yesterday for the first time in three years. The next important band of resistance is between JPY114.50 and JPY115.00. A cautionary note comes from the pace of the dollar's rise. It closed above the upper Bollinger Band (~JPY112.95) and is trading above it today (~JPY113.33). Benchmark three-month implied volatility has also been bid above 6.2% to five-month highs and has moved above the 200-day moving average (~5.8%) for the first time in eight months.
The Australian dollar rallied the most in a month yesterday, seemingly breaking out with two successive closes above $0.7300 at the end of last week. The end of Sydney's lockdown and rising commodity prices, especially iron ore, coal, and natural gas, are seen as constructive. However, the speculative market may be leaning the wrong way. The net short speculative position in the futures market has grown without fail since the end of June. Over the 15 weeks until October 5, the net short position has risen from about 17.6k contracts to a record of almost 90k contacts. The $0.7365 area holds the upper Bollinger Band and the (61.8%) retracement of the sell-off since early September.
The dollar reached almost JPY113.50 in Asia turnover before easing ahead of European activity and testing support at JPY113.00. The high in the holiday-thinned North American session yesterday was slightly above JPY113.40. The yen is also softer on most crosses. The Australian dollar is firm but within yesterday's range (~$0.7290-$0.7375). It softened in the first half of the local session before rebounding late, and new marginal session highs were recorded in early European turnover. The greenback edged higher against the Chinese yuan for the second consecutive session. It has solidified its foothold back above CNY6.45. An option there for $1 bln expires tomorrow. The dollar's reference rate was set at CNY6.4447 compared with a median projection (Bloomberg) of CNY6.4441. The yield on China's 10-year bond eased for the first time in five sessions, while the PBOC continues to let the holiday liquidity provisions roll off.
The UK's strong employment report will keep expectations for a December rate hike at elevated levels. The effect of the end of the furlough program last month is not fully evident in today's data from the ONS, but tax authorities suggest that payrolls rose by almost 210k. In September, ONS reported that jobless claims fell by 51k. The unemployment rate and employment changes are released with an extra month lag and the ILO unemployment rate for the three months through August slipped to 4.5% from 4.6%. It was steady a 3.8% in the last four months of 2019. Employment rose by 235k in the three months through August. Average weekly earnings, including bonus payments, slowed to 7.2% from 8.3% in the three months compared with the year-ago period, while excluding bonuses, the average weekly earnings rose by 4.5% (slipping from 4.6% previously). The implied yield of the December 2021 short-sterling interest rate futures contract stabilized after rising 8.5 bp yesterday on the heels of hawkish BOE comments over the weekend. It stands near 0.345%, having practically doubled since the BOE meeting on September 23.
The German DAX slumped 3.6% last month, its first monthly decline since January. This, coupled with rising energy prices and increasing inflation, seems to sap investor confidence. The October ZEW survey deteriorated and by more than anticipated. The assessment of the current situation slumped from 31.9 in September to 21.6 in October. It is the first decline since February and is the lowest level since June when it last was below zero. The expectations component fell to 22.3 from 26.5. The median forecast in Bloomberg's survey was 23.5. It is the fifth consecutive decline and now stands at its lowest level since March 2020, when it collapsed to -49.5.
Several large European countries, including Germany, France, Italy, and the UK, support IMF Managing Director Georgieva and put the US in a difficult place. The US was seen leaning against her. Traditionally, the head of the World Bank is picked by the US, and the head of the IMF is selected by Europe. But more than that, there have been five managing directors from France. For the US to push for Georgieva's resignation would have likely antagonized France and counter the administration's attempt at a rapprochement after the sub snub. The claim that the IMF gave into Chinese pressure is the Cold War framing of the issue. Saudi Arabia, and, according to Bloomberg reporting, Brazil also successfully lobbied for changes. The change in the Chinese rating from 85 to 78 does not seem material. The larger point is that such indices are pregnant with judgment calls and bias. Only one deeply embedded in liberal and neoliberal ideology could think it is objective. Some issues, seemingly minor, like how many large cities one should include, are not simply neutral methodological points but have a real and knowable impact on the outcome.
The euro continues to trade in narrow ranges. Today's range so far is about a third of a cent. In fact, for the fourth consecutive session, the single currency remains within the range set last Wednesday (~$1.1530-$1.1605). It has not traded above $1.16 since then, nor below $1.1540. Sterling advanced to two-week highs yesterday near $1.3675 but reversed lower and settled below $1.36. Follow-through selling saw it trade at a four-day low, slightly under $1.3570. However, it regained its poise and is straddling $1.36 in the European morning. It is an important level, and options are expiring there today and in the next two sessions.
The JOLTS report is unlikely to tell us anything new. There are a huge amount of job openings. The number one reason for keeping people away from work last month was Covid, and it looks as the latest wave has crested. We note that the participation rate of men was unchanged in September, while the participation rate of women fell, which seems consistent with the pattern earlier in the pandemic where the household economy and homeschooling fell more on mothers than fathers.
What has changed is the reaction function of the Federal Reserve. It continues to move toward tapering next month. There continues to be speculation about a second term for Chair Powell. In terms of policy outlook, what is striking is the strong sense of continuity. Next month, the decision to taper will likely be unanimous, especially among the governors where a potential successor (Brainard?) may arise. Moreover, we suspect that Bernanke and Yellen, if they had their previous jobs, would also be leading the Fed to taper. Clarida, Bostic, and Barkin speak today. September CPI figures, minutes from last month's FOMC meeting, and Brainard and Bowman speak tomorrow.
Canada's economic diary is light this week. The drivers of the Canadian dollar are the broad risk appetite and the weakness of equities warns of some consolidation after its recent run. Mexico reports August industrial production figures. After rising 1.1% in July, industrial output is expected to have slowed in August. Finally, Brazil reports August services activity, which is not a market mover typically.
The US dollar fell to nearly CAD1.2445 yesterday, its lowest level since the end of July. It rebounded late as stocks reversed lower. Further gains were scored in Asia that lifted the greenback to almost CAD1.2500 before coming off. It is finding support near CAD1.2460 in Europe. There is a $530 mln option at CAD1.2505 that expires today. Above there, resistance is seen near CAD1.2520. The next important support area is around CAD1.2400. After closing firmly against the Mexican peso yesterday, the dollar climbed a bit further and briefly poked above MXN20.90 for the first time since March. It was offered near midday in Europe and fell below MXN20.80. This seems to be stretching the intraday momentum indicators, and initial support is now seen in the MXN20.70-MXN20.75 area. The dollar also closed at seven-month highs against the Brazilian real slightly shy of BTL5.54 yesterday. Support is pegged near BRL5.50, while the next technical target is closer to BRL5.60.
Disclaimerunemployment pandemic dow jones equities stocks fomc fed federal reserve currencies us dollar canadian dollar euro yuan testing quarantine lockdown unemployment gold oil south korea brazil mexico canada european europe uk france italy germany china
Parents were fine with sweeping school vaccination mandates five decades ago – but COVID-19 may be a different story
Public health experts know that schools are likely sites for the spread of disease, and laws tying school attendance to vaccination go back to the 1800s.
The ongoing battles over COVID-19 vaccination in the U.S. are likely to get more heated when the Food and Drug Administration authorizes emergency use of a vaccine for children ages 5 to 11, expected later this fall.
California has announced it will require the vaccine for elementary school attendance once it receives full FDA approval after emergency use authorization, and other states may follow suit. COVID-19 vaccination mandates in workplaces and colleges have sparked controversy, and the possibility that a mandate might extend to younger children is even more contentious.
Kids are already required to get a host of other vaccines to attend school. School vaccination mandates have been around since the 19th century, and they became a fixture in all 50 states in the 1970s. Vaccine requirements are among the most effective means of controlling infectious diseases, but they’re currently under attack by small but vocal minorities of parents who consider them unacceptable intrusions on parental rights.
As a public health historian who studies the evolution of vaccination policies, I see stark differences between the current debates over COVID-19 vaccination and the public response to previous mandates.
Compulsory vaccination in the past
The first legal requirements for vaccination date to the early 1800s, when gruesome and deadly diseases routinely terrorized communities. A loose patchwork of local and state laws were enacted to stop epidemics of smallpox, the era’s only vaccine-preventable disease.
Vaccine mandates initially applied to the general population. But in the 1850s, as universal public education became more common, people recognized that schoolhouses were likely sites for the spread of disease. Some states and localities began enacting laws tying school attendance to vaccination. The smallpox vaccine was crude by today’s standards, and concerns about its safety led to numerous lawsuits over mandates.
The U.S. Supreme Court upheld compulsory vaccination in two decisions. The first, in 1905, affirmed that mandates are constitutional. The second, in 1922, specifically upheld school-based requirements. In spite of these rulings, many states lacked a smallpox vaccination law, and some states that did have one failed to enforce it consistently. Few states updated their laws as new vaccines became available.
School vaccination laws underwent a major overhaul beginning in the 1960s, when health officials grew frustrated that outbreaks of measles were continuing to occur in schools even though a safe and effective vaccine had recently been licensed.
Many parents mistakenly believed that measles was an annoying but mild disease from which most kids quickly recovered. In fact, it often caused serious complications, including potentially fatal pneumonia and swelling of the brain.
With encouragement from the Centers for Disease Control and Prevention, all states updated old laws or enacted new ones, which generally covered all seven childhood vaccines that had been developed by that time: diphtheria, pertussis, tetanus, polio, measles, mumps and rubella. In 1968, just half the states had school vaccination requirements; by 1981, all states did.
Expanding requirements, mid-20th century
What is most surprising about this major expansion of vaccination mandates is how little controversy it provoked.
The laws did draw scattered court challenges, usually over the question of exemptions – which children, if any, should be allowed to opt out. These lawsuits were often brought by chiropractors and other adherents of alternative medicine. In most instances, courts turned away these challenges.
There was scant public protest. In contrast to today’s vocal and well-networked anti-vaccination activists, organized resistance to vaccination remained on the fringes in the 1970s, the period when these school vaccine mandates were largely passed. Unlike today, when fraudulent theories of vaccine-related harm – such as the discredited notion that vaccines cause autism – circulate endlessly on social media, public discussion of the alleged or actual risks of vaccines was largely absent.
Through most of the 20th century, parents were less likely to question pediatricians’ recommendations than they are today. In contrast to the empowered “patient/consumer” of today, an attitude of “doctor knows best” prevailed. All these factors contributed to overwhelmingly positive views of vaccination, with more than 90% of parents in a 1978 poll reporting that they would vaccinate their children even if there were no law requiring them to do so.
Widespread public support for vaccination enabled the laws to be passed easily – but it took more than placing a law on the books to control disease. Vaccination rates continued to lag in the 1970s, not because of opposition, but because of complacency.
Thanks to the success of earlier vaccination programs, most parents of young children lacked firsthand experience with the suffering and death that diseases like polio or whooping cough had caused in previous eras. But public health officials recognized that those diseases were far from eradicated and would continue to threaten children unless higher rates of vaccination were reached. Vaccines were already becoming a victim of their success. The better they worked, the more people thought they were no longer needed.
In response to this lack of urgency, the CDC launched a nationwide push in 1977 to help states enforce the laws they had recently enacted. Around the country, health officials partnered with school districts to audit student records and provide on-site vaccination programs. When push came to shove, they would exclude unvaccinated children from school until they completed the necessary shots.
The lesson learned was that making a law successful requires ongoing effort and commitment – and continually reminding parents about the value of vaccines in keeping schools and entire communities healthy.
Add COVID-19 to vaccine list for school?
Five decades after school mandates became universal in the U.S., support for them remains strong overall. But misinformation spread over the internet and social media has weakened the public consensus about the value of vaccination that allowed these laws to be enacted.
COVID-19 vaccination has become politicized in a way that is unprecedented, with sharp partisan divides over whether COVID-19 is really a threat, and whether the guidance of scientific experts can be trusted. The attention focused on COVID-19 vaccines has given new opportunities for anti-vaccination conspiracy theories to reach wide audiences.
[Over 115,000 readers rely on The Conversation’s newsletter to understand the world. Sign up today.]
Fierce opposition to COVID-19 vaccination, powered by anti-government sentiment and misguided notions of freedom, could undermine support for time-tested school requirements that have protected communities for decades. Although vaccinating school-aged children will be critical to controlling COVID-19, lawmakers will need to proceed with caution.
James Colgrove has received funding from the National Library of Medicine, the Greenwall Foundation, the Milbank Memorial Fund, and the William T. Grant Foundation.cdc disease control emergency use authorization covid-19 vaccine fda spread
How Robots and A.I. are About To Change This $11 Trillion Industry Forever
TikTok’s nearly 700 million users seek medical advice from random individuals and charlatans, since anyone can claim to be a medical expert on this raging social media machine.
Dr. Google is also working overtime, receiving more than one billion…
TikTok’s nearly 700 million users seek medical advice from random individuals and charlatans, since anyone can claim to be a medical expert on this raging social media machine.
Dr. Google is also working overtime, receiving more than one billion healthcare questions every day.
Web MD is recording over one billion searches a year, too.
When you combine this voracious hunger for digital diagnosis, symptom checkers and immediate medical assistance, with a global mobile app market whose revenues had already hit $365 billion in 2018, and are now on track to generate over $935 billion by 2023 ...
You get one of the best bets on disrupting the virtual medicine industry to date. You get Big Tech built by doctors for doctors in the Global Library of Medicine (GLM).
You get Cara, the new, sophisticated AI, powered by the unique Global Library of Medicine, that has been trained by hundreds of doctors to think just like them.
Cara will be launching at the end of November, marking the first time in our medical history that we can check our symptoms online, at the touch of a button, and truly trust what we are being told.
Over the past five years, Treatment.com (CSE: TRUE; OTC: TREIF) has been developing the world’s next-generation AI symptom checker, picking up where the billions of requests were left hanging by Google and WebMD … and certainly by TikTok.
Now, the app is about to launch as Treatment Mobile with an intelligent digital assistant, Cara, with over 400 diagnoses by a global team of hundreds of doctors who are adding more every day.
A Digital Fix for a Broken Healthcare System
An overwhelming majority of Americans find the healthcare system impossible to navigate.
Nearly three-quarters have no idea how they will afford their healthcare.
Those two facts have led to a shocking increase in at-home health solutions.
Need a healthcare big tech vendor who knows North American Healthcare
From 2019 to 2020--even before the COVID-19 outbreak--telemedicine grew by 46%.
In 2020 alone, wellness apps were downloaded 1.2 billion times.
Major investment into the telemedicine space combined with a massive increase in uptake and rapidly rising favor among consumers has seen telehealth increase 38X so far in 2021 from pre-COVID levels.
In April 2020, right at the start of the pandemic, telehealth use was 78X higher than in February 2020, according to McKinsey.
Total VC investment into the digital health space in H1 2021 was $14.7 billion. That’s more than VC investment for all of 2020, and twice the amount for 2019. That leads McKinsey to project that 2021 could see total investment in the sector hit $30 billion.
The bottom line is this: American healthcare is broken, and digital offerings are a major element of the fix. Cara steps in at exactly the right time to provide the first sophisticated AI that can help bring it all together. This is where big money is going in the healthcare sector.
The Digital Doctor Is In
Working with the University of Minnesota Medical School, Treatment.com (CSE: TRUE; OTC: TREIF) has gathered the best doctors and tech engineers that built the Global Library of Medicine (GLM) from around the world to teach Cara to do two things that no other digital health platform has been able to do successfully:
1) Think like a real doctor
2) Provide consumers with a personalized health assessment and full-on health management
Cara integrates everything by providing consumers with a bridge to wellness, telemedicine, pharma and health products ...
Cara asks you questions about your symptoms and then sorts through millions of pieces of information that include historical medical cases, demographic data and advances in medical knowledge. The end result is a more accurate recommendation than any other digital tool in the world.
Cara helps you understand what your symptom could be. It helps you monitor and track health changes and understand your general health and prevent illness. It gives you personalized support and follow-up and even allows you to track and manage your entire family.
And it can all be integrated with Apple Health Kit, Apple Watch and FitBit.
Treatment’s AI has been so effective, in fact, that the University of Minnesota Medical School licensed it to test medical students.
How Does Cara Make Money?
The initial app will be free, but there is an impressive scalability here.
This is how the wildly lucrative world of apps works. Once the upfront costs of development and AI learning are paid for, it’s all revenue, all the time. And app revenue streams are recurring, which is exactly why the mobile app industry continues to surge.
Consumers will pay for recommendations through premium app subscriptions, and Treatment.com’s next move with Cara will be to add a series of paid plugins for everything from dermatology specialty segments, to cardiology.
Additionally, Treatment.com will seek health and wellness partners to integrate to access qualified referrals and improve efficiencies, while simultaneously reducing costs.
There are three revenue-generating avenues here: corporate licenses, health and wellness products and university medical school training.
But the biggest value here is that Cara is a goldmine of data …
Cara’s access to individualized health trends will help insurance providers and governments to provide better health services.
In healthcare, big data like this helps avoid preventable diseases by detecting them in their early stages.
The market for big data analytics in healthcare could be worth an astounding $68 billion by 2025, and Treatment.com will have a major advantage with Cara.
WebMD--a private company--is valued at $2.8 billion, and it doesn’t even have any AI to back it up.
Treatment.com, (CSE: TRUE; OTC: TREIF) which listed on the Canadian Securities Exchange on April 19th, 2021, is about to launch a healthcare app that could completely change the way we view and access healthcare.
Global Medical and AI Expertise
Founded by John Fraser and Dr. Kevin Peterson, Treatment.com International Inc. (CSE: TRUE)(OTC:TREIF) is a sophisticated big-tech setup from the roots up.
Fraser is a computer scientist and entrepreneur with a background in healthcare technology. He’s a 20-year IT software veteran who has done this before. He sold his first unicorn--Vision Share (now Abilities Network)--for over $1 billion.
Dr. Peterson is a leading doctor and tenured professor at the University of Minnesota Medical School. He was also the architect of an international disease surveillance and research system, the first such in the world.
Add to this a global team of doctors in the United States, Canada, Singapore, India, Ethiopia and South Africa and you have the makings of the most intelligent AI symptom checker and health care management platform on the planet.
Again, that’s why it’s been licensed to train medical students at the University of Minnesota.
The Next Healthcare Wave
The healthcare industry is overripe for disruption, and it’s being disrupted in waves.
The most recent wave saw Babylon Health, valued at $4.2 billion in its latest funding round, explode on the scene with an AI-powered platform for virtual clinical operations. Babylon is about to go public via a SPAC deal through a $4.2-billion merger with Alkuri Global Acquisition Corp., led by former Groupon executives.
It’s also been disrupted by Teladoc Health, the $25-billion telemedicine behemoth that has nicely rewarded investors. Investors who jumped in on this in early 2018 could have seen gains of over 1,500% by January this year.
When we miss one wave, we move on to the next because the healthcare industry is set to see wave after wave of disruption, and Cara comes next.
Set to launch by the end of October, Cara is about to go mainstream, and because of the global experts behind it, it stands a good chance of becoming the next app to go from zero to hero--and perhaps to billions.
Treatment.com International Inc. (CSE: TRUE; OTC: TREIF) has:
1) unfettered access to a data goldmine
2) A Global Library of Medicine (GLM) that is continually updated and referenced by its AI engine that will eventually scale up to all ~10,000 diseases known to man
3) Proprietary IP that could one day be worth billions of dollars
4) Massive growth runways
The next healthcare disruption is about empowering consumers to take better care--and control--of their health, and early-in investors may have a unique opportunity here with a new app that puts another big patch on a broken healthcare system.
Other companies looking to transform healthcare:
3D Signatures Inc. is a high-tech Canadian firm that has found itself in the center of two explosive sectors. It’s armed with an innovative new software platform which uses 3D analysis to target various diseases and help clinicians identify a diagnosis and optimize treatment plans. 3D Signatures’ software is saving doctors time which could be the difference of life and death for some patients. 3D Signatures sets itself apart from its competition through creating individualized treatment plans for patients. Using its mapping platform, the software can determine how a disease will progress and whether or not the patient will respond to treatment
3D Signatures’ broad scope and futuristic technology brings a promising opportunity to potential investors. It truly is at the forefront of a new era in medicine, and investors should not overlook this company’s massive potential.
CRH Medical Corporation specializes in products and services designed for the treatment of gastrointestinal diseases in the United States, Canada, and internationally. With a long history within the space, CRH has positioned itself as a leader in the field, trusted by medical professionals all over the world.
CRH also made a majpr acquisition at the beginning of the year, buying out Anesthesia Care Associates, LLC, an Indiana-based gastroenterology anesthesia practice. The estimated $2.6 million deal will increase CRH’s footprint in the space, and has been well received by investors.
AEterna Zentaris Inc. (TSX:AEZS) is a major biopharmaceutical up and comer. The company has seen steady growth, and an array of new developments over the recent years. With a focus on oncology, endocrinology, and women's health solutions, AEterna has created a variety of new products, including Macrilen, the first and only FDA-approved oral test for the diagnosis of Adult Growth Hormone Deficiency.
Recently, AEterna received European approval to market Macrillen which has pushed its value even higher. Dr. Christian Strasburger, the Head of Clinical Endocrinology at Charité Unversitaetsmedizin Berlin and the principal investigator for macimorelin explained, “Clinical studies have demonstrated that macimorelin is safer and much simpler to administer than the current methods of testing for insulin-induced hypoglycemia, and is well-tolerated by patients and reliable in diagnosing the condition.”
Aptose Biosciences Inc. (TSX:APS) is a biotech company specializing in personalized therapies to address Canada’s unmet oncology needs. The company uses genetic and epigenetic profiles to gain insights into certain cancers and patient populations in order to develop new treatments within the space.
Aptose has an exclusive partnership with Ohm Oncology to develop, manufacture and commercialize APL-581 in order to treat hematologic malignancies and related molecules.
Toronto-based Field Trip Health (TSX:FTRP) is taking a three-pronged approach in their work in the transformative psychedelic medicine sector. Not only are they involved in drug development, but they’re also involved in manufacturing and run a number of treatment clinics.
Field Trip has hit the ground running. With clinics currently operating in Toronto, Los Angeles, and New York, they have plans to ramp up to 75 clinics – providing psychotherapy along with psychedelic treatments. As one of the frontrunners in this exciting new industry, investors are keeping a close eye on Field Trip.
By. Charles Kennedy
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UK Banks – Digital Dinosaurs
UK Banks – Digital Dinosaurs
Authored by Bill Blain via MorningPorridge.com,
“Tuppence wisely invested in the bank…”
As UK bank reporting season kicks off, the dull, boring, predictable UK banks should look good. But the reality…
“Tuppence wisely invested in the bank…”
As UK bank reporting season kicks off, the dull, boring, predictable UK banks should look good. But the reality is they are dinosaurs – their failure to digitise and evolve leaves them vulnerable to tech-savy FinTechs and Challenger filling their niche. If the future of modern finance is a Tech hypersonic missile… British Banks are still building steam trains.
Today see’s the start of the UK bank reporting season. Yawn….
I wrote a piece for the Evening Standard y’day – Another set of numbers to disguise the rot. (I’ve reused some of it this morning – lazy, eh?) Exactly as I predicted in that note, Barclays came in strong this morning with a decent lift from its investment banking businesses. Lloyds and HSBC will also produce acceptable numbers and limited losses on post pandemic recovery. The sector outlook looks positive, the regulator will allow them to increase dividends, and there is higher income potential from rising interest rates.
But… would you buy the UK banks?
They face substantial market and ongoing pandemic risk. The cost of economic reality falls heavy across them all. This morning the headlines are about Medical groups screaming out for a renewal of lockdown measures to protect the NHS – a move that will 100% nail-on recession and cause multiple small businesses to give up. The threat of recession in the UK is pronounced – exacerbated by global supply chain crisis and risks of policy mistakes. The worst outcome for banks would be stagflation resulting in exploding loan impairments.
Lloyds is the most vulnerable to the UK economy – hence it’s underperformed the others. Even without renewed Covid measures, potential policy mistakes by the Bank of England in raising interest rates too early, or by government by raising taxes and austerity spending, will hit business and consumer sentiment hardest, causing the stock prices to crumble back towards its low back in Sept 2020 when it hit £24.72. It’s got the largest mortgage exposure – but no one really expects a significant housing sell-off. (When no-one expects it – is when to worry!)
If you believe the UK’s economic potential is under-stated, then Lloyds has the best upside stock potential among the big three. If the economy recovers strongly, Lloyds goes up. If it stumbles, then so will Lloyds!
Barclays is a more difficult call. It’s a broader, more diversified name. It retains an element of “whoosh” from its markets businesses – which have delivered excellent returns from its capital markets businesses fuelled by low rates, but it also runs a higher-than-average reputational risk for generating embarrassing headlines. But, when the global economy normalises, higher interest rates will impact the fee income of all the investment banks, thus impacting Barclays to a greater extent than Lloyds. Barclay’s international business gives it some hedge against a UK economic slide.
HSBC is the most complex call. The UK banking operation is a rounding error compared to the Bank’s Hong Kong business. The bank is pivoting towards Asia, orbiting China and other high-growth Far East economies where it seeks to attract rising middle-class wealth. It’s underperformed due to a distaste among global investors for its China business, but also the perception it’s just too big a bank to manage effectively.
If its China strategy was to pay off, it will be a long-term winner. But that’s no means certain – Premier Xi’s crackdown on Chinese Tech threatens to morph into a China first policy, and the space for a strong foreign bank in China’s banking system looks questionable, even as the developing crisis in real-estate could pull it lower.
Ok – so good for UK banks…
Whatever the respective bank numbers show this week, the banks will remain core holdings for many investors. Generally, big banks are perceived to be “relatively” safe. Regulation has reduced their market risk profiles, and strengthened capital bases since the post-Lehman unpleasantness in 2008 which saw RBS rescued by government.
Conventional investment wisdom says the more “dull, boring and predictable” a bank is, the more valuable it will be perceived in terms of stable predictable dividends, sound risk management, and for not surprising investors. Strong banks are perceived to be less vulnerable to competition with deep moats around their business.
Since 2008 that’s changed – in ways the incumbent banks have completely missed. The costs of entry have tumbled as banking has evolved into a completely different service. New, more nimble Fin-Techs like Revolut, digital challenger banks such as Starling, and cheaper foreign competitors, including the Yanks, are not only eating their lunch, but dinner as well.
The old established UK banks don’t seem to have a clue it’s happening. These incumbent banks look like dinosaurs wondering what that bright shiny light getting bigger in the sky might be. Despite proudly boasting of hundreds years of history, they are constrained by old tech ledger systems and never built centralised data-lakes from their information on individuals or the financial behaviours of crowds to improve and develop their services and income streams.
The future of banking is going to be about Tech and how effectively banks compete in a marketplace of online digital facilities and services. Banks that you use tech smartly will see their costs tumble, freeing up resources to do more, better! (When I ran a major bank’s FIG (Financial Institutions Group) about 100 years ago – the best banks were those with lowest cost-to-income ratio!)
There is an excellent article outlining FinTechs and Challengers from Chris Skinner this morning: Europe’s Challenger Banks are Challenging (and worth more than the old names). Let me pluck a bite from his piece: “Revolut is the most valuable UK tech start-up in history and the eighth biggest private company in the world, worth an estimated US$33 billion, according to CB Insights. Revolut has more than 16 million customers worldwide and sees over 150 million transactions per month.”
The new generation of nimbler Fin Techs and Challengers can innovate product offerings with sophisticated new systems and software. In contrast, UK bank IT departments are engaged in digital archaeology. I understand only 17% of Senior Tech positions are held by women. Within the banks, I’m told its still a boys club, where the best paid IT jobs are for ancient bearded D&D playing coders brought into to patch 50 year-old archaic systems. Legacy systems leave the big banks with impossible catch up costs.
It’s probably unfair to say the big UK banks don’t know what’s happening – their management can’t be that unaware? Surely not…. But…. Maybe..
Although the banks brag how well diversified they are with over 37% of UK board members female – how much have they really changed? Hiring on the basis of diversity is a fad. At the risk of lighting the blue-touch paper and this comment exploding in my face, I would hazard to suggest the appointment of senior ladies who’ve worked their way up the existing financial system simply risks confirmation-bias on how things are conventionally done in banking.
They might do better hiring outside movers and shakers – rather than listening to themselves.
The bottom line is its not just their failure to innovate tech that’s a crisis. Over the years the UK banks have become increasingly sclerotic – slow to shift and adapt. The middle to senior levels of banking are hamstrung by bureaucracy, a satisficing culture, stifled innovation, a compliance fearful mindset, and senior management fixated on impressing the regulators first and foremost.
If the future of modern finance is a Tech hypersonic missile… British Banks are still building steam trains.
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