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Today’s Featured Topic

BLOCKCHAIN Assets Are Finally Capturing Investor Attention 

Summary: While cryptocurrencies have created a sensation over the past couple of years, it is the underlying blockchain technology that’s creating disruptive opportunities for businesses, central bankers and governments around the world.

When the creator(s) of Bitcoin devised a mechanism to issue and track ownership of digital money entirely through computer code running on a distributed network of computers, they introduced the notion that facts, such as monetary ownership and proof of purchase, could be digitally recorded and seamlessly trusted onto a computer network run by the people of the world without the need for large intermediaries.

While cryptocurrencies have created most of the sensation over the past couple of years, it is blockchain – the technology underlying cryptocurrencies – that has firmly captured the imagination of cryptonerds, programmers, researchers, board rooms, central bankers as well as politicians.

Blockchain technology allows for a recorded incorruptible decentralized digital ledger of all kinds of transactions to be distributed on a network. Rather than being stored in any single location, the information in the blockchain is copied across a network of computers and other devices, hence the decentralized aspect. Given this type of infrastructure, records on the blockchain are public, verifiable and accessible by anyone who has internet. They are also tamper proof.

Every day, new tangible applications leveraging blockchain technology are being rolled out to solve some real world-world problems. New businesses and business models are emerging in the process. Here are some examples of how blockchain applicability is evolving.

SMART CONTRACTS

Platforms such as Ethereum allow for the creation of smart contracts; digital entities with ingrained computer code that can execute contractual agreements based on future events. That notion itself could revolutionize asset issuance and ownership in various domains such as land ownership, currencies, and financial instruments.

Consider, for example, the case of a municipal government that wants to raise money through a bond issuance. It could do so by deploying a bond issuance smart contract on the Ethereum platform. Investors would send in their payment through a cryptocurrency to the municipal government. The Ethereum smart contract would issue tokens representing the bond to each of the investors. Each investor holding such bonds would be able to directly withdraw their coupon payments and the principal at maturity from the smart contract itself. They would also have the ability to trade these digital token bonds with other prospective investors, as seamlessly as Bitcoin holders transfer ownership of their coin with another person or entity. And all this would happen with minimal human intervention.

TOKENIZATION OF ASSETS

Asset tokenization is one of the most prominent use cases of blockchain technology. In art, for example, a digital token representing ownership in an expensive Van Gogh work would make investments in art ownership a lot more liquid than they are today where most paintings can only be traded through the secondary markets such as art auction houses.

Recently, Andy Warhol’s multi-million dollar two-meter high painting, 14 Small Electric Chairs, was tokenized and sold on blockchain-based art investment platform Maecenas to 100 participants. Approximately US$1.7 million was raised in the cryptocurrency auction for a 31.5% stake of the artwork whose total valuation was US$5.6 million. More than 800 bidders signed up for the auction which was conducted entirely using a smart contract. Crypto auctions can democratize and broaden the market by bringing new types of buyers into art and luxury, traditionally a preserve of the elite.

Governments around the world are seeing enormous potential in enterprise blockchain applications. Proposed initiatives now run the gamut, with objectives as diverse as preventing corruption in public sector finance (Italy), streamlining land registries (Netherlands) and managing customs controls (South Korea).

INTEROPERABILITY

Meanwhile, “interoperability” (i.e., convertibility) is helping to drive growth, affecting even areas such as consumer loyalty programs. American Express (AMEX), for example, has built a blockchain application that lets its merchants develop bespoke Amex rewards points programs, allowing customers to spend their points any way they like. So, just as you might get airline points for booking a rental car, now you might be able to get Amex points for buying a cup of coffee, or a sale item that a retailer wants to move off the shelf.

Mastercard (MA), meanwhile, has patented a system that puts coupons on the blockchain; EZ Rent-A-Car is piloting a program to let rewards members exchange their points for bitcoin; and Japanese ecommerce giant, Rakuten, is talking about converting up to $9 billion worth in rewards outstanding to a loyalty “coin” that is convertible to fiat currency.

These programs signal that the ecosystem for digital reward tokens — useable within a closed ecosystem built by each company — may be getting larger, potentially even approaching the utility of cash.

As for cryptocurrencies, they continue to have a terrible year. After soaring 1,200% in 2017 to a high of $19,700 in December, the price of Bitcoin has plummeted almost 70% since then. This week’s slump followed reports that Goldman Sachs had ditched near-term plans to open a digital currency trading desk. This comes as some cryptocurrency exchanges are caving in to regulatory crackdowns. Meanwhile, the SEC has yet to approve a cryptocurrency-based ETF, having rejected a total of nine applications to list and trade various bitcoin ETFs from three different applicants.

There is some good news for the industry. New data from cryptocurrency trading technology firm, SFOX, shows there has been a drop-off in price variations on cryptocurrency exchanges in 2018. That trend is tied to the entrance of large Wall Street firms into the market, which makes it more stable. Prior to Wall Street participation, the price of a cryptocurrency could differ by 5% or more on different exchanges. These days, price differences are closer to 1/10th of 1%.

Some experts believe this development will extend beyond price spreads and onto price fluctuations, bringing more stability to the industry. Less price fluctuation means more merchants would feel comfortable accepting digital assets for payment, which in turn could lead to broader adoption. For now, a few stablecoins are attempting to tackle the volatility problem by pegging themselves to the US dollar or another type of index.

In the shift from cryptocurrencies to blockchain, people are trying to invest in the protocols themselves, which are the set of rules, the mechanics, and the code associated with a type of application. New ETFs are being launched to capitalize on the increased adoption and utilization of blockchain technology.

Blockchain ETFs are funds that meet at least one of the following two criteria: (1) They are funds that invest in companies involved with the transformation of business applications though development and use of blockchain technology. (2) They are funds that track the performance of Bitcoin or other cryptocurrencies through futures contracts or by holding the underlying crypto-assets.

Five thematic blockchain ETFs have come to market this year:

  • Amplify Transformational Data Sharing ETF (BLOK)
  • Reality Shares Nasdaq NexGen Economy ETF (BLCN)        
  • First Trust Indxx Innovative Transaction & Process ETF (LEGR)  
  • Innovation Shares NextGen Protocol ETF (KOIN)
  • REX BKCM ETF (BKC)       

While none of them yet capture pure-play blockchain exposure, they provide a way for investors to gain exposure to the rise of blockchain technology.

We’ve also summarized the following articles related to this topic in the Finance section of today’s report.

  • Cryptocurrencies & Blockchain: NYSE owners’ plan for a new crypto ecosystem has one detail that traders have been crying for
  • Cryptocurrencies & Blockchain: China clamps down on cryptocurrency speculation, but not blockchain development
  • Cryptocurrencies & Blockchain: Bitcoin Drops 3% in 10 Minutes, Ethereum Plunges 12% on report Goldman Sachs ditching cryptocurrency trading plans
  • Cryptocurrencies & Blockchain: Crypto Miner Bitfury Is Using Magic Baths to Keep Machines Cool
  • Cryptocurrencies & Blockchain: Philippines Prepares to Regulate Cryptocurrency Exchanges as Trading Platforms
Chart: Blockchain (BLOK vs LEGR) vs FinTech (FINX) vs Bitcoin (BTC-USD) [Right Axis] vs S&P 500 (SPY)

Other Disruptive Change

Markets

  • Stocks: Pot Stocks May Be the Latest Mania But Show No Signs of Slowing

Economics & Trade

  • EM: Contagion or Not, These Emerging Markets Hold Key to Selloff
  • US Economy: U.S. trade deficit soars nearly 10% on record imports
  • US Economy: U.S. Factory Sector Clocks Strongest Growth in 14 Years

Finance

  •  THEME ALERT Banks: High house prices in US stifle banks’ mortgage units
  • CapEx: Banks are investing big in infrastructure despite stalled federal plan
  • Fintech: Go-Jek sparks an Indonesian banking revolution

Services

  • Retail: The retail apocalypse isn’t over yet
  •  THEME ALERT Video Games: Fortnite Puts a Spotlight on ETFs Playing the Video Game Theme

Technology

  • 5G: Nokia Has Multiple Avenues To Profit From 5G
  • Cybersecurity: Google’s newest sister company is almost ready to go after the $96 billion cybersecurity industry on a ‘planet scale’

Transportation

  • Aviation: Lockheed Martin reportedly set to build all F-16 wings in India
  • EVs: Mercedes Unveils First Tesla Rival in $12 Billion Attack

Commodities

  • Dairy: Got Milk? Or Was That Really a Plant Beverage?
  • Uranium: Yellow Cake on the menu for nuclear industry annual shindig

Energy & Environment

  • Batteries: In nine months, China has nearly doubled its battery-storage capacity
  • Batteries: Led by Surging Residential Sector, Q2 US Energy Storage Deployments Grow 200% Year-Over-Year
  • Utilities: Global Electricity Demand to Increase 57% by 2050

Biotechnology & Healthcare

  •  THEME ALERT Pharma: Too Good to Be True? A Nonaddictive Opioid without Lethal Side Effects Shows Promise

Endnote

  • CryptoKitties: Someone just bought a cryptocurrency cat for $172,000

Joe Mac’s Market Viewpoint Top ↑
 
U.S. Markets at Midyear

The U.S. capital markets had a challenging time in the first half of 2018. While the brouhaha about trade wars has been cited by experts as the cause of this year’s rise in volatility, MRP believes otherwise. Extended valuations, investor sentiment, portfolio leverage, an ageing bull market, inflation, and a Fed tightening cycle are all headwinds. In short, several large forces are at play and they will continue to pressure both equity and bond prices in the second half of this year.

Joe Mac’s Market Viewpoint: U.S. Markets at Midyear →

 

Other Viewpoint Reports

Joe Mac’s Market Viewpoint: CAPEX Booms! →

Joe Mac’s Market Viewpoint: The Inflation Complication →

Joe Mac’s Market Viewpoint: A Review of MRP Themes →

Joe Mac’s Market Viewpoint: The Coming Value Rotation 

Current MRP Themes Top ↑
 
Autos (S)   Electric Utilities (L)   TIPS (L)
 
Long-Dated UST (S)   Defense  (L)   Industrials (L)
 
Materials (L)   U.S. Financials & Regional Banks (L)   ASEAN Markets (L)
 
Oil & U.S. Energy (L)   France (L)   Greece (L)
 
Palladium (L)   U.S. Pharmaceuticals (S)   Gold & Gold Miners (L)
 
Robotics & Automation (L)   Video Gaming (L)   Lithium (L)
 
Steel (L)   Value Over Growth (L)   Solar (L)
 
CRISPR (L)   Obesity (L)

Major Data Points Top ↑
 
1.

 

US Stocks Close Mixed amid Tech Sell-off

Wall Street closed mixed on Wednesday 5 September 2018, as trade policy uncertainty and emerging market volatility triggered a selloff in tech shares. The Dow Jones edged up 23 points or 0.1% to 25975. The S&P 500 lost 8 points or 0.3% to 2889. The Nasdaq plunged 96 points or 1.2% to 7995. TE

2. ISM New York Index at New 2006-High

The ISM New York Current Business Conditions index in the United States rose to 76.5 in August, from 75 in July and reaching a new high since November of 2006. The Six-Month Outlook rose to an 8-month high of 79.9 from 77.8 in July. TE

3.

 

US Trade: Trade Gap at 5-Month High; Imports Hit Record High; Exports Fall 1% MoM

The US trade deficit widened by 9.5% to USD 50.1 billion in July from a downwardly revised USD 45.7 billion in June. It is the highest trade gap in five months as imports hit a new record high and exports declined 1% as shipments of soybeans and civilian aircraft fell sharply. TE

Imports to the United States were USD 261.2 billion in July of 2018, hitting a record high and USD 2.2 billion higher than in June. Petroleum imports were the highest since December 2014 (USD 20.3 billion), due to higher cost of oil. Shipments also increased for capital goods (USD 0.7 billion), namely computers (USD 0.5 billion), computer accessories (USD 0.3 billion) and other goods (USD 0.7 billion). Imports of services increased by USD 0.3 billion to USD 47.2 billion, mostly due to travel and other business services. TE

Exports from the United States were USD 211.1 billion in July of 2018, 1 percent or USD 2.1 billion less than in June. Sales declined mainly due to capital goods (USD 0.9 billion); civilian aircraft (USD 1.6 billion); foods, feeds, and beverages (USD 0.9 billion), namely soybeans (USD 0.7 billion) and other goods (USD 0.5 billion). Meanwhile, exports of services increased by USD 0.2 billion to USD 70.3 billion, mostly due to charges for the use of intellectual property (USD 0.1 billion) and other business services, which includes research and development services; professional and management services; and technical, trade-related, and other services (USD 0.1 billion). TE

4. US Mortgage Applications Fall Slightly in Latest Week: MBA

Mortgage applications in the United States edged down 0.1 percent in the week ended August 31st 2018, following a 1.7 percent drop in the previous week, data from the Mortgage Bankers Association showed. Refinance applications decreased 1.4 percent while applications to purchase a home went up 0.6 percent. The average fixed 30-year mortgage rate increased by 2bps to 4.8 percent. TE

5. European Shares Close Lower on Wednesday

Main European stocks closed in the red on Wednesday, with tech shares among the worst performers amid rating downgrades and as social media companies Twitter and Facebook testified in front of the Congress about misinformation. Also, escalating international trade tensions weighed on sentiment. TE

Other Disruptive Change Top ↑
 

Markets

Stocks: Pot Stocks May Be the Latest Mania But Show No Signs of Slowing

The publicly traded market for all things marijuana-related has attracted its share of pro and con debates from politicians, policy wonks and investors — but one thing no one can ignore is the momentum of the rally. The North American Marijuana Index, or NAMMAR, has climbed more than hundred and forty percent since its one-year low, reached on September 7, 2017. By contrast, the S&P 500 has been risen only about only seventeen percent in the same period. The pot market seemed to have lost steam around mid-August but Constellation Brands shocked investors with an additional $3.8 billion investment in Canopy Growth Corp., which super-charged the rally. The index is up about 50 percent since then.

Other top performers within the sector include Canopy Growth, which received a Street high price target of C$74 from Cowen and Company due to its “lead in weed” status. The Green Organic Dutchman also rose as much as twenty-three percent after the company extended a deadline with top holder Aurora Cannabis Inc., which entitles Aurora to acquire an additional eight percent of the common shares of the Company. B


 

Economics & Trade

EM: Contagion or Not, These Emerging Markets Hold Key to Selloff 

This year’s global emerging-market selloff has its roots in a slew of mini-routs as the era of easy-money came to an end.

Argentina has a benchmark interest rate of 60 percent and inflation tops 31 percent. The real policy rate now ranks among the world’s highest and is pushing the economy back into recession. Economic activity fell 6.7 percent in June.

Brazil’s key weakness lies in fiscal shortfalls thanks to anemic economic growth. While the public sector’s primary budget balance now stands at a 1.1 percent deficit of gross domestic product compared with 3 percent at the worst point of 2016, it still compares unfavorably with an average 2.9 percent surplus between 2000 and 2014.

China’s current account surplus has plunged to near zero and is threatening to tip into a deficit. The yuan’s real effective exchange rate against a basket of trading partners is hovering near a record high, signaling the currency may have room to depreciate.

Annual expansion above 7 percent and a relative isolation from global economic and trade headwinds make India a consensus buy among emerging-market investors. Oil remains the chief vulnerability: India imports 70 percent of its energy needs and crude-price fluctuations have taken its current-account deficit to almost 2 percent of GDP.

While the rupiah lost about 9 percent this year, the Indonesian currency is now the weakest since the 1998 Asian financial crisis. Repeated rate hikes and FX interventions by Bank Indonesia have failed to stem the depreciation.

Russian assets get some of the lowest valuations in emerging markets because of investor perceptions that private wealth isn’t protected enough. While the country has rebounded from a currency crisis in 2014, it remains one of the first targets in an emerging-market selloff.

Africa’s most industrialized economy is already in recession, driven by a slump in agricultural output. South Africa has one of the worst current accounts deficit in the developing world, with a shortfall of 4.8 percent of GDP.

Finally, events during the past several months underscore the grave political risks facing investors in the Turkish market. The appointment of a new cabinet, in which President Recep Tayyip Erdogan’s son-in-law took over economic affairs, the leader’s own opposition to rate hikes and the diplomatic spat over a detained U.S. pastor have all dented confidence, prompting a 31 percent collapse in the lira since the end of June. B

 

US Economy: U.S. trade deficit soars nearly 10% on record imports

The trade deficit soared almost 10% in July after record imports and hit the highest level in five months, keeping the U.S. on pace to record the largest annual gap in a decade. The deficit climbed to $50.1 billion from a revised $45.7 billion in June, the Commerce Department said Wednesday. Economists polled by MarketWatch had forecast a $50.4 billion gap. The U.S. trade deficit added up to almost $338 billion in the first seven months of 2018. That compared to $316 billion in the same span in 2017.

The U.S. is growing rapidly despite a rising trade deficit, reflecting broad strength in key segments of the economy. Gross domestic product expanded by 4.2% in the spring and is forecast to grow 3% in the third quarter. So far the imposition of U.S. tariffs on a variety of foreign goods have done nothing to curb the deficit. President Trump’s tough line with key trading partners such as China and Canada hasn’t had much effect, either. The July goods deficit with China, for example, leaped to a record high of nearly $37 billion.

One reason the deficit keeps rising is counter-intuitive: Americans are financially better off than consumers in most other countries. They can afford to spend more on imports such as French wine or German autos. A stronger dollar also makes imports less expensive to buy. Yet if the trade deficit keeps rising it’s likely to weigh down on GDP, the official yardstick of the U.S. economy. MW

 

US Economy: U.S. Factory Sector Clocks Strongest Growth in 14 Years

American factory activity in August expanded at the strongest pace in more than 14 years, despite rising tensions with some of the U.S.’s largest trade partners. The Institute for Supply Management on Tuesday said its manufacturing index rose to 61.3 in August, the highest level since May 2004, from 58.1 in July. Sales of factory-made products, or new orders, output and employment all grew at a faster pace in August. Tuesday’s release surprised analysts who had expected a slowdown in the industry in light of rising trade tensions and a typically weaker month for factory activity. Economists surveyed by The Wall Street Journal had expected a 57.5 reading for August.

Though most economists hailed Tuesday’s report as a sign of robust growth continuing into the second half of 2018, some analysts said there are signs of overheating in the manufacturing industry. Most private economists expect the Fed will raise short-term interest rates two more times this year, once in September and again in December, with strong economic data continuing to roll into the summer months.

Trade tensions, coupled with what appear to be economic slowdowns in some of the U.S.’s biggest trading partners, could be headwinds for the manufacturing sector. B


 

Finance

Cryptocurrencies & Blockchain: NYSE owners’ plan for a new crypto ecosystem has one detail that traders have been crying for

The Intercontinental Exchange (ICE) announced the launch of Bakkt, a new digital asset platform, on Friday. The platform, will facilitate the trading of a physically delivered bitcoin futures contract, offering a regulated way to store bitcoin.

The first step in the platform will be a crypto futures contract that physically delivers bitcoin. Elsewhere, at rivals CME and Cboe Global Markets, bitcoin futures settle in cash. At the end of a futures bet that’s cash-settled, a trader receives or pays the difference between the price at which they bought the contract and its settlement price. In contrast, with a physical-settled future, a trader would take their payment in physical bitcoin.

The fact that traders will be able to trade bitcoin futures that physically deliver would make trading less risky and would better facilitate an arbitrage trade. If bitcoin is trading at a discount in the spot market relative to the futures market, a trader can go long bitcoin and short the future for a profit. This is hard when a future settles in cash because it requires a trader to make another trade.

The thing stopping large Wall Street institutions from diving into the market right now are the lack of prime services — such as margin finance — and secure, regulated custody. Every broker dealer connected to ICE would be able to connect to Bakkt and then trade, knowing their bitcoin will settle in their warehouse. BI

 

Cryptocurrencies & Blockchain: China clamps down on cryptocurrency speculation, but not blockchain development

Chinese authorities have stepped up their pressure on domestic cryptocurrency activity in the last few weeks. While Beijing supports the development of the underlying blockchain technology, it is still trying to limit speculation in digital currencies roughly one year since banning their sales in “initial coin offerings.”

China used to dominate bitcoin trading, and still accounts for a majority of bitcoin creation through the “mining” process. But increased regulatory scrutiny, especially as bitcoin’s price climbed, culminated in the country’s central bank and other financial authorities prohibiting sales of new cryptocurrencies through so-called ICOs early last September. Beijing also effectively banned domestic bitcoin-yuan trading. On Aug. 24, five government bodies — the People’s Bank of China, the Banking Regulatory Commission, the Central Cyberspace Affairs Commission, the Ministry of Public Security and the State Administration for Market Regulation — issued a warning about risks from illegal fundraising under the guise of “blockchain” and “cryptocurrencies.”

The Chinese government wants to maintain financial stability, and will regulate activity such as soliciting money from ordinary people for investment, according to Jack Lee, managing director at HCM Capital. CNBC

 

Cryptocurrencies & Blockchain: Bitcoin Drops 3% in 10 Minutes, Ethereum Plunges 12% on report Goldman Sachs ditching cryptocurrency trading plans

Goldman Sachs Group Inc is ditching plans to open a desk for trading cryptocurrencies in the foreseeable future as the regulatory framework for crypto remains unclear, Business Insider reported on Wednesday, citing people familiar with the matter. In recent weeks, executives have come to the conclusion that many steps still need to be taken, most of them outside the bank’s control, before a regulated bank would be allowed to trade cryptocurrencies, the financial news website reported, citing one of the people.

The Wall Street bank was planning to clear bitcoin futures for some clients as the new contracts were going live on exchanges when the cryptocurrency rocketed to a record high of $16,000 in December. Regulators across the world have been intensifying their scrutiny of initial coin offerings (ICOs) and cryptocurrency exchanges. The U.S. Securities and Exchange Commission had warned last year that some of the coins issued in ICOs could be considered securities, meaning trading them would have to comply with federal securities laws. Bitcoin was trading down nearly 4.8 per cent at $7,007 on the Luxembourg-based Bitstamp exchange on Wednesday. G&M

 

Cryptocurrencies & Blockchain: Crypto Miner Bitfury Is Using Magic Baths to Keep Machines Cool

Cryptocurrency miners have tried just about everything to keep their super-fast machines cool. They’ve moved them to Siberia and submerged them in vats of oil. One startup buried its mining rigs in a chilly Soviet-era bunker beneath the Eurasian steppe.

But even by crypto industry standards, the 40 megawatt plant Bitfury built in Georgia’s capital of Tbilisi is exotic. It submerges the computers in a non-conductive liquid to keep them chilled as they make millions of calculations a second. Bitfury said in February that it sold the plant to a Hong Kong-listed fintech company backed by a Chinese shadow banker in a deal that was conceived on Richard Branson’s private Caribbean resort, then bought it back at a discount.

Crypto markets have cratered this year, but there’s still a race to get the last of the 21 million mineable Bitcoins. It’s a high-stakes, fast-moving contest that’s already created a couple of billionaires, led to a flurry of crypto-miner initial public offering bids, and spawned a land rush for sites to house the energy-sucking supercomputers and their cooling systems.

Bitfury is the biggest player after Bitmain Technologies Ltd., the Beijing-based firm that’s planning an IPO in Hong Kong. Mainly a tech-hardware company, Bitfury has the most aggressive immersion-cooling capabilities, which it employs at the Georgia plant and at another data center it’s expanding. B

 

Cryptocurrencies & Blockchain: Philippines Prepares to Regulate Cryptocurrency Exchanges as Trading Platforms 

The head of the Philippines’ Securities and Exchange Commission (SEC) is targeting draft rules for domestic cryptocurrency exchanges within weeks ahead of finalizing regulations later this year. Cryptocurrency exchanges in the Philippines could soon operate as regulated trading platforms as authorities proactively seek to both protect investors and enable an inclusive ecosystem for cryptocurrencies to flourish in the country. The official was speaking to reporters after an SEC meeting on Thursday when he revealed that the authority is in talks with the Bangko Sentral ng Pilipinas (BSP) – the country’s central bank – for joint oversight over the domestic crypto exchange industry.

As CCN reported in February 2017, Philippines was among the first countries in the world to implement formal guidelines for cryptocurrency exchanges. At the time, the BSP outlined mandatory operating guidelines for operators wherein certified exchanges were recognized as remittance and money-transfer firms.

Contrary to its counterparts globally, the Philippines’ ‘central bank has taken a favorable – even encouraging stance– of cryptocurrencies like bitcoin. In a televised interview in October 2016, BSP deputy director Melchor Plabasan heralded the central bank’s guidelines as a “pioneering regulation” for the cryptocurrency sector, among the first in the world. CCN

 

Banks: High house prices in US stifle banks’ mortgage units 

Wells Fargo decided to lay off 638 workers from its home mortgage division last month. That might be a distress signal unique to a bank that has been plagued by scandal. In an extraordinary punishment, the Federal Reserve has capped the US bank’s assets in the wake of its fake accounts scandal, making it harder to add mortgage loans to its balance sheet.

It might be a common, though banal, cyclical issue across the banking sector: while interest rates were low, homeowners were vigorously requesting refinancings for existing loans. Now they are rising, this flow of demands, and fees, is drying up.  But there is a more obvious and striking explanation, which contrasts with the roaring US economy and asks more profound questions of all the banks: the housing market is slowing.

“House price appreciation has been running at four times the long-term average for several years,” says Doug Duncan, chief economist at Fannie Mae, the government-backed mortgage guarantor. “As a result, people are saying, ‘at these prices, and with rates rising, I’ll stay where I am’.”

The Case-Shiller 20-city home price index surpassed its housing bubble peak in January, and has continued to rise since. But activity has dropped off, as buyers and sellers are in stand-off mode. FT

 

CapEx: Banks are investing big in infrastructure despite stalled federal plan

Investors are sinking money into U.S. infrastructure, even though the national plan championed by President Donald Trump and his administration has yet to materialize, according to Bloomberg.

This enthusiasm has been underscored by firms like Australian-owned IFM Investors, which has raised almost $500 million for an infrastructure-dedicated, open-ended debt fund and plans to raise a similar amount every year. IFM boasts Kentucky and Virginia retirement plans among its investors. According to IFM, infrastructure investments can survive the ups and downs of the economy and still offer reliable revenue streams. Investment firms like Blackstone Group and the Carlyle Group have also jumped into the infrastructure arena, raising billions of dollars.  

Sadek Wahba, chief investment officer and co-founder of I Squared Capital, a private equity firm focused on infrastructure, told Finance & Commerce that U.S. states should push forward with their own infrastructure projects and only turn to the federal government for gap funding. He added that a national plan that provides states incentives for taking on infrastructure projects might not be enough to propel state officials into action. I Squared’s ISQ Global Infrastructure Fund II has raised $7 billion for global energy, utilities, transportation and telecommunications projects. CDive

 

Fintech: Go-Jek sparks an Indonesian banking revolution

Wawan Suwandi opened his first bank account nine months ago when he became a motorbike taxi driver for Go-Jek, the Indonesian ride-hailing company. Go-Jek helped Mr Suwandi open the account, allowing him to receive direct electronic payments from customers who use the company’s mobile wallet, Go-Pay. Besides enjoying the ease of banking with his smartphone, Mr Suwandi says Go-Jek drivers with good performance ratings can take advantage of other perks. Several banks offer Go-Jek drivers the chance to take out a mortgage or save for hajj pilgrimages.

Mr Suwandi is one of the millions of Indonesians who have recently opened a bank account for the first time thanks to new economy companies like Go-Jek. Rapid smartphone adoption and easy-to-use e-payment apps are penetrating Indonesia’s vast unbanked population on a scale that the country’s traditional banking industry has never been able to achieve.

The World Bank views access to financial services as a “critical step” toward reducing poverty and inequality. The rise of e-payments in south-east Asia’s largest economy also represents a massive business opportunity — a fact not lost on some of the world’s largest tech companies and venture capital funds, which have been pouring billions into Indonesian e-payment companies. Investment from big US investment firms such as KKR, Warburg Pincus and Sequoia, along with tech giants like Google, Alibaba Group Holding and Tencent Holdings, have created a frenzied atmosphere in Indonesia’s e-payment and fintech industries. FT


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