Fed to focus on sustaining economic expansion - Citi

While the global economic expansion is broadening across regions and industries, a report from Citi Wealth notes that the Fed will begin to ease monetary policy and shift its focus to sustaining the expansion. The firm expects US inflation to ease to 2.5% by the end of 2024.

Although investors are likely looking ahead to the US election in November, the report titled ‘Renewed Growth, New Challenges’ states that it is unlikely to change the direction of the world economy and markets. The risks outlined include potential supply chain shocks, tariffs and unpredictable geopolitical flareups.

“We are focused on building resilient core portfolios with global diversification across asset classes,” said Steven Wieting, Chief Economist, Chief Investment Strategist and interim Chief Investment Officer for Citi Wealth. “We are encouraging our clients to stay fully invested and to complement their portfolios with high-conviction opportunistic investments.”

With markets having priced in continued near-term expansion, Citi Wealth anticipates potential investment opportunities in areas such as US small-and mid-cap growth equities, some developed and emerging markets and defensive growth in healthcare. The firm believes clients can seek income from intermediate, high-quality US dollar bonds and sees potential in private equity, real estate and hedge funds for qualified and suitable investors.

The report also outlines some unstoppable trends, which are long-term forces that are transforming how we live and work. These include AI-propelled digitisation, energy transition, healthcare and G2 polarisation.

 

Aussie SMEs see fastest new business expansion in two years

Business activity at Australian SMEs remained in expansion midway through the second quarter of 2024, according to the latest Judo Bank SME Business Activity Report data. This was underpinned by a faster increase in new business, albeit primarily in the service sector. Broad-based employment growth was observed as a result of the expansion in new sales, which supported SMEs in clearing their outstanding business. Overall sentiment remained positive, but with confidence levels dipping slightly as price pressures intensified.

The seasonally adjusted Judo Bank Australia SME Business Activity Index posted 51.9 in May, down from 55.1 in April. This indicated that an improvement in SME activity was sustained for a fourth straight month, albeit at the slowest pace in the current sequence.

The expansion in business activity was again limited to the service sector, with a similar trend being observed for new business which rose at the fastest pace in two years. A widening of client bases in the service sector supported the solid uptick in new sales according to panellists. Overall, the rate of new business growth among Australian SMEs was also markedly faster than that for large enterprises.

To cope with ongoing workloads, Australian SMEs raised their staffing levels in May. Here, the rate of growth was likewise the fastest in two years and more pronounced for SMEs than for large enterprises. Broad-based employment growth across both manufacturing and service sectors was observed for the first time since last May.

Greater staffing levels enabled firms to clear their backlogged work midway through the second quarter of the year. Although marginal, the latest decline in the volume of backlogged work marked a departure from the renewed accumulation observed in April.

Sentiment among Australian SMEs remained positive in May with expectations that improvements in economic conditions and business development efforts can lead to activity growth in the next 12 months. The level of confidence among Australian SMEs was again higher than that for large enterprises, but eased from April amid concerns over rising inflation.

The rate of cost inflation for Australian SMEs was the highest since February as rising raw material, transport and labour costs contributed to a faster increase in average input prices. Rates of cost inflation rose across both the manufacturing and service sectors according to detailed sector data. To sustain margins, Australian SMEs raised their selling prices at a faster rate in May. The rate of charge inflation was notably at its highest in three months and rose past the long-run average.

 

Only 56% of US FIs currently offer faster payments

While a majority of financial institutions are actively engaging with faster payments, significant work remains to address inclusion ‘pain points’, according to the Faster Payments and Financial Inclusion survey report released by the US Faster Payments Council (FPC). Only 56% of respondents currently offer faster payments, with an additional 35% planning to do so.

The report further underscores that financial institutions must address several key areas to enhance financial inclusion. These include the need for better education and awareness about faster payment options among consumers, improvements in user experience to ensure accessibility for all demographics, and enhanced collaboration among stakeholders to build a more inclusive payment ecosystem. The findings suggest that targeted initiatives and partnerships can play a pivotal role in bridging the gap between faster payments and financial inclusion.

The survey, conducted in the third quarter of 2023, explores the readiness and preparation of financial institutions to implement faster payment solutions and their impact on financial inclusion. With 88 respondents, including banks, credit unions, payment providers, and businesses, the survey report sheds light on the current state of faster payments integration and the efforts needed to ensure these solutions are inclusive for all Americans.

“While financial institutions are beginning to engage with faster payments, their efforts to ensure financial inclusion are in the early stages, and much work needs to be done,” said David True, Partner at PayGility Advisors and the FIWG Survey Subgoup Lead. “Our survey identifies the critical areas where institutions must focus to ensure that faster payment solutions are accessible and beneficial to all, especially the unbanked and underserved populations.”

 

Are bond investors too complacent?

Credit spreads have fallen to nearly their lowest levels in the past decade. But even as the extra yield offered by investment-grade corporate debt relative to similar-maturity treasury bonds declines, that tighter spread isn't a sign of investor complacency, according to Gurpreet Garewal of Goldman Sachs Asset Management.

“Investors aren't demanding much compensation for credit risk – and we think there are valid reasons for this,” Garewal said.

She points out that the global economy and corporate earnings are showing impressive strength, and that corporate balance sheets are strong. “Relative to 2019, US companies are better able to service their debt, have more cash on hand, and are generating more profits.” 

And while the credit spread on high-quality corporate bonds may be low, the absolute yields are high because of the overall rise in rates. “We still think there are good reasons to own investment-grade corporate bonds,” Garewal concluded. “But active bond selection is essential.”

 

Singapore issues assessment of environmental crimes and money laundering risks

Singapore has published an Environmental Crimes Money Laundering (ML) National Risk Assessment (NRA) which identifies the key threats and vulnerabilities in environmental crimes ML that Singapore is exposed to, and outlines mitigation measures which government agencies, financial institutions (FIs) and designated non-financial businesses and professionals (DNFBPs) can develop to address the risks.

Environmental crimes and the laundering of their proceeds endanger the environment and have a far-reaching impact. Each year, environmental crimes such as illegal wildlife trafficking and illegal logging are estimated to generate around US$110bn to US$281bn in criminal gains globally. Singapore’s exposure to environmental crimes ML stems from its position as an international financial centre, and a trading and transit hub, with a highly externally-oriented economy.

The Environmental Crimes ML NRA assessed that:

a) Singapore is susceptible to ML threats that emanate from illegal wildlife trafficking, illegal logging, and waste trafficking, which are prevalent in Southeast Asia.

b) In comparison to other sectors in Singapore, banks and cross-border payment service providers are most vulnerable to being misused to launder proceeds from environmental crimes, given their transnational nature.

c) Singapore has a strong and transparent legal and enforcement framework to detect ML, and pursue ML investigations, prosecution, asset recovery and international cooperation, in relation to environmental crimes.

d) Given the level of exposure and extent of controls, there is a medium-low risk of criminals using Singapore for environmental crimes ML.

A statement from the Monetary Authority of Singapore notes that the country’s law enforcement agencies and supervisory agencies will continue to stay vigilant and take appropriate measures to mitigate the risks identified in this Environmental Crimes ML NRA. FIs and DNFBPs should also take reference from this Environmental Crimes ML NRA in assessing their risks and enhance their controls as appropriate.

 

Nomentia partners with Just for FX trade cost analysis solutions

Nomentia, a European cash and treasury management solution provider, has entered a sales partnership with Just, a Norwegian provider of FX analytics solutions. Nomentia’s customers can now use Just’s solutions to gain more insights into FX trade costs, which can support them in negotiations with banks, and making decisions regarding FX margins and providers.

Effective FX risk management is essential for businesses to protect themselves from the adverse impacts of currency fluctuations. By hedging against currency risks, companies can stabilise their financial performance, manage costs, and maintain competitiveness in the global market. Proactive risk management ensures profitability and financial stability, reinforces compliance with regulatory requirements, and enhances transparency in financial reporting.

Nomentia provides a range of cash and treasury management solutions, including payments, liquidity management, cash visibility, and risk management, among many others. The firm’s risk management element aims to help clients implement a structured and systematic approach to manage foreign currency exchange-related risk and hedge currencies. Partnering with Just, Nomentia clients can identify hidden FX costs, compare corporate FX margins against peers, and negotiate fairer prices with banks using real-time and historical trading data.

A key part of Just FX Analytics is the guidance and support in analysing and interpreting historical trade costs across banks, currency pairs, FX instruments, and legal entities. Additionally, Just provides strategic consultations to help clients negotiate and reduce FX trade costs with counterparties.  

 

Deutsche Bank and industry partners launch paper on blockchain interoperability

Deutsche Bank has joined a group of financial institutions and Web3 innovators to produce a paper on how to achieve interoperability for tokenised assets across public and private blockchains and legacy systems.

‘Institutional Interoperability: How Financial Institutions Navigate a Multichain World’ addresses how financial institutions can achieve increased accessibility and liquidity for tokenised assets, with flexibility, privacy, transparency and scalability. All the contributors to the paper emphasised the need for interlinked network models that embrace multiple blockchains.

Deutsche Bank contributed firsthand insights to the paper, describing its experimentation with blockchain and tokenisation from an asset servicing perspective. The bank outlines why it believes these technologies can achieve cost effective, efficient and faster value for clients with non-traditional business models. It also discusses why interoperability across blockchains, and with traditional systems, is a necessity and describes its challenges.

The paper acts as a road map for financial institutions developing tokenised-asset opportunities and facing a complex array of public and private blockchains, alongside client and regulatory requirements. It was authored by blockchain analyst Emily Parker, based on a framework laid by the Monetary Authority of Singapore’s Project Guardian in 2023. Other contributors to the paper include Citi, Mastercard and Northern Trust, which contributed spotlight sections. Web-3 native innovators Axelar Foundation led production of the report, which also included contributions from Centrifuge and Metrika.

“Multichain asset interoperability and servicing will likely become a necessity for asset servicers as their clients adopt different chains,” said Anand Rengarajan, Global Head of Sales & Head of Securities Services APAC, Corporate Bank, Deutsche Bank. “It will be essential that asset servicers know how to address and service interoperability with scale, while ensuring digital asset safety to enable sustainable growth that multiple chains can amplify.”

 

FIS tool to help clients assess, reduce and report risks tied to climate change

FIS has launched its Climate Risk Financial Modeler, a SaaS risk offering aims to help businesses across all industries better assess, reduce and report their exposure to the physical risks of climate change.

By using FIS’ risk modelling and insurance analytics, the Climate Risk Financial Modeler harmonises client data with third-party climate data and is hosted on a new interface that is directly tailored to the risk management needs of corporates and financial institutions - ultimately seeking to drive more proactive foresight into potential climate-related risks.

With FIS’ Climate Risk Financial Modeler, users are able to perform modelling on various weather-related perils at both local and global levels, project potential financial losses from severe weather events, and determine the effects of climate change on their operations.

The solution makes use of data from PwC US, combined with readily available information on a firm’s physical assets - such as its buildings and contents - along with global climate data, and performs relevant calculations.

“Corporate climate risk and the related regulatory pressures are becoming increasingly important for executives and risk managers of all levels and across all industries,” said JP James, Head of Treasury and Risk at FIS. “With this launch, FIS is building on our best-in-class insurance risk application capabilities to respond to the challenges our clients face in understanding the potential impacts of climate change on their business.”

 

CBA leads AU$190m refinancing for Team Global Express

Commonwealth Bank (CBA) has led a AU$190m syndicated structured asset-backed lending facility for Team Global Express (TGE) in a move designed to meet evolving consumer expectations for more environmentally friendly logistic solutions as demand for national deliveries continue to accelerate.

The financing will support Team Global Express’ fleet investment, including the procurement of lower-emission vehicles, which will in turn assist Team Global Express’ customer base with reducing their Scope 3 emissions.

As lead bank, CBA led the transaction through its structuring and distribution expertise with a number of lenders including IFM Investors, Daimler Truck Financial Services, Income Asset Management and the Clean Energy Finance Corporation (CEFC), supported by G+T and Lander & Rogers as legal advisers for lenders and Team Global Express respectively. 

The market appetite for the transaction reflects the improved business profile of Team Global Express and will allow TGE to efficiently finance its transition while also offering funding diversity to support its growth aspirations.

“Team Global Express operates across all four transport modes of air, road, rail and sea, and this funding will allow us to further integrate our leading Australian network and introduce products and services that our customers across Australia will benefit from,” said Christine Holgate, CEO, Team Global Express Group. “We know our long-term success is dependent on our ability to operate sustainably, adapt to changing conditions, and partner across the supply chain to strengthen our focus on ESG.”

 

Adyen and Nelly financial platform digitises medical practices

In order to further reduce the administrative burden associated with financial management in the healthcare sector, fintech Nelly is partnering with Adyen. The move aims to enable medical practices to handle all payment management processes via a unified system integrated into the practice software. 

This means that medical practices can now use Nelly as a digital solution for their payment processing, maintain a bank account with a local IBAN thanks to Adyen's banking license and process digital payments efficiently. The partnership will also encompass the issuing of corporate credit cards. At the time of launch, this is possible in Germany and selected European countries.

The integration of Adyen simplifies the entire administration of all financial processes. With digital payment links, POS terminals, bank accounts and corporate credit cards, medical practices are able to process all payments and expenses via a single platform. Both one-off transactions and regular treatment fees are processed through Adyen and Nelly. 

Payments are credited to medical practices immediately and can be used in real time via the virtual and physical corporate credit cards. In addition, Adyen's digital bank accounts allow medical practices to optimise their cash flows and earn interest on unused capital. 

The cooperation with Adyen is also being used for Nelly’s market entry in Italy, as around 70% of treatments there are self-pay. Patients can enter their preferred payment method. The treatment costs are then debited and invoices sent digitally and fully automatically. 

 

Broadridge announces CFO transition

Broadridge Financial Solutions has announced that Edmund Reese, Chief Financial Officer, will be stepping down from his role, effective 30 June, 2024, to become Chief Financial Officer of Aon, a US$61bn market capitalisation global professional services firm.

Ashima Ghei, who is currently the Chief Financial Officer of Broadridge’s US$4.5bn revenue Investor Communication Solutions segment, will serve as Interim Chief Financial Officer. Broadridge has initiated a search process for a permanent successor that will include both internal and external candidates.

Ghei has served as the Chief Financial Officer of Broadridge’s Investor Communication Solutions segment since January 2022 and is a member of the company’s Executive Leadership Team. Prior to joining Broadridge, she spent 18 years at American Express, holding a range of increasingly senior roles in Finance and Business strategy, most recently serving as Head of Merchant Pricing for the Americas.