Europe narrowly avoids technical recession

In the fourth quarter of 2023, seasonally adjusted GDP remained stable with 0% growth in both the euro area and the EU, compared with the previous quarter, according to a preliminary flash estimate published by Eurostat, the statistical office of the European Union. In the third quarter of 2023, GDP had declined by 0.1% in both zones. Two consecutive quarters of negative GDP growth constitute a recession.

According to a first estimation of annual growth for 2023, based on seasonally and calendar-adjusted quarterly data, GDP increased by 0.5% in both the euro area and the EU. These preliminary GDP flash estimates are based on data sources that are incomplete and subject to further revisions.

Compared with the same quarter of the previous year, seasonally adjusted GDP increased by 0.1% in the euro area and by 0.2% in the EU in the fourth quarter of 2023, after 0.0% in both zones in the previous quarter.

Among the Member States for which data are available for the fourth quarter of 2023, Portugal (+0.8%) recorded the highest increase compared to the previous quarter, followed by Spain (+0.6%), Belgium and Latvia (both +0.4%). Declines were recorded in Ireland (-0.7%), Germany and Lithuania (both -0.3%). The year-on-year growth rates were positive for six countries and negative for five.

“The Italian and Spanish economies both expanded more than analysts expected in Q4, while France escaped a recession,” commented Tom Hopkins, Senior Portfolio Manager at BRI Wealth Management. “Germany remained the weak spot, contracting -0.3% in Q4. Unfortunately for Europe, like most of the global economy, outlook for 2024 remains tough. Economic and geopolitical uncertainties, combined with higher interest rates, are likely to continue to put pressure on economic growth for the foreseeable as both companies and consumers are taking it easier with investments and spending.”

 

Bank of England and HM Treasury respond to digital pound consultation

The Bank of England and HM Treasury have published their response to the digital pound consultation launched in February 2023. Both stress that no final decision has been made to pursue a digital pound - also called a central bank digital currency (CBDC). 

Work will continue during the design phase, exploring its feasibility and potential design choices. This will examine how a digital pound could be used in the UK economy, providing greater choice, convenience and innovation for households and businesses making and accepting everyday payments. As part of broader work on payments innovation, the work could also help strengthen the UK’s position as a competitive global leader in finance.

The feedback from respondents from various industries and organisations broadly supported the proposed design set out in the 2023 Consultation Paper, while other respondents raised concerns about the implications of a digital pound for access to cash, users’ privacy, and control of their money.

To address these concerns, the joint publication confirms that if a digital pound were to be implemented, primary legislation would be introduced to guarantee users’ privacy and control. The bank and the government would not have access to any personal data and users would have freedom in how they spent their digital pounds. There would also be a further public consultation on a digital pound prior to the introduction of primary legislation. These commitments would give both the UK parliament and the public further opportunities to have their say.

In addition, the publication reiterates the commitment of both the government and the bank to protect access to cash, even if a digital pound were introduced.

 

ECB steps up climate work 

The European Central Bank (ECB) has decided to expand its work on climate change, identifying three focus areas that will guide its activities in 2024 and 2025:

1. The impact and risks of the transition to a green economy, especially the associated transition costs and investment needs.
2. The increasing physical impact of climate change and how measures to adapt to a hotter world affect the economy.
3. The risks stemming from nature loss and degradation, how they interact with climate-related risks and how they could affect the ECB’s work through their impact on the economy and financial system.

On the transition to a green economy, the ECB will intensify its work on the effects of transition funding, green investment needs, transition plans and how the green transition affects aspects of our economy such as labour, productivity and growth. The results will also inform the ECB’s macromodelling framework. Furthermore, the ECB will explore, within its mandate, the case for further changes to its monetary policy instruments and portfolios, given this transition.

On the increasing physical impact of climate change, the ECB will deepen its analysis of the impact of extreme weather events on inflation and the financial system and how this can be integrated into climate scenarios and macroeconomic projections. It will also assess the potential impact of adaptation, or lack thereof, to climate change on the economy and financial sector, including related investment needs and the insurance protection gap.

On nature loss and degradation, the ECB will analyse the close link with climate change and the associated economic and financial implications. It will also further explore the role of ecosystems in the economy and the financial system.

Concerning its own operations, the ECB will launch its eighth Environmental Management Programme to support achieving its 2030 carbon reduction targets. With the entire Eurosystem, its work will include eco-design principles for the future euro banknote series and incorporate environmental footprint considerations into designing a digital euro currently in the preparation phase.

 

BNY Mellon launches virtual account cash management solution

BNY Mellon has launched Virtual Account-Based Solutions, a cash management solution designed to provide clients with enhanced access to and control of cash administration activities and reporting capabilities. 

Virtual accounts are linked to physical accounts within BNY Mellon and allow incoming or outgoing payments to be reflected in real-time to maintain a virtual sub-ledger that provides a continuously updated transaction and balance history to deliver transparency into company-wide cash flows. These accounts have a unique account number accessible on external payment networks, are self-serviced and managed, and can be established to reflect a client's business needs or ideal liquidity structure with complete flexibility.

BNY Mellon’s virtual accounts solution aims to support a variety of industry use cases, including automatically reconciling high volumes of incoming payments over USD wires and ACH networks, accurately identifying the remitter of each payment, and reconciling receivables by client, business, invoice and beyond. It supports the centralisation of payment and collection functions across legal entities e.g., through payments on behalf of (POBO) and collections on behalf of (COBO) structures. In-house bank structures are also supported through this solution.

Treasurers can establish a hierarchy of virtual accounts exclusive to a specific business unit, property, division, geography, or purpose, providing a segregated view of cash and transactions without managing many physical bank accounts. The bank’s financial institution clients can now segregate their (physical) nostro accounts for use by their end corporate clients to receive wires or ACH credits in the US.

“Clients are demanding more flexibility to reflect account structures without having to open a multitude of physical accounts with multiple banks,” said Jennifer Barker, Global Head of Treasury Services at BNY Mellon. “The flow of payment information is becoming just as significant as the movement of funds and with Virtual Account-Based Solutions we can provide crucial straight-through processing for reconciliation or to help segregate cash and transactions across multiple business units or entities.”

 

IFAD issuing SEK1bn sustainable bond

The International Fund for Agricultural Development (IFAD) has issued its first SEK club deal. The lead investors, Skandia and Folksam, bought a seven-year SEK1bn sustainable bond to support IFAD in its mission to stimulate sustainable growth and inclusive development in rural areas of developing countries. Skandia led the investment with SEK900m.

IFAD secures a large share of its 2024 funding plan with this bond issuance. 2024 is the last year to capture funding for IFAD’s 12th Replenishment, aiming to reach an investment programme of up to US$3.4bn for rural areas, addressing poverty, hunger and climate change in more than 90 countries.

The bond investments will support the transformation of food systems to make them more equitable and sustainable. This will be achieved by helping small-scale farmers adapt to climate change through, for example, better land management and farming practices, diversifying their food production and improving their access to markets, supply chains and technology to grow more food and better sell their production to make a living. It will also enhance rural institutions, infrastructure and markets that sustain rural economies.

"These types of investments contribute to achieving value-creation and quality-of-life from a broader perspective, while also generating returns for our customers and owners,” said Alexander Onica, Head of Fixed Income and FX, Skandia.

 

Electronic trading gains steam in Canadian equities

Electronic trading platforms captured nearly a third (32%) of overall Canadian equity trading volume in 2023, up from 26% in 2022. Canadian asset managers expect that share to surge to 38% in the next three years. The growing demand for electronic execution is partly driven by institutions’ search for natural block liquidity in small- and mid-cap stocks.

“The Canadian equity market is undergoing a transformation marked by an embrace of electronic trading with an onus on sourcing liquidity in difficult-to-trade small and mid-cap names,” said Jesse Forster, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of ‘Northern Lights: Illuminating Trends in Canadian Equities’.

Rising volumes make electronic platforms an increasingly important offering for brokers during increasing competition for equity trading commissions. The total amount of institutional commission spending on broker execution and research/advisory services declined to an estimated annualised figure of US$450m, down 7.2% from last year.

Meanwhile, there has been a discernible reduction in the number of execution brokers employed by Canadian buy-side managers, averaging 20.6, down from just under 22 in the previous three years. For the typical Canadian institution, the top broker receives approximately 19% of the flow, the second about 15%, with the top five collectively capturing over 60% of the buy-side’s order flow. That’s roughly a stable level of concentration since 2021. Across the market, total commission spend is split about evenly between sales and research.

Brokers competing for growing electronic trading volumes in Canada should prioritise their platforms’ ease of use, reliability and high-quality support—traits prized by buy-side traders across most global markets covered by Coalition Greenwich research.

“As electronic trading matures in Canada, other factors are gaining prominence,” added Forster. “We are already seeing an increased emphasis on more specific factors like quality of electronic sales trader coverage, algorithmic consultancy and the ability to customise algorithms.”

 

AccessPay embeds confirmation of payee and sanctions screening

AccessPay, a provider of bank integration, has announced the addition of confirmation of payee (CoP) and sanctions screening capabilities to its Fraud & Error Prevention Suite. The capabilities should enable finance teams to avoid fraudulent and non-authorised payments and accidental misdirection of funds. They will also ensure compliance in an increasingly complex regulatory landscape.

The new CoP capability allows organisations to perform name checks against beneficiaries to ensure the payment is sent to the correct account, helping to protect against authorised push payment (APP) fraud and the risk of human error. The UK’s largest banks currently offer CoP checks, and the Payment Systems Regulator has mandated that all payment service providers and building societies roll out these checks by mid-2024.

“Many finance professionals will be familiar with CoP checks through their banking platforms; a key differentiator of AccessPay’s CoP service is that it is embedded within the AccessPay platform,” detailed Fiona Brown, Customer Success Director at AccessPay. “This removes the need for finance teams to conduct checks off-platform by creating mock payments on banking portals to verify payee details. Instead, all checks happen within AccessPay, considerably decreasing the risks associated with manual checks and increasing efficiency in payment workflows.”

The sanctions screening capability enables businesses to check individuals, companies and transactions against government-issued lists of restricted parties. This aims to help firms subject to money laundering regulations bolster their AML processes when onboarding customers by detecting accounts linked to financial crime.

 

Dillard’s, Citi and Mastercard sign credit card agreements

US department store chain Dillard’s has entered into new agreements with Citi and Mastercard to provide a credit card programme for its customers. Citi will purchase the existing Dillard’s credit card accounts, and Mastercard will serve as the exclusive payment network for co-branded cards offered under the new programme.

The Dillard’s credit card programme offered by Citi will include a new co-branded Mastercard and a private label credit card. The co-branded Mastercard will replace the existing co-branded card. Additionally, Citi will provide customer service functions and support certain Dillard’s marketing and loyalty programme activities related to the new programme.

The companies expect to launch the new programme in late summer 2024 for new Dillard’s credit applicants. The transfer of existing accounts to Citi is anticipated in the autumn of 2024. Greenhill & Co. served as financial advisor and Morrison Foerster served as legal counsel to Dillard’s in connection with the agreement.