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Fed dampens US rate cut expectations – Industry roundup: 13 June

Fed holds US interest rates, citing ‘modest’ progress on inflation

The Federal Reserve has opted to leave US interest rates on hold for the seventh consecutive meeting in a row but surprised markets with projections showing that policymakers expect to cut interest rates only once in 2024.

The rate decision was widely expected and means that the federal funds rate remains in a range of 5.25-5.50%, a level reached last July.

The Fed said that there has only been “modest further progress” on returning inflation towards the 2% target, cautioning that the level “remains elevated”.

Alongside its latest decision, the Fed released its latest set of ‘dot-plot’ projections, which signalled that policymakers only expect to cut rates once this year, down from three as recently as March.

Four of the 19 members of the Federal Open Market Committee (FOMC) said they did not expect to cut rates while seven backed a single 25 basis point cut. The remaining eight opted for two cuts.

Changing expectations on the path of interest rates reflected higher inflation forecasts. Rate-setters revised up their median expectation on core personal consumption expenditure (PCE) over the year to 2.8% from 2.6%. Core PCE is the Fed’s preferred gauge of inflation.

“This was a somewhat more hawkish revision than had been expected, and that markets had priced prior to the decision, though should perhaps come as little surprise given the lack of significant progress on inflation thus far this year,” Michael Brown, senior research strategist at Pepperstone said.

However, Paul Ashworth, chief North America economist at Capital Economics, said there was nothing to rule out a September cut. “It all depends on the income data,” he commented.


Brazil inflation accelerates to dent hopes of a further interest rate cut

Brazil’s annual inflation rate picked up more than expected in May, breaking a seven-month run of cooling prices and adding pressure on policymakers to hold interest rates steady at next week’s meeting.

Official data showed prices increased 3.93% in May from a year earlier, above the 3.88% median estimate from analysts in a Bloomberg survey. Inflation stood at 0.46% on the month.

The Central Bank of Brazil widely expected to pause its monetary easing campaign next week, leaving the benchmark interest rate at 10.5%, to regain the initiative in its fight against resilient price rises. Policy clashes among bank leadership have also fanned concern that Brazil is becoming more tolerant to inflation under President Luiz Inacio Lula da Silva

ʺThe breakdown of May CPI data shows underlying Brazilian inflation is still relatively tame,” said Adriana Dupita, Brazil and Argentina economist for Bloomberg Economics. “Price gains in services are higher than the central bank would prefer, but they’re not rising at the margin despite a tight labour market. We think the Bank will instead focus on the increase in inflation expectations, driven by currency weakness and fiscal concerns. That raises the odds of a rate pause at the 19 June policy meeting.”

Food and beverages climbed 0.62% and housing costs rose 0.67%, representing the main drivers of May’s price gains. Meanwhile, household goods fell 0.53%, the statistics agency said.

Economists noted that May’s inflation up-tick was partially the result of severe floods that hit the state of Rio Grande do Sul, a farming powerhouse in the south of Brazil

Monthly core inflation, which strips out volatile items, ticked up to 0.39% in May from 0.27% in April, according to an average of Bloomberg Economics calculations using methodologies from Brazil’s central bank

“There are many uncertainties piling up,” for the central bank, said Alexandre Maluf, an economist at XP Inc. “Today’s inflation data brought with it a message that’s marginally worse in its composition.”

The central bank has lowered the Brazilian federal funds rate, the Selic, by 3.25 percentage points since it began its easing campaign last August.


Technical glitch hits RBI’s liquidity management facility for banks

A technical glitch on Reserve Bank of India's (RBI) automated sweep-in and sweep-out (ASISO) system earlier this week has been resolved, according to inside sources.

The snag on RBI's ASISO facility on the e-Kuber platform, which enables banks to manage their day-to-day liquidity requirements, withheld lenders from accessing the platform on Wednesday. Banks use it to park funds at RBI'’s standing deposit facility and borrow at its marginal standing facility. The money market operations statement, which details liquidity position of the banking system, is usually up by 9 a.m. every day, but the glitch meant the release was up only by 2 p.m.

RBI mandates banks to park 4.5% of their net deposits with the Bank and must maintain at least 90% of this requirement on a daily basis. Depending on needs, banks tap RBI’s marginal standing facility to access funds from the central bank. Further, bank officials in Treasury rooms were largely unperturbed by the technical glitch as most banks maintain the minimum cash requirements set by RBI, a treasury official with a big public sector bank confirmed, but requested anonymity.  Banks which did not use the ASISO facility and managed their funding needs manually in the reverse repo and MSF windows, were not affected by the snag, another trader said on the condition of anonymity.

It was the first time the Indian central bank's e-Kuber portal failed since it was set up in 2020. The platform was put in place to optimise human resource deployment during Covid-19. " provide eligible LAF/MSF participants greater flexibility in managing their end of the day cash reserve ratio balances, the Reserve Bank has decided to provide an optional automated sweep-in and sweep-out (ASISO) facility in its e-Kuber system," RBI had said in its release in 2020. Under this facility, banks set an amount to keep as balances in their current accounts with RBI at the end of the day. Depending upon this pre-set amount, marginal standing facility and reverse repo bids, as the case may be, are generated automatically without any manual intervention at the end of the day.

The ASISO facility gets punched in around midnight on a daily basis, but on Tuesday, funds were neither debited nor credited due to a technical issue, according to Treasury officials.


BlackRock “seeks insurance partnerships in private-debt push”

BlackRock’s private-debt business is reportedly exploring ways to tap the deep pockets of insurance companies that are increasingly looking to boost their allocations to the asset class.

Bloomberg says the world’s largest asset manager is actively looking to form partnerships with insurance companies that will help it increase its private-debt assets, said James Keenan, the firm’s global head of private debt. His team already manages assets on behalf of insurers, but doesn’t currently have any defined collaborations, like some other investment managers do.

While it is not yet clear what structure partnerships would take, they will be in the form of separately managed accounts and could resemble recent deals in the industry such as the 2022 tie-up between Blackstone Inc. and life insurer Resolution Life, according to the report. That deal made Blackstone a key asset manager for the insurer, in charge of a cash pot that could hit more than US$60 billion.

“We don’t want to be in the insurance space and write liabilities, but we will form collaborations with insurers,” Keenan told Bloomberg News last week at the SuperReturn International conference in Berlin.

Private debt has become a hot topic in the insurance industry. Companies are looking to increase their allocations and benefit from the more attractive returns at a time when higher-for-longer interest rates have hurt the performance of other private-markets strategies, such as buyout funds, where insurers have also traditionally invested.


HSBC to boost stake in China Fund JV and become majority owner

HSBC Holdings has agreed to buy part of its partner’s stake in a China fund venture, becoming a majority shareholder and adding to its expansion in the world’s second-largest economy.

HSBC, which owns 49% of HSBC Jintrust Fund Management, reached an agreement with Shanxi Trust to acquire a further 31% of the venture, according to inside sources.

HSBC will pay about yuan (CNY) 1 billion yuan (US$138 million)and the transaction is still awaiting regulatory approval, the people said, who asked to remain an onymous. Shanxi Trust said last year it planned to sell a 31% stake for CNY 1 billion and that HSBC had the priority to buy the holding.

The deal comes as HSBC has been deepening its presence in China, despite an economic slowdown and increased risks. The UK group this week completed the purchase of Citigroup Inc.’s retail wealth management portfolio in mainland China, comprising about US$3.6 billion in assets and deposits from wealthy customers.


Currencycloud and Pyvio join forces on cross-border payments for Chinese firms

UK-based global fintech Currencycloud and Chinese payment firm Pyvio have announced a partnership offering efficient and cost-effective cross-border payment solutions for Chinese e-commerce businesses operating in emerging markets.

The partnership will allow Pyvio to leverage Currencycloud’s technology in order “to collect and pay funds in over 180 countries and more than 30 currencies, including offshore renminbi and yuan.”

One of the main challenges faced by Chinese online merchants is “the payment collection and payout process in different markets, especially in emerging regions whereinfrastructure is not well-developed, and regulations are complex.”

Pyvio and Currencycloud aim to address “this challenge by providing a bespoke service for each merchant according to their specific needs and preferences.”

Rohit Narang, Managing Director, Currencycloud, APAC, said: “Pyvio is a fast-growing business in an exciting space. For Chinese firms, the challenges they face in the payment collection and payout process are a real blocker to expansion – so the solution that the Pyvio team has built is much needed. This partnership will help the Pyvio team further disrupt the online e-commerce payment landscape in emerging markets, and we look forward to being on that journey with them.”

Li Kai, CEO of Pyvio, said: “We are very excited to partner with Currencycloud as a new solution for online e-commerce businesses in emerging markets. Our solution will help Chinese e-commerce merchants overcome the barriers and challenges to global growth and boost their sales and revenue. We are also committed to constantly improving our service and adding more features and functions to meet the evolving needs and demands of our customers.”


Ozone API and Tuum team for open banking initiative

Banking platform Tuum has teamed up with open banking specialist Ozone API to help its customers comply with open banking regulations and commercialise open finance across the globe.

The partnership combines Ozone API’s standards-based Open API platform with Tallin, Estonia-based Tuum’s modular core banking solution, which is both cloud-native and based on microservices architecture. This integration will streamline end-to-end business processes by leveraging a pre-integrated ecosystem of best-in-class solutions.

Ozone API supports all major global open finance standards and offers over 400 standard APIs. It helps customers go beyond compliance and commercialise open banking anywhere in the world.

By combining their collective strengths, Ozone API and Tuum aim to create a seamless and comprehensive ecosystem that empowers banks and financial institutions to thrive in the new world of open banking and open finance. In doing so, they will drive innovation in several new markets, benefiting industry players, investors and consumers.

James Bushby, General Manager for Europe and Global Partnership Lead at Ozone API, said, “Our collaboration with Tuum marks a new chapter for open banking and finance globally. Our combined strengths will enable financial institutions to tackle compliance challenges while harnessing the immense opportunities of open banking. Together, we are paving the way for industry disruption, elevated customer experiences, and a more open, connected, and customer-focused financial ecosystem.”

Derivative Path expands offering with OTC commodities trading

US derivatives and debt trading platform Derivative Path has expanded its DerivativeEDGE offering with over-the-counter (OTC) trading in commodities, alongside existing interest rates and foreign exchange (FX) derivatives.

“DerivativeEDGE Commodities enriches Derivative Path's platform by extending its robust support to include US energy products, such as Oil and Distillate Products, Natural Gas, and Natural Gas Liquids (NGLs),” a release stated. “The platform supports a variety of trade structures including swaps, puts/calls, and collars, with settlements options that include futures look-alikes and Asian-style averaging.

“Key features of DerivativeEDGE Commodities include simplified deal entry, robust analytics, stochastic exposure calculations, daily middle office functions, and direct settlements processing via Automated Clearing House (ACH). The platform also ensures compliance with regulatory reporting requirements through direct connectivity to the Depository Trust & Clearing Corporation (DTCC) swap data repository.

East West Bank, the largest US independent bank headquartered in Southern California, is among the first to adopt the new commodities trading functionality, the release added.


360tf and Traydstream partner on digital trade finance solutions

360tf, a global trade finance ecosystem headquartered in the Dubai International Finance Centre (DIFC) is partnering with Traydstream, a pioneer in trade digitisation, ʺas part of its ongoing mission to innovate and expand its global trade finance solutions.ʺ

A release stated that360tf and Traydstream together aim to revolutionise the digitisation of trade finance by supporting corporates in financing, saving time and money on document processing, and allowing them to focus on their core business. For banks, this partnership will enhance process efficiency, mitigate compliance risks, and expand their reach to geographies without a representative office, facilitating bank customers that may not be addressed otherwise.

Traydstream, led by Pivot Investment Partners, a US-based fintech investment firm, and e& capital, the investment arm of e&, is dedicated to supporting visionary tech businesses, fostering growth, and driving meaningful progress in the digital realm. ʺThis aligns perfectly with 360tf's & Traydstream's ethos of innovation, as both companies work to bridge the global trade finance gap, reduce paper dependency, and digitise processes, making trade finance efficient and seamless,ʺ the release added.


VoPay offers cash management, digital transaction platform for banks

Canada’s VoPay International, an embedded payment technology company, has introduced TXB, a digital transaction and cash management banking platform. The tool enables financial institutions to provide application programming interface (API)-enabled cash management services and transactions banking, according to a press release.

TXB’s features include support for virtual accounts and multi-currency; dynamic payment tracking; and account ledger tracking.

ʺWe are thrilled to unveil TXB, the latest evolution of the VoPay platform,ʺ said Hamed Arbabi, founder and CEO at VoPay. ʺThis launch is a direct response to the evolving needs of businesses as we continually strive to anticipate and address the next frontier in business solutions, empowering organizations to scale and operate with greater efficiency.

ʺI am immensely proud of the innovative spirit exhibited by our team and the unparalleled uniqueness of this product. With unwavering support from our partners and customers, TXB is poised to elevate VoPay to new heights on a global scale.ʺ

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