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Industry roundup: 27 May

Nordic outlook: Long time to heal economic scars

The outlook for the world economy remains bleak, according to Nordea's latest economic outlook. The COVID-19 pandemic has evolved into the biggest health crisis in 100 years, and the draconian measures to curb the spread of infection have had enormous financial costs. While economic growth will soon be on the rise again as locked-down communities gradually reopen, it will likely be a long time before the economic scars have fully healed.

The Nordic economies have also been hit hard by the containment measures and global recession. However, thanks to good public finances, they are relatively well equipped to deal with the long-term consequences of the corona crisis. The Swedish economy is slowing down at an unprecedented pace for modern times. While the downturn is widespread across sectors, the plunge in exports accounts for most of the decline in GDP. However, the domestic economy is showing some resilience, and household consumption will recover the fastest. While unemployment will peak above 10% this year, the labour market situation would have been much worse without policy measures. Inflation is fluctuating due to energy prices, while underlying cost pressures will remain low during the coming years. The Riksbank is expected to expand the QE programme but keep the repo rate unchanged at 0.0%.

The Finnish economy has suffered a severe collapse due to the corona crisis, with the deepest drop occurring in household consumption. According to Nordea’s card data, payment volumes were down by around 25% at the end of March but have recovered with the partial easing of the lockdown. The collapse of demand and increased uncertainty will hurt corporate investment, and the challenges for exporters and manufacturing companies are expected to worsen in the autumn when their order books are cleared.

The coronavirus outbreak has also hit the Danish economy hard. The downturn will likely bottom in Q2, and the gradual reopening of the economy will pave the way for higher activity in the autumn. The expected drop in GDP this year will likely be around the same size as during the financial crisis in 2009. But unlike then, the Danish economy was not characterised by major imbalances this time when the corona crisis broke out. This makes the Danish economy much more resilient – compared to before and relative to many other countries.

Norway has, like most other economies, been severely affected by the measures to contain the coronavirus. But the worst is over, and the recovery has begun. It is still very uncertain how long it will take. Low oil prices pose an extra challenge for Norway, but the economy has become less oil dependent. At the same time, there is room to stimulate the economy both through fiscal and monetary policy. The interest rate, which will remain historically low for a long time,  is a powerful tool, which will help underpin housing prices and maintain overall household income, despite rising unemployment.

 

Banks ramp up tech recruitment in response to COVID-19

A key challenge for corporate treasury as it becomes increasingly data-driven is to be able to hire the best technology-savvy data scientists to help make sense of big data. The talent pool that corporates are targeting are also a focus for other industries, most notably banks, which makes the hiring process extremely competitive. New research from Robert Walters and Vacancy Soft shows just how competitive, as new tech roles in banks have increased by a staggering +46% in the last three years - making traditional banks the most prominent recruiter for tech professionals. To date, a third of overall job vacancies within banks is now tech related - jumping from less than a quarter (23%) just three years ago.

With the UK having one of the highest adoption rates of digital and online banking in the world - growing by 32% in the last 10 years - it seems the digital cultural shift was already taking place. In fact, adoption rates of online banking in the UK was at an all-time high of 73% in 2019, with the majority of users accessing platforms via smart phones (64%), compared to over tablets or computers (34%).

Robert Walters analysts predict online banking penetration to reach 90% by the end of 2020, driven predominantly by COVID-19, the fast-growing presence of fintechs, and the increased investment from banks into their digital product. In the past three years the percentage of tech vacancies in overall job roles advertised for banks has increased by +7% (to make up 30% of overall jobs), and has decreased by -2% in fintechs (to make up 46% of overall jobs).

This change is most evident when you compare the decline of traditional job roles within banks in the UK - a decline of 42% over the past three years (equivalent to 100,000 jobs) - to the growth of tech roles, currently standing at +46% increase in the last three years.

It also seems the trend of regionalisation within banking shows no signs of abating, with tech vacancies in the regions increasing by +50% since 2017 and +7% in 2019. In London, tech vacancies within banking has increased by +23% over the past three years, and by +0.45% last year.

 

Northern Trust applies AI to currency management 

Northern Trust (NTRS) has announced it has enhanced its foreign exchange (FX) currency management solutions with machine learning models designed to enable greater oversight of thousands of daily data points and help reduce risk throughout the currency management lifecycle. The solution has been developed in conjunction with Northern Trust’s strategic partner Lumint Corporation.

The advanced technology utilised by the Robotic Oversight System (ROSY) for Northern Trust, systematically scans newly arriving, anonymised data to identify anomalies across multi-dimensional data sets. It is built on machine learning models developed by Lumint using a cloud platform that allows for efficient data processing.

Northern Trust announced a strategic partnership with Lumint in 2018 to drive innovation in currency hedging, including comprehensive transparency reporting and analytics to meet the evolving needs of asset owners and asset managers. Northern Trust’s global currency management suite comprises portfolio overlay, share class hedging and look through hedging solutions to help mitigate currency volatility, while actively supporting investment manager distribution strategies. 

 

Crisis highlights importance, expense of market data streams

The onset of the COVID-19 crisis is highlighting the importance of market data infrastructure for both buy-side and sell-side firms. According to a study from Greenwich Associates, banks, brokers and other sell-side firms pay an average US$140m per year for market data. Asset managers, hedge funds and other buy-side organisations pay about US$44m per year. These estimates include fees paid for consolidated feeds, direct feeds, terminal/desktop products, security/reference data, and index data. Firms also incur additional expenses for infrastructure, support, connectivity, and maintenance costs that can amount to half or more of annual data purchase spending.

Understanding where in the workflow data feeds are being implemented and which users are accessing the data is essential for any firm monitoring their usage of market data. Despite this, only 16% of market participants are satisfied with their market data distribution and reporting systems. With users and regulators alike scrutinising market data costs, data providers can greatly benefit their customers by helping streamline this process.

It’s unclear how the COVID-19 crisis will affect the timing of an ongoing regulatory review of exchange fees. In February, the SEC proposed modernising the infrastructure for “collection, consolidation, and dissemination of market data for exchange-listed national market system (NMS) stocks.” The exchanges and SEC have continued battling in the U.S. Court of Appeals over the proper scope of SEC review on market data fee filings.

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