The Insight Story

Inflation Hits a New High in the US

Inflation Hits a New High in the US. Where is the Economy Heading?

Rising inflation emerged as a big issue in the spring of 2021 when the U.S. government was imposing strict COVID-19 protocols. A mix of factors, including recovering demand, supply chain issues, and labor shortages pushed the prices up, and the onward graph is still rising.  A year on, the US inflation has accelerated to a fresh 40-year high. Price pressures are hampering economic growth. This is pushing the Federal Reserve to step up its tightening cycle with a series of steep interest-rate hikes, which in turn are expected to add to the political problems for the White House.  The consumer price index surged to 8.6% Y/Y and 1% sequentially in May 2022, after a 0.3% rise in April 2022, beating all estimates. Shelter, food, and gas contributed the most to the rise.  Driven by surging mortgage rates, registering a nearly twofold increase over the last six months, rising to roughly 6% from 3.2%, the US real estate market is starting to cool off. While home prices still seem overvalued, higher borrowing costs and declining sales could very likely compress prices by 5% by June 2023, per data from Capital Economics.   The economic uncertainty has left the stock market jittery. As markets have tumbled, investors have sought to increase allocation to more defensive asset classes, including high-rated and low-duration products in the fixed income category. In terms of equities, investors are gravitating toward low-growth companies with relatively lower P/E multiples that provide the cushion of low beta.   Moreover, persistent inflation is likely to drive fund managers to reduce allocation to equities, which can hurt public market valuations and have a knock-on effect on startup valuations, which are often valued relative to their public peers. This could understandably lead to tightened partner allocations to VC funds and possibly funds downsizing their expectations for future fundraising.   Read more: Looming Fears of Inflation, The Fed, and Recession: Where are The Financial Markets Heading?  Runaway Inflation  Due to quantitative easing and ensuing supply-demand imbalances, businesses globally have started raising prices at a pace not seen in decades. Multiple factors drove inflation, including pandemic-induced supply disruptions, higher food prices due to severe storms and drought, the Russia-Ukraine conflict, and the lockdowns in China.   The rising demand was exacerbated by the massive $5 trillion in spending by the US government to shield households as well as businesses from the economic shock of the pandemic. While the aid’s purpose was to cushion family finances enabling people to keep buying, this contributed to a 3 percentage points rise in inflation, per the Federal Reserve Bank of San Francisco.  Accordingly, goods like furniture, cars, and electronics saw a surge in demand. However, this unusually high demand collided with the supply chain issues originating from COVID-19, leading to record inflation.  Inflation Remains Fed's Key Challenge  Faced with inflation growing at one of the highest annualized rates globally, the Federal Open Market Committee (FOMC) has made aggressive changes to its monetary policy. However, the general view is that the Fed was a little behind the curve in doing so, rendering taming inflation and preventing recession increasingly challenging.   While inflation is broad-based across many different categories, per BLS data, the problem lies deeper due to the supply chain bottlenecks and the ongoing war in Ukraine. Owing to this situation, the Fed is likely to face increasing pressure to get inflation under control. The CPI data suggests that inflation is likely to remain elevated with more surprise possible to the upside with the jury still out as to whether inflation has peaked in the US. Against this backdrop, the Federal Reserve envisions further equally steep rate hikes taking the federal funds rate from its current 1.50-1.75% to 3.4% by the year-end.   Private Market Activity to be Subdued  Choppy public markets have made private investors more circumspect. Investing in companies going for “growth at all costs” has understandably taken a backseat, albeit till the uncertainty persists, and investors are being more selective and discerning in making their investment decisions, a sentiment recently echoed by the Managing Partner of SoftBank Vision Fund, Nagraj Kashyap. SoftBank, a major global tech investor, registered a nearly $27 billion loss in its Vision Fund Unit’s investments.   Faced with the prospect of below-average or even negative returns, investors could pull back on their investments, especially in late-stage companies with high cash burn and an unclear path to profitability. For instance, Softbank plans to reduce its investments by up to 50-75% Y/Y in 2022. Broadly, VC funding globally fell to its lowest level in the past 12 months, with $47 billion being raised in April 2022, per Crunchbase data. The slowdown in funding will likely increase pressure on founders with question marks over their next fundraises.  Looking ahead, due diligence before investments will likely become more robust and normalization of inflated valuations could lead to a rise in value deals, both of which would be a net positive for the VC ecosystem.    Read more: Tech Stocks Slump is Triggering the Withdrawn of ESG Funds: Here's Why  Could Inflation Spark a Recession?  The Fed is faced with a difficult balancing act with an urgent need to raise interest rates aggressively to help bring down inflation without triggering a recession. A difficult task, given that rising interest rates lead to a rise in borrowing costs for organizations as well as consumers, which could lead to a further slowdown. While investors are not anticipating a U.S. recession in 2022, they are positioning their portfolios for the time being.  Growth stocks have seemed more sensitive to rising interest rates as higher discount rates are rendering future cash flows – a key component of DCF models used to determine the price targets for growth stocks – less valuable. Accordingly, in 1H22, the Russell 1000 Growth Index has fallen nearly 29%, outpacing the 14% fall in the Russell 1000 Value Index (as of June 21, 2022), per FactSet data.  In addition to the economic and business landscape, unrelenting inflation has emerged as a mounting threat to the government and President Joe Biden. With approval ratings declining to 39% as of June 14, 2022, Democratic Party is at risk of losing control over at least one chamber of Congress in the November mid-term election.   Biden administration has also put forth plans to rein in soaring gas prices by announcing a historic release of oil from their strategic reserves. However, it remains unclear how much relief it will bring to the consumers.   Sector Spotlight  Similar to how technology companies triumphed in the pandemic, a few sectors are expected to fare better than others in the current economic downturn. With businesses reconsidering their supply chain strategies in response to the disruption caused by the pandemic and the ongoing war in Ukraine, the supply chain tech sector is a natural winner. By offering solutions such as increased freight visibility, improved collaboration, and predictive capabilities through data analytics, AI and ML, the supply chain tech companies are perfectly poised to benefit from a shift in supply chain strategy by businesses.  While clean tech has been in focus for some time, the geopolitical events in Europe have put the sector under the spotlight. As the EU nations try to cut their reliance on Russian energy, the need for clean energy is more than ever. Further tailwinds including (1) the ongoing innovation, (2) businesses’ increased focus on ESG targets, (3) and increasing clean energy spending by governments are likely to power the growth of the clean tech sector.  As digital transformation gains momentum, the frequency and cost of cyber-attacks are also picking pace. Increasing number and magnitude of cyber-attacks – prevalent among all industries – cost companies tens of millions of dollars. According to Cybersecurity Ventures, the cost of global cybercrime is expected to increase 15% per year, reaching $10.5 trillion annually by 2025. To safeguard themselves from the surging threat of cyber-attacks, businesses are implementing a robust cyber security program, offering growth opportunities for cybersecurity companies.   Key Takeaways  Shelter, food, and gas are emerging as the biggest contributors to the rising inflation  US inflation has claimed a 40-Year High, putting pressure on Fed and Biden  The consumer price index rose 8.6% in May annually  Property values are falling across the US due to Inflation  The US office market has been hit the hardest due to the US inflation  Read more: Is Silicon Valley Still Dominating Global Innovation?  What is Next for the US Economy?  The immediate fallout of the persistently rising prices has been a shift away from the Fed’s unequivocal focus on supporting economic growth and increasing the employment rate. On the GDP front, a second consecutive quarter of negative GDP growth could, to many, indicate that the US economy is falling into recession. With COVID-19 still lingering and cases rising in some parts of the world, recession in the US seems more a matter of when and how severe.   For Fed the focus now is strongly on bringing the inflation back to the 2% range and, if possible, avoiding a hard landing. A still strong labor market - with roughly half a million jobs being added per month to the economy (per Deloitte) - could help in stalling recession at least till late 2022. Moreover, research by Deloitte shows that it takes at least 20 months from the onset of the Fed tightening to a recession, which strengthens the arguments of the FED maneuvering the economy toward a soft landing.   With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.   A leader in the BFSI space, SG Analytics assists businesses with insightful relevant research along with sophisticated technology solutions. Contact us today if you are in search of an efficient market research service provider to make critical data-driven decisions.   

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What Is Data Democratization

What Is Data Democratization? How is it Accelerating Digital Businesses?

Enterprises globally have accumulated massive amounts of data over the years in quest of discovering the promised rewards of big data.   However, the question that often arises across management is - Where is the value associated with the data?  Managing data and developing insights is not enough to accelerate digital business transformation. These activities should also deliver measurable business outcomes. Increased data sharing is leading D&A teams in an organization to establish data transparency. Data sharing offers a way to optimize relevant data to generate more robust data and analytics for solving business challenges and meeting enterprise goals.  Data democratization requires a lot more than making data easily accessible. Today, organizations are moving towards building a true data democracy. However, just providing access to data, that is, either raw data in a data warehouse or as visualizations inside a product analytics tool or in a business intelligence tool, is not data democratization.   So, what is data democratization?   Data democratization is an ongoing process of enabling everyone in the organization to work with data comfortably, feel confident talking about it and make data-informed decisions that build and strengthen customer experiences.  An organization that wants to truly democratize data should embrace the following principles-  Empower employees to feel comfortable asking or discussing data-related questions  Provide the right mechanisms to enable everyone in the organization to work with data  Perceive democratization of data as a steady process that may call for an organization-wide cultural shift  The data democratization movement was born in response to finding a solution for this question. The transition to a more democratized view of data should be fully centralized or decentralized.   Data democratization should be perceived by organizations as a full continuum of options between these extremes. The ideal solution can be found by monitoring for a "goldilocks' state for data democratization; and by engaging in culture and process that is open to changes inside an organization.  Read more: A Brave New World – Fascinating Real-Life Applications of Data Analytics  The Goldilocks Approach to Data Democratization  To incorporate data democratization, enterprises should consider where it wants to be on the continuum of this fully centralized to decentralized approach to data or in between.  Centralized: Responsibilities to Remain with Data Science Experts  Guidance around when and how the organizational data should be shared with other departments or exposed to the public always remains a centralized responsibility. The ethical, financial, and legal costs associated with it are too high for inadvertent mistakes from well-meaning individuals. In centralized governance, the nature of actions around data access, formats, quality, authority, and sharing should stay with the data science experts.  Decentralized: New Responsibilities for Individual Departments and Developers  Individual departments can be made responsible for deciding what data can be exposed from their department to other departments to optimize operations and design new applications. A fundamental element of this model is that the publisher or the publishing department does not have any control over who and how the published data is consumed.  Evaluating the Preparedness of an Organization for Data Democratization  Unless there is an existential threat to an organization, ingrained business culture is likely to block technology transformation. Shifting to a more democratized use of data may imply significant organizational change that an enterprise has not previously considered data democratization or is unprepared for it. So, where can they start?  Evaluate The Current Situation: Open Mindsets or Walled Restrictions?  Whether intentional or not, an organization should be flexible while navigating specific ways in this increasingly quantified world. For organizations with a particular vision of data science, their organization policies should reflect them. They should be open to considerations to integrate well-understood democratization policies as a part of their daily organization practices. Given the cultural attitude and organizational structure around data, it is vital to identify the current predisposition for change in different departments of the organization - is the company ready to embrace or experiment with data?  Build New Relationships through Data Cross-Pollination  An organization's or employee's thinking is shaped by those with whom they interact. To relieve fears about the unknowns of data and to come to terms with its power, employees should engage in mentoring relationships with data scientists. With rotation programs, organizations can build a practical way for data experts to temporarily move onto other teams and educate them within the context of how specific challenges they face can be tackled with data democratization.  Prepare for Organizational Change that is Fuelled by Data  It is vital for organizations today to move from bolted-on processes and incorporate fundamental shifts in their everyday operations. In many organizations, newly data-informed mindsets and relationships quickly run head-on into the roadblock of organizational inertia. This has put a limit to where data can go and what it can do. The old way of data application focuses more on applying digital tools to incrementally improve an existing process. The new way of thinking is to employ digital tools for informed decision-making that necessitates organizational change.  Read more: TCFD: Exploring the New Regulations for Reporting Climate-Related Data  Data Protection for Responsible Data Consumption  Data protection often comes into play when the coverage of data includes the confidential data of customers. Certain questions can be presented by a data engineer, including-  Who is authorized to process this data?  Is there consent required to process the data?  Does the data need to be anonymized?  Information such as privacy classification, data of customers, data and privacy stewards, and associated entitlements can get absorbed into engineering analysis. However, to monitor the types of data that will be exposed inside and potentially outside the company, ethical compliances and competitive ramifications will have to be set to avoid lurkers from taking advantage of unwitting mistakes. It is therefore vital to establish a workflow for data authorization and enrichment of information. While these activities can be governed manually, to enhance the data quality, it is integral to incorporate reporting attributes or model features to ensure data security. Fundamental Steps to Achieve Data Democratization   For organizations to benefit from data democratization, it is vital for them to create it intentionally. This signifies that an organizational investment should be made in attributes including software, budget, and training. In this world of data democratization, breaking down knowledge silos is the first step toward user/employee empowerment. This cannot be achieved without customizable analytics tools capable of desegregating and connecting historical data, making it accessible as well as manageable from a single place.  Today, data democratization is changing the way data is analyzed, consumed, and applied in an organization. This practice makes data available to more people for them to analyze and gain insights with the help of software applications. Organizations now preparing to embark on this journey of Data Democratization require the support of their people, technology, and processes directed by the right strategies and plans. The challenges with data democratization lie in transmitting the data without breaking the legal and privacy policies. The way to go about it is to draw parallels from individuals while adhering to the well-laid broad policies.  Read more: Anticipating the Unanticipated: Balancing Business Resilience in the new age of Innovation  The Journey Ahead to Data Democratization  The journey to achieve an optimal position in a data democratization environment can be achieved through a centralized-decentralized data continuum. While it is unique for every company, the organization should be willing to continually incorporate changes over time. To complete this data journey, employees, including data analysts, data engineers, business data stewards, and other privacy stewards, should collaborate actively. This can include direct interactions with stakeholders as well as building trust with their endorsement-based expertise and judgment on a data governance toolset.  However, one question still prevails - can an organization's goldilocks decision about incorporating data democratization into their operational culture change the way they operate?  With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.    A leader in Data Analytics, SG Analytics focuses on leveraging data management & analytics and data science to help businesses discover new insights and build strategies for business growth. Contact us today if you are looking to make critical data-driven decisions to prompt accelerated growth and breakthrough performance.    

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New Trends in Affordability and Sustainability

Less Is More: Embracing the New Trends in Affordability and Sustainability

For years, businesses have constructed growth strategies that are aimed at promoting the consumption of goods and services. Here growth is pegged as the ability to sell more to customers. While affordability, speed, and convenience were placed ahead of other concerns, the availability of raw goods and resources to fuel the rising demand was hardly questioned.  But the scenario is starting to change. Recent studies state that companies are incorporating sustainable trends, and the outcomes are now pointing toward an end of abundance thinking, with the need for businesses to evolve their operating models to stay relevant.  Environmental sustainability is not just the responsibility of a few industries. For the climate crisis to be averted and to keep the environment protected, building sustainable businesses must be a global priority. This organizational transition to achieve a net-zero economy is likely to be as disruptive as the industrial revolution or the digital revolution. It will require the backing of new technologies, business models, processes, and strategies.  The path to a net-zero future will set the pathway for new opportunities for tech, manufacturers, and service providers to develop the underpinning technologies to empower sustainable business.  Read more: The Fight Against Greenwashing: Are Money Funds the Next Target?  The Onset of the COVID-19 Pandemic Affected Economies Globally  The uncertainties set by the pandemic brought consumers face to face with empty shelves in grocery aisles along with shortages in everyday services. The lack of readily available raw materials, labor shortage, and strained distribution channels slammed the brakes on the idea of abundance.  In Vietnam, lockdowns left exporters struggling to meet the rising global demand. The inability to ship Vietnamese coffee beans led to patrons sitting in idyllic cafes in Japan. Countries like Spain and Italy also felt the bitter taste of price hikes, as climate change-induced droughts in Brazil forced roasters to swap coffee bean varieties and compelled them to use cheaper ones instead.  While scarcity is still being viewed as a threat, consumers and businesses are finally wrapping their heads around it. Unchecked consumerism and climate crisis served as the backdrop for many pandemic uncertainties giving rise to entirely improbable scenarios where resources were limited, and consumption patterns were on the rise. The price rise is disproportionately affecting many, making it even harder to make ends meet. Worldwide, inflation is driving transportation costs and energy prices. The climate change crisis has been another catalyst.  After having been uncomfortably reacquainted with scarcity, consumers are rethinking their options of making a purchase, as they are now driving their attention to sustainable products and services.  And it is not just the consumer sentiment that is moving the needle against abundance.  Brands are now playing a critical role by breaking down these unethical barriers and helping consumers install new and more sustainable habits.   A recent survey reported that almost 63% of consumers feel that brands hold a responsibility to take care of the planet, and 57% of consumers believe that the government is not doing enough to tackle these issues. This directly throws light on the national leadership on sustainability that is lacking in the US.  Businesses should not perceive sustainability as a purview of a limited few who can afford higher prices; it is for the future of the planet.  Striking the Right Balance Between Affordability and Sustainability  Maintaining a balance between affordability and sustainability should be at the core of every brand’s marketing and innovation in the short and long term.  To incorporate and stick to sustainable behaviors, brands will have to think differently. One potential method outlined by the recent trends is to make sure to extend a product’s life rather than just giving into the culture of planned obsolescence.  Today many fashion brands and rental platforms, including MADThread, Closet Share, and The Treasure Collective, to name a few, are leveraging such concepts to create value for their consumers by allowing them to rent and wear trendy clothing without breaking their bank accounts. This is also helping contribute less to the environmental footprint of retail and fast fashion.  Read more: Driving Sustainable Innovations: AI for ESG Data Challenges  Beyond reevaluating product life cycles, businesses need to also reflect on fragile supply chains. Businesses should analyze them for circularity and find areas to replace the traditional -take, make, and dispose of- business model with one that is focused on reusing and recycling materials.  By exploring new practices like dynamic pricing, micro-factories, and hyper-localized manufacturing, new opportunities to share existing resources can be created.   Consumers tend to confuse organic with environmentally friendly, which is not the case.  While fashion brands today are eager to highlight the sustainability of the materials used in their clothes, they frequently use labels like "natural," "organic," or "recyclable," which often ends up raising brows from many.  There are many buzzwords that brands often incorporate in their marketing strategies to promote their environmental sustainability. However, they can be misleading and unverifiable.   How to differentiate such buzzwords from a real claim?  What to watch out for when checking a company's claim supporting sustainability?  Be wary of buzzwords  Check if the claim is substantiated  Check certificates that have been awarded by an independent organization  Use online transparency tools like the Ethical Consumer  Check the company's ownership  Scaling Sustainability Globally  Consumer concern for the environment and sustainable business practices are rising. While sustainable products used to be something separate, today, customers are compelling businesses to incorporate sustainable practices into the core of their business.  Going green is becoming a vital part of many business strategies, ranging from retail and manufacturing to financial services. EY report discovered that 52% of banks view environmental and climate change as an emerging risk.   To tackle the critical crisis, professionals - in domains including product research and development (R&D), materials, supply chain, quality assurance, manufacturing operations, and sustainability - are leaning on AI-based algorithms to uncover solutions to developing their new products, redesigning their existing solutions, choosing a particular material, or taking a different manufacturing approach. Brands are also scanning through heaps of data to gain insights that support customer decisions.  By establishing this framework, businesses can run a lot more experiments in a shorter timeframe, thereby reducing the time wasted and increasing the chances of success as well as speeding up the commercialization of products to meet their sustainability criteria.  Green business practices are competent in generating positive public sentiment. By incorporating sustainability into decision-making, enterprises can make a positive impact on the environment as well as turn a profit.  Read more: Trends that are Empowering the ESG Revolution in 2022  To Sum Up  Businesses today are accelerating their design and manufacturing of products that are cost-effective as well as sustainable.  Enterprises are assembling and analyzing data for raw materials, manufacturing processes, the quality and performance standards for the products, pricing, safety and compliance, and carbon emissions to simulate design options. With these insights, organizational leaders are setting up frameworks to make product design decisions that will meet business targets as well as pass the test of sustainability.  However, the COVID-19 pandemic led to disruption of manufacturing and supply value chains, putting organizations in a fix. With product manufacturing put to a halt due to labor shortages and other uncertainties, businesses started embracing scarcity leading to a shift in loss-making perspective.   Organizational leaders globally are wrapping their heads around accepting and incorporating sustainable innovation as a means to manufacture and sell less, which does not have to mean revenue loss. Rather, it is creating new opportunities to embrace new business models.  Brands now have a chance to change the operational functionalities in 2022, as conversations are now shifting toward purpose-led consumption along with charting out how enterprises can contribute to creating a better world in the process of accomplishing business.  Irrespective of the backdrop of supply chain issues, COVID-19 uncertainties, environmental concerns, and changes in work cultures, businesses now have a unique opportunity to drive change and balance affordability with sustainability. This will, in turn, drive the consumers to make better choices for the sake of long-term brand value as well as the planet.  With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.      A leader in ESG Consulting services, SG Analytics offers bespoke sustainability consulting services and research support for informed decision-making. Contact us today if you are in search of an efficient ESG integration and management solution provider to boost your sustainable performance.   

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Stocks Crash; Recession Fears Mounts

As Stocks Crash; Recession Fears Mounts: What is Happening?

US stocks rose Thursday; however, global stocks slipped. Investors are now grappled with fears about a recession after Federal Reserve Chair Jerome Powell said it is likely to be on the cards. Powell also acknowledged that the US recession is a possibility and said it is a risk. He also stressed that the central bank is strongly committed to bringing down inflation. The Dow Jones added 0.49%, and S&P 500 futures put on 0.76%. The tech-heavy Nasdaq was up 1.13% as the major US stock markets closed lower.  The current crisis in the US is intensifying recession fears. The dollar fell, and as per the latest US data, weekly jobless claims were estimated more. Manufacturing and services activity in the US saw a significant drop in June, lagging estimates and adding to worries concerning the forthcoming recession. The treasury yields dropped, with the 10-year yield hovering at 3.01%.  The Federal Reserve is moving to raise interest rates and is strongly committed to normalizing inflation, quoted Fed Chair Jerome Powell. He further stated that the central bank’s plan is to combat decades-high inflation and that the Fed will be raising rates at a fast pace if surging inflation continues to persist.   Commodities are expected to deliver breathtaking returns amid consolidated supplies and low inventories. However, volatility is likely to stay elevated.  Oil is expected to touch $150 per barrel in the short-term, whereas corn can reach $13 a bushel -- a record price.  The Economic Downturn   Energy stocks are among the hardest hit as oil prices are plunging. Shares of Occidental Petroleum, Exxon Mobil, and Marathon Oil also declined by almost 3%. Despite the losses, the S&P 500 energy sector stayed the best-performing area of the market in 2022, rising over 30%.   President Joe Biden has expressed plans to enact a gasoline tax holiday to cool soaring pump prices to alleviate the pressure on consumers.  Experts are expressing their fears that the Fed's decision will likely plummet the economy into a recession as it is continuously hiking interest rates. The central bank inflated rates by 75 basis points last week, which is the biggest increase in 28 years. The situation is also hinting at a similarly large rate hike at the next policy meeting in July.   Despite the decisive action from the Fed last week, markets plunged to their worst weekly performance since March 2020, with the S&P 500 falling 6%.  Read more: Looming Fears of Inflation, The Fed, and Recession: Where are The Financial Markets Heading?  Key Highlights  Markets finished low due to the ongoing crisis. The Dow Jones Industrial Average dropped 0.2%, less than 100 points, whereas the S&P 500 lost 0.1%, and the tech-heavy Nasdaq Composite was down by 0.2%.  The Dow was down by 400 points; however, stocks pared back losses due to the comments from Fed Chair Powell. The central bank is now working to take the essential measures to restore price stability, and this is likely to increase the ongoing rates.  Citigroup is now the latest Wall Street bank to increase its recession odds, meanwhile forecasting a 50% chance of a downturn due to softening consumer demands.  Goldman Sachs stressed the odds of a recession at 30% in the next year while also slashing GDP estimates to 2% due to tighter monetary policy from the Fed.  Morgan Stanley forecasted a 35% chance of a recession in the next year. They also stressed that the S&P 500 is likely to plunge by another 20% due to surging inflation.  The US recession is emerging as a possibility. Meanwhile, oil prices retreated, increasing concerns about an economic downturn that will drag on fuel demand.  While the Federal Reserve's interest rates hike is likely to onset a recession, policymakers believe that there is a risk that it will also break the economy. The outlook for risk assets in a year of steep drops across markets is garnering skepticism from investors and organizations alike. Stocks are predicted to face more losses amid dimming economic prospects.  Read more: The Changing Dynamics of International Investment in India  The Stock Market Rally  The stock market rally attempt made progress, especially on the Nasdaq, hinting that inflation is peaking. These inflation-peaking hints comprised plunging copper and other commodity prices, which are also reflecting the rising recession risks. On Thursday, the commodity-related stocks were hard-hit.  The stock market rally attempt staggered yet again, but the major indexes ultimately closed near session highs. U.S. crude oil prices retreated. Copper prices plunged more than 5%, a fresh 16-month low. Other metal futures and crop prices also dropped. The small-cap Russell 2000 climbed 1.1%. Markets are priced in slightly less tightening. Investors are now overwhelmingly anticipating another 75-basis-point rate hike.  While the major asset averages moved higher, there were some big losers beneath the surface. Recession fears are also slamming oil and other commodity prices. However, energy stocks, miners, and fertilizer makers are selling off hard. The market rally is exhibiting some positive action, though there are plenty of warnings.  What lies ahead?  Stocks tumbling across the globe are adding to the fears of recession resurfacing. The Federal Reserve, struggling to stay on top of inflation, has proved more persistent and widespread.  The S&P 500 closed the lowest for the first time since December 2020. The Dow Jones Industrial Average also tumbled more than 2.4%, pushing it below 30,000 points, a first since January 2021. Energy companies that were deemed to fall in the event of an economic slowdown also dropped.  Markets were already in shaky territory due to the recurring COVID-19 wave and the ongoing geographical crisis. Investors fear that the moves will tip the global economy into a sustained slowdown. While inflation is being predicted as 'out of control,' the Fed is doing the best it can with its limited tools. Despite the stock carnage, valuations still have a long way to go before they fall.  The dollar fell as central banks in Europe tightened up their monetary policies, promising to narrow the gap between rates in Europe and in the US. Bitcoin also dropped below $21,000 amid its longest slide.  The S&P 500 is now stressing an 85% chance of a US recession amid fears of a policy error by the Fed. The warning is basis the average 26% decline for the gauge during the past 11 recessions, along with the collapse into a bear market.  Here is what the other major assets are up to:  The euro fell 0.6% against the dollar to trade at $1.0506, whereas the US dollar index strengthened 0.39% at 104.60.  The yield on the US 10-year Treasury note plunged to 3.126%.  Treasury yields declined, leading to the dollar falling after earlier gains  First-half losses for the S&P 500 are being deemed as the biggest since the 1970s  Investors are expecting that the Fed will reinforce the commitment to fight price pressures. A backdrop of tightening financial conditions is leading delegates and investors to question - whether this economic slowdown will turn into a soft-landing or a recession?  Key Takeaways  The Fed is open to accepting the recession risk to deliver below-trend economic growth.  Concerns among organizations as well as investors are mounting about where the Fed is headed, probably towards a policy mistake.  Despite the continuous assurance, it is unclear whether the Fed has the reliable tools to tamp down prices.  Read more: Tech Stocks Slump is Triggering the Withdrawn of ESG Funds: Here's Why  In Conclusion   It is time to address inflation. The supply-side factors are also showing no signs of easing, as the central banks are tightening monetary policy. Investors are sensing the looming fears due to the Fed's revised policies. The US market is also facing another crisis - the overheating labor market. The crisis has also accelerated the integration of environmental, social, and governance factors into money funds.  The 10-year yield fell below 3.10% just nine days after spiking to 3.50%. Commodities ranging from oil to copper remained under pressure as the signs of the economy waning are mounting. Policymakers are now raising their rates to slow the demand in hopes of easing the pressures pushing up consumer prices.  How will the second half of 2022 playout for the US economy?  How will the major asset classes react to the crisis?   The turmoil and volatility of the economic market in the past few months have made Americans as well as organizations skeptical of what lies ahead.  With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.      A leader in the BFSI space, SG Analytics assists businesses with insightful relevant research along with sophisticated technology solutions. Contact us today if you are in search of an efficient market research service provider to make critical data-driven decisions.     

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Business Resilience in the new age of Innovation

Anticipating the Unanticipated: Balancing Business Resilience in the new age of Innovation

The world is undergoing disruption, and businesses are experiencing risk that has not been seen in generations. While some companies are freezing and failing, others are embarking on the journey to innovate, advance, and even thrive. The only differentiating factor is resilience.  The prime objective of an organization’s leadership team is to deliver solutions that align with the needs of its customers. Leaders are now recognizing the need for optimal product or service delivery as it is changing the future and creating the need for innovation. However, this focus on innovation without considering resilience can raise issues like supplier points of failure, non-sustainable practices, or even communication lapses. The ongoing pandemic, along with the rising geopolitical tensions, is teaching countless organizations this painful lesson.  Today the world is changing, and so are the risks. Due to the adverse situations created by the COVID-19 pandemic, organizations are now reimagining both the workforce and work design to be resilient. They are sensing the need to respond to change repeatedly and on a scale.  With business strategies evolving, organizations will be required to take deliberate action to prioritize resilience and not just focus on efficiency, to succeed in and fulfill their strategic ambitions.  Read more: Sustainability Tech Innovations that will power 2022  Identify Single Points of Failure  Identifying and addressing single points of failure is a vital step to balancing innovation opportunities with resilience. It is equally important to determine the organization’s alternatives for inputs, suppliers, and geographic sources in case a crisis or disruption occurs. Organizations should be able to identify their allies as well as their substitution in the research and development process to ensure innovation is resilient.   Employ Sustainable Tactics   Research & development and product management organizations need to innovate in a sustainable manner. Failing to innovate sustainably can lead organizations on the path of unnecessary disruption, failure, higher costs, and poor customer experience.  Enhance Communication  One common innovation mistake that organizations make is linked to communication between key team members. Business continuity and resilience professionals often fail to engage with the organization’s research and development and product management teams. This lack of communication and engagement can directly give rise to imbalanced financial optimization and customer experience. Instead, organizations should work towards incorporating resilience at the initial stages in the product or service development process as necessary.  The Shift from Efficiency to Resilience  Before the pandemic, organizations were really focused on efficiency. This indicates that many organizations were trying to drive growth by creating transparent processes. While that worked well for many organizations, it did not work for others. During this time of unprecedented change, this efficiency became more fragile, making organizations vulnerable to dealing with change. However, organizations are now advancing on the path toward resilience instead of moving toward efficiency.  Through the pandemic, organizations have been able to respond with a lot of speed and incorporate the changing elements for smooth functioning, but with situations changing, they are now sensing and responding repeatedly. Organizations are focusing on making sure that they have their resources, talent, and operations designed and deployed to perceive and respond to these continuous changes.  Organizations in pre-pandemic work and pre-resilience times were more focused on improving efficiency. But today, with the changing dynamics, they are looking at an alternative workforce that is driven by resilience. Many organizations are switching to a more dynamic point of view. They are now moving to explore elements to maximize productivity and engagement.   The new operating model for the 21st century should be underpinned by innovative ways of working that enable remote employees as well as distributed teams to work effectively and seamlessly and deliver outcomes.   The elasticity of the organization as an entity depends on these agile methods of working, backed by digital technologies that are embedded across the organizational framework. And that is what's really important. Organizations need to set up their operations for sustained resilience and success in the long haul.  Read more: Blockchain Gamification and the Emergence of Innovative Business Models  Implications of Resilience for Businesses  Today's era of innovation demands resiliency. The traditional operating model employed by organizations is more focused on optimizing and creating efficient processes and organizations. This approach has served companies as well as business environments to characterize their operations with relative stability and reliable distribution channels. It is time for businesses to embrace this paradigm shift and focus on cultivating a resilient toughness as well as the ability to endure different storms.  Recent events have exposed the weaknesses of this efficiency-first approach followed by organizations.  Global supply chains were shattered. The lack of operational buffers, including spare inventory or capacity, led to the creation of bottlenecks for critical business activities. Employee engagement and productivity increased across the pandemic. This new elevated risk environment has triggered severe disruptions, which are now becoming difficult for organizations to anticipate. Organizations with more flexibility and elasticity in their procedures do have a competitive advantage. Consequently, the new elevated risk environment requires an operating model that is more focused on resiliency and agility.  Organizations need to identify and sacrifice some efficiency gains for greater resilience. However, greater resilience can come at the cost of reduced margins, elevated prices, or a combination of both. Indeed, organizations need to focus on different priorities to drive long-term value, as businesses, markets, and supply chain environments are continuously shifting and changing.  Takeaways  Risk volatility and the amplified effects of overlapping events have given rise to a need for a new approach to strategy and operations for businesses to thrive.  Enterprises are shifting from an efficiency-driven focus to establishing a balance between resiliency and efficiency.  For businesses to succeed in this new era of risk, they should adopt scenarios envisioning practical work methods backed by digital tools and technologies that can offer the right insight into the rising probabilities of different futures.  Read more: Data-Centricity: The New Roadmap to Driving Enterprises in a Changing World  Key To Resilient Innovation   The key to balancing innovation and resilience for an organization is to approach it in a way that involves a fallback plan, enabling the organization to revert to pre-innovation practices. It is vital to consider sustainable suppliers and sources when selecting the input for the products or services. The key to introducing value in an organization is through innovation along with business resiliency. Being resilient implies focusing on avoiding disruptions to organizational productivity and establishing fast-acting recovery strategies to respond to any crisis.  To effectively transform the organization with this learning in hand, there are two actions to move in the right direction.   Identify and address the single points of failure and vulnerabilities and prioritize them depending on the issues and exposures.  Future-proof the framework by considering resilience at an early stage when applying innovation to enhance capability.  With more and more economies beginning to recover from the COVID-19 crisis, it is time for organizations to engage in these issues, support their management teams, and ensure that the organization remains resilient and competitive through.   Hence it is significant for organizations to double down on innovation to focus on possibilities for competitive differentiation. What organizations can do instead is to move from 'no' to 'go.' Organizations need to move the bar on what requires approval for them to place 'yes' in appropriate intervals. It is important to allow organizations to evolve and improve and apply resilience concepts at the initial stages of the research and development process.  With organizations moving back to normal workflows, there is a lot of risk of losing ground. The key is to recognize the complex nature and fragility of global supply chains and integrate a balance with sustainability. It is equally important that organizations incorporate the key friction points and design workflow accordingly to build the required sustained resilience to get us through the crisis.  With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.      A leader in Market Research services, SG Analytics enables organizations to achieve actionable insights into products, technology, customers, competition, and the marketplace to make insight-driven decisions. Contact us today if you are an enterprise looking to make critical data-driven decisions to prompt accelerated growth and breakthrough performance.   

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Inflation Hits a New High in the US

Is the US Slipping into Recession: Which Industries are at Risk?

A growing number of investment banks and organizational leaders are warming up to the warnings of the likelihood of rising recession risk in the US. Despite reeling from a steep selloff in recent weeks, the stock market does have plenty of room to fall before hitting levels consistent with recession-era lows, notified Morgan Stanley. This situation is expected to be especially bad for cyclical industries like travel and hospitality.  Recession risk in the US is higher and more front-loaded. The Fed’s more aggressive rate hike is putting the odds of a recession over the next two years at 48%. This was previously recorded at 35%. These tighter financial conditions are estimated to drag down GDP as much as 2 percentage points over the span of next year.  The Brewing Storm  US citizens are seeing economic storms brewing. The rising risk of inflation has turned the economic mood sour at an alarming pace and put Biden's administration in risky waters. Key issues like student loans are paralyzed by inflation fears. The administration is now casting around for outside-the-box fixes to help hard-pressed American households. from a windfall tax on commitments. Economists are laying out arguments on why the soaring cost of living is not Biden’s fault.  Over the last few months, inflation rates spiked higher, triggering another leg of the stock-market rout. This has pushed the Fed into an even more hawkish stance. The sentiment of US consumers plunged to the lowest level. Rising prices are primed to be this year’s top election issue.  The crisis sparked due to the pandemic supply-chain crunch and massive fiscal stimulus. The situation worsened due to the new impetus from the energy shock that followed Russia’s invasion of Ukraine. Inflation today has reached levels that many Americans have never experienced in their lifetimes. The inflation along with the unemployment rates together are adding to the misery of the economy.  Is it a Recession or Worse?  Worries about inflation are hitting policy discussions. While the effort has been unsuccessful, businesses are now condemning the lack of understanding that is driving inflation.  Is this really the onset of a Recession?  The S&P 500 stock index fell about 20% from January’s peak. The average mortgage rate has also doubled since then. It climbed close to 6%, the highest since 2008. These market moves are being driven by the Fed’s pivot. The central bank’s new policy is already denting wealth and adding to financial costs for Americans instead of presenting a way of cooling off prices.  Read more: Looming Fears of Inflation, The Fed, and Recession: Where are The Financial Markets Heading?  Key Highlights  Even though the major stock indexes are plunging more than 20% below recent highs, the markets are still only down by about 60% of the average drawdown.  The S&P 500 is likely to plunge as much as 20% to 3,000 points, from current levels of 3,770, if the U.S. falls into recession. The earnings can likely fall an average of 14% during recessions.  Due to the Federal Reserve working to combat decades-high inflation with interest rate hikes, the economic growth is expected to be hit the hardest.  Until the recession arrives, the bear market will not be over. The market weakness is expected to continue over the span of the next three to six months as the US is facing very stubborn inflation readings.  Echoing concerns are being raised by several top business leaders and financial institutions due to the steeper-than-expected hike in key interest rates. This is expected to deter spending and make borrowing more expensive.  How did the US Economy suddenly become Fragile?  A few months ago, recession in the US seemed like a distant shot. However, this now looks like the crisis is hard to avoid. Earlier this year, the Fed delivered its biggest interest-rate hike in three decades. This move is intended to tackle the fight against inflation.  Soaring prices and the rising risk of recession are hurting Americans. While the cure is going to hurt, experts are predicting that it may take a recession to stamp out inflation.  Investors are now rushing to bet on this kind of bad outcome, sending stocks and bonds plunging. American households are feeling gloomier about the current economic situation. The crisis is unfolding at a juncture when the consumers in the US are still getting to terms with cash-flush and when jobless rates are near historic lows. The Fed’s own projections and other elements highlighted by the administration indicate that a recession remains unlikely.  Read more: Tech Stocks Slump is Triggering the Withdrawn of ESG Funds: Here's Why  Industries that will feel the Heat  High prices are deterring some consumer spending. Stocks tied to discretionary spending, including those in hospitality, retail, hotels, restaurants, and clothing, are being perceived at a higher risk of a downturn. Industries tied to the internet, payments, and durable household goods like appliances and computers are on the lower spectrum of the risk.  Major stock indexes are plunging into the bear market ahead of the Fed’s largest interest rate hike in 28 years. These gloomy sentiments are ushering in waves of layoffs among the booming technology and real estate companies. While the hike in interest rates by the Fed cannot stop the issues that are causing inflation on the supply side, the impact on the economy can, however, be averted.  Restaurants are most likely to be at risk of a pullback in spending. As per the survey by Morgan Stanley, roughly 75% of respondents to the survey said that they might cut back on dining out over the next six months. 60% of them said that they would opt for delivery and takeout from restaurants. Driving much of the inflationary gains, essential items, including gas and groceries, will see more resilient spending.  The Game of Rising Rates and Falling Wealth  The US economy is expected to fall into a mild recession by the end of 2022 as the Federal Reserve announced a rise in rates to tame prices. The financial conditions are likely to tighten further, and consumer sentiment is souring. Food and energy supply distortions are feeling the impact, and the global growth outlook is declining. This rapidly slowing growth momentum and Fed's commitment to resort to price stability are adding to the downward plunge and fueling a mild recession.  Excess savings and consumer balance sheets are likely to help mitigate the speed of economic contraction; however, monetary and fiscal policy may be constrained by high inflation. The unacceptably high rising prices are expected to stick with consumers through 2022, slowing down the growth of the US economy. With the risk of a recession in the US economy increasing, it will take several years for the administration to get back to normalizing the economic goal. While the monthly inflation rate through 2022 and the initial months of 2023 are expected to remain elevated, owing to the Fed's response to the rising risks.  The ongoing rate hikes will continue into 2023, but with a scarcely lower terminal rate of around 3.50-3.75%, as compared to the previous forecast of 3.75-4.00%.   Read more: How Will the Global Crypto and Stock Markets Recover from the Inevitable Doom Loop?  Key Takeaways  S&P’s P/E drop approaches the dot-com era’s slide at a faster clip.  Three 19% drawdowns in four years reflect a rare bout of volatility in the market.  Elevated prices are leading to unanchored price expectations.  The Federal Reserve will likely continue its hike in interest rates into 2023.  Final Thoughts  The US economy is experiencing a whirlwind blow. High savings for households, fat profits for organizations, and low costs to service debt are not hallmarks of an impending downturn. However, these factors are contributing to the recession somewhere between 25% and 35%. Even if the economy is expected to fall into a downturn, the economy will require time to bounce back and pull Biden’s presidential ratings with it.  However, the Fed's decision now holds the chances of rising recession risks. Banks including Deutsche Bank and Morgan Stanley are also warning clients of the fading economic landing and greater chances of a recession.  A downward plunge in 2023 is probably expected to weigh down the economic growth of the US economy. The possibility of recession arriving in 2024 is likely to be expected, making the situation even worse.  With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.    A leader in the BFSI space, SG Analytics assists businesses with insightful relevant research along with sophisticated technology solutions. Contact us today if you are in search of an efficient market research service provider to make critical data-driven decisions.     

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Overcoming the Shadow of The Pandemic Workplace

Reenergizing the Workplace: Ways to Manage and Overcome COVID fatigue

The COVID-19 crisis has taken a toll on the workforce globally. Everyone witnessed many hospitalizations and deaths as well as the collapse of several businesses across industries, a massive spike in unemployment, and food security issues. In response to this unavertable crisis, organizations achieved important achievements like redeploying talent, launching new models and products, enabling faster decision-making, and shifting their workplace operations online for efficiency. In this new normal scenario, employees became more engaged and energized as they tackled their ways to address challenging and important issues.   The COVID-19 crisis has reshaped the way businesses operate, and we may never go back to the way businesses were functional before. The new normal is now our everyday normal.   The shift in the work model due to the pandemic has increased our reliance upon technology tools to perform our everyday work. With the emergence of elements like remote schooling, virtual classes, and FaceTime chats with family and friends, the increase in screen time is contributing to technology burnout.  However, this advent of the COVID-19 pandemic also led to the rise of pandemic fatigue - a condition that is plaguing organizations and employees. In 2020, the world survived a global pandemic, a massive economic crisis, and widespread social unrest. These top forces are fundamentally reshaping our societies. They have accelerated technological innovation, business-model disruption, and workforce automation. Along with innovation, an epidemic of stress has also been building as the COVID-19 crisis is reaching its tipping point.   With the COVID-19 crisis dragging on, organizations and employees are entering a prolonged period of disillusionment, despair, and exhaustion that is likely to last long. The most significant aspect is that companies are waking up to the need for greater empathy and compassion towards establishing a workplace that can help unleash the full potential of the employees. Global trends are starting to turn to the old rules of management and introduce human-centered principles that put employees and people at the heart of the organization.  Read more: The Future of Work: The Hybrid Edition  Designing a Vision of the Future   The pandemic caused almost 60% of employees to rethink the balance between their work and personal lives. Workers need to be productive and healthy. Organizations are now working to provide people with the right resources, both on-site and remotely. Those resources include:   Digital maturity to drive employee innovation and collaboration  A higher degree of autonomy through a distributed working model  Positive culture and progressive health policies  Supportive leadership, which listens to employees   The pandemic brought a critical reality into focus. To better support the employee's well-being and personal development, organizations recognize workers’ needs and expectations. The pandemic also highlighted a need for progressive policies for mental health and well-being.  By employing and accepting the right tools as a part of normal life and hybrid work, businesses can avoid overburdening their employees, partners, and potential customers with technology and also assist them in recovering from ever-present fatigue. Here are a few strategies that can assist organizations in combatting technology fatigue.  Removing or limiting video conferencing calls  The video conferencing fatigue, also known as the "Zoom fatigue," has shown to have a negative impact. The reasons for this are the intensity of close-up eye contact, lack of mobility during the call, and the cognitive load required for constant non-verbal communication. To be mindful of these stressors, organizations, as well as management leaders, are now employing frameworks to limit calls and cancel those that can be covered through other forms of communication, restrict call topics to only the agenda and be understanding of the colleagues or customers who prefer to take them off-camera.    Employing mobility tools for advantage  The growth of a distributed workforce has compelled many companies to adopt new mobility tools to help their workforce stay connected. These mobility tools enable employees to connect in more flexible ways. For example, a mobile device makes it easier to go out for lunch or run an errand. Knowing that the individual is just a call away helps in providing people the space and time to disconnect as well as offering the ability to work from the office, at home or anywhere.  Integrating asynchronous collaborations  The workplace environment often constrains the employee to collaborate only with the team members when they are in the office. However, with new tools, businesses are now redefining the way they connect and work together. It is no longer about confining to a particular geographical area or time zone. Asynchronous collaboration like posting a whiteboard message with queries or inviting others to leave comments offers greater flexibility than scheduled calls. It offers a great way to encourage more participation.    Read more: Why Should Companies Develop Women Leadership to Influence Corporate ESG Operating Models?  Utilizing the full extent of collaboration tools  Collaboration platforms are a source of technological fatigue, but they are also a part of the solution. Several collaboration tools offer advanced features like enabling multiple users to edit a document simultaneously, and virtual whiteboarding assists in deeper collaboration among teams and topics. Employing a virtual breakout room also offers a more immersive and engaging meeting experience and is a vital tool for brainstorming.   Unleashing Employee Potential by Evolving the Organization’s Operating Model    Organizations are exploring ways to make work productive and easier by employing new norms in their operating model. Many leaders are including the practice of making the virtual working model permanent so that employees can maintain the flexibility they have become accustomed to.  The future of work is now taking shape after the Covid-19 pandemic. These changes are changing the relationship between employees and firms radically. Digital tools and mobility will enable the workforce to upskill emerging digital technologies while supporting the employee's state of well-being as well as productivity. To win in the future, organizations must adopt new models to avoid technological fatigue. Three shifts that need to be included are-   A switch from talent taker to talent maker.  To stop managing workers as if they are machines.   Offer workers a sense of belonging and purpose.   The pandemic has contributed to accelerating these trends. Enterprises are now working to build a vision of successful alliances that are intensely human and nurture the very best elements of creativity, empathy, and inspiring leadership at every level. More than ever, organizations are open to endeavor into new working aspects as they prepare to seize the opportunities to emerge stronger. Leaders are now creating a brighter future for their employees and organizations alike.  Read more: Tech Forecast for 2022: Trends That Will Shape the Technology Landscape   What does the future hold for Workplaces?   Just like the COVID-19 pandemic, technology fatigue is here to stay for the future. Today, organizations are exploring ways to make it more manageable along with demonstrating to the customers how they stand out from the competition. This will enable them to create more productive and energized teams, build work environments that are sought after, and become the people that customers can engage with ease.  Over the next coming years, businesses will explore even more innovative tools to help their employees stay more connected and to reduce technology fatigue in the workplace. Today, enterprises are working to incorporate ways to provide the much-needed breaks from screens and video calls that are so desperately needed. AI is being employed to filter out background noise and deliver automated meeting notes to help make business calls more efficient.  Organizations are also working towards incorporating metaverse-like environments to take work to a fully virtual state, thereby eliminating ways to avoid technology fatigue.  The future of work is evolving. With employees getting accustomed to the new normal, industries are embarking on new creative approaches to enhance workplace productivity. Experimentation around the work environment and talent productivity will help define the course ahead to rescue technology fatigue. And one thing is obvious: Organizations that cling to old ways of working are likely to struggle to stay relevant.  With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.    A leader in the Technology domain, SG Analytics partners with global technology enterprises across market research and scalable analytics. Contact us today if you are in search of combining market research, analytics, and technology capabilities to design compelling business outcomes driven by technology.       

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Money Funds the Next Target in Greenwashing War

The Fight Against Greenwashing: Are Money Funds the Next Target?

ESG-mandated sustainable investment assets are projected to make up half of all professionally managed assets globally by 2024. 1% of the world’s population owns 38% of total wealth. However, the world facing climate catastrophe comes as no surprise. Nearly 9 in 10 people globally are committed to building a more sustainable and equitable world. With building momentum, businesses are shifting towards redrawing the guiding principles of politics and economics.  The ESG funds sector has rapidly ballooned in size. Financial regulators have been slower to come up with ways to guard the sector. That has led to the creation of limbo for consumers as they are at risk of buying products that may be packaged as something they are not.  Sustainability is a complicated field that is advancing in real-time. However, it is difficult to stay on top of the verbiage and what these claims mean.  Economy rule-makers are pushing for better transparency from managers of money market funds. This is another ESG-related offering that is falling short on the standards front, with the struggle to keep and attract investors increasing rapidly. A sustainable framework to attract future investment, partners, and public support is emerging as a trend for all investors.  With a stern current pushing toward the agenda forward, companies cannot afford to ignore building sustainability considerations at the heart of operations. The integration of ESG or environmental, social, and governance factors into money funds has experienced a sudden surge in recent years. There are just $9 billion in US prime money funds with ESG names.  Read more: Green Finance: The Next Step to Align India's Climate Priorities  ESG: A Call to Action   2020 ushered in a heightened focus on ESG or environmental, social, and governance issues. The momentum had been slowly building to support corporate social responsibility, with businesses moving towards a major development. However, the pandemic and associated economic dislocation, along with the heightened social unrest, and climate change, have compelled organizations to plan for action on the environmental, social, and governance (ESG) agendas.  Financial firms are commencing to measure and disclose their efforts to support all stakeholders and provide a solid foundation to build a broader perspective. Organizations are now focused on resolving two questions:   What are the essential elements that are to be incorporated within the ESG framework?  What tools will assist the industries?  Global sustainable mutual fund assets have hit a record high, bolstered by new disclosure rules. However, the pace of net inflows slowed from the prior quarter, as per the data released by Morningstar. Funds focused on ESG, or environmental, social, and governance-related issues, witnessed their combined assets climb to $3.9 trillion at the end of September 2021. This often-overlooked part of the burgeoning ESG industry is likely to encounter greater scrutiny from regulators across the globe.  The loopholes would allow banks to continue to make new investments. But this scenario is poised to change due to the SEC’s recently proposed rules that require public organizations to track and disclose their emissions. This gap between the money funds’ claims and the reality of the investments has left investors and stockholders talking about the litigation on mis-selling in the US.   Understanding the Scenario  Money funds are among the least risky investments available as they hold the safest government and corporate-bond securities. Today the level of investment demand for ESG products exceeds the availability of bonds. As the yield climbs with central banks boosting interest rates around the world, the presumption is that more investors are likely to gravitate to money funds if stock markets continue to lose value.  While there are more and more ESG-related bonds and commercial paper programs, the supply is still too small to build a valid ESG-only portfolio. Like other facets of the ESG industry, money funds are more susceptible to greenwashing as more and more funds are proliferating in the market. Expanded ESG disclosures and third-party oversight to investigate funds in a standardized manner help reduce these risks.  Greenwashing usually occurs when organizations, people, or governments exaggerate or misrepresent their climate credentials. The term also includes issues when organizations overhype their ESG commitments in their sustainability framework.  The ESMA or European Securities and Market Authority is leading the way in cracking down on such mis-selling. In the recently published ESG supervisory briefing, ESMA has highlighted a framework to provide convergence across the EU in the supervision of investment funds with sustainability features.  ESG reporting disparities exist between different domains that lead to the creation of inconsistencies in reporting standards across the market. A more formulated prescriptive and standardized framework is vital to managing the disclosure regime.   Read more: New SEBI Guidelines to Tackle the ESG Ratings Conundrum in India – An Analysis  What does it mean to be a green organization?  A term widely used in label and market ESG funds; it carries a more legal weight than many firms have initially thought. At the COP26 climate summit in Glasgow, signatories committed to achieving the new greenhouse gas emissions targets by the end of the year. The legal standards were set to promote ESG funds reporting. The target is to restrict global warming to well below 2C and preferably to 1.5C, compared to the pre-industrial levels.  Launching ESG-themed products is gaining momentum as it is emerging as a much-needed area of growth. Branding funds as green enables businesses to tap into a huge wave of investors. Retail investors are focusing more on making a positive difference to the planet and targeting marketing investments that offer claims a fund’s documentation. For investors interested in capitalizing on the green transition, there are several options available for them.   ESG funds are popular, but the sector is rife with greenwashing. ESG investment prioritizes companies and bond issuers with high environmental, social, and governance standards. Investors globally are pouring investments into sustainable funds. Asset managers also continue to repurpose and rebrand conventional funds products and package them into sustainable offerings.  How can Organizations Stay Ahead of the Crisis?  To stay ahead of regulations, companies need to adopt the following measures:  Before making a carbon reduction claim, start measuring and reporting the emissions.  After integrating an emissions benchmark, prioritize areas where the emissions could be cut to employ a realistic reduction strategy.  Getting the employees involved. This presents an excellent opportunity to empower motivated employees to work towards tackling the issues.  Sharing data and reporting publicly. This helps build consumer and investor trust and highlights the significant steps that are being taken to avoid greenwashing.  Organizations globally are planning to achieve net-zero by 2030. While these changes take effect, it will still be up to companies to voluntarily share their sustainability efforts. The public still must realize whether companies have an ESG strategy in place and which organizations are paying to keep up with their competitors.   Read more: ESG Market in Canada Faces Greenwashing Risks Due to Poor Data  Navigating Potential Shocks  The road ahead for organizations will not be a smooth one, as they need to prepare for inevitable shocks that are likely to arise in years to come. Some of the most impactful challenges will include climate adaptation, manufacturing, the changing role of the workforce, and reducing inequality. Many organizations are exploring possibilities of the materialization of elements that can spur the development of others. This has made it more vital for industry leaders to prepare for all of them.   These opportunities present a daunting list. From an ESG perspective, none of the aspects should be considered in isolation from one another. Instead of managing ESG in vertical silos, organizational leaders should shift their perspective to a multidimensional view and examine the risks present in all three areas.  In this world of greenwashing, responsible consumers and companies are feeling the need to up their environmental literacy. While some deliberately blur the truth, others struggle to understand ways to deliver on their promise of cutting down on emissions. By employing provision, organizations can make provisions to combat greenwashing in money market funds, along with the entire range of stock, bond, and other funds.  With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.     A leader in ESG Consulting services, SG Analytics offers bespoke sustainability consulting services and research support for informed decision-making. Contact us today if you are in search of an efficient ESG integration and management solution provider to boost your sustainable performance.  

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Price of war

Russia’s War Against Ukraine – What is the Price of War?

Countries across the globe are paying a heavy price for Russia’s war in Ukraine. Deemed a humanitarian disaster, the war has led to the killing of thousands and forced millions to flee from their homes. The war has also triggered global economic unrest by onsetting the cost-of-living crisis.  When coupled with China’s zero-COVID policy, the war has led the global economy on a path of slower growth and higher inflation. This is being largely driven by steep increases in the price of energy and food and is raising serious security risks for countries with poor economies.  In OECD’s latest Economic Outlook, they warned that the world economy would have to pay a hefty price for Russia's invasion of Ukraine as it slashed its growth forecast in 2022 and is projecting higher inflation.  A Paris-based organization, OECD or Organization for Economic Co-operation and Development, represents 38 most developed countries. Their latest institution predicted lower GDP growth due to the conflict that has sent food and energy prices soaring. The gloomy assessment offers a deeper and broader insight into the economic fallout from Russia’s invasion. In the report, OECD offers a detailed view of the global fiscal and monetary policies.   The OECD doubled its forecast for inflation among its members, which include the United States, Australia, Japan, and Latin American and European nations. The world is expected to pay a huge price for Russia's war against Ukraine, with the humanitarian crisis unfolding before our eyes. The early effects of the war are being felt in the surging prices. The effects have forced central banks to tighten their monetary policy. Meanwhile, governments are reconsidering spending plans as they attempt to shelter households.  Read more: The War in Ukraine: Ripples Across the World  Key Highlights from the OECD report:  Europe is being perceived as one of the regions that are likely to be hit the hardest due to the war in Ukraine, as its economies are struggling to wean themselves due to Russian fuel sanctions  Low-income households are at higher risk due to surging prices of food and energy supply  Sharp increases in rates could slow down economic growth  China’s Covid Zero policy persists in weighing on the global economic outlook  The recommendations emphasized in the OECD report include:  Additional aid and global cooperation on logistics to avert the food supply crisis.  Targeted support from governments for households that are hit the hardest due to the rising cost of living  Signals from central banks that they will not allow inflation to spread.  US monetary policy is expected to tighten faster as prices are driven by over-buoyant demand.  More solidarity in Europe on energy spending  Trade to be kept open to ensure diverse value chains for the green transition.  The Impact on Global Action  The war in Ukraine has forced the global economy to encompass weaker growth, stronger inflation, and potentially long-lasting damage to the supply value chain. Rising inflation is also posing an additional challenge to this inclusive recovery. Inflation is disproportionally affecting low-income households that spend a large share of their income on food items.   The decline in real incomes is pronounced in developing countries, where poverty is more prevalent, and wage growth is constrained for vulnerable groups. Surging food inflation is worsening food insecurity as developing countries are struggling with economic shocks from the pandemic. Central banks globally are unleashing a greater amount of policy firepower as they are striving to combat unrelenting inflationary pressures.   The war in Ukraine is unfolding at a time when global CO2 emission is at an all-time high. This upward trend came in after a temporary drop in the first half of 2020 due to responses to the COVID-19 pandemic. Total greenhouse gas emissions in 2019 reached nearly 59 gigatonnes of carbon dioxide equivalent (GtCO2-eq) units. The remaining carbon budget, consistent with a 50 percent chance of limiting global warming to 1.50C, has been estimated at 500 GtCO2-eq units. This is being perceived as a short-term increase in emissions that is even more problematic. Greenhouse gas emissions are expected to increase if no replacement is found.  The worsening energy and food crises are dragging down global economic growth. Sustained price increases in global energy markets are accelerating the adoption of renewables and efficient alternatives. This has led to an increase in the cost of production of batteries. However, supply chain issues are expected to undermine demand for electric vehicles.  Read more: The U.S. & the UK Announce Ban on Russian Oil Imports; What is the Future of Global Energy Supply?  Russia's war is imposing a heavy price on the global economy. The crisis has rattled commodity markets, exacerbating supply-side shocks. In 2022, the growth in global trade is projected to slow down after a strong rebound in 2021. The conflict is disrupting exports of crude oil, natural gas, fertilizer, grains, and metals, driving energy, food, and commodity prices. The Russian Federation and Ukraine are key suppliers of agricultural goods. They account for 25 percent of global wheat exports, 16 percent of corn exports, and almost 56 percent of sunflower oil exports.  Reshaping the Global Landscape  The war in Ukraine and the economic sanctions imposed on the Russian Federation are fundamentally reshaping the global economic landscape. The conflict has roiled global markets and propelled investment as well as energy security concerns to the forefront. Governments around the world are employing measures to shield households and businesses from the effects. In addition to offering direct income support to low-income households, measures are being taken to cut value-added taxes on energy consumption and other cost subsidies.   The new OECD report indicates the large and global impact of war on inflation, which has already reached 40-year highs in countries including Germany, the United Kingdom, and the United States.   Due to the escalating prices, countries are now looking to expand their domestic energy supplies. However, these efforts are likely to result in increased fossil fuel production.  Higher prices and growing energy security concerns have prompted the United States, the world’s largest producer of oil and natural gas, to increase its drilling activities. Meanwhile, the U.S. Government has also announced the release of 1 million barrels of crude oil every day for a duration of six months to bring energy prices down.  High food and energy prices, along with the continued worsening of supply-chain troubles, indicate that consumer price inflation will peak at higher levels than previously foreseen. The sharp rise in prices is undermining purchasing power, thereby forcing lower-income households globally to cut back on other expenses to afford basic energy and food needs.   The gradual reduction in supply chain and commodity price pressures, as well as the impact of rising interest rates, is predicted to be felt through 2023. The core inflation is projected to remain at or above central bank objectives in major economies.  Read more: Russia-Ukraine Crisis; Global Stocks Plunge; Inflation Risk Looms; What's Happening?  Key Takeaways  The Russia-Ukraine war is slowing the global economic recovery  Inflationary pressures have intensified, weakening growth prospects  The cost-of-living crisis is expected to cause hardship and risks of famine  The war in Ukraine will give rise to a stronger inflation  Central banks are facing a delicate balancing act  Final Thoughts  The war is hurting economic growth globally. The effects are being felt by Europe the most because it is more exposed to war through trade and energy links. The OECD cautioned that the economic turmoil is expected to hit the poor the hardest. The war is disrupting supplies of food like wheat and energy, for which Russia and Ukraine are major global suppliers.  The OECD also raised the warning about poor countries farther afield facing food shortages. The food situation in low-income countries is expected to be hit the most. It is fanning inflation for those with disposable income and living standards. The Russia-Ukraine war is sending shockwaves all the way to countries across the globe. The war is expected to even spark starvation, giving rise to political unrest and turmoil.  First, due to the pandemic and then the war, countries globally are facing the heat of economic unrest. The current situation highlights the clear risks of growth slowing down more sharply than expected and inflationary pressures intensifying further. The longer the unrest due to the war lasts, the longer the economy along with supply chains will be disrupted, and the less there would be an appetite for global investment.  With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.       A leader in Market Research services, SG Analytics enables organizations to achieve actionable insights into products, technology, customers, competition, and the marketplace to make insight-driven decisions. Contact us today if you are an enterprise looking to make critical data-driven decisions to prompt accelerated growth and breakthrough performance.    

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