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US weekly jobless claims rise as Omicron spreads

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The number of Americans applying for unemployment benefits rose in the first week of January amid raging COVID-19 infections, but that number still remains low by historical standards.

United States jobless claims – a proxy for layoffs – climbed by 23,000 last week to 230,000 for the week ending January 8, the US Department of Labor said on Thursday.

The four-week moving average, which smooths out week-to-week blips, rose nearly 6,300 to almost 211,000.

The rise in claims is likely due to the surge in Omicron infections that has led to a wave of flight cancellations and workers calling in sick. But analysts say those headwinds should dissipate as Omicron, the latest variant of the coronavirus, runs its course.

“The rise in claims likely reflects an increase in layoffs due to the surge in COVID cases, as seasonal adjustment factors last week worked in favour of a lower headline claims figure,” said Nancy Vanden Houten, lead economist at Oxford Economics. “Claims may remain elevated in the near term, but we expect initial claims will gravitate back to the 200,000 level once the Omicron wave passes.”

The US jobs market has bounced back strongly from 2020’s coronavirus crisis and its subsequent recession. The nation currently has a near-record number of job openings and workers are so confident about their prospects that they are saying “I quit” in record numbers.

The unemployment rate fell to a 22-month low of 3.9 percent in December, which means that the labour market is at or approaching maximum employment.

Altogether, about 1.6 million people were collecting unemployment benefits the week that ended January 1 – quite the turnaround from the record high of 6.149 million in early April 2020.

However, surging inflation is worrying millions of Americans. Consumer prices jumped 7 percent year-on-year in December, the largest gain since June 1982. Economists expect the Federal Reserve to increase interest rates in March – and possibly raise them as many as three more times this year to cool rising prices.

Jobs galore
When COVID-19 hit in March 2020 and governments ordered lockdowns, companies cut millions of jobs and the US unemployment rate surged to 14.7 percent. Governments then injected trillions in stimulus funding to keep struggling economies afloat. That coupled with vaccine campaigns helped the economy bounce back.

But companies are struggling to bring back workers and find qualified employees to replace the scores who have resigned in recent months. Employers posted 10.6 million job openings at the end of November.

The US workforce is about 2.2 million people smaller than before the coronavirus pandemic. Workers are increasingly confident about their job prospects.

And those employed are emboldened to ask for a better deal from large corporations, a trend unseen in the US for several decades. Titans of corporate America are seeing more collective bargaining challenges including coffee chain Starbucks and cereal manufacturer Kellogg.

Data continues to underscore the shifting balance of power between corporations and their workers.

A record 4.5 million workers quit their jobs in November, 4.2 million in October and 4.4 million in September. This phenomenon has been dubbed “the Great Resignation” by economists.

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BUSINESS

Bitcoin set for worst quarterly drop in a decade

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Bitcoin is on track for its worst quarter in more than a decade, as more hawkish central banks and a string of high-profile crypto blowups hammer sentiment.

The 56% drawdown in the biggest cryptocurrency is the largest since the third quarter of 2011, when Bitcoin was still in its infancy, data compiled by Bloomberg show.

The decade in between those hallmarks saw several booms and busts, with cryptocurrencies’ market value swelling as they gained more widespread adoption and ultra-low interest rates spurred risk taking. But the current bear market stands out for the amount of crypto leverage that’s been unwound — and for the regulatory scrutiny being heaped on an asset class many central banks now consider a threat to financial stability.

Bitcoin slipped 1% to trade just below the $20,000 level on Thursday morning in London. Several altcoins did worse, with Solana and Polygon falling around 6%.

The drumbeat of bad news adds up to a stinging rebuke of the crypto ethos of unbridled speculation and free-wheeling innovation: A token that was supposed to be pegged to the US dollar collapsed, almost instantly erasing roughly $40 billion of market value. Several crypto lenders were forced to halt withdrawals, leaving depositors in the lurch. And most recently, a prominent crypto hedge fund was ordered into liquidation after running up unsustainable leverage to fuel its bets.

For all the gloom, some analysts are pointing to signs that the bottom may be near. The deleveraging that accelerated the rout in past months may not have much further to run, JPMorgan Chase & Co. strategists including Nikolaos Panigirtzoglou said in a note published Wednesday. They also pointed to venture capital funding that “continued at a healthy pace in May and June.”

“Bitcoin has had good success over the last dozen years at making cyclical lows every 90 weeks,” Fundstrat technical strategist Mark Newton said. “Lows should be right around the corner according to this cycle composite, and one should be on alert in the month of July, looking to buy weakness for a healthy rebound, just as sentiment seems to be reaching a bearish tipping point.”

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Here’s what’s hot — and what’s not — in fintech right now

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Financial technology is the hottest area of investment for venture capitalists — $1 out of every $5 of funding flowed into fintech startups in 2021.

But with a recession possibly around the corner, investors are writing fewer — and smaller — checks. And they’re getting much more selective about the kind of companies they want to back.

According to CB Insights, global venture investment in fintech firms sank 18% in the first quarter of 2022.

That’s led to something of a rotation out of certain pockets of fintech that were hyped by venture capitalists last year, such as crypto and “buy now, pay later,” and into less sexy areas focused on generating stable streams of income, like digitizing payment processing for businesses.

So what’s hot in fintech right now? And what’s not? I went to the Money 20/20 Europe event in Amsterdam in June to speak to some of the region’s top startup investors, entrepreneurs and analysts. Here’s what they had to say.

What’s hot?
Investors are still obsessed with the idea of making and accepting payments less onerous for businesses and consumers. Stripe may be facing a few questions over its eyewatering $95 billion valuation. But that hasn’t stopped VCs from looking for the next winners in the digital payments space.

“I think we’ll see a next generation of fintechs emerge,” said Ricardo Schafer, partner at German venture capital firm Target Global. “It’s a lot easier to build stuff.”

Niche industry buzzwords like “open banking,” “banking-as-a-service” and “embedded finance” are now in vogue, with a slew of new fintech firms hoping to eat away at the volumes of incumbent players.

Open banking makes it easier for firms that aren’t licensed lenders to develop financial services by linking directly to people’s bank accounts. Something that’s caught the eye of investors is the use of this technology for facilitating payments. It’s an especially hot area right now, with several startups hoping to disrupt credit cards which charge merchants hefty fees.

Companies like Visa, Mastercard and even Apple are paying close attention to the trend. Visa acquired Sweden’s Tink for more than $2 billion, while Apple snapped up Credit Kudos, a company that relies on consumers’ banking information to help with underwriting loans, to drive its expansion into “buy now, pay later” loans.

“Open banking in general has gone from a big buzz word to being seamlessly integrated in processes that nobody really cares about anymore, like bill payments or top-ups,” said Daniel Kjellen, CEO of Tink.

Kjellen said Tink is now so popular in its home market of Sweden that it’s being used by about 60% of the adult population each month. “This is a serious number,” he says.

Embedded finance is all about integrating financial services products into companies that have nothing to do with finance. Imagine Disney offering its own bank accounts which you could use online or at its theme parks. But all the work that goes into making that happen would be handled by third-party firms whose names you might never encounter.

Banking-as-a-service is a part of this trend. It lets companies outside of the traditional world of finance piggyback on a regulated institution to offer their own payment cards, loans and digital wallets.

“You can either start building the tech yourself and start applying for licenses yourself, which is going to take years and probably tens of millions in funding, or you can find a partner,” said Iana Dimitrova, CEO of OpenPayd.

What’s not?
Got an idea for a new crypto exchange you’re just dying to pitch? Or think you might be onto the next Klarna? You might have a tougher time raising funds.

“The tokenization and the coin side of things we want to stay away from right now,” said Farhan Lalji, managing director at fintech-focused venture fund Anthemis Capital.

However, the infrastructure supporting crypto — whether it’s software analyzing data on the blockchain or keeping digital assets safe from hacks — is a trend he thinks will stand the test of time.

“Infrastructure doesn’t depend on one particular currency going up or down,” he said.

Investors see more potential in companies making it easier for people to access digital assets without all the knowhow of someone who trades cryptocurrencies and nonfungible tokens every day — part of a broader trend called “Web3.”

When it comes to crypto, “the areas that most interest us today are areas that we have an analogue experience to in classic industries,” said Rana Yared, a partner at venture capital firm Balderton.

As for BNPL, there’s been something of a shift in the business models VCs are gravitating toward. While the likes of Klarna and Affirm have seen their valuations plummet, BNPL startups focused on settling transactions between businesses are gaining a lot of traction.

“Growth in B2C [business-to-consumer] BNPL is slowing … and regulatory concerns could curtail growth,” said Philip Benton, fintech analyst at market research firm Omdia.

Business-to-business BNPL, on the other hand, is “starting from a very low base” and therefore has “huge” potential, he added.

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Treasury yields nudge lower as market participants track economic data, auctions

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U.S. Treasury yields nudged lower on Thursday as investors continue to assess the prospect of a recession.

The yield on the benchmark 10-year Treasury note was marginally lower to trade at 3.0612%, while the yield on the 30-year Treasury bond slipped to 3.1989%. Yields move inversely to prices.

As the second quarter draws to a close on Thursday, concern over a slowing economy and aggressive interest rate hikes from the Federal Reserve continue to dominate market sentiment.

Fed Chairman Jerome Powell on Wednesday said that policymakers would not allow inflation to take hold of the U.S. economy over the longer term.

Speaking at a European Central Bank forum, Powell said it’s important to arrest long-term inflation expectations so that they don’t become entrenched and create a self-fulfilling cycle.

“We’re strongly committed to using our tools to get inflation to come down. The way to do that is to slow down growth, ideally keeping it positive,” he said. “Is there a risk that would go too far? Certainly, there’s a risk. I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make … would be to fail to restore price stability.”

Market participants on Thursday will monitor a fresh batch of economic data. Initial jobless claims for the week ending June 18, personal income figures for May and consumer spending data for May will be released at 8:30 a.m. ET.

The core personal consumption expenditures price index — the Fed’s preferred inflation gauge — will be released at the same time, while the Chicago Purchasing Managers’ Index for June is scheduled to be published at 9:45 a.m. ET.

The Treasury will auction $35 billion in 4-week bills and $30 billion in 8-week bills on Thursday.

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