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New York is world’s most expensive city – Industry roundup: 8 June

New York displaces Hong Kong as world’s most expensive city

New York is the world’s most expensive city according to an annual Cost of Living report, pushing Hong Kong into second place after four years at the top.

This year’s ranking by ECA International, which provides data, software and global mobility expertise to multinational companies, Geneva remains the most expensive location in Europe and the third most expensive in the world for expatriates, followed by London.

However, other UK cities dropped in the global ranking despite the ongoing cost of living crisis felt locally. Birmingham (115th), Cardiff (118th) and Belfast (123rd) have fallen outside the top 100 most expensive cities in the world, with Birmingham falling 16 places, just one place above St Petersburg, Russia.

“The cost of living crisis in the UK persists, with rising costs driven primarily by food, utilities, and housing prices,” said Steven Kilfedder, Head of Production at ECA International. ”Despite these challenges, all UK cities bar London have experienced a decline in the global ranking. This can largely be attributed to the weakness of the pound, which has made the country cheaper for people coming to the UK from other countries.”

Two-thirds of Eurozone cities have risen in the Cost of Living ranking, although French and Scandinavian cities were exceptions to the upward trend. Russians fleeing possible mobilisation have triggered a surge in rental prices in cities such as Dubai, Yerevan, Nicosia and Tbilisi.

ECA International has researched the cost of living globally for 50 years. It carries out two main surveys per year to help companies assess living costs around the world as part of salary calculations for cross-border moves. The surveys compare a basket of like-for-like consumer goods and services commonly purchased by assignees in over 500 locations worldwide, such as coffee, sugar and eggs. ECA’s accommodation data is also factored in, comparing rental costs in areas typically inhabited by expatriate staff in over 430 locations worldwide.

According to its latest report, food prices globally have risen by around 15% on average in the last year, more than twice the rate of last year. In the UK, food prices rose faster than the global average, up almost 20%. By comparison food prices rose around 10% in the US and France and 13% in Germany.

This year’s report sees 54% of European cities have move up in the Cost of Living ranking, driven by high rates of inflation. The top five is dominated by Switzerland, with Geneva retaining its position as the most expensive city for expatriates, followed by London, Zurich, Bern, and Copenhagen. Zurich, Switzerland, has risen one place globally, becoming the sixth most expensive city in the world.

While in Norway, both Oslo and Stavanger fell nine and 14 places respectively to 28th and 40th positions. Similarly in Sweden, Stockholm and Gothenburg fell 10 and nine places and rank 46th and 86th in the world.

Within the Eurozone, nearly two-thirds of locations (61%) have risen in rank, including Dublin which has risen six places to 38th position due to high inflation. France is one of the exceptions as all surveyed French cities have seen marginally lower inflation than many other cities using the euro.

"These developments across Europe highlight the dynamics influencing the cost of living in different regions," Kilfedder added. "Our Cost of Living rankings are affected by two factors: prices and exchange rates. Even when prices are rising quickly as they are in much of Europe, a city can become comparatively cheaper for visitors if the currency is weaker.

“This is the case for Norwegian and Swedish cities, where the inflation rates peaked at around 10%, but their rankings have plummeted by an average of 10 places due to the weakening of their respective currencies.”

SWIFT explores blockchain interoperability

SWIFT has announced that it is collaborating with their global community to explore blockchain interoperability for seamless tokenised asset settlements.

The financial messaging services provider said that institutional investors are increasingly considering investments in tokenised assets as they seek alternative investments. However, investors face a complex challenge since the tokenised assets are tracked on different blockchain networks that are not interoperable.

SWIFT wants to overcome the interoperability challenges among blockchains, which is key to the long-term scalability of the market and is aligned with the company’s focus on removing friction in international transactions.

SWIFT is embarking on a new set of experiments in collaboration with several financial institutions and FMIs “including Australia and New Zealand Banking Group Limited (ANZ), BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX) and The Depository Trust & Clearing Corporation (DTCC) to test how firms can leverage their existing Swift infrastructure to efficiently instruct the transfer of tokenised value over a range of public and private blockchain networks.”

SWIFT will partner with Chainlink, a leading Web3 services platform. Chainlink will provide connectivity across public and private blockchains for the experiments.

Commenting on the collaboration, the co-Founder of Chainlink, Sergey Nazarov said: “This collaboration between SWIFT and Chainlink could pave the way for leading institutions like DTCC, Euroclear, BNP Paribas, Citi and many others to issue and transact trillions of dollars using smart contracts.

“Not only would this grow the blockchain industry by multiples from where it is today, but it would clearly show capital markets the many benefits of adopting on chain finance.”

SWIFTconducted similar trials in 2022 which were largely successful and will be seeking to build on the success to explore how the industry could address potential operational and regulatory challenges facing financial institutions when operating in the blockchain environment.


Bank of Canada surprises with rate hike to 4.75%

The Bank of Canada surprised markets by ending its pause and hiking its key interest rate a quarter percentage point to 4.75%.

It followed a similar move this week by the Reserve Bank of Australia (RBA), with many analysts in both countries expecting rates to stay unchanged this month. The BoC has progressively raised its policy rate from 0,25% in March 2022 to the new rate of 4.75%.

The central bank pointed to stubbornly high inflation and a resilient Canadian economy as the reasons why the governing council decided its monetary policy was not yet restrictive enough to bring the consumer price index back to its 2% target.

“Canada’s economy was stronger than expected in the first quarter of 2023, with GDP growth of 3.1% and consumer spending remained high, said the BoC's statement.

“The labour market remains tight: higher immigration and participation rates are expanding the supply of workers but new workers have been quickly hired, reflecting continued strong demand for labour. Overall, excess demand in the economy looks to be more persistent than anticipated.”

Ryan Brandham, Head of Global Capital Markets, North America at Validus Risk Management commented: There was some uncertainty going into the meeting, with approximately 40% chance of a hike priced in. The BoC appears to feel that the resiliency in the economy allows it to be more aggressive in bringing inflation under control.”

The central bank also pointed to Canada’s housing market heating up as more homebuyers came off the sidelines during the spring.

Although the decision to hike was a surprise, though many economists and the market had expected the central bank to raise rates again over the summer. July 12 was seen as the most likely meeting for the hike.

The consumer price index, Canada’s main gauge on prices for goods like groceries and fuel, edged up to an annualised pace of 4.4% in April from 4.3% a month earlier and surpassing economist expectations of 4.1%.


Sequoia Capital announces three-way split

Sequoia Capital, one of the largest and most active global venture capital (VC) firms, is splitting its US and Europe, China, and India units into three separate entities.

The Silicon Valley firm said that the split reflects growing difficulties associated with running a firm that backs leading tech companies around the world. The separation comes at a time of rising geopolitical tensions between China and the US, particularly around sensitive technology like semiconductors and artificial intelligence (AI).

“It has become increasingly complex to run a decentralized global investment business,” the leaders of the three businesses wrote in a letter.

President Biden’s administration is expected to start cracking down on US investment into certain China-based technology companies, including those developing semiconductors, according to reports in The Wall Street Journal. Sequoia China raised US$9 billion last year despite a downturn in VC investment spurred by the Chinese government’s tech crackdown.

Sequoia's Chinese and Indian subsidiaries have long acted independently from the US arm, with their own leadership teams, fundraising efforts and investment strategies. When Roelof Botha succeeded Doug Leone as head of Sequoia last year, the firm underscored that Neil Shen would continue as head of Sequoia China. However, all geographies shared back-office functions such as finance, accounting and IT systems as well as profits.

The firm has been considering separating the three businesses over the last several years, Shen told the Financial Times. Sequoia China and India were not a part of the firm’s new master fund structure announced in late 2021.

The letter also cited problems with “confusion due to the shared Sequoia brand as well as portfolio conflicts across entities.”

Sequoia’s US business invested in ByteDance, the parent of TikTok, years after Sequoia China initially invested in the Chinese social media company. The future of TikTok in the US is uncertain, as the US government has threatened to ban it for years.

The firm has faced various other challenges. Sequoia was a major backer of crypto exchange FTX, whose collapse and fraudulent activity reportedly prompted an apology letter to LPs. And a historically fast rise in interest rates greatly devalued the firm's portfolio of public companies shortly after it launched a novel strategy to hold on to those bets.

Following the split, expected to be completed by March 2024, the three businesses will not share back-office functions or brand names. Sequoia China will be called HongShan and continue to be run by Shen. Sequoia India will rebrand as Peak XV Partners under the leadership of Shailendra Singh.

The remaining businesses, which include Sequoia US/Europe, long-term capital fund Sequoia Heritage and crossover investment firm Global Equities, will be managed by Botha.

CAB Payments to float on London Stock Exchange

CAB Payments, which facilitates global payments and has a subsidiary with a UK banking licence, has announced plans to float on the London Stock Exchange (LSE). Retail investors will be invited to participate in the offer.

The group specialises in business-to-business (B2B) cross-border payments and foreign exchange with a particular focus on emerging markets. By intending to list on the LSE, it follows in the footsteps of international money transfer company WISE which chose London for its launch in 2021, albeit through a direct listing.

Unlike WISE, which is classed as an electronic money institution, CAB Payments’ wholly-owned subsidiary Crown agents Bank has a UK banking licence. This means it must meet rigorous compliance standards, which are valued by other banks, governments and international organisations, and also enables it to offer a broader range of products and services to customers.

‘’CAB Payments intention to float is another boost for London after confidence in the capital took a knock after several high-profile companies appeared to shun the city for a New York listing,” said Susannah Streeter, head of money and markets at UK financial services group Hargreaves Lansdown. “The global payments provider executes and manages transfers across 143 currencies and markets and its decision to launch an IPO in London will help add shine to the capital’s reputation as a fintech hub.

“After the drought of initial public offerings (IPOs) in the capital, the taps are now being slowly turned on and the flotation tank is starting to fill, but don’t expect the trickle to turn into a flood just yet. Although a greater sense of calm has returned to the markets following the jitters caused by the banking sector scare in the Spring, there is still uncertainty about the direction of interest rates which could still provoke unsettled trading going forward.

“The intention to include retail investors in the offer, and not just institutional investors, must be welcomed as far too many listings in recent years have excluded regular investors from taking part. However, retail investors should be aware that a period of volatility can follow such launches, so they should ensure they are well-diversified before taking up any offer.”

Germany commits up to €50 billion for industrial decarbonisation

Germany has announced the launch of Carbon Contracts for Difference (CCfD), a 15-year subsidy program aimed at helping companies in energy intensive industries to invest in low carbon production processes and technologies.

Germany’s Economy and Climate Action Minister Robert Habeck said the budget for the new scheme is anticipated to reach the “mid double-digit billion” euro range, in line with industry estimates of up to €50 billion.

In a presentation marking the opening of the programme, the Ministry of Economy and Climate Protection (BMWK) said that industrial transformation will be required in order for the country to hit its 2045 climate neutrality goal, with industry responsible for more than 20% of Germany’s carbon emissions.

The new programme aims to address the high costs and investment risks preventing companies from investing in decarbonised manufacturing. It will provide “climate protection agreements,” designed to shield companies from the “price risk” of operating the low carbon facilities compared to competitors utilizing conventional fossil-based operations, while the company is responsible for capital investment and operational costs outside of the price gap.

The programme is based on an auction system, in which companies submit a bid based on the amount of government support they calculate is needed to avoid a ton of CO2 emissions based on the price gap. If the bid is selected, the company will be paid a variable subsidy, based on the actual additional cost relative to the bid value, with the gap expected to close over time as clean energy technologies become more competitive and the carbon price under the EU Emissions Trading System (ETS) increases.

If the low-carbon production process ultimately becomes cheaper than the conventional method during the program’s timeframe, the company would be required to repay the difference.

The programme is designed to include mid-sized enterprises, with eligible bidders including companies with emissions greater than 10 kilotons per year. Additional criteria include belonging to an emissions-intensive industry, such as steel, chemicals and cement, and investing in a system with at least 90% lower emissions than current systems.

In addition to helping companies fund decarbonisation initiatives, the programme also acts as a response by Germany to growing international competition as major economies worldwide gear up to capitalise on the opportunities to participate in the global transition to cleaner energy systems and industries, with massive energy transition investment plans recently unveiled by the uS, Canada and the EU. 


US interest rate swap market accelerates LIBOR transition

New trades in the enormous US dollar interest rate swap market have almost entirely stopped using the London Interbank Offered Rate, aka Libor, as the deadline for its demise approaches.

A record 91% of new dollar swaps executed in May used the Secured Overnight Financing Rate (SOFR), the newly accepted US benchmark, as their reference rate.

Just 5% of new swaps used Libor, down from 91% two years earlier, according to data from post-trade services provider OSTTRA, which has figures on around 85% of dollar trades.

Investors and companies use interest rate swaps to hedge against risks and to bet on the direction of rates. The Bank for International Settlements (BIS) estimated that turnover in the US market was about US$2 trillion a day in 2022.

Libor will cease to exist in the coming months after a years-long push by regulators to move away from a rate that bank traders were caught manipulating, having once been used in pricing everything from derivatives to student loans.

Dollar Libor quotes will end on June 30, although regulators have said a “synthetic” rate will continue for a period. SOFR is calculated by the US Federal Reserve and is based on the cost of borrowing cash overnight in US repurchase markets.

It was used as the benchmark rate for 53% of the notional amount of US dollar interest rate swaps traded in May, OSTTRA's data showed. Libor had a 4% share, down from 67% two years earlier, while the Fed funds rate had a 43% share.

The two main derivatives clearing houses, the CME Group and LCH, have been converting US dollar Libor swaps into cleared SOFR swaps this year, with the process due to finish in July.

Many existing issues across financial markets are still linked to Libor, however. In February, around 80% of institutional loans and collateralised debt obligations were still tied to the tarnished rate, according to private equity firm KKR.


HSBC is new sponsor of Hong Kong investor conference

HSBC plans to hold a new flagship investor conference in Hong Kong next year to replace the marquee event now being dropped by Credit Suisse.

HSBC is looking to hold an event at the Conrad Hotel from April 8 to 10 in the Central business district, historically the venue for Credit Suisse’s annual Asian Investment Conference. The bank expects to host more than 2,000 clients and investors, pivoting off the bank-sponsored Hong Kong Rugby Sevens from April 5 to 7.

“We will bring together clients, investors and thoughtful leaders from all around the world to discuss developments, challenges and, most of all, opportunities,” a spokesperson for the bank said.

The move comes as Hong Kong authorities seek to revive the city after years of Covid restrictions and a crackdown on civil liberties that has transformed the once lively financial hub.

As the dominant bank in the city, HSBC has steered a fine line between an increasingly authoritarian regime and criticism from Western lawmakers and activists in the city over its endorsement of a Beijing-imposed national security law.

HSBC has also been resisting pressure from its largest shareholder, China’s Ping An Insurance Group, to split off its Asian operations to boost profitability.

Credit Suisse, which is being bought by Swiss rival UBS Group, had hosted the annual conference since 1998.


Broadridge brings AI to bond trading

Broadridge Financial Solutions has announced the addition of BondGPT, a “revolutionary AI-powered app” to its LTX platform and said that it wants to utilise artificial intelligence in other markets in the future.

BondGPT’S AI technology aims to transform the complex bond selection and portfolio construction processes, offering enhanced liquidity and price discovery. According to the company’s representatives, the US$10.3 trillion US corporate bond market will benefit from this revolutionary technology.

BondGPT, an application powered by OpenAI GPT-4, is a large language model (LLM) chat function that allows users to ask questions and identify corporate bonds on the LTX trading platform based on their specific criteria.

The conversational interface uses LTX's Liquidity Cloud and patent-pending bond similarity technology to identify bonds with similar characteristics to meet traders' real-time liquidity needs. Combining the capabilities of GPT-4 with LTX's cutting-edge analytics and comprehensive underlying dataset, BondGPT ensures up-to-date data, compliance and accuracy.

“Emerging technologies such as generative AI hold immense potential to drive electronification and transparency in the corporate bond market,” said Jim Kwiatkowski, CEO of LTX.

Martin Koopman, Chief Product Officer and Co-Head of AI at Broadridge confirmed that BondGPT is now available to all Broadridge LTX clients. He added that BondGPT is the first of many products and services that Broadridge plans to release using this powerful technology, ensuring safety by leveraging their deep regulatory knowledge and data privacy standards.


IFC and Fosun to improve healthcare access in Africa

China’s Shanghai Fosun Pharmaceutical is partnering with the International Finance Corp (IFC) to help build a pharmaceutical production facility and distribution hub in the Republic of Cote d'Ivoire.

Under the partnership, IFC, a member of the World Bank Group and the largest global development institution focusing on the private sector of emerging markets, will provide subsidiaries of Fosun Pharma with loans totalling €50 million (US$53.58 million) to support the construction of a manufacturing site near Abidjan, Cote d'Ivoire, that will produce anti-malaria drugs and antibacterial medicines.

The project, which was launched in November 2022, will take place in three phases and is expected to have a capacity of five billion medicine tablets annually after the completion of phase three.

The project will improve access to quality, affordable life-saving medicines across West Africa, contributing to better health outcomes in a region that contends with heavy loads of infectious and other diseases, Fosun Pharma said.

The project will also facilitate the transfer of medical and manufacturing knowledge to Africa, supporting the long-term growth and strength of the wider region's health sector, according to the company.

World Health Organisation (WHO) data shows that sub-Saharan Africa accounts for more than 95% of global malaria cases and deaths. Children under five years old accounted for about 80% of all malaria deaths in the region. The region is also facing the task of mitigating the impacts of Covid-19 while addressing other public health challenges.

“We’re glad to be supported by IFC to localise pharmaceutical manufacturing and distribution in Africa,” said Wu Yifang, chairman of Fosun Pharma.

Since 2006, IFC has regularly provided financial and advisory support to Fosun Pharma, which is committed to ensuring the accessibility and affordability of pharmaceutical products and improving the healthcare supply chain resilience in the region, he said.

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