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Hi fellow Finimizer, here's the news you need to know for February 5th. Reading time is 3:06 minutes.

🤑 Shout-out to Finimizer Felix for winning the Bitcoin Challenge; his prediction was only off by $0.59! Whoa. 🤯

America Works But Stocks Take The Day Off

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What’s Going On Here?

On Friday, American workers rejoiced as a jobs report showed the strongest growth in wages since 2009. Less rejoicing happened on the stock market, which interpreted the better-than-expected news as evidence that higher interest rates would follow soon.

What Does This Mean?

Rising wages fueled expectations that inflation is going up (put simply, if workers get paid more, they can spend more, driving up prices). This, in turn, may prompt the Federal Reserve Bank (“the Fed”) to increase interest rates faster than expected to keep inflation at a manageable level. As rates increase, saving money becomes more attractive than spending; less disposable income is spent therefore, and the economy slows decreasing inflation.

Markets reacted to this: bond prices fell because they’re worth less if interest rates are higher (new bonds that’ll pay higher rates would be more attractive than today’s lower-yielding ones). Stocks fell too because with higher rates, companies would have to pay more to borrow money to invest in growth – and they may therefore choose to borrow less and grow more slowly.

Why Should I Care?

For markets: Investors are fearful of sharply higher interest rates.
Bonds have essentially been going down in price since last summer, but last week that selloff moved much more quickly, partly as a result of Friday’s data. That suggests investors’ expectations for future interest rates are climbing quickly. One worry is that if interest rates continue to move sharply higher, the negative impact on economic growth will be immediate and severe, endangering stock prices further.

The bigger picture: A healthy US economy bodes well for global growth.
The US is expected to contribute about 15% to the world’s economic growth this year – second only to China – supported by recent tax reform and, potentially, Trump’s big infrastructure spending plan. China is the US’s biggest trading partner, so benefits from a strong US economy; while China’s biggest trading partner is the EU, thus helping to drive global growth.

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Deutsche Bank Is In Do-Do

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What’s Going On Here?

Deutsche Bank, one of Europe’s biggest banks, told investors on Friday that it lost much more money than expected in 2017 – and its stock plunged 6%. Autsch.

What Does This Mean?

CEO John Cryan took the reins at Deutsche in the summer of 2015 and promised to turn the struggling bank around – but tackling what one major investor calls “decades of mismanagement” has proven to be a tough task. For one, Deutsche is heavily reliant on revenue from its investment banking division (e.g. trading stocks) and 2017’s calm trading environment meant clients weren’t tempted to trade as much, thereby limiting revenue.

But Deutsche’s problems may run deeper as investors currently value its stock at a very low level relative to the amount of “assets” it owns (which include loans it has made). Investors are effectively saying they don’t think Deutsche will get repaid as much as Deutsche thinks it will, which, if correct, would likely cause even more losses and further devalue its shares.

Why Should I Care?

The bigger picture: Deutsche has not joined the banker's party.
Most banks have had a very strong past 18 months: as interest rates have gone up, they have been able to charge more for loans, pumping up their profits and share prices. But Deutsche’s continued losses, and concerns over the value of its assets, have helped push its stock down 25% over the past year.

For the stock: High bonuses are a potentially damaging PR problem.
Despite losing about €500 million (~$620 million) in 2017, Deutsche agreed to pay out over €1 billion (~$1.24 billion) in bonuses to its staff. Deutsche says this was necessary to stop high-flying investment bankers from jumping ship and joining rival banks, thus decimating Deutsche’s future business prospects. But the decision is playing out poorly in Deutsche’s home market of Germany and contributing to investors’ angst.

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#FINIMIZEQUOTE

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- Bill Belichick (an American NFL football coach 🏈)

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Q&A

RE: Awkward Fit In The Changing Room

Nepomuk asked:

“If H&M is losing customers (and revenue), who is winning? Is there one company/brand that can be named?”

“Yes: Amazon. Amazon grabbed over 40% of all ecommerce sales in the US last year, which was an increase on the already impressive 38% that it captured in 2016. In other words, its market share of online sales is getting bigger despite its already enormous size. There are, of course, other winners – including brands like Lululemon (which has benefited from selling its wares directly to consumers rather than via a third-party retailer) – but if there is one clear winner in western retail in recent years, it is Amazon.”

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Image Credits: Drop of Light / Shutterstock.com | Vytautas Kielaitis / Shutterstock.com