“This is the beginning of de-globalization and balkanization of the global economy and de-coupling between the US and China,” said economist Nouriel Roubini, in a recent post. “No wonder we are back in risk-off mode markets are sharply down. Even Fed easing cannot backstop markets hit by a double negative supply shock: trade and tech war.” In 2005, no one wanted to listen to Roubini when he predicted a housing bubble was set to burst. This time it’s different, however, and while his unflattering moniker “Dr Doom” still gets picked up from time to time, people tend to listen him.
Warning signs of an economic unraveling have started to show themselves. The UK economy is teetering, with output falling 0.2 percent in the three months to June and the pound snowballing. Domestic and global investors are said to be moving funds abroad in what the deVere Group has referred to as Britain turning into an “economic abyss”.
Elsewhere, the US-China trade war is beginning to bite: investors are leaving emerging markets, fearful that global growth will take another hit, and the MSCI Emerging Markets Index was down 11 percent over ten sessions at the beginning of the week.
In China, manufacturers are being forced to sell products at a discount rate, with the producer price index (PPI) hitting minus 0.3 percent year on year for the month of July, according to state figures. Deflation is looking increasingly likely and is forcing Beijing’s hand. In the US, the Federal Reserve’s interest rate cut – and suggestion that further cuts are on the cards – caused jitters on stock markets and attracted criticism from the White House. While it’s a welcome injection to borrowers, rates can only be cut so far, and markets have been buoyed by cheap money for some time now. That can’t last forever.
Market casualties have already started to add up. Deutsche Bank’s radical restructuring may be timely, Uber’s astronomical loses shocked many, and the high streets in many western cities are starting to look like elephant’s graveyards.
In recent years, however, organisations large and small have been turning to fintech to drive efficiencies and help squeeze margins. The advent of Open Banking in Europe has forced financial services firms to turn to fintech counterparts, and in turn the wider ecosystem has benefited. In each and every market now new technologies are making it easier for firms to find alpha in increasingly tight sectors.
One market in particular that has really enjoyed the past few years has been regtech, where front and back office systems are acting as calmatives for overrun compliance managers battling the transparency, capital and liquidity requirements rule makers have enforced since 2008. According to Juniper Research, regtech spending in financial services alone hit $18bn last year – illustrating not just the size of the market but, the rules’ imposition.
Should Roubini be right – and it’s looking increasingly like a recession is on it’s way – those who constructed the rules are going to be tested. Let’s just hope their – albeit indirect - boost of the regtech market has been worth it.