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Central banks beat the same drum | Visa Tinks, therefore Visa is |

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Today's big stories

  1. Inflation’s been surging in the UK, but the Bank of England’s short-term policies stayed put
  2. If you're thinking of buying a house, you might want to hold off for a moment – Read Now
  3. Visa agreed to buy Swedish fintech firm Tink for $2 billion

Ignorance Is Bliss

Ignorance Is Bliss

What’s Going On Here?

The Bank of England (BoE) announced after its meeting on Thursday that it wouldn’t be tweaking its short-term policies, despite the inflation-sized elephant in the room.

What Does This Mean?

Besides sticking with historic low interest rates, the BoE said it was still planning to buy $1.2 trillion worth of government and corporate bonds by the end of 2021 (tweet this). This, even though inflation rose above the BoE’s target of 2% last month, and even though the central bank’s expecting it to climb as high as 3% – half a percentage point higher than it predicted six weeks ago.

The BoE’s stubbornness is easy to explain: it argued that the British economy is experiencing a fleeting period of strong economic growth, and that this above-target inflation will normalize when the post-lockdown surge settles down. In fact, the central bank won’t move a muscle on policy unless it sees irrefutable evidence that inflation is going to hang around.

Why Should I Care?

For markets: The BoE didn’t give an inch. 
Investors hadn’t necessarily expected the BoE to commit to raising interest rates, but they had thought it’d at least gesture at raising them sometime soon. That’s why the pound rose and British government bonds fell ahead of the BoE’s announcement: higher rates would make the currency more appealing to savers and international investors, and they’d make future British government bonds more – and current ones less – desirable. But when the BoE refused to even contemplate raising rates, both those moves reversed course.

The bigger picture: Britcoin to the moon. 
The BoE is also one of the many central banks exploring a digital version of its own currency. A government-backed “Britcoin” could bring a host of benefits: it’d be impossible to counterfeit, could help the government spot criminal activity, and would allow for cheap transfers that could boost economic activity. Of course, it could also create all sorts of privacy issues that decentralized cryptocurrencies just don’t have…

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2. Analyst Take

Global House Prices Are Poised To Tumble

What’s Going On Here?

It’s no secret that house prices in the world’s richest countries have been accelerating.

Between ultra-low interest rates, stimulus check-boosted bank accounts, and a lockdown-stoked appetite for space, new homeowners are moving in their droves.

Now, though, there are a few worrying signs that house prices are about to head south.

That’s today’s Insight: why house prices are so close to collapse, as well as how to tell when all this might happen.

Read or listen to the Insight here

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Quick Tinking

Quick Tinking

What’s Going On Here?

Visa agreed on Thursday to buy European fintech firm Tink for $2 billion, in what may be a smart bid to block competitors from bypassing the payment giant’s card network.

What Does This Mean?

Open banking” platforms like Tink’s have caught on across Europe ever since new rules aiming to improve consumer choice came into force in 2018. Its technology allows third-party firms to access people’s banking data directly – with their consent, obviously – and to get an overview of their financial position without paying the likes of Visa for the privilege.

Visa, meanwhile, has been looking to expand beyond traditional payment methods, while keeping newfangled rivals from cutting into its lucrative role as middleman. The acquisition will help the company stay close to the more than 3,400 European banks that Tink services – along with the data of their combined 250 million customers.

Why Should I Care?

For markets: Second time lucky?
Investors sent Visa’s share price higher following Thursday’s announcement, potentially encouraged by the fact that its cash payment for Tink won’t impact stock buyback and dividend plans. But the takeover isn’t a done deal yet, and Visa’s recent attempt to acquire Tink’s US rival Plaid for $5 billion was blocked by regulators for competition-based concerns that could also apply here. That wouldn’t be so terrible for Tink, mind you: Plaid’s valuation tripled after Visa’s merger plans fell through.

The bigger picture: Keep the check, America.
Open banking – still yet to arrive in earnest in the US – has been a big factor behind Europe’s fintech boom. Startups like Revolut and Adyen have attracted multibillion-dollar valuations, and British payments firm Wise announced plans last week to list its shares in a move that could value the company at as much as $12 billion.

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💬 Quote of the day

“Behold the turtle. He makes progress only when he sticks his neck out.”

– James Bryant Conant (an American chemist)
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🤔 Q&A · RE: That’s Rich

Q: “Is it common for a public company to be listed on multiple countries’ stock exchanges, and are there arbitrage opportunities as a result?”

– Doug in Florida, USA

A: “A company with shares listed in more than one country is unusual but not uncommon, Doug. Luxury carmaker Ferrari, for instance, has shares listed in both the US and Italy. But since dual-listed shares should be worth the same wherever they’re bought, there probably isn’t much of an opportunity to arbitrage them – that is, to profit from differences in each exchange’s price. And if there is, you’d need faster-than-human machines – like those professional arbitrage traders have – to sell shares on the more expensive exchange, buy them on the cheaper one, and bag a profit when the price gap closes.”

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