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FINANCIAL MARKETS IN 2022: INFLATION, ENERGY PRICES, AND THE CONTRASTING PERFORMANCE OF STOCKS

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Bob Jenkins, Head of Research, Refinitiv Lipper

Bob Jenkins, Head of Research, Refinitiv Lipper

 

Anyone hoping for a reprieve from the chaos and uncertainty of the last couple of years is likely to be disappointed. The pandemic will continue to have an impact on global economies, both directly (such as ongoing lockdowns and restrictions to combat the disease) and the exhaust effects we’ve seen in areas such as the production of goods, supply chain challenges, labour shortages and rising energy prices.

At the same time, the digital disruption of the financial world continues apace, with assets once overhyped becoming increasingly mainstream.

To make specific predictions in such an environment might seem like a fool’s errand, yet it is possible to discern some themes that will shape the course of financial markets in the coming year.

 

  1. Global inflation gets stubborn: Inflation is not transitory, and we are seeing a foundation for higher prices being put in place thanks to the supply chain and labour issues previously mentioned. In major developed markets, I think we’ll see stubborn inflation regardless of whether Covid remains a pandemic or begins to enter an endemic phase. The situation is slightly more positive in the US; while inflation will remain at a 3.5-4.5% range, a reduction in supply chain bottlenecks, increasing labour force and improved unemployment rates will serve to reduce the impact of primary inflation forces. We should bear in mind that households are estimated to have around $2 trillion in savings, which will maintain consumption levels and keep up the pressure on labour and supply chains.
  2. Rates will rise: Rates are likely to rise, with discussions in several major economies indicating a tapered end to the period of low rates we’ve seen since the 2008 financial crisis. This will probably be achieved in fits and starts as central banks navigate virus outbreaks and any resulting economic shocks. For instance, both the Fed and the Bank of England have indicated there will be hikes, but it is likely that they will rely on tapering at first to slow stimulus while also trying to navigate sentiment swings and volatility arising from waves of infections and/or new variants.
  3. China to lead economic growth, but not by much: China’s growth is likely to be around the 4-5% mark, with the US just slightly behind at 3.5-4%, off its 6% pace from the first part of 2021. The European Union and United Kingdom will likely trail the US, even if they have been exhibiting similar economic issues, while emerging markets could be hit by a combination of the Fed tightening up and challenges dealing with Omicron and other COVID waves.
  4. Higher energy prices are here to stay: Multiple forces will provide support to higher energy prices: supply chain issues, political posturing, demand for heating/cooling due to climate change, but Covid will occasionally step in to disrupt and counteract these forces. Even carbon neutral efforts could cause overall energy prices to rise in the near term as energy producers shift to renewables, with many of these alternative sources remaining expensive. Oil will stay in the $70-$80 range, with the occasional dip towards $60 as intermittent Covid concerns influence energy consumption in the travel sector.
  5. Underperforming stocks with a positive finish: In general, slower growth and lower rates help Growth and Tech stocks while faster growth and higher rates benefit Value and Cyclicals and I believe the economy will tend to lean towards the latter scenario. That said, growth and value leadership will change hands throughout the course of the year as the economy reacts to Covid waves and switches between lockdown and reopening. I suspect Value and Cyclicals will outperform Growth and Tech at the margin, but the dominate capitalization size of the latter two will pull down overall stock market returns. Of course, as with consumers, there is a lot of money being held back at the moment. Businesses have significant cash reserves and self-directed traders continue to shovel money into markets, which, when combined, can help buoy stocks.
  6. Flattening the bond yield curve: I think we will see some retrenchment as a result of rising rate programs by central banks that will largely result in negative to flat returns across core fixed income. Any selling in longer term bonds in reaction to either economic or central bank activity will be mostly offset by buying due to the global desire for yield, thus keeping a lid on longer term rates. Rising short term rates in this environment will serve to flatten the yield curve. High yield bonds could provide for pockets of opportunity as they are potentially tied to cyclical areas of the economy that could show leadership.
  7. The contrasting futures of ESG and digital assets: In the coming year I think we’ll see digital and tokenized assets become almost as popular as Environmental, Social and Governance (ESG). However, whereas ESG is a permanent shift that will eventually encompass the evaluation of all mutual funds, digital currencies still look a little more niche. We could well see them proliferate over the next few years, potentially even becoming a new quasi-asset class, but they will remain a satellite allocation in risk tolerant portfolio strategies. They are unlikely to achieve the status of being included in mainstream portfolios such as defined contribution retirement plans where assets can flow in large, consistent amounts – unlike ESGs, which could well reach that point in the coming years.
  8. A more defined ESG: It is looking increasingly likely that ESG funds will begin to splinter into more thematic offerings as investors eschew the combined “ESG” mandates in favour of more targeted strategies that enable them to better assess stocks aligned with fund objectives. This will also help avoid those securities jumping on the ESG bandwagon.
  9. The continued rise of the Big Five: Of course, in an era of unpredictability, there are always going to be trends or themes that run counter to accepted wisdom. Despite the aforementioned attempts of central banks to raise rates, the Big Five stocks (Microsoft, Alphabet, Apple, Amazon and Nvidia) will continue to show leaderships. While technically falling into the camp of richly valued Growth, these stocks have begun to also acquire a status as a safe haven, with generally strong earnings demonstrating a consistency and dependability that attracts investors. They also populate immense amounts of passive and retirement plan assets under management, equating to steady flows into them in almost any economic environment.

 

All this plays out against a backdrop of our changing stance on COVID. While there are some commonalities in how different regions tackle the pandemic, the continued uneven nature of our global responses makes it hard to determine what state we will be in this time next year. If most major economies can move to an endemic setting, then we should have the tools in place to make ‘living with Covid’ a reality. However, the continued emergence of other variants will cause volatility, and with it a predictable jostling of market leadership. Perhaps the only predictions anyone can truly make is that life will continue to be unpredictable for some time to come.

Business

A new beginning for financial services B2B marketing

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Financial services B2B marketing is dead. A bold statement with B2B ad spend set to pass $30bn next year in the US alone. But it is dead, or at least, it’s dead boring.

B2B marketing has long carried a reputation for being dull, lacking emotion, heart or guts. Indeed, the same could be said for financial services, with its technical jargon, long-winded T&Cs and an array of complex services and products to promote. Put the two together and you have a considerable marketing challenge on your hands.

Michael Richards

But there are green shoots of change springing up on the beige horizon, as financial services businesses begin to recognise that they deserve better and start to see the lessons to be learned from their B2C peers. For example, many financial services B2B brands moved to digital to refine client experiences and grow relationships during the pandemic, meaning they could connect with businesses in a more accessible way through tailored and creative solutions. But it’s not enough to just convince a business to buy a product or service with a smattering of data and a selection of charts. There needs to be a focus on provoking the truth about these progressive brands; giving them what they deserve: intelligence, imagination and emotion to provoke their truths and tell their stories in ways that just can’t be ignored.

There are so many financial services B2B brands that are missing the mark on creating provocative work and telling their stirring stories. The industry is full of inspiring stories but needs to adopt the techniques of B2C (and fast) to avoid being left behind.

Below, I’ve outlined three approaches B2B financial services marketing should take from B2C:

 

Be 100% brand and 0% product

Let’s look at the lessons we can learn from one of the biggest brands in the world. Coca Cola used to advertise on a single poster with simple descriptive messaging that didn’t make a lot of sense … but that was in the early decades of the 20th century. Coke is now one of the most instantly recognisable brands in the world. It has evolved so much from that early uninspiring product messaging that some Coke ads today feature nothing more than a red background, a white glass bottle silhouette and the message ‘Open Happiness’. 0% product, 100% brand.

Financial services business brands can learn a lot from this. Very few are tapping into the vocabulary of emotional marketing. They sell their product in line with industry jargon, expecting their ever-changing audience to understand what they mean. When really their product or service should be learning to speak a new language. One that showcases the brand over the product, communicating to their audience with a personality and values of their own.

No company can rely solely on their product features because no product is unique anymore. The power of a brand can generate that differentiating value that will set it apart from the competition.

 

Use data to personalise your offer

Data is the beating heart to personalisation. It gives businesses the foundation to build a product that is bigger and better than its competitor. One that entices new audiences while maintaining loyalty.

Consumer brands are obsessed with collecting data to better their product and reach audiences far and wide. In fact, nearly 90% of UK shoppers will hand over their personal information for improved online customer experiences.

B2B businesses also use data, but on a much narrower scale. In a survey of B2B companies, only 25% of B2B businesses use data weekly to understand customer needs, while 9% admitted they never use data at all. This is evident given that 47% of B2B buyers who need a new financial service go straight to their existing bank, and 75% of those who claim to shop around also end up with their current bank. Most buyers don’t even consider more than two brands. Meaning lots get left behind.

This is where B2B marketing shouldn’t just rest on its laurels of tedious white papers and limited data. It should inject its own personal touch and emotion by undertaking its own research and data collection to produce insightful pieces of research and showcase its unique findings. This can include specific consumer trends and behaviours in the financial services space, so they can really understand their audience and further improve their product.

 

Be audience aware

Audience Blindness is a condition that hinders B2B brands from seeing that business decision-makers have changed. They have become younger; they’re millennials. The content they consume is worlds apart from what their predecessors consumed and is constantly evolving – particularly as we enter Web 3.0 and the metaverse.

Even in the finance sector, B2B marketing is still about appealing to ‘people’ and their needs. B2B isn’t a machine and shouldn’t just cater for a computer. It needs to connect to real life audiences – those with feelings, thoughts and emotions. Because behind every business partnership is a room full of people interacting, debating and sparking ideas.

The B2C financial services sector has progressed significantly, understanding changes in audiences and catering to new needs and desires. The rise in neo-banking, investment made easy and services specifically for young adults and children looking to save is testament to this. They’ve introduced digital-first approaches, influencer techniques and new ways of improving the shopping experience through buy now, pay later (BNPL).

We’ve seen glimpses of B2B’s new beginning, but its future is to live in the present, and inject it with the power of B2C. Only then can B2B see the new audience, hear the new market and feel the new world.

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Business

Need a business broadband package? Here’s what you need to know

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Author: Kerry Fawcett, Digital Director at Radius Payment Solutions

 

Does your business have a broadband supply that is speedy, cost effective, and most importantly, reliable? If not, now is the time to put that right. Online is king in this day and age, and no matter the size of your company, a good business broadband supply is vital to allowing staff to work as they need to. Here are some tips to find your organisation a business broadband package that fits it like a glove.

 

  1. You need to choose the right business broadband package

There are a number of reasons why your business might need a business broadband deal. Such reasons can include email which helps you stay in touch with customers and suppliers, social media access so that you can communicate with your customers and provide support, research and web browsing that your employees may need to do as part of their jobs, and general marketing tools which are nowadays more often than not web-based and require an Internet connection.

Also, let’s not forget that the people who want your products and services are online too—they use the Internet and search engines to find what they need. If this is your product or service and you do not have an online presence, their business will go to your competition.

That said, the decision on which broadband package to opt for is far more complex than simply choosing the deal with the fastest speed, or the cheapest price. Depending on the business, things to account for include data management, other services like email, and backup options.

With any package, however, it is important to look closely at the services being offered and whether they match up with what you are looking for. Also, check to make sure that they are built with business use in mind and have not been designed solely for consumer-grade activity.

To ensure your business chooses the right broadband package for its needs, make sure that you account for these three things. By doing so, you end up in a much better position to begin comparing options:

  1. Before choosing a broadband package, be sure to look at and understand how your business uses the data it is creating and storing. This will ensure that your broadband package can handle the data loads your business produces.
  2. Make sure to read and study service level agreements (SLAs). Every single half-decent business broadband package will have one of these—if they don’t, avoid the supplier—and looking closely at the clauses helps you avoid nasty surprises.
  3. Look for a broadband provider that has a bandwidth utilisation of below 50%. This will avoid bottlenecks and make your website and general broadband services a lot faster, enabling more data to be processed more quickly.

Price is certainly a factor, though. Whether comparing the price of business broadband, business mobile phone tariffs, or anything else, it makes solid business sense to make sure you are getting the best deal possible for your ideal product.

 

  1. Be aware – business broadband is not the same as home broadband

It is wrong to assume that business broadband is the same as the broadband that the vast majority of us have at home—it’s not. Business broadband packages include features that are specifically designed for business customers.

Generally speaking, a business broadband connection is set up and optimised to meet the increased demands of a business. Therefore, the features that are often found in a business broadband deal include prioritised customer support on-hand to provide immediate relief should something go wrong, faster upload and download speeds that can cope the bandwidth demands of a commercial office, better security features that protect your assets and data, and static IP addresses that allow you to run CCTV, host your own website, and authenticate intranet users.

What’s more, business broadband packages will usually come with generous—often unlimited—usage limits and competitive price points that aren’t too dissimilar to home broadband packages and plans.

 

  1. Explained: Business Broadband vs Home Broadband

For any readers still wondering about the most important differences between home and business broadband, here are four things that you don’t tend to get with a home broadband deal.

  1. Guaranteed service levels
    Returning to the point made about SLAs, business broadband providers will offer customers a guarantee to keep the broadband service up and running, and to do all they can to bring it back online should things go wrong. If a situation occurs where a provider is unable to do this in a pre-agreed timeframe, your business will often be compensated.

It is rare for home broadband packages to come with such a guarantee.

  1. Prioritised traffic
    Some of the best-known business broadband providers such as TalkTalk and BT prioritise traffic for their business customers over non-commercial home broadband customers.

This of course means that the speed and quality of your Internet connection will not be negatively affected by other customers’ usage patterns during peak times, such as when HD media and games are being streamed and played.

  1. Business-centric customer support
    As a business, it is vital that your broadband connection is restored as soon as possible should it go offline. If you don’t, you run the risk of losing revenue and having your reputation harmed. Business broadband providers know this all too well, and for that reason they typically offer around-the-clock, UK-based customer support.

This is in contrast to home broadband where customer support operatives are only available at select times, usually during business hours.

  1. A static IP address
    Most business broadband deals provide you with a static IP address. This type of IP address enables you to use your business broadband for some very useful business-critical operations, such as:
  • The hosting of your own server (vital for CCTV, file transfers, client services);
  • The hosting of your own website and domain name servers;
  • Enabling remote connections by your employees to their work desktops; and
  • Making available systems that require authentication, such as intranets.

Instead of a static IP address, home broadband packages include a dynamic IP address which changes each time a new connection to the Internet is established.

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