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All business sectors show growth worldwide for first time in nearly three years - Industry roundup: 8 July

All business sectors show growth worldwide for first time in nearly three years

The latest Global Sector PMI data pointed to a broadening upturn in June, as all 21 sectors monitored registered output growth for the first time since July 2021. However, there were still some signs of weakness in demand, particularly for Basic Materials, and reports of job shedding across nearly half of the sectors monitored.

Financials remained a key area of strength in June, with all of the component sectors recording strong growth in activity. Other Financials - which includes consumer financial services, specialty financials and investment services - registered a rapid uptick in activity that was the fastest of the monitored sectors for the third month in a row. Meanwhile, following a month of contraction in May, there was a strong rise in Real Estate activity.

Basic Materials hinted towards a recovery at the mid-point of the year, as June marked the first month that all sectors were in expansion territory since early 2022. The uplift in output followed largely bleak recent trends for Forestry & Paper Products and Metals & Mining in particular. That said, Chemicals was the only sector in the broader category to record a rise in new work. Despite encouraging trends for output, job cuts were concentrated mainly across Basic Materials and Financials sectors in June.

Healthcare Services saw a renewed pick-up in activity in June after two successive months in negative territory. The uplift in activity was accompanied by a strong uptick in new orders and the strongest degree of optimism for a year.

Cost pressures remained elevated as all monitored sectors posted increased input prices for the third month running in June. However, more than half saw input prices rise at a softer rate compared to May. Forestry & Paper Products saw the most substantial input price inflation, with the rate accelerating to a 20-month high. Insurance saw the fastest rise in charges, while Autos, Banks and Real Estate cut their selling prices.

 

The EBA starts dialogue with banks on the 2025 EU-wide stress test methodology

The European Banking Authority (EBA) has published for informal consultation its draft methodology, templates, and guidance for the 2025 EU-wide stress test. This step marks the beginning of the dialogue with the banking industry and builds upon the methodology used in the 2023 exercise, with improvements reflecting new insights and regulatory changes. Some significant changes have been introduced, notably the integration of the upcoming Capital Requirements Regulation (CRR3), which is set to be implemented on 1 January 2025. It also considers the European Commission’s announcement to postpone the application date of the fundamental review of the trading book (FRTB). Other enhancements include centralising net interest income (NII) projections and advancements in the market risk methodology to increase risk sensitivity. Some 68 banks from the EU and Norway, including 54 from the euro area, will participate in the exercise, covering 75% of the EU banking sector. The expanded geographical reach and incorporation of proportionality features aim to boost efficiency while ensuring the relevance and transparency of the results.

This forward-looking exercise will assess the resilience of EU banks in the face of adverse economic conditions, providing essential data for the 2025 Supervisory Review and Evaluation Process (SREP). The EBA says it will maintain a primarily constrained bottom-up approach, complemented by supervisory top-down models that will offer net fee and commission income projections and the newly centralised NII projections to the participating banks. The methodology will further leverage on the breakdown of credit risk by sector of economic activity.

The introduction of CRR3 into the methodology means that the risk exposure amount (REA) must be restated for the risk areas, while the output floor will be computed on the total REA. Considering the Commission’s announcement to postpone the implementation of the CRR3 market risk rules (FRTB) until 1 January 2026, the EBA has adjusted the draft methodology to align with the current market risk REA regulations, effective as of the start date of the exercise. The EBA remains prepared to update this methodology to accommodate any further information or changes following the adoption of Commissions’ Delegated Act.

To promote efficiency and transparency, proportionality will be emphasised for smaller and less complex banks. Instead of a single capital threshold, banks will be evaluated against the relevant supervisory capital ratios within a static balance sheet assumption. The stress test results will play a crucial role in informing the SREP, thereby influencing decisions on bank capital resources and future capital planning.

The EBA has also focused on aligning the process with the needs of banks and supervisors by considering adjustments to submission dates and the banks’ FAQ process to accommodate the transition to CRR3. The EBA expects to publish the final methodology at the end of 2024, launch the exercise in January 2025 and release the results by the end of July 2025.

 

Can the US rally continue?  

US equities have staged a remarkable rally through the first half of this year, primarily buoyed by investor excitement over the five large-cap tech stocks most closely associated with artificial intelligence.

While the earnings of these companies - Nvidia, Microsoft, Alphabet, Amazon, and Meta - have supported the higher stock prices, investors are now shifting their focus to when the companies’ AI investments will translate into real revenue gains and earnings contributions, David Kostin, Goldman Sachs’ chief US equity strategist, said on the Goldman Sachs Exchanges podcast.

“Portfolio managers had been really embracing the euphoria, the excitement about AI, and what that might mean for corporate profitability, business activity, [and] productivity in the economy,” Kostin told host Allison Nathan. “More recently, that has shifted, and there's much more questioning of managements - whether or not they can actually deliver better financial results as a consequence of all this investment that's taking place.” 

For now, Kostin believes that the US equity market is fairly valued and that its trajectory looks to be in line with earnings.

 

CredAble publishes report on transforming treasury management 

CredAble, an India-based working capital technology platform, has released the whitepaper, “The Business Value of Working Capital Financing: A Working Capital Guide for the Corporate Treasurer.” The whitepaper delves into the fundamental concept of working capital, its significance within the corporate world, and the economic factors influencing working capital requirements. It addresses treasury-specific challenges and demonstrates how strategic working capital solutions can generate substantial financial value, impacting both top and bottom lines. 

The whitepaper reveals the potential for a 6.8% increase in return on assets through efficient cash flow management. It also addresses the impact of rising inflation, projected to reach 6%, and increased interest rates, now at 6.5%, on working capital requirements - further highlighting a 20% rise in the interest service coverage ratio across listed firms in the recent past. Additionally, the report highlights how implementing a software-based cash management system (CMS) can improve cash flows by 10%.

“The effective management of working capital is crucial for businesses, especially in today’s asset-light and uncertain economic environment,” said Ram Kewalramani, Co-founder and Managing Director, CredAble. “Our whitepaper provides corporate treasurers with the knowledge and tools they need to navigate these challenges and optimise their working capital strategies for sustained financial success.”

 

Study finds FIS’ Code Connect platform brought productivity gains, 193% ROI

FIS has announced findings from a commissioned study conducted by Forrester Consulting on the total economic impact (TEI) of the Code Connect platform, FIS’ catalogue of application programming interfaces (APIs) for financial software developers. 

Among the findings, the study found that a hypothetical composite organisation using the Code Connect platform experienced benefits amounting to US$946,000 over three years versus costs of US$323,000, adding up to a net present value (NPV) of $623,000 and a return on investment (ROI) of 193%. The study also uncovered additional benefits to the composite customer using the Code Connect platform, such as a 20% increase in developer team productivity and a 20% increase in IT security productivity.

First launched in 2016, the FIS platform hosts a catalogue of over 700 open API solutions from FIS and its partners. By encompassing APIs that span all stages of the money lifecycle - whether at rest in deposit accounts, in motion through banking and payment transactions, or at work through wealth management functions - the Code Connect hub could help businesses achieve efficiencies, rapidly innovate, and provide rich digital experiences for their customers.

 

UniCredit launches ‘Skills for Transition’ programme

UniCredit has launched Skills for Transition, a social programme that delivers strategic training to young people and companies expected to be impacted by the green transition, helping them to develop the skills they need to meet the demands of a changing environment while generating a measurable social impact. The initiative is entirely funded by the bank.

The Skills for Transition programme, which spans six UniCredit Group countries (Italy, Germany, Bulgaria, Czech Republic, Slovakia and Romania), is split into two streams, aimed at two different audiences: one for students and one for workers at UniCredit's corporate clients, helping both parties to play an active role in a just and fair transition.

The student stream, developed by POLIMI Graduate School of Management, offers selected students the chance to take part in two educational paths, a Master's programme for recent graduates and a four-month bootcamp for both current students and graduates. Both are aimed at increasing knowledge and awareness around the green transition and the Net Zero framework, helping them to acquire skills that will boost their future employment prospects.

The course will also involve working with some of the companies most exposed to the green transition, with students addressing specific business-related challenges and gaining hands-on experience, thereby putting their newfound skills into practice.

The worker stream, developed in partnership with Accenture, provides training for the workforce of UniCredit's corporate clients, offering specific learning paths to address key skill gaps. The training courses will be delivered starting from the last quarter of the year, via a digital platform in workers' local languages.

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