☀️☕ #IWD How Female Confidence Impacts the Gender Gap in Investing

📊 Also: "Higher-AND-(MAYBE)-FASTER-for-longer"; Nissan getting junked 🎓 Junk Bonds

Happy 🐪 Wednesday!

It’s the 100th MoneyFitt Morning on LinkedIn Newsletters🎉

📝 Focus on International Women’s Day 2023

  • #IWD How Female Confidence Impacts the Gender Gap in Investing

📊 In the Markets

  • "Higher-AND-(MAYBE)-FASTER-for-longer"

  • Nissan getting junked

📖 MoneyFitt Explains

🎓️ Junk Bonds

📝 Focus on International Women’s Day 2023

#IWD How Female Confidence Impacts the Gender Gap in Investing

Studies show over one-third of the gender gap in financial illiteracy is down to women's lack of confidence in their own financial knowledge, rather than an actual lack of financial knowledge. In other words, women know more about finances than they think they do! But even after accounting for the confidence gap, there remains a knowledge gap that needs addressing to achieve investment equality. Contrary to popular myth, the lack of knowledge is not down to the “inability” of women to understand finances, but instead the social circumstances that create financial literacy.

► The greater the income level, the greater the financial literacy, but average income levels for women are 20% lower than that of men.

  • The higher the income, the more money there is to look after, and the more potential there is for wealth growth

  • This makes people more interested in it, so naturally financial literacy increases

  • Evidence from the American Life Panel supports this theory, as 40 to 50-year-old white males in the upper-income brackets were reported to be the most financially literate demographic

► Women tend to pursue a different education path to men, one that avoids business or economics subjects.

  • A survey published by the New York Times in 2016 revealed just 35% of economics majors across the US are female

  • Of course, studying economics is not the only, or even most effective, way to gain financial literacy, but, it does indicate where female interests lie

  • In other words, women appear to be simply less interested in learning about finance

  • A European study of school-aged girls conducted by Microsoft claims girls lose interest in STEM subjects by the age of 15, however, before this age their performance does not reveal them to be any worse than boys in STEM

  • So, gender norms probably motivate the inclinations of women, instead of their actual abilities

► The presence of gender stereotypes affects female financial literacy.

  • Finance is traditionally a male-dominated area. Women see this and are subconsciously influenced

  • A New York Times survey revealed college-aged women are 10% less interested in “finance-related topics” than men

  • This spills over into households, where men proportionally assume greater responsibility for financial decision-making

  • The RAND American Life Panel recorded divorced women as having amongst the lowest rates of financial literacy in the whole population

  • It would take them an average of 13.7 years to reach the same level of financial literacy as women who have never been married

(Please refer to this MoneyFitt article for more on this important topic.)

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📊 In the Markets

"Higher-for-longer" US interest rates may (finally) have started to be the consensus view of market watchers, going by the drop in February. But the idea from Tuesday morning's testimony to the US Senate by Jay Powell, the head of the US central bank of "higher-and-faster-for-longer" was not, and markets duly sold off. See below for more.

► The yield of two-year Treasury bonds also rose, hitting 5%, its highest level since 2007 and widening the difference with the yield of 10-year bonds, historically a reliable indicator of an impending recession. (Bond prices move in the opposite direction to yields, which are the interest rates you actually get at the price.)

Elsewhere, data showed China's exports and imports both fell sharply in January-February, apparently reflecting a slowdown in the global economy and weak domestic demand.

► The picture was mixed on the raw material front, but seems to indicate stronger growth ahead, with strength in iron ore and coal being offset by weakness in crude oil, natural gas and copper. Iron ore, the key raw material for steel, is often a leading indicator, as is thermal coal (for electricity) with crude oil imports tending to move with a lag.

In the UK, house prices unexpectedly rose by 1.1% in February over January levels, and 2.2% higher than February 2022, according to Halifax (formerly a "building society" but now part of Lloyds Bank.) The City's Finest had been expecting a drop of 0.3%.

► “Recent reductions in mortgage rates, improving consumer confidence, and a continuing resilience in the labour market are arguably helping to stabilise prices,” according to Halifax Mortgages, though competing mortgage provider Nationwide saw house prices fall 0.5% on the month before and 1.1% on the year.

And staying with the UK, sausage roll titan Greggs plans to open 150 new stores this year, on rising sales and profits despite inflationary pressures. It currently has 2,328 after opening a record 186 new stores in 2022. Sales last year rose 18% to £1.5 billion, though pre-tax profits only rose by 2% to £148mn. The baker and fast food operator forecast more growth as UK households grapple with the cost of living crisis and turn to Greggs for value meals, helped along by longer opening hours, a popular loyalty app and new menu options.

Can hardly tell
Image credit: Greggs


Based on interest rate futures, the chance of a 0.50% hike at the next rate-setting meeting in two weeks went from 27% on Monday to over 70% on Wednesday as Jay Powell told US lawmakers that the Fed is prepared to hike rates in larger steps if economic data suggests it's needed.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Jay "Silver Fox" Powell, chairman of the Federal Reserve, the US central bank

From Monday to Wednesday: "Higher-and-(maybe)-faster-for-longer" being digested by the interest rate futures market. The blue boxes are the implied highest probabilities for each of the forthcoming Fed interest rate setting meetings.
- Image credit: CME Fedwatch Tool manually via MFM

► We say this often, but the Fed has a dual mandate (see below), so a strong (currently red-hot) labour market can be either a cause for concern (there is a risk that higher wages lead to higher costs which lead to higher prices) or a licence to go all out in the battle with inflation, since that side is (sort of) sorted. Or, more likely, a combination of both. For the record, the last time unemployment was actually lower than January's 3.4% was 70 years ago.

The Fed's Dual Mandate (a mini-explainer)

  • Like most leading central banks around the world, the US Federal Reserve is independent of the government, though "ultimately accountable to the public and the Congress." And like them, the Fed's role is to keep inflation under control (meaning around 2%) through all means necessary.

  • But unlike most independent central banks, the Fed has a "dual mandate", meaning in addition to managing inflation, it also has to seek "maximum sustainable employment"... not meaning zero unemployment, but a level that is neither a boom nor a bust rate of (un)employment.

  • So technically, provided it satisfies two mandates, The Fed doesn't care if the economy sinks into a recession or not, if there is a bull or bear market or if any politicians get re-elected.

► Interestingly, Powell, a Republican appointed chairman by Trump (though first made a governor by Obama) agreed with both Democratic assertions that lower corporate profits could lower inflation and also with Republican arguments that lower government spending and more energy production could also help.

► All eyes will be on Friday morning's February Non-Farm Payrolls employment report from the Labor Department. After January's blowout report, with 517,000 new jobs, highly-paid Wall Street experts are expecting a slowdown to just 200,000 new jobs created in the month and unemployment unchanged at 3.4%. (On the other hand, those same highly-paid experts had been expecting 187,000 for January...)

Nissan getting junked

Japanese carmaker Nissan had its credit rating cut to junk bond 🎓 status by rating agency S&P Global, which expects profitability to continue to lag behind its competitors for the next one to two years, with supply-chain issues continuing to delay any recovery in US and European sales.

► The downgrade was to BB+, S&P’s highest non-investment grade rating ("junk" refers to anything that's not investment grade.) This means Nissan will have to pay more (i.e. a higher rate of interest) to borrow money by selling new domestic and foreign currency bonds, while existing bondholders face a potential drop in value (if bond yields rise on the rating cut, the bond price would fall.)

► Nissan is coming off two years of losses and is targeting operating profit of ¥360 billion (US$2.7 billion) for the fiscal year ending this month, but has few new car models in the pipeline and has struggled in the industry’s pivot toward electric vehicles. In January, Nissan and French peer Renault agreed to an overhaul of their two-decade-old carmaking alliance to put them on a more equal footing and see Nissan invest directly in Renault's new EV business.

Nissan paying out more interest on its bonds
- Image credit: Our Gang (Little Rascals) / Hal Roach, WBD via Tenor

📖 MoneyFitt Explains

🎓️ Investment Grade and Junk Bonds

Investment grade bonds are a type of debt security that is considered to be of high credit quality and is therefore considered to be a relatively low-risk investment. Investment grade bonds are issued by companies, municipalities, and other entities, and are typically rated "BBB-" or higher by credit rating agencies Standard & Poor's and Fitch and Baa3 or higher by Moody’s.

Investment grade (IG) bonds are assessed by the agencies as less risky than non-investment grade bonds, which are also known as "junk bonds." Those are considered to be more speculative in nature and since a higher yield is needed to help offset the risk of default, they are also called high-yield bonds (HY).

Bonds may be secured by specific assets, such as real estate or equipment, or they may be unsecured. They typically pay a fixed coupon (expressed as a percentage of the original issue price) with a fixed maturity date, at which point the principal is paid back to the investor... or not.

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