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Vested Shorts: Fed stance, DeFi’s regulatory leap, Gen Z’s Aspirations, and India’s bond index milestone

by Parth Parikh
September 23, 2023
3 min read
Vested Shorts: Fed stance, DeFi’s regulatory leap, Gen Z’s Aspirations, and India’s bond index milestone

In today’s edition

  • The Fed’s stance
  • Robo-advisors and DeFi
  • Gen Z are influenced by online influencers
  • Rupert Murdoch transfers control of Fox Corp. and News Corp.
  • India’s inclusion in the JP Morgan Global Emerging Market Bond Index

Market Snapshot

U.S. stocks declined this week due to concerns about soaring Treasury yields, rising oil prices, and the Federal Reserve’s continued aggressive stance on interest rates. Despite the lack of significant economic updates and with Q3 earnings reports still pending, the Fed’s recent policy meeting, which hinted at another potential rate hike, influenced market sentiment. The 10-year Treasury yield remained close to its highest level in 16 years.

Market close data: Week of Sep 18-22, 2023

News Summaries

The Federal Reserve left interest rates unchanged, maintaining the federal funds rate at 5.25% to 5.5%, with projections indicating a likely additional hike later this year. The central bank has revised its interest rate expectations for the end of 2024 to 5.1%, up from 4.6% projected in June. Fed Chair Jerome Powell emphasized the need for continued assessment of inflation patterns, stating that the current strategy is to maintain slightly higher rates for a prolonged period next year to curb inflation. Furthermore, due to unexpectedly robust economic activity, officials have increased their GDP growth projection for 2023 to 2.1% and anticipate a resilient labor market with unemployment at 3.8%. Inflation expectations are set at 3.3% for this year and 2.5% for the next. Notably, more officials believe the longer-term interest rate has risen, suggesting enduring elevated rates.

Goldfinch, a decentralized finance (DeFi) protocol built on the Ethereum blockchain, is seeking registration with the Securities and Exchange Commission to function as an investment adviser, aiming to act as a robo-advisor for private credit. By following a regulated path and targeting mainstream investors, Goldfinch hopes to bridge the gap between fintech and cryptocurrency, allowing DeFi to flourish amidst regulatory scrutiny. The protocol offers undercollateralized crypto loans to non-crypto businesses in emerging markets. While traditional asset managers such as BlackRock and Fidelity are exploring the crypto space, Goldfinch’s endeavors underline a belief in DeFi’s potential to integrate with existing regulated financial systems.

A significant majority of Gen Z, those born after 1997, are deeply influenced by online personalities, with 81% of them following influencers on platforms like TikTok, YouTube, and Instagram. These platforms impact their purchasing decisions and views on aspirational lifestyles. Notably, 57% of Gen Z would embrace the opportunity to become influencers themselves, surpassing the 41% interest rate among all US adults. This preference reflects the allure of potential financial rewards, the absence of traditional workplace constraints, and avoiding student loan debt associated with college degrees. As the influencer industry grows, a surge in supportive infrastructure, including training courses and specialized software, continues to emerge.

Rupert Murdoch, the American media magnate has ceded control of Fox Corp. and News Corp. to his eldest son, Lachlan, maintaining—for now—the companies’ conservative editorial leanings. The handover places Lachlan at the helm of an empire grappling with the rise of streaming and tech giants. While Rupert still wields influence via a family trust controlling about 40% of voting stakes, the long-term trajectory remains in flux, given the political divides among his four children. The transition prompted an uptick in shares for both Fox and News Corp., suggesting market optimism or potential sale speculation.

India’s recent inclusion in the JP Morgan Global Emerging Market Bond Index is a significant move that will see its government bonds constituting about 10% of the index by March 2025. This inclusion is anticipated to lead to an initial investment inflow of approximately USD 30 billion, enhancing future investments via both passive and active debt funds. This influx will likely convert the Balance of Payments deficit into a surplus, benefiting the currency. This development is expected to reduce the cost of capital, benefiting debt and equity markets in the medium to long term. The move, combined with India’s aim to curtail the trade deficit, bodes well for the Rupee’s strength and the demand for Indian assets.

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