Eurozone grows 0.3% in Q2, but Netherlands enters recession

The 20 countries that use the euro currency and their 346 million people saw modest economic growth of 0.3% in the second quarter of 2023, but the outlook remains relatively weak.

The estimate for the eurozone economy came from a flash estimate by Eurostat, the statistical office of the European Union (EU).

In the first quarter of 2023, gross domestic product (GDP) had remained stable in the euro area and had increased by 0.2% in the EU. The bloc’s GDP rate is up by 0.6% compared with Q2 in 2022. 

Ireland's growth of 3.3% was the largest in the eurozone and distortedthe overall picture. Its growth figures often show large swings due to major international companies housing their headquarters there, including tech giants such as Meta, Google and Apple.

By contrast the Dutch economy has entered a recession as it shrank 0.3% on a quarterly basis in Q2, a first estimate published by Statistics Netherlands showed.

The eurozone’s fifth largest economy contracted for the second consecutive quarter after a 0.4% fall in GDP over the first three months of 2023.

Economic growth in the Netherlands reached almost 5% per year in 2021 and 2022 in a quick recovery from a COVID-19 slump.

The first recession since the pandemic was driven by a drop in consumer spending and exports, as surging inflation drove up food prices and energy bills in the Netherlands and its trading partners.

Consumer spending fell 1.6%, while exports were 0.7% lower than in the first three months of the year.

Inflation in the  Netherlands has steadily eased since hitting a peak of 14.5% in September 2022, but was still relatively high at around 6% in the second quarter of 2023.

 

BAE Systems agrees US$5.55 billion cash acquisition of Ball Aerospace

UK military equipment maker BAE Systems announced that it has agreed to buy US company Ball Aerospace from the Ball Corporation for about US$5.55 billion.

BAE said it hoped to complete the acquisition of the aerospace firm in the first half of 2024, with an anticipated tax credit taking the “underlying economic consideration for the business” to US$4.8 billion. The proposed deal will be funded by a combination of new external debt and existing cash resources.

Colorado, USA-based Ball Aerospace supplies spacecraft, mission payloads, optical systems, and antenna systems, and counts the US Department of Defence and civilian space agencies among its clients. It has more than 5,200 employees, of whom over 60% hold US security clearances.

The business is “well positioned to capture expected increases in demand for missiles and munitions”, BAE noted in a press release announcing the acquisition. Describing the aerospace firm as a “space and defence technology leader”, BAE said it was a “highly complementary fit” with its own “portfolio and culture”.

Commenting on the size of the deal, Aarin Chiekrie, equity analyst at UK financial services group Hargreaves Lansdown said: “For perspective, that's (US$5.55bn) equivalent to almost 20% of BAE’s current market cap. Ball Aerospace provides mission-critical space systems and defence technologies across air, land and sea – complementing BAE’s suite of products nicely. The acquisition should add around US$2.2 billion in revenue to BAE’s top line, before growing at a compound rate of around 10% annually over the next five years. And given the similarities between the two businesses, there’s clear scope to streamline operations, cut costs and boost profit margins.

“An acquisition of this size has only been made possible by BAE’s improved performance in recent years. Revenues and operating profits grew at double-digit rates in the first half and cash flows are much healthier now too, which has opened the door to deals like this as well as funding increased shareholder returns via dividends and new buyback programmes.”

 

India makes first oil payment to UAE in rupees

Ahead of next week’s BRICS summit in Johannesburg of ministers from Brazil, Russia, India, China and South Africa, India has finalised its first crude oil transaction with the United Arab Emirates (UAE) and sidelined the US dollar by using rupees (INR).

The deal follows the signing of an agreement last month between the two countries that permits trade settlements in their native currencies, thereby eliminating the added layer of dollar conversion and reducing transaction costs.

Added to the economic ramifications, the decision carries a political message, reflecting India’s intent to reduce its reliance on the US currency. The commitment to de-dollarisation is intended to be repeated on a larger scale, aimed at fostering ties with other countries.

Last month’s agreement extended beyond currency trade and included plans for a real-time payment link, bolstering easier cross-border fund transfers. Cardholders in both countries will soon be able to use their domestic cards interchangeably, thanks to the planned interlinking of India’s RuPay and the UAE’s UAESWITCH.

India’s push to  globalise the INR has so far made limited progress. Local currency trade volumes have been modest compared to India’s US$1.2 trillion goods trade in last fiscal year. However as the UAE is India’s second-largest source of remittances, the agreement offers much potential for both countries.

 

MAS endorses the use of stablecoins

The Monetary Authority of Singapore (MAS) has endorsed the use of stablecoins, releasing a regulatory framework for the digital assets that allows their use provided their operators implement protections for owners.

“When well-regulated to preserve such value stability, stablecoins can serve as a trusted medium of exchange to support innovation, including the ‘on-chain’ purchase and sale of digital assets,” declared the MAS, the city-state’s reserve bank.

MAS will allow single-currency stablecoins pegged to the Singapore Dollar (SGD) or other G10 currency, issued in Singapore, with full cash withdrawals available within five days of a customer's request.

Issuers must have minimum base capital of SGD1 million (US$0.73 million) or half of their annual operating expenses. They must also keep equivalent capital and liquid assets to avoid insolvency and cope with the aftermath of such events – should the business fail in a similar way to Terraform Labs' TerraUSD instrument in May 2022

Stablecoin providers that can fulfil all those requirements will receive a "MAS-regulated stablecoins" stamp of approval, which will tell the world their instruments offer a level of safety similar to other financial instruments. Singapore will gain the distinction of being one of the few countries that allows transactions in this form of digital currency.

“Users should make their own informed decisions on the accompanying risks should they choose to deal in stablecoins that are not regulated under MAS's framework,” warned the Authority.

MAS deputy managing director Ms Ho Hern Shin said the framework “aims to facilitate the use of stablecoins as a credible digital medium of exchange, and as a bridge between the fiat and digital asset ecosystems.”

 

BRICS bank issues first South African rand bonds

The New Development Bank (NDB) launched in 2014 by the five emerging economies dubbed the BRICS (Brazil, Russia, India, China and South Africa has completed the auction for its first South African rand (ZAR) bonds as it boosts its local currency fundraising and lending.

The NDB’s two bonds, a ZAR1 billion (US$52.3 million) five-year note and a ZAR500 million three-year note, attracted ZAR2.67 billion rand (US$136 million) of bids in total, according to auction results shared by two of the investors, according to Reuters. The bond sale was arranged by Standard Bank and Absa Bank.

Enoch Godongwana, South Africa’s finance minister said that the NDB, which was founded to give the five BRICS members greater control of development financing, was not doing enough local currency lending.

NDB’s Chief Financial Officer (CFO) Leslie Maasdorp said that the bank aims to increase local currency lending – most of which has so far been in the Chinese yuan (CNY) – from the current 22%, to 30% by 2026, but that there were limits to de-dollarisation.

The South African bond market has struggled in recent years to attract new issuers to match growing demand from domestic investors looking for quality credit assets. NDB’s three-year rand bond was priced at a floating rate of 95 basis points (bps) above the three-month Johannesburg Interbank Average Rate (Jibar), while the five year was priced at Jibar +105 bps.

The most recent comparable South African government bonds were a 4.5-year bond priced at Jibar +90 bps and a seven year priced at Jibar +120 bps.

Raphi Rootshtain, a portfolio manager at South Africa’s listed Sasfin Wealth commented “It is interesting to note that most of the underlying lending activities in South Africa are to state owned companies (SOEs). Effectively the NDB will become the new proxy funding vehicle for SOEs which should come with additional risk.”

Kumeshen Naidoo, head of debt capital markets at Absa Bank said that “The sale had 94% of bids being within or lower than price guidance, while the issuance rates represented the tightest spreads achieved by a non-government issuer in 2023.”

Argentine peso set for more pain, predicts Bank of America

Further volatility is in prospect for the Argentina peso (ARS), already the world’s weakest currency this year, according to Bank of America strategists.

The official exchange rate, currently ARS350 to US$1 will weaken to 545 per dollar by the end of this year and then slump to 1,193 by the end of 2024, as the bank’s strategists expect the winner of the country’s presidential elections to further devalue the currency starting in December.

The current government devalued the currency by 18% this week after suffering a defeat in a crucial primary on Sunday. Argentina’s assets tumbled after Libertarian candidate Javier Milei, who wants to dollarise the economy and abolish the central bank, performed more strongly than expected.

“The FX market remains under pressure,” said strategists such as Sebastian Rondeau, Jane Brauer and David Hauner. “We expect a further devaluation.” They cited rising political uncertainty, inflationary pressures ahead of October’s general election, the drought impact on exports and foreign exchange reserves in negative territory.

The devaluation caused Argentines without access to dollars on the official market to vie to buy those dollars on the parallel market on the streets of Buenos Aires, pushing the rate above 730 according to website dolarhoy.com.

BoA strategists said the depreciation was “overall positive” as the currency was grossly overvalued and they approved of the current administration bearing the burden of some of a necessary macroeconomic adjustment.

“It should have a positive impact on the International Monetary Fund (IMF) arrangement pending IMF Board approval for a US$7.5 billion loan disbursement,” they wrote. However, the devaluation will continue to put pressure on inflation.

The country’s already heavily distressed bonds led to declines in emerging markets after the move. BoA maintained its overweight rating on debt as strategists see it as a strong and clear mandate for a shift in economic policy.

 

Investors exiting South Africa stocks and bonds

Foreign investors have been steadily moving away from South African assets this year, with the Johannesburg Stock Exchange (JSE) recording net outflows from stocks of rand (ZAR) 67 billion (US$3.5 billion) in 2023 and ZAR 123 billion outflows from its bond market The latter figure compares with outflows of ZAR155 billion for the whole of 2022.

JC Louw, CEO of fund manager DFM Global revealed the data in a social media post that outlined the net outflows from the JSE according to the exchange’s data and Bloomberg. Overseas investors also sold ZAR4.6 billion of South African government bonds in July and ZAR540 million of local stocks. 

Glenn Silverman, a strategist at investment consultant firm RisCura, said that one of the significant challenges facing the JSE is the recent legislative changes regarding the offshore exposure of pension funds. The National Treasury increased the pension fund offshore allowance to 45% from 35%, resulting in net outflows from the South African savings industry. 

This is despite local asset managers and investors believing local assets are undervalued due to poor investor sentiment, leading to foreigners selling local assets. 

Other emerging markets have also struggled to attract investment in 2023. However, South Africa has some factors, such as regular power outages aka load-shedding and logistical inefficiencies, that have added to its risk premium. 

“Foreign investors have been substantial net sellers on the JSE for several years, and any reversal of this trend could add further momentum to the market,” Silverman said. “Any improvements in the news cycle, whether economic, political, or global, could serve as a further catalyst for a market advance”.

He said that policymakers have several ways to stop money from leaving the country, including creating better policies to boost consumer, business, and investor confidence.

Such policies would help to attract and keep skilled workers, stimulate economic growth, and reduce unemployment, while increasing the savings of South Africans for investing in the JSE.

This will also help local asset managers, who typically charge higher fees and earn higher profits when managing money for individuals rather than institutions like pension funds. As profit margins have shrunk at home, some asset managers have turned to the Middle East to invest the trillions of rands they manage. 

 

Marqeta uses AI to elevate embedded finance solutions

Marqeta, the US-based card issuing platform, has ventured into the realm of artificial intelligence with the introduction of a new tool – Marqeta Docs AI.

The newly launched AI-driven external-facing tool, rooted in OpenAI’s Large Language Models, targets a significant reduction in the time-to-value (TTV) for its clientele. Early reports also suggest a potential cut in coding and testing durations by up to 75%

Marqeta Docs AI aims to make life easier for users navigating the Marqeta Docs website. By posing specific questions, users can expect tailored answers, facilitating a quicker understanding of the platform’s offerings. It is also a step towards equipping users with an intuitive way to tackle the intricacies of devising payment solutions.

Wendy Li, senior vice president of emerging technologies at Marqeta, commented: “Generative AI has become a global phenomenon. The majority of companies today are thinking about how they can leverage it to increase productivity and output.

“The launch of Marqeta Docs AI opens the door to the possibility of additional tools that reduce time to value for our customers and increase the speed at which they see results from their Marqeta-powered programs,” added Li.

Marqeta’s platform offers businesses embedded finance solutions including virtual and physical card issuance, processing, digital banking, buy now, pay later, accelerated wage access and expense management.

 

Coinbase and Trustly team for open banking payments in Canada

Cryptocurrency exchange platform Coinbase has teamed with open banking provider Trustly as it expands into Canada. The partnership enables Coinbase users in Canada to deposit and withdraw funds from their bank accounts to and from their crypto wallets.

“A robust regulatory framework combined with the world’s third-most crypto-aware nation make Canada a perfect fit for alternative payment methods and innovative financial services,” Trustly said in a news release. “With Trustly, Coinbase users will easily connect their bank accounts to their Coinbase account, allowing them to add funds instantly or withdraw funds seamlessly using electronic fund transfer (EFT) or Interac payment rails.”

The release notes the growing popularity of crypto options in Canada, where a survey by the Ontario Securities Commission indicates that more than 30% of people intend to purchase crypto assets next year. Later this year, Trustly says it will expand on the partnership with Coinbase by enabling direct bank transfers over EFT.

“By enabling use of the EFT network, users will be able to benefit from seamless deposits, withdrawals, and high-value deposit limits,” the release said.

In May, Coinbase launched the Coinbase International Exchange after securing a licence from the Bermuda Monetary Authority. This exchange allows institutional users based in eligible jurisdictions outside of the US trade perpetual futures, which Coinbase said made up for nearly three-quarters of global crypto trading volume in 2022.

Around the same time, Coinbase said it was setting up operations in the United Arab Emirates (UAE), and regards the Middle East as a “strategic bridge” between customers in Europe and Asia.
 

Singapore makes 10 arrests and seizes S$1 billion assets in money laundering probe

Singapore police have arrested 10 foreigners for alleged money laundering and forgery offences, in a case involving about S$1 billion ($737 million) of cash, properties, luxury cars and other assets.

The police conducted simultaneous raids on Tuesday across the city-state to arrest the suspects, according to a statement issued yesterday.

Prohibition of disposal orders were issued against 94 properties and 50 vehicles, with a total estimated value of more than S$815 million.

Other seizures included bank accounts, cash, luxury bags, jewellery, watches, electronic devices and some documents with information on virtual assets.

The foreigners were aged between 31 and 44, and their nationalities include Chinese, Turkish, Cypriot, Cambodian and Ni-Vanuatu, Singapore police said.

In a separate statement, the Singapore central bank said it has been “in touch with the financial institutions (FIs) where the potentially tainted funds have been identified. Supervisory engagements with these FIs are ongoing”, without naming the FIs.