Your weekly economic update from the team at FXD Capital

On Monday, US president Joe Biden renominated Jerome Powell for another term as chair of the Federal Reserve. The news was interpreted as a blessing for his recent policy stance on combating inflation, essentially through an impending increase in interest rates next year. Inevitably, the news was digested as expected, with stock markets dipping, especially in the long duration side (i.e., technology).

Of late, the Fed has sprung to life in terms of its stance on quelling recent inflation. Its most recent minutes highlighted that officials “stressed that maintaining flexibility” was vital as pandemic-era support falls off. Taking out the management jargon translates to their desire to keep open-minded about changing things too quickly.

What followed was a week of relatively positive economic news. Recent US jobless claims were 199,000, their lowest since 1969. Off the back of jobless information was another inflation metric: Core personal consumption rising 4.1% in October, edging up on September’s 3.7% level. The two go hand-in-hand; more are working; thus, more are spending. The news supports the overheating claim that the economy is reaching full capacity and soon furthers the narrative for a rate rise. Yet, on the other hand, the personal consumption metric shows that consumers are taking price rises by their stride, which may also support the view of toughing out the current test.

Low jobless claims are further supported by other data showing that resignations are raising en-masse in the US, with monthly farewells hitting over the 4m mark for the first time. Put together; it appears that the labour bargaining positions of Americans is improving: Less are out of work, more are finding new jobs, and they’re all keeping their spending in line with price rises. The isolated implications of this may just prove to be lowered corporate profitability, as the money transfer in the system is from businesses to consumers.

Other related macro news saw New Zealand raise rates by 25bps to 0.75% for the second month in a row. With one of the hottest housing markets in the world, 2022 will be interesting to see how the increases transpire with mortgage borrowers. In more developing parts of the world, Mexico’s Peso collapsed after a leftfield central bank governor appointment. And back on these shores, the BOE was talking about preferring a centrally-regulated cryptocurrency as its ideal option for the asset class, which, as fans may cry, is a contradiction.

Something that has caught my eye recently is the new wave of technology disruption aimed at the treasury market. There have been attempts at making cloud-based TMS (treasury management systems) for some time now, which have not had the same effect as, say, systems like Salesforce and Workday in other areas. The reason is that TMS is very nuanced; use cases vary literally on a company-by-company basis; hence, the endgame for any large business is building its own. As such, a one-size-fits-all approach is resigned to niche status.

The next phase looks to be aiming at defining the actual treasury functions through market access. Stripe, for example, offers virtual treasury options for companies to provide virtual bank accounts and credit facilities, with Stripe providing back-end bank support. Also, new companies looking at redefining access to market instruments are perhaps of more interest to this readership. For example, fractional ownership is one area where new upstarts offer instant access to government securities held via custody, enabling Treasuries to buy small amounts via platforms without needing back-end support for custody (Crest et al.). Another more speculative area is offering what would be traditionally seen as receivables financing for market purposes; through call accounts used for leverage in crypto staking and prime brokerages. While the latter option is very speculative, the efforts broaden access and repackage up old-fashioned vehicles into more palatable and yieldy (~5% range ) for participants who don’t have the resource to go out and originate with boots on pavements.

All the best for the week ahead




Our weekly column is written by Alex Graham, Economic Advisor to FXD Capital. Originally a bank treasurer, Alex’s weekly roundup intends to provide a conversational, top-down view of what is going on in world macroeconomics and how it impacts business on the ground level.

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