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Eighth successive hike takes Australia‘s interest rate to 3.1% – Industry roundup: 6 December

Reserve Bank of Australia raises official cash rate to 3.1%

The Reserve Bank of Australia has announced a 25basis points (bps) hike in its benchmark interest rate to 3.1%, the eighth increase in as many months. Although a few analysts suggested that the RBA might opt for a smaller rise of 15bps to 3.0%, the latest increase was expected by most.

“Inflation in Australia is too high, at 6.9% over the year to October,” said RBA governor Philip Lowe in a statement. “Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. Returning inflation to target requires a more sustainable balance between demand and supply.”

Australia’s headline inflation rate is expected to peak at 8% by the current quarter and is already at levels last seen at the start of the 1990s. The RBA’s preferred gauge of price increases, known as the trimmed mean, was at 6.1% in the July-September period, well outside the central bank’s 2%-3% target range for underlying inflation over time.

Lowe indicated that the RBA’s cash rate will rise further – depending on the state of the global economy, household spending and what happens to wages and prices.

“The board expects to increase interest rates further over the period ahead, but it is not on a pre-set course,” he said in the statement.

Analysts expect the central bank to announce further rate rises in the months ahead, but many believe that the peak may be reached before the end of H1 2023. A detailed state of the economy will be on show on Wednesday when the Australian Bureau of Statistics releases GDP figures for the September quarter. Given the low base from a year ago as half the economy was coming out of lockdown, the annual rate could be as much as 6% – a high point before it declines rapidly.

David Plank, head of Australian economics at ANZ, said his bank still expects three more 0.25% rate rises to come, with a top rate of 3.85% by May.

“We think inflation and wages growth will prove to be too high for the RBA to stop hiking anytime soon,” Plank said. “We expect a 25bps increase in February, after the [December quarter] consumer price index (CPI) and with the extension of the RBA’s forecasts out to mid-2025 still expected to show inflation at 3% or higher.”

“Wage data in mid-February should then make the case for another 25bps in March,” he predicted, adding that a pause was possible in April before a final quarter-point increase in May.

Sean Langcake, head of macroeconomic forecasting for BIS Oxford Economics, predicted the RBA has another half point of rises to come before the cash rate reaches 3.6%.

“Higher interest rates appear to be cooling the economy, and this headwind will only strengthen in the coming months,” Langcake said. “The challenge for the board is to maintain some momentum in the economy while taking the heat out of demand-driven inflation pressures.”

This week also sees the latest interest rate decision from the Bank of Canada, which will be announced on Wednesday 7 December.

Maersk and IBM pull plug on TradeLens after four years

IBM and the Denmark-based shipping and logistics giant Maersk are shuttering their TradeLens platform by Q1 2023 after the blockchain-based supply chain service failed to attract a critical userbase mass to be considered commercially viable.

TradeLens was launched as a joint venture by the two groups in August 2018 as a blockchain-enabled shipping solution designed to promote more efficient and secure global trade. Open to shipping and freight operators, its members could validate the transaction of goods as recorded on a transparent digital ledger. It received a boost in March 2020 when Standard Chartered joined the platform.

However, the TradeLens team began withdrawing offerings at the end of last month ahead of taking the platform offline before the end of March 2023.

“Unfortunately, while we successfully developed a viable platform, the need for full global industry collaboration has not been achieved. As a result, TradeLens has not reached the level of commercial viability necessary to continue work and meet the financial expectations as an independent business,” said Rotem Hershko Head of Business Platforms at AP Moller-Maersk.

Reports on the closure also quoted an industry observe, who commented that TradeLens had failed to gain broad acceptance in China.

Despite the closure of the platform, a statement on Maersk’s website claims the company will “continue its efforts to digitise the supply chain,” increasing industry innovation to reduce trade friction and promote more global trade.

TradeLens faced fierce competition from Asia, where Hong Kong-based shipping technology consortium Global Shipping Business Network (GSBN), was established in early 2021 by major shipping lines and terminal operators.

"At GSBN, we are focused in our mission driving the digital transformation of global trade and are fully committed to supporting stakeholders across the industry throughout this journey. We continue to closely follow the industry's latest developments,” said GSBN CEO, Bertrand Chan.

Dirty bulk ships “used to transport food crops to Asia”

A global slump in steelmaking has seen dirty bulk ships previously used to carry iron ore being scrubbed clean so that they can transport grain to Asia, claims a Bloomberg report.

China’s property market downturn has also impacted on demand for iron ore, driving freight rates for bulk carriers down 50% from a year earlier, the report claims. This makes it more attractive for some of the world’s biggest agriculture traders to book iron ore vessels for shipments of corn and soybeans.

Although the number of such cargo switches is still relatively small, it reflects yet another shift by traders facing dramatic changes in commodities markets sparked by Russia’s invasion of Ukraine and China’s weakening economy. The war created extreme volatility in global grain markets, allowing trading houses such as Cargill Inc. to post bumper profits.

Large iron ore ships typically avoid grain, which requires a lengthy cleaning process to make the vessels safe for carrying food. Washing a huge cargo hold dirty from iron ore is a necessary step to ensure that consumers – human or animal – of the grain do not ingest rust, metallic sand or dirt.

The deep-cleaning process can cost US$7,000 to $8,000 and require additional days of chartering, according to one trader.

The ships of choice are Baby Capes, the smallest of Capesize vessels with capacity to carry about 100,000 tons compare with Panamax bulk vessels that normally carry grain and hold about 60,000 tons. The current depressed iron ore trade could be pushing Baby Capes to seek “alternative employment,” said Ralph Leszczynski, head of research at shipbroker Banchero Costa.

Switching offers a price advantage, despite the extra cleaning cost. In the 10 months to October 2022, it was cheaper to hire a Capesize vessel than a Panamax by an average of US$5,200 per day, the most for more than two decades according to Arrow Shipbroking Group.

Bloomberg reports that China’s COFCO International Ltd. and US-based Archer-Daniels-Midland Co. and Cargill have booked about four Baby Capes to deliver grain to Asia next year from South America, quoting people with knowledge of the matter.

“Initially it comes down to simple economies of scale — the more we load the cheaper the freight cost is for our customers, and the lower the carbon footprint,” said Alessio La Rosa, global head of freight at COFCO International.

Sustainability survey shows Apac’s slow progress to net zero

Asia-Pacific corporates recognise that there is a compelling business case for sustainability, but more must be done to incorporate climate change into company planning, with cooperation and technology playing a crucial role, according to a recent study.

Published by Vodafone Business, the Fit For The Future (FFTF) study is based on a poll of 3,101 enterprises from 15 different countries, including 748 from Asia-Pacific – which reflects a discrepancy between how firms perceive sustainability and the actions they really take.

Seventy percent of Asia-Pacific businesses view sustainability as an important strategic goal, the study finds, and 52% agree that businesses should focus on preventing climate change. However, less than a quarter (24%) of those polled in the region polled agree that they have a well-developed plan in place to tackle climate change.

Additionally, only 41% agreed that they are committed to moving towards net-zero emissions, and 35% say they are taking action to offset their carbon impact.

Businesses in the region that include an official environmental, social and governance (ESG) programme in their business planning reap major financial rewards. The survey found that 74% of companies reporting increased earnings this year have an ESG programme in place, which is significantly higher compared with firms that reported lower profits only 47%, say they have such programmes in place.

Mastercard and Vesta partner in LatAm on fraud management solutions

Mastercard and Vesta, a global fraud prevention platform for digital purchases, announced a new strategic partnership to provide a fraud management platform for merchants in Latin America and the Caribbean.

In a statement they said: “As consumers’ need and interest in online shopping increase, merchants are challenged to verify identities and manage increasingly enhanced fraud threats in real time. With this partnership, organisations join forces to meet the security needs of merchants and promote a broader initiative to improve the digital consumer experience and strengthen their confidence in e-commerce.”

“Our joint ability to help digital marketers across the network positively impact revenues with zero risk decisions in real time is a game changer,” said Vesta’s CEO Ron Hynes. “Often merchants lose good customers and revenue stemming from lack of available information, insufficient analysis and rigorous fraud prevention to the extreme, causing e-commerce retailers to refuse good customer transactions due to fear of fraud.”

Fraud management solutions resulting from this partnership will have resources from both organisations. This includes detection and response to Vesta’s real-time anomalies, comprehensive global consortium data, and the best machine learning decision-making tools with additional strategic cybersecurity and intelligence capabilities from Mastercard. Together, they will provide complete protection before, during, and after transactions, to Mastercard merchants and consumers worldwide.

With solutions and market expertise, the partnership will provide 100% protection against undue charges and will also incorporate numerous transaction information, such as credit score and preventive alerts of undue charges. The enhanced solution will be available to all Latin American and Caribbean markets from Q1 2023.

EBA report explores real-time data in liquidity management

The Euro Banking Association (EBA) has published a report on the use of real-time data in corporate liquidity management. It marks the sixth instalment to the EBA Liquidity Management Working Group’s (LMWG’s) publications on the bank and corporate client relationship in the liquidity management ecosystem.

The report, Use of real-time data, discusses the potential benefits and opportunities that banks could realiseif they had real-time data access capability that some companies already possess.

Six case studies, taken from companies in a range of industries, feature in the report. Several corporate treasurers have assessed how real-time data can be used by these companies to manage liquidity. This includes a series of use cases for future applications of bank-supplied, real-time data.

Krister Billing, chairman of the LMWG, says: “As part of the ISO 20022 migration and the introduction of instant payments, banks across Europe have invested significant resources into infrastructure that enables the delivery of real-time data and payment processing to their corporate clients.

“To optimally support their corporate customers and further monetise their investments, banks must now develop a clearer understanding of how this real-time data can best be used by customers to manage liquidity and support business decision-making. Our paper addresses a number of key questions that banks need to tackle on that journey.”

Switzerland’s Bank Syz to offer secure cryptocurrency services

Bank Syz, the family owned and managed Swiss financial group, said it will offer cryptocurrency custody and trading services to its growing Swiss and international client base. The new setup enables the safekeeping and trading of four major cryptocurrencies for clients: Bitcoin (BTC), Ether (ETH), Polygon (MATIC) and Chainlink (LINK).

In launching its new offering, ‘Syz Crypto’, Bank Syz has selected Taurus, the European digital asset infrastructure leader for banks – and its custody solution Taurus-Protect –, to secure its clients’ cryptocurrencies. For trading purposes, Bank Syz “has selected leading platforms that offer services on par with the bank’s high diligence and excellence standards,” a statement added. “This new offer places Bank Syz among the very few Swiss private banks that can provide such a service.”

A team of dedicated experts to ensure its clients’ digital assets are handled with the same level of care and professionalism as traditional assets, the bank added.

Charles-Henry Monchau, Bank Syz CIO said: “Thanks to our partnership with Taurus, we now offer our clients the convenience of accessing the digital asset world through a regulated custodian with strong investor protection and supervision. Syz Crypto also enables our clients to get a holistic view of their traditional and digital assets in their bank reporting.”

UK digital bank Allica secures £100 million cash injection

UK digital bank Allica has secured a £100 million (US$121 million) cash injection to continue its growth in the Britain’s small business banking market.

Allica, which provides savings, lending and payments services for small and medium-sized enterprises (SMEs), revealed that growth technology investor TCV had led the equity round into the firm, alongside backing from existing investors Warwick Capital Partners and Atalaya Capital Management. TCV has also backed Airbnb, Klarna and Revolut.

Allica’s CEO Richard Davies said the firm was now looking to win more market share from the UK’s traditional lenders. “From the moment we sat down with TCV it was clear we shared the same vision to transform SME banking in the UK, by taking on the mainstream ‘high street’ banking market,” he commented.

The bank is still less than three years old, having launched in March 2020 as the Covid-19 pandemic first took hold and competes with the UK ‘Big Four’ of Barclays, Lloyds, HSBC and NatWest to attract businesses with between 100 and 250 employees. It has already lent £1.25 billion and announced in September that it had moved into profit. Allica also revealed a £55 million capital facility in June from a subsidiary of the British Business Bank, which it said would be used to fuel growth.

Standard Chartered forecasts further crypto retreat in 2023

Investors and speculators who assume that the retreat by Bitcoin and other cryptocurrencies during 2022 is mostly over could receive a shock in 2023, according to Standard Chartered.

A further Bitcoin plunge of about 70% to US$5,000 next year is among the “surprise" scenarios that markets may be “under-pricing," the bank’s Global Head of Research Eric Robertsen has written in a note.

Demand could switch from Bitcoin as a digital version of gold to the real thing. Robertsen outlined a scenario where “gold makes a staggering recovery in 2023, rallying 30% to over US$2,250 an ounce as cryptocurrencies fall further and more crypto firms succumb to liquidity squeezes and investor withdrawals.

“Gold sees a surge in demand from retail and institutional investors, as well as sovereign nations looking to shore up their reserves”.

This possible outlook involves a reversal in interest-rate hikes as economies struggle and more crypto suffers “bankruptcies and a collapse in investor confidence in digital assets,” Robertsen added.

He stressed that he was not making predictions but instead outlining potential scenarios that are materially outside of current market consensus.

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