Fastest rise in UK private sector output since April

The latest flash Purchasing Managers’ Index (PMI) prints have given a first look at how different economies are performing in August. In the UK, the data signalled another solid expansion of the country’s private sector output, supported by a robust upturn in new order intakes. Rising business activity and resilient demand conditions contributed to a greater uplift in staff hiring, with the rate of employment growth the fastest since June 2023. Survey respondents also noted that more upbeat assessments of the domestic economic outlook had spurred efforts to boost business capacity.

At the same time, inflationary pressures moderated across the private sector in August, with input costs rising at the slowest pace since January 2021. This primarily reflected a considerable easing in cost pressures within the service economy. In contrast, higher freight and raw material costs meant that input price inflation across the manufacturing sector remained stronger than in the first half of 2024. At 53.4 in August, up from 52.8 in July, the headline seasonally adjusted S&P Global Flash UK PMI Composite Output Index was the highest since April and signalled a solid increase in private sector business activity. The headline index has now posted above the 50.0 no-change threshold for ten consecutive months.

Manufacturing production increased at a particularly sharp pace in August (index at 54.2), with the latest reading only slightly softer than July’s near two-and-a-half-year high. Service providers meanwhile signalled an acceleration in business activity growth to its strongest for four months (index at 53.3), driven by greater business and consumer spending.

Total new order volumes increased at a robust pace in August, which continued the upward trend seen since December 2023. Survey respondents typically commented on improving sales pipelines and rising willingness to spend among clients, especially in domestic markets. This was linked to softer inflationary pressures and lower borrowing costs, alongside hopes of a sustained revival in UK economic conditions. In contrast, new business from abroad decreased slightly during August, led by another reduction in export sales in the manufacturing sector. Goods producers cited lacklustre demand from EU clients. 

In the eurozone, business activity continued to expand modestly midway through the third quarter of the year, according to the HCOB Flash Eurozone Composite PMI Output Index, compiled by S&P Global, which rose to 51.2 in August from 50.2 in July. 

Output growth actually picked up to a three-month high in August, hinting at stronger growth momentum. Other signals from the latest set of surveys were less positive, however. New orders continued to fall, while there was a broad stagnation of staffing levels across the currency bloc amid the lowest business sentiment in the year-to-date. Meanwhile, the rate of input cost inflation eased to an eight-month low, but companies raised their selling prices at the fastest pace since April.

There were differing trends across the two broad sectors covered. Overall output growth was driven by a solid increase in business activity in the service sector, with the rate of expansion hitting a four-month high. On the other hand, manufacturing production continued to fall markedly in August. The rate of contraction was broadly unchanged from that seen in July, and therefore among the sharpest in 2024 so far.

A key factor behind the stronger increase in eurozone business activity in August was a renewed expansion in France, where output rose to the largest extent in almost a year and a half. In contrast, the picture in Germany remained subdued, with activity decreasing for the second month running and at a sharper pace. Meanwhile, the rest of the euro area continued to see output increase midway through the third quarter.

In the US, some concerns about widening gaps in sector health came to the fore. The headline S&P Global Flash US PMI Composite Output Index edged down from 54.3 in July to a four-month low of 54.1 in August. Output has now risen continually over the past 19 months. Although the pace of expansion slowed slightly in August, it remained among the highest seen over the past two years.

However, growth has become increasingly uneven. While service sector activity grew at a solid and increased rate in August, the rate of growth falling just shy of June’s 26-month high, manufacturing output fell for the first time since January. The factory output decline was the steepest recorded since June 2023.

Sector variances also widened in terms of order books. Inflows of new work rose at a slightly increased rate in August, driven by stronger demand for services. Inflows of new business in the service sector showed the second-largest rise recorded over the past 14 months. In contrast, inflows of new orders into factories fell for a second successive month, dropping at the sharpest rate since December.

Both sectors nevertheless recorded falling volumes of new export orders. Although the drop in services exports was only very modest, the decline in manufacturing was the largest for 12 months.

 

Probability of recession now 35% - J.P. Morgan

After a year of surprisingly strong growth, the US economy is now showing signs of slowing. The July jobs report was softer than expected, with the unemployment rate rising for the fourth straight month - sparking a market sell-off and heightening fears of an impending recession. 

In light of recent economic developments, J.P. Morgan Research has raised the probability of a US and global recession starting before the end of 2024 to 35% - up from 25% in its mid-year outlook.

“Important elements of our growth forecast are being challenged,” said Bruce Kasman, Chief Global Economist at J.P. Morgan. “US news hints at a sharper-than-expected weakening in labour demand and early signs of labour shedding. The latest business surveys also suggest a loss of momentum in global manufacturing and in the Euro area - weak links in the expansion that we have expected to lift this year. On the other hand, these forces are being tempered by solid continued gains in overall activity, led by the service sector.”

As Kasman observed, however, the vulnerabilities associated with a recession - such as sustained profit margin compression, credit market stress, and energy or financial market shocks - are notably absent. “As such, we have only modestly increased our assessment of near-term recession risk to 35%,” he added.

Looking ahead, the probability of a recession happening by the end of 2025 remains unchanged at 45%. “While recognising additional uncertainties related to the political backdrop, we have not altered our assessment of the probability of a recession by the end of next year,” Kasman said. 

With inflation coming down, J.P. Morgan Research now sees a 30% chance the Fed will keep interest rates high-for-long, which is down from 50% two months ago.

 

CBA and BNY deliver near real-time cross-border payments

Through a new cross-border payments collaboration between the Commonwealth Bank of Australia (CBA) and The Bank of New York Mellon (BNY), Australian businesses and individuals who receive international payments from BNY’s customers may now be paid in as little as 60 seconds, regardless of who they bank with.

Through the arrangement, BNY commercial payments from overseas to businesses and individuals with Australian bank accounts will now be available to the final beneficiary in under a minute, 24 hours a day, seven days a week.

The collaboration harnesses Australia’s New Payments Platform (NPP2) International Payments Service (IPS), enabling CBA to process the last mile of BNY’s cross-border payments to Australia via the NPP. This offers cost transparency, robust security, and faster settlement.

Making and receiving cross-border payments can be challenging for customers due to the cost and processing times. Inefficient payment processes also have the potential to hinder economic growth by impeding the flow of capital across borders. The NPP was launched in Australia in 2018 to enable real-time payments 24/7 between participating financial institutions. The platform enhances the speed and efficiency of domestic transactions and recently introduced instant interoperability via the IPS. This service enables the Australian dollar leg of inbound cross-border payments to be processed by the NPP and in doing so aligns with the Financial Stability Board's vision for a more interconnected global financial system.

CBA’s enablement of IPS will also accommodate flexibility in settling transactions up to mutually agreed payment value thresholds to support the transition to near real-time settlement while managing risk and liquidity.

 

Deutsche Bank and Upvest announce partnership

European investment infrastructure provider Upvest has entered into a partnership with Deutsche Bank. The collaboration will enable Upvest to expand its product offering by embedding Deutsche Bank’s banking infrastructure into its services. It will give Upvest’s clients access to end-user cash management solutions, virtual IBANs, and foreign exchange services through Deutsche Bank.

Via Deutsche Bank’s banking capabilities, Upvest will handle cash management solutions, allowing financial service providers to optimise liquidity, streamline operations, and improve financial control. Upvest can also now offer instant payment solutions via Deutsche Bank's virtual IBANs solution. It also enables instant matching of incoming pay-ins to accelerate the investment process.

Further, the partnership will allow Upvest to offer currency exchange services, based on its Investment API. Deutsche Bank’s integrated workflow solution reduces costs for Upvest clients. It also enables seamless real-time currency conversions for international investments, which may ultimately improve the overall end-user experience.

“Providing our services to the Berliner fintech Upvest as one of the leading scale-ups in the capital market investment area aligns with our dedicated commitment to supporting tech and fintech innovation,” said Galina Kersten, Head of Tech & FinTech Sales EMEA at Deutsche Bank. “We look forward to working closely with Upvest to enable pan-European, instant, and API-based solutions in payments, FX, and beyond.”

 

RMB stable as fourth most active global payments currency

Swift’s RMB Tracker has shown that in July 2024, the RMB remained the fourth most active currency for global payments by value, with a share of 4.74%. Overall, RMB payment value increased by 13.37% compared to June, while all payment currencies increased by 10.29%. Regarding international payments excluding payments within the Eurozone, the RMB ranked fifth with a share of 3.32% in July.

The tracker uses data from live and delivered MT 103 and MT 202 - customer-initiated and institutional payments - and ISO equivalent messages exchanged on Swift. RMB’s fourth place out of all international currencies in July saw it behind the US dollar (47.81% of all global payments value), the euro (22.47%), and the British pound (7.00%).

As a global currency in the trade finance market, based on live and delivered inter-group only MT 400 and MT 700 messages exchanged on SWIFT, RMB retained second place based on value, accounting for 6.00% of July’s trade finance transactions. This field remains dominated by the US dollar (83.22%).

Regarding FX spot transactions, RMB was July’s fifth most used currency for FX confirmations, up one spot from the previous month. The US dollar claimed the top spot, followed by the euro, pound and yen. In terms of the top economies carrying out FX spot transactions in RMB, the UK came out on top in July (39.73%), followed by the US (15.05%), Hong Kong (10.48%), France (9.36%) and China (7.52%).

 

Baton Systems launches real-time intraday liquidity management for bank treasuries

Baton Systems, a global capital markets tech provider, has introduced new treasury management tools designed to optimise intraday liquidity, reduce costly buffers, and mitigate risk in real time. The liquidity management capabilities offer firms a means to reduce their financing costs, which have been elevated by interest rate normalisation. These tools also provide a future-proofing way to address the heightened regulatory focus on financial resilience following 2023’s tumultuous market events. 

Baton’s new tools include a dedicated dashboard with real-time insight into how individual counterparties impact liquidity across all business lines. By providing real-time firm-wide visibility and control across all available liquidity sources, these tools enhance forecasting, allowing for more informed decision-making and the swift adjustment of liquidity strategies. 

Treasury managers can instantly access critical real-time data to proactively adjust capital allocations and rapidly reactivate available capital. Furthermore, they can analyse individual liquidity flows and trace contributing factors to understand better how different events impact their own liquidity profiles and those of their counterparties.

By integrating real-time data with historical models, this insight can be used to automatically adjust and optimise payment strategies as the day’s events unfold and to instantly detect deviations in market or counterparty client behaviour, highlighting a potential credit crunch or liquidity issues. 

Using counterparty-specific historical data, treasury managers can also predict the timing of inbound payments and intraday liquidity demands. The tools will then recommend how outbound payments can be optimally and intelligently sequenced and scheduled to lower funding costs. Additionally, the tools include stress testing capabilities, allowing treasury managers to evaluate the impact of different scenarios on liquidity and ensure counterparty and throughput obligations are met even in the most challenging conditions.