Investors unsettled as France’s President risks snap general election

France’s markets began the week in retreat after President Emmanuel Macron called snap parliamentary elections in a high-stakes gamble to stem advances by the far right in his country and across the European Union (EU).

France’s CAC 40 stock index fell by 1.4% and bonds were hit as investors were alarmed by the prospect of a government led by Marine Le Pen’s far-right movement, which recorded sharp gains against Macron’s centrist alliance in the weekend’s elections to the European Parliament.

French banks, which hold substantial government debts and could be targeted for windfall taxes, were among the worst performers amid market concerns about a borrowing spree by the far right. Shares in Société Générale had tumbled 7.4% by early afternoon in Paris, while shares in BNP Paribas and Credit Agricole were down 4.7% and 4.1% respectively.

Macron announced an early French legislative election – the two round-vote he scheduled for 30 June and 7 July – was necessary to break the political “fever” afflicting the country and to clarify its future direction

He dissolved the parliament and called the election after an exit poll Sunday showed that his Renaissance party was set to be trounced by the National Rally, a far-right opposition party, in the European elections.

Under the French system, parliamentary elections are held to elect the 577 members of the lower house, the National Assembly. A separate election is held to choose the country’s president, and this is not scheduled until 2027.

That sets up the possibility of significant changes in the composition of the National Assembly, which could make it harder for Macron to govern.

Big gains for the far right in the French election could force Macron to govern with a hostile parliament, making it harder for his centrist administration to pursue its policy agenda and raising doubts about its ability to put government finances on a more sustainable footing.

The euro fell 0.5% against the US dollar in early-afternoon trade, hitting its lowest level in a month. Against the British pound, the currency, shared by 20 countries in Europe, dropped 0.4% to trade at its weakest level in nearly two years.

“There’s an awful lot of moving parts, and it’s not clear what a (new) government would look like,” said Mike O’Sullivan, chief economist at Moonfare, a private equity investment firm. “Even if the (far right) don’t do very well, (Macron) would still have a varied coalition of the center (parties) to put together, and it’s not clear what key policies would unite those parties in a government.”

In his view, Macron and his government have been good for parts of the French economy. “For example, unemployment is at a historic low, parts of the economy — particularly the tech investment part — have been thriving… A lot of that becomes very uncertain.”

Of particular concern, according to analysts, is how a potentially very different parliament would affect France’s ability to whittle down its huge government debt burden, which stood at 110.6% of gross domestic product (GDP)at the end of last year.

The budget deficit — the difference between what the government spends and what it receives in taxes — reached 5.5% of the country’s GDP last year.

In May, ratings agency Standard & Poor’s (S&P) downgraded France’s long-term credit score, citing the “deterioration of (its) budgetary position,” though it still thinks the country has ample capacity to repay its debts. The agency said it expected the budget deficit to narrow to 3.5% of GDP in 2027, which is well above the 2.9% targeted by the government for that year.

 

Saudi Arabia joins mBridge for cross-border CBDC payments

Saudi Arabia has joined the mBridge project to enhance cross-border payments using central bank digital currencies (CBDCs).

A report by China Daily stated that the Saudi Central Bank (SAMA) has announced plans to join the mBridge initiative as a full participant, which could pave the way for increased local currency transactions in oil trade between China and Saudi Arabia.

Project mBridge was launched in 2021 as a collaboration between the Bank for International Settlements’ (BIS) innovation arm and the founding central banks are the Hong Kong Monetary Authority(HKMA), the Central Bank of the United Arab Emirates (UAE), the Digital Currency Institute of the People’s Bank of China (PBOC) and the Bank of Thailand to test the viability of CBDCs for instantaneous cross-border trade and other payments using the project's blockchain, the mBridge Ledger

According to a BIS announcement, the mBridge project has now achieved the minimum viable product (MVP) stage. This milestone invites private sector firms to propose new solutions and applications to further develop the platform and demonstrate its full potential.

The report indicated that the MVP stage signified that the mBridge project is now accessible to commercial banks within the six participating members for real cross-border payment use.

In addition to the Saudi Central Bank joining as the sixth full participant, the BIS stated that over 26 official institutions – including the International Monetary Fund (IMF), the World Bank, and the European Central Bank (ECB) – are participating as observers.

In February, the United Arab Emirates and China executed their first cross-border CBDC transaction with a total value of US$13.6 million using digital dirham and digital yuan.

During the Central Bank of UAE’s 50th anniversary celebration, the mBridge transaction introduced the use of digital currencies in multilateral financial exchanges. UAE Vice President and Deputy Prime Minister Mansour bin Zayed Al Nahyan and Chinese Ambassador to the UAE Zhang Yiming attended the event.

Mansour invited Zhang to collaborate in starting the cross-border payment and introducing the CBDC platform during the celebration, marking the initial real-time transaction following the Bridge’s phase one pilot in 2022.

 

US Small Business Administration to launch working capital pilot

The United States Small Business Administration (SBA) – an independent agency of the US government that supports entrepreneurs and small businesses – plans to launch a working capital pilot programme featuring a newly structured line of credit for small businesses designed to give greater flexibility than a traditional term loan.

The 7(a) Working Capital Pilot (WCP) Programmeme will launch later this year, the SBA said in a press release.

“Small businesses require working capital through competitively priced lines of credit to operate efficiently and fund their pursuit of growth opportunities — which is why the SBA is meeting the market needs, especially in a higher interest rate environment, by adding the 7(a) Working Capital Pilot Program to our suite of loan products,” SBA Administrator Isabel said in the release.

The programme’s newly structured line of credit is made by 7(a) lenders and backed by the SBA, according to the release.

This line of credit product has a fee structure designed to give greater flexibility to both small businesses and lenders, providing more options when structuring a line of credit, the release said.

The program will include a Transaction-Based WCP that will enable access to working capital earlier in the sale cycle, Asset-Based WCP loans that will allow small businesses to cost-effectively access working capital against their assets, and a new solution for small businesses participating in the Home Energy Rebate Program funded by the Inflation Reduction Act, per the release.

To reduce the cost of loans with shorter maturities, the WCP allows small businesses to pay the SBA up-front guaranty fee on an annual basis, according to the release.

Complete details about the WCP will be posted at www.sba.gov and SBA’s team of Export Finance Managers will offer one-on-one counselling for lenders interested in the programme, per the release.

Apple teams up with OpenAI

Apple is joining forces with OpenAI, giving iPhone users access to use its ChatGPT artificial intelligence technology.

Chief executive Tim Cook set out how the US tech giant would incorporate AI into its iPhone, iPad and Mac laptops and also confirmed media speculation that it is integrating its products with ChatGPT. This will allow users to ask a question via its Siri feature and the AI chatbot will give a response.

However, Apple investors appear to underwhelmed by the group’s venture into AI, which Cook dubbed ‘Apple intelligence’. 

ʺIt’s fair to say Apple was caught off guard by the explosion of activity in the AI space, and it’s turned to a partnership with OpenAI to get its foot in the door,ʺ commented Matt Britzman, equity analyst at financial services provider Hargreaves Lansdown.

ʺThis is a key moment for Apple, which has struggled with innovation of late. Gone are the days when each new iPhone was so jam-packed with new features that consumers felt obligated to upgrade every year, most people probably don’t even know what version they’re using.

ʺBut this is a marathon, not a sprint. It may be late to the party, but the long-awaited AI strategy could trigger a new surge in demand for the latest handsets. Integrating a third-party tool like ChatGPT finally gets things moving while leaving space to develop internal models over the next few years at much lower costs than the first movers.

ʺWith generative AI capabilities, Apple will have a fierce combination of deep consumer and developer ecosystems alongside the hardware and software to get AI tools into the hands of everyday consumers.ʺ

Shangri-La Asia issues its first panda bond

Shangri-La Asia has issued its first panda bond, which is a first for a Hong Kong listed hospitality group.

The renminbi (RMB)1 billion (US$140 million) three-year note is jointly managed by Bank of China, China Merchants Securities and Mizuho Bank (China), according to a media release.

Shangri-La had set up a RMB20 billion medium term notes (MTN) programme, and this RMB1 billion issuance is the first tranche of that programme and was subscribed 4.09 times. The coupon rate is 2.5% after achieving a AAA-rating by China Lianhe Credit Rating on both Shangri-La and the Rmb1 billion issue. Proceeds raised from the issuance will be used for “general corporate purposes”, the release said. 

A panda bond is a Chinese RMB denominated bond from an issuer outside of mainland China. 

Shangri-La Asia is part of the Shangri-La Group and is headquartered in Hong Kong and has a regional headquarters in Singapore. It is listed on the Hong Kong Stock Exchange (HKEX) and the Singapore Exchange (SGX).

In the media release, Chua Chee Wui, Shangri-La’s chief financial officer and executive director, said: “The successful debut of our inaugural panda bond demonstrates investors’ confidence in Shangri-La. This further diversifies our funding sources and marks our first foray into the onshore Rmb capital markets, and also helps us manage our group’s foreign currency exposure and better match our assets geographical exposure.”

Zhu Lei, head of debt capital markets, investment banking department, Bank of China, said: “This is the first-ever panda bond issued by a Hong Kong listed hospitality group. This issuance was subscribed 4.09 times, which reflects Shangri-La’s strong creditworthiness, excellent financial and robust business fundamentals”.

Also in the release, Huo Da, board chairman, executive director and chief information officer of China Merchants Securities, added: “This is the first time we are working with Shangri-La on corporate debt issuance. This is the lowest coupon rate of panda MTN for an offshore non-state-owned entity.”

Kenya Yoshiura, president, vice chairman of Mizuho Bank (China), said: “We have been working with Shangri-La on various offshore transactions for some time now and happy to partake in our first mainland China on-shore hospitality transaction with Shangri-La.”

 

ECI launches platform to boost UAE non-oil exports

The United Arab Emirates’ (UAE) export credit agency, Etihad Credit Insurance (ECI), has partnered with a group of banks and public authorities on an initiative aimed at boosting exports and diversifying the country’s economy. 

The initiative, Xport Xponential, connects local exporters to providers of credit facilities and insurance cover via the agency’s platform, and provides access to a database of over 300 million companies in partner countries. 

Bank participants include Abu Dhabi Commercial Bank, Ajman Bank, Dubai Commercial Bank, Emirates Development Bank, Fujairah National Bank and Ras Al Khaimah Bank, along with several federal and local government bodies. ECI says it expects more institutions to sign up as the project progresses.

“This initiative introduces an innovative trade and insurance platform, creating new opportunities for UAE-based exporters to increase their exports,” said Abdulla Bin Touq Al Marri, the UAE’s Minister of Economy and chairman of ECI’s board of directors. 

“It aims to support the targets of the ‘We the UAE 2031’ vision by reaching Dirham (AED)800 billion (US$218 billion) in non-oil UAE exports by the next decade, thereby enhancing the growth and sustainability of the UAE economy.” 

Bin Touq added that the initiative has a particular focus on small- to medium-sized enterprises (SMEs). Eligible companies should have an annual turnover of AED10 million to AED250 million, and must have recently started exporting from the UAE or have plans to do so.

Xport Xponential is the latest in a series of ECI initiatives aimed at supporting smaller non-oil exporters. In late 2021, the agency platform called Trade Finance Gateway to help companies obtain trade and export finance facilities from commercial lenders. 

 

HSBC reports that global supply chains are still vulnerable

As global supply chains become more complex and geopolitical uncertainty increasingly impacts global trade, to changing the nature of trade flows, supply chain finance (SCF)can be an important tool to help eliminate risk, according to Building Resilient Supply Chains Amid an Uncertain Geopolitical Landscape, a new HSBC report published in collaboration with the Procurement Leaders network.

As such, trade experts advise that companies rethink their approach to sourcing, focusing on building supply chains that are transparent and where possible simpler, resilient to geopolitical risks, sourced from markets closer to home, and not reliant on one sole supplier of goods and materials.

SCF is another important tool that companies can leverage to decouple their financial supply chain from their physical supply chain, says Americas Head of Global Trade Solutions Marissa Adams. SCF allows organizations to hold more inventory on a cost-neutral, balance-sheet friendly basis. Injecting liquidity into a trading relationship can add resilience and safety buffers.

“An intelligently designed SCF programme can do a lot of heavy lifting in terms of de-risking trading relationships, improving supplier resilience, and providing suppliers with the finance to invest in and develop their businesses,” said Adams, who suggested that companies follow a four-stage risk assessment and remediation process to plan for uncertainty:

• Take a risk-based approach to sourcing analysis: Rather than reviewing threats by tier, stock-keeping unit or category, focus on those areas in which the organizations is most at risk, or where the biggest dangers lie. Often, these areas will be associated with specific regions or countries.

• Analyse the consequences of supply disruption: Estimating the likelihood of disruption is difficult, but exploring the likely consequences of any disruption is not. Which products or product groups would be impacted? How quickly? For how long? Are any substitutes available? What might the financial consequences be?

• Review the options available to help avoid disruption: What other suppliers exist? Where are they located? Do they offer the same product, i.e. like-for-like? How viable are they in terms of scale, technology maturity, time-to-market and quality? Do you need to locate one, two, or even more alternative suppliers?

• Repeat this process as necessary to avoid new and emerging risks: If recent history has taught us anything, it is that the world doesn’t stand still: geopolitical uncertainties arise over time. Your product offerings and supply base evolve. Repeat the exercise as new threats and vulnerabilities emerge.

This latest trade report follows the launch of HSBC Global Trade Solutions, a new identity for the bank’s long-standing Global Trade and Receivables Finance (GTRF) business. Global Trade Solutions ʺbuilds upon HSBC’s foundations as a trade bank, while creating new ways to connect the world through trade. The new direction focuses on supporting businesses for the future, helping them navigate the constantly evolving landscape of global trade by harnessing HSBC’s long-standing network, expertise and solutions.ʺ

 

Nigeria’s FCMB acquires US$15 million facility to boost trade finance

Lagos, Nigeria-based First City Monument Bank (FCMB), a financial service holding company, announced its acquisition of a $15 million trade financing facility from the International Islamic Trade Finance Corporation (ITFC) to strengthen its support of Nigeria’s trade finance sector.

The facility was a Master Murabaha Agreement with ITFC, a member of the Islamic Development Bank Group, a statement confimed.

According to Fitch, the estimated size of the Nigerian Islamic finance industry was US$2.9 billion at the end of 2022, with outstanding sukuk being the largest segment at 57%, followed by Islamic banks at 42% (total assets), and the remaining 1% between Islamic funds (total assets) and takaful (total contributions).

Yemisi Edun, managing director/CEO at FCMB, said the agreement affirms FCMB’s commitment to driving sustainable economic growth in Nigeria.

 

Canada’s CDCC launches secured general collateral notes programme

The Canadian Derivatives Clearing Corporation (CDCC), Canada's national central clearing counterparty (CCP) for exchange-traded derivative products and repurchase agreements, has launched a new Secured General Collateral (SGC) Notes programme.

SGC Notes are short-term discounted money market instruments developed by CDCC in collaboration with Canadian market participants and designed to meet the demand for the transition from Bankers’ Acceptances (BAs) as a result of the Canadian Dollar Offered Rate (CDOR) cessation.   

ʺWe are proud to bring this innovative, customised investment vehicle to market, designed to provide Canada's market participants with an effective funding solution and support the industry transition from CDOR and Bankers’ Acceptances," said George Kormas, President of CDCC.ʺCDCC is grateful for the input of our valued stakeholders ​across Canada’s money markets, including both sell and buy side participants​, in the launch of SGC Notes and we look forward to serving their needs as our markets continue to evolve into the future.” 

SGC Notes provide an investment policy-friendly opportunity for Canadian money market institutional investors to roll their BA exposure into SGC Notes. SGC Notes are linked to the same highly-rated Canadian bank credit exposure as BAs, but are secured with a basket of high quality debt securities (SGC Securities) which are sold to a trust through repurchase agreements cleared through CDCC. 

 

Singapore concludes AML trial with further jail sentence

The last of 10 individuals involved in Singapore's S$3 billion (US$2.2 billion) money laundering investigation has been handed a 17-month jail term – the harshest sentence meted out for the case.

Su Jianfeng was convicted last week after he pleaded guilty to one charge each of possessing almost S$551,000 in criminal proceeds from running an illegal remote gambling service and fraudulently using a forged property sale contract to explain the source of deposits into his bank account. A further 12 charges were taken into consideration during sentencing.

The prosecution had sought a jail term of between 17 and 18 months, while the defence had asked for a lower sentence of 14.5 months.

Delivering his brief remarks on his decision, District Judge James Elisha Lee outlined the general need for deterrence for such transnational crimes to protect Singapore’s reputation as a financial hub.

He also noted the higher amount involved across Su’s charges – compared to those already convicted – and other aggravating factors like premeditation and the multiple banks that became victims to Su’s crimes.