Eurozone business activity ticks lower amid falling demand

Provisional Purchasing Managers’ Index (PMI) survey data for October showed that business activity in the euro area ticked lower for the second month running, with the marginal decline broadly in line with that seen in September. Output was scaled back in response to a weakening demand environment, with new orders down for the fifth consecutive month. Companies responded to lower workloads by reducing employment to the largest degree in almost four years, while business confidence dropped to an 11-month low. Meanwhile, input costs increased at the slowest pace since November 2020, with output charge inflation similarly easing to a 44-month low.

The marginal reduction in overall business activity masked a continued divergence between the manufacturing and services sectors. Manufacturing production fell markedly again, although the pace of contraction softened slightly from that seen in September. Meanwhile, the service sector managed to continue expanding activity despite demand weakness. That said, the modest expansion in services was the least pronounced since February.

The two largest eurozone economies – Germany and France – were again the main sources of weakness, seeing further marked reductions in business activity at the start of the final quarter of the year. Meanwhile, the rest of the eurozone actually saw output increase at the fastest pace in four months.

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, posted 49.7 in October, broadly in line with the reading of 49.6 in September. The latest figures suggested that business activity in the euro area decreased marginally for the second successive month.

Manufacturing production remained in a sustained downturn, falling for the nineteenth month running in October and at a marked pace. The rate of contraction softened slightly from that seen in September, however. On the other hand, the eurozone’s service sector remained in positive territory, registering a slight increase in business activity during the month. That said, the pace of expansion eased to an eight-month low as new orders decreased for the second consecutive month.

Overall, new orders were down for the fifth successive month and at a broadly similar pace to that seen in September. New business decreased across both manufacturing and services. While the contraction was sharper in manufacturing, the drop in services new orders was the steepest for nine months.

International demand also waned again in October. New export orders (which includes intra-eurozone trade) decreased at the joint-fastest pace so far this year, equal with that recorded in September.

With customer demand waning, firms in the euro area increasingly looked to scale back their workforce numbers in October. Employment decreased for the third month running, and at the fastest pace since the end of 2020. While the reduction in staffing levels was centred on manufacturers, the service sector saw a near-stagnation of employment. The picture was particularly bleak in Germany, where jobs were cut to the largest degree since the opening wave of the COVID-19 pandemic in 2020. Employment decreased slightly in France, while the rest of the eurozone saw staffing levels rise modestly.

Despite the drop in workforce numbers, weak client demand meant that companies continued to deplete backlogs of work at the start of the final quarter of the year. Moreover, the latest solid reduction in outstanding business was the most marked since January.

The retrenchment seen in the manufacturing sector during the month was not limited to output and employment, as firms scaled back their purchasing activity and stocks of both purchases and finished goods in October. Meanwhile, suppliers’ delivery times lengthened for the second month running. Although modest, the deterioration in supplier performance was the most marked since January.

 

Bank of Canada reduces policy rate by 50 basis points

The Bank of Canada (BoC) has reduced its target for the overnight rate to 3.75%, with the Bank Rate at 4% and the deposit rate at 3.75%. A statement noted that the bank continues to expect the global economy to expand at a rate of about 3% over the next two years. Growth in the US is now expected to be stronger than previously forecast while the outlook for China remains subdued. Growth in the euro area has been soft but should recover modestly next year. Inflation in advanced economies has declined in recent months, and is now around central bank targets. Global financial conditions have eased since July, in part because of market expectations of lower policy interest rates. Global oil prices are about $10 lower than assumed in the July Monetary Policy Report (MPR).

In Canada, the economy grew at around 2% in the first half of the year and the BoC expects growth of 1.75% in the second half. Consumption has continued to grow but is declining on a per person basis. Exports have been boosted by the opening of the Trans Mountain Expansion pipeline. The labour market remains soft - the unemployment rate was at 6.5% in September. Population growth has continued to expand the labour force while hiring has been modest. This has particularly affected young people and newcomers to Canada. Wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply.

GDP growth is forecast to strengthen gradually over the projection horizon, supported by lower interest rates. This forecast largely reflects the net effect of a gradual pick up in consumer spending per person and slower population growth. Residential investment growth is also projected to rise as strong demand for housing lifts sales and spending on renovations. Business investment is expected to strengthen as demand picks up, and exports should remain strong, supported by robust demand from the United States.

Overall, the BoC forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026. As the economy strengthens, excess supply is gradually absorbed.

CPI inflation has declined significantly from 2.7% in June to 1.6% in September. Inflation in shelter costs remains elevated but has begun to ease. Excess supply elsewhere in the economy has reduced inflation in the prices of many goods and services. The drop in global oil prices has led to lower gasoline prices. These factors have all combined to bring inflation down. The bank’s preferred measures of core inflation are now below 2.5%. With inflationary pressures no longer broad-based, business and consumer inflation expectations have largely normalised.

Inflation being back on target was the driver behind the BoC’s Governing Council deciding to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range. If the economy evolves broadly in line with its latest forecast, the BoC expects to reduce the policy rate further. However, the timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook. The statement noted that the bank will take decisions one meeting at a time.

“As expected, the Bank of Canada cut rates by 50bps,” commented Ryan Brandham, Head of Global Capital Markets - North America at Validus Risk Management. “This is somewhat dovish, as it anticipates future cuts, but this is tempered by an emphasis on incoming economic data. Canadian yields may soften on this announcement, which could put some upward pressure on the USDCAD exchange rate. However, we note that USDCAD spot is up near the top of 2024 ranges, and there may be desire among domestic multinational corporates to sell at these levels.”

 

BIS project explores cross-border data portability through open finance interoperability

The Bank for International Settlements (BIS) has launched Project Aperta, to explore how to reduce frictions and costs in global finance by enabling seamless cross-border data portability. The project aims to connect the domestic open finance infrastructures of different jurisdictions. The initial use case to be explored is in trade finance for small and medium-sized enterprises (SMEs), with BIS noting there could be many more applications to follow.

Businesses engaged in trade finance face numerous challenges when using financial products that facilitate trade, such as letters of credit, trade credit insurance and supply chain financing. Processes are often inefficient and costly due to excessive manual paperwork and a lack of digital data portability. Digitalising trade finance can promote sustainable economic growth and support financial stability, contributing to the overall resilience of the global financial system.

Around 70 jurisdictions currently regulate open finance through various approaches, with open banking as a subset. These open finance ecosystems often operate with differing domestic standards and protocols, preventing the smooth flow of data across borders. But technologies based on proven application programming interfaces (APIs) have the potential to significantly enhance cross-border data portability via these existing ecosystems, as the true value lies in facilitating international data flows.

Some jurisdictions have begun addressing cross-border data portability through bilateral arrangements, but this risks causing fragmentation in scope, standards and solutions. This fragmentation, in turn, reduces interoperability and scalability while increasing overall complexity. It is essential to focus on avoiding fragmentation and to foster interoperability. This is where Project Aperta could play a pivotal role in bridging the gap.

Aperta will provide an mechanism for global interoperability, offering harmonised features, functionalities, use cases, security protocols, operating procedures and trust frameworks for open finance across jurisdictions. In its current phase, the participating jurisdictions include the United Arab Emirates, the United Kingdom, Brazil and Hong Kong SAR. The participants have varying approaches to open finance – ranging from regulatory-led to hybrid to market-led.

The multilateral nature of Project Aperta will enable a licensed third-party provider – such as a bank, fintech or other financial institution – in one jurisdiction to seamlessly connect with third-party providers in other jurisdictions. This will facilitate the exchange of information such as payment and account data, letters of credit or electronic bills of lading. The prototype will enable cross-border portability of:

• A consumer's account and business data to a bank abroad to open a new account there significantly faster.
• Trade finance data related to shipping to significantly reduce the cost and increase the speed of international trade.

Project Aperta (Latin for ‘open’) is a collaboration between the BIS Innovation Hub Hong Kong Centre, the Central Bank of the United Arab Emirates, the Banco Central do Brasil, the Financial Conduct Authority of the United Kingdom, the Hong Kong Monetary Authority, the Global Legal Entity Identifier Foundation, the International Chamber of Commerce Digital Standards Initiative and the Hong Kong University Standard Chartered Foundation FinTech Academy.

 

Financial criminals reverting to old-school tactics with new twists

Scammers are going back to basics with an increase of physical theft over the past six months, capitalising on the window between the theft and the victim’s awareness, according to Visa’s State of Scams: Fall 2024 Biannual Threats Report. After a theft, the most common ways the criminals are capitalising on their theft by purchasing gift cards or physical goods to resell, or even using the card number online for money transfers. 

Similarly, in March of 2023, Visa identified an emerging threat dubbed “digital pickpocketing,” where cybercriminals use a mobile point-of-sale device to tap against unsuspecting consumers’ wallets and initiate a payment, often in crowded areas.

Consumers are also falling victim to scams where fraudsters pose as representatives from the government, including agencies like the USPS, the FBI and the IRS. In the first three months of 2024, the average government impersonation scam victim in the US lost $14,000 in cash, totalling more than US$20m. 

Additionally, between 2022 and 2023, there was 90% increase in losses from cash payments due to government impersonation scams1. As government impersonation scams move towards cash, Visa predicts that banks will see an increase in large cash withdrawals by customers at ATMs.

The report also highlighted the rise of authentication bypass scams. Looking for a way to get around two-factor authentication, fraudsters are doubling down on one-time-password phishing scams, which allow criminals access to full account funds and information via increasingly convincing texts, emails or phone calls. These scams have grown more convincing in part due to the prevalence of GenAI.

 

Trade finance banks join Surecomp’s trade finance platform

Surecomp has announced that a number of trade finance banks have recently joined its RIVO ecosystem. Crédit Agricole CIB in France, Danske Bank in Denmark, and Mizuho in Europe are all among the latest adopters to leverage the collaborative trade finance platform.

The addition of these banks underscores RIVO’s growing influence and capability to enhance efficiency, transparency and connectivity in the trade finance space. These financial institutions are now part of the Surecomp global network committed to enabling seamless and sustainable trade by removing barriers and fostering collaboration with digital trade finance processing.

“Digital transformation is the cornerstone of our trade finance future,” comments Jukka Kuusala, Head of Trade Finance at Danske Bank. “By optimising our internal workflows, enabling digital document exchange, real-time tracking and automated compliance checks, we will be able to reduce operating costs and focus our attention on customer retention and growth.”

“As part of the RIVO ecosystem, these banks are not only enhancing their own operations but are delivering a superior digital service to their customers while contributing to a broader movement towards fostering a more connected and efficient trade finance environment,” added Tal Weiser, Surecomp’s Chief Revenue Officer.

 

J.P. Morgan launches private markets data solutions for institutional investors

J.P. Morgan has announced the launch of its Private Markets Data Solutions for institutional investors, available through Fusion by J.P. Morgan. This is a data management solution for private assets that enables investors, both General Partners (GP) and Limited Partners (LP), to analyse and gain transparency into their complete portfolio across public and private holdings and eliminate the manual processes of managing this operational workflow at scale.

The growth of alternative portfolios has presented investors with unique data challenges, the bank noted in a statement. The lack of a single, standardised source for private markets means investors are left with incomplete and fragmented data that is difficult to analyse. The process of manually extracting and integrating data from unstructured sources is time-consuming, costly, and error prone. Managing multiple vendors, data feeds, and portfolio administrators complicates data consolidation and transparency, affecting decision-making and necessitating specialised expertise and scalable technology, which further escalates costs and delays time to market.

Fusion minimises the need for resource-intensive processes by offloading this workload to algorithms that work automatically, accelerating time to insights. Data is ingested from J.P. Morgan Securities Services and portfolio administrators, which is then complemented with reference data from vendors. Fusion’s proprietary AI-ML technology helps correct discrepancies and incompleteness and applies standard identifiers for consistency and easy interoperability. Clients receive standardised, enriched data that is consistent across diverse asset classes like private equity, real estate, venture capital, natural resources, and infrastructure, while preserving granular detail and linkage.

To offer clients a single source for more complete, high-quality data that works across public and private assets, Fusion has incorporated data from Aumni, J.P. Morgan's private capital platform, and external leading data providers like Canoe Intelligence, MSCI Private Capital Solutions, and PitchBook. Investors can analyse and manage their data with the Fusion Data Explorer tool, allowing them to drill down into underlying assets and navigate across linked data points, for a deeper understanding of their holdings.

 

NatWest provides €450m financing of solar power projects in southern Europe

NatWest has partners with Glennmont Partners to finance the construction of 17 solar photovoltaic projects across Spain, Italy and Portugal with a total debt package of €450m. As a Tier 1 lender, the bank has provided Glennmont Partners with a Power Purchase Agreement Strategy across the portfolio and included an accordion facility to future-proof the structure. Glennmont Partners has also benefitted from the support of the European Investment Bank.

The funding will allow the construction of a 710 MW solar photovoltaic portfolio by independent power producer BNZ.

Backed by Glennmont Partners, BNZ develops, builds and operates solar photovoltaic projects in southern Europe, particularly in Spain, Portugal and Italy, and is reviewing opportunities in adjacent jurisdictions and synergetic technologies, such as wind and battery storage solutions. The transaction supports the local aim of producing over 80% of clean electricity in Spanish, Portuguese and Italian electricity markets within the next decade.

The transaction builds on a longstanding partnership between NatWest and Glennmont Partners in the global renewable energy market. Glennmont Partners is one of Europe’s largest fund managers focusing exclusively on investment in clean energy infrastructure.