Pressure on gas prices hits euro and pound – Industry roundup: 5 September

Gas price shock stokes fears of European recession

Concerns that spiralling natural gas prices will trigger a recession in Europe this winter has pushed the euro to under 99 cents against the US dollar: its lowest mark for more than 20 years. The single currency began the week trading at US$0.9880, while the pound dropped to US$1.145.

Early trading on Monday saw European gas prices rise by up to 30%, with the Dutch Title Transfer Facility (TTF) October contract at €272 per megawatt hour (MWh) when the market opened before easing to €256, up 23% on the day but almost 400% higher than a year ago.

Gas prices had begun to ease last week on hopes that Europe could manage without power shortages this winter, until Russia’s state-controlled gas supplier Gazprom announced an indefinite extension to a three-day shutdown of the Nord Stream 1 pipeline.

Gazprom claimed that an oil leak had been discovered and the pipeline cannot work without German imports of technology, which are now subject to sanctions. However, its announcement came hours after G7 finance ministers discussed plans to impose a price cap on Russian oil.

Germany’s chancellor Olaf Scholz said that his government has prepared for a total halt in gas deliveries in December, and promising measures to lower prices and tie social benefits to inflation. “Russia is no longer a reliable energy partner,” Scholz told a news conference in Berlin

Commenting at the weekend on Gazprom’s action Paolo Gentiloni, the European Union’s (EU) economics commissioner said: “We expect Russia to respect the contracts that they have but even if the weaponisation of energy will continue or will increase in response to our decisions, I think that the European Union is ready to react.

“Of course, we have to save energy, we have to share energy, we have [a] high level of storage and we are not afraid of Putin’s decisions.” The EU has already urged its members to voluntarily reduce their gas consumption by 15% over the months ahead in a bid to eke out supplies.

France has launched its biggest energy conservation effort since the 1970s oil crisis. President Emmanuel Macron’s government is calling on the French to prepare for a new era of energy “sobriety” to face the challenge of the coming winter months, while reassuring households and businesses about the government’s ability to protect them.

UK foreign minister Liz Truss said over the weekend she would set out immediate action to tackle rising energy bills and increase energy supplies if, as expected, she is confirmed as Britain’s next prime minister.

China’s challenge to US economic dominance meets a setback

Pre-pandemic forecasts that China’s gross domestic product would overtake that of the US by 2030 have been adjusted following a sharp slowdown in growth – due largely to Beijing’s zero tolerance policy to Covid-19 and efforts to restrict real estate speculators.

The Wall Street Journal reports that as economists pare back their forecasts for 2022, they have become more pessimistic about China’s longer-term prospects, with unfavourable demographics and high debt levels potentially weighing on any rebound.

In late 2020, UK-based think tank the Centre for Economics and Business Research (CEBR) said China’s “skilful” management of Covid-19 would boost its relative growth compared to the US and Europe over the decade ahead. It predicted that China would overtake the US to become the world’s leading economy by 2028, five years earlier than previously forecast, and that India would have moved up to third position by 2030. However, the CEBR now thinks that China will take at least a further two years to attain the lead and it won’t happen before the 2030s gets underway.

Last month, as it announced a new 19-point policy package to add a further one trillion yuan (CNY) (US$146 billion) worth of stimulus spending, the State Council, China’s cabinet, admitted that “marginal fluctuations still remain, and the foundation of an economic recovery is not solid” in the country.

The Japan Center of Economic Research (JCER) has also had a rethink – it had set 2028-29 for the US economy to slip down to second position below China but last December said it now believes that America will not be usurped by China earlier that 2033. The JCER is also more bullish on Korea, stating that its productivity is so strong that by 2027 it will move ahead of Japan in terms of GDP per capita by 2027.

Some analysts even suggest that China has undermined its chances of heading the global economic league at any time in the foreseeable future. Former US Treasury Secretary Lawrence Summers believes that China’s ageing populations and Beijing’s increasing tendency to intervene in business issues are among several factors undermining its economic growth capacity.

Summers points out that both Japan and Russia were once regarded as prime contenders for overtaking the US, but these predictions have subsequently lost credibility.

Economists at JPMorgan Chase have also become more pessimistic. “The worrisome news is that China has become increasingly similar to Japan in the late 1980s,” wrote its team led by Zhu Haibin, in a note last month. Among the reasons cited for its concerns:

• China’s household debt grew to 62% of GDP last year from 28% a decade earlier. That compares with Japan’s experience of the figure climbing to 60% in 1989 at the height of its own economic boom from about 26% in 1971
• China's corporate debt has remained high, at around 160% of GDP — above the 145% peak in Japan in the mid-1990s
• China’s demographics are changing even more rapidly than Japan’s, with population growth slowing and the problem of a growing elderly population that surpassed that of Japan at a similar development stage

Cardano’s upgrade date confirmed as 22 September

Input-Output Hong Kong (IOHK), developer the Cardano (ADA) public blockchain platform, has confirmed the release date of the Vasil hard fork as 22 September, after the launch had to be put back from the original late-July schedule.

The company said that it was able to officially announce the date after performing “extensive testing” of all core components. The Vasil upgrade was originally scheduled to take place over the summer but was postponed several times due to technical difficulties.

Input Output describes the Vasil hard fork as the “most significant” upgrade to date since it will substantially enhance the network's capacity. Cardano developers will also be able to build more sophisticated decentralised applications. Ethereum co-founder Charles Hoskinson originally set up ADA Cardano in 2015.

Vasil will be supported by major cryptocurrency exchanges, and according to Input Output, most have already started upgrading their nodes to support the latest hard fork. The firm expects “a seamless technical transition, with no disruption for its users or a break in block production.”

The hard fork takes its name from the late Bulgarian mathematician Vasil Dabov, who was a supporter of Cardano.

Amazon launches service to address supply chain challenges

Amazon has announced a new service that will grant sellers access to its massive warehousing and distribution network. It will help its sellers store bulk inventory and ease distribution to tackle supply-chain issues, the company said in a blog post.

The new service, called Amazon Warehousing and Distribution (AWD), marks its latest venture into logistics and is available for sellers using Amazon's program, which allows businesses to outsource order fulfilment to the company.

Sellers can use the pay-as-you-go service to store and distribute their inventory within Amazon's fulfilment network. In 2023, Amazon will expand AWD to off-Amazon destinations as well.

“Amazon Warehousing and Distribution addresses critical supply chain challenges and helps sellers grow and manage their business while significantly cutting costs,” wrote Gopal Pillai, vice president of Amazon Distribution and Fulfilment Solutions, in the blog post, without adding further details.

Indian anti-money laundering agency searches online payment companies

India’s anti-money laundering agency has searched the premises of online payment companies including Razorpay, Cashfree Payments and Paytm Payment Services as part of a probe into a Chinese loan app.

The Enforcement Directorate conducted the search operations in the tech hub Bengaluru after allegations of extortion and harassment of customers involving the Chinese app, according to a statement from the investigation agency.

“During inquiries, it has emerged that these entities are controlled/operated by Chinese persons,” it said. According to the Directorate they forged documents of Indians, making them “dummy directors” of the companies that were generating proceeds of crime through merchant accounts held with payment gateways and banks, the investigating agency said, adding it has seized 170 million rupees (INR) (US$2.13 million).

 Razorpay said some of its merchants were investigated by law enforcement about 18 months ago. “As part of the ongoing investigation, the authorities requested additional information to help with the investigation,” the company said, adding that it fully cooperated. “The authorities were satisfied by our due diligence process.”

A Paytm spokesperson said that it is cooperating with authorities, who are investigating a specific set of merchants. “The authorities reached out to us with directions to provide certain information about these merchants under scrutiny, to which we promptly responded.”

Moneycorp continues Europe expansion with Paris office

Global payments and foreign exchange (FX) provider Moneycorp announced via a press release that it is continuing its European expansion with the opening of a new office in Paris.

The new office will serve as the headquarters for Moneycorp France, which will be headed by Cyril Leger, a treasury and FX specialist who has worked in both the fintech and banking sectors. He will initially lead a team of six, with plans to quadruple the headcount over the coming year

“Moneycorp is strongly positioned for sustainable growth, and we’re very pleased to be expanding our physical presence in Europe with the opening of our French branch,” said Bryan McSharry, CEO of Moneycorp Technologies. “Our platform offers French companies robust and secure payment solutions, alongside a dedication to personal service that Moneycorp has prided itself on for over 40 years.”

The company was launched in London in 1979 as a traditional FX business, subsequently developing financial technology for the FX and cross-border payments market. Since its acquisition by private equity group Bridgepoint in 2014, Moneycorp has expanded its global footprint, obtaining Money Service Business licences in Spain, Romania and the US.

Moneycorp has also been awarded banking licences in Brazil and Gibraltar, creating Moneycorp Banco de Cambio and Moneycorp Bank, respectively. In 2020, the company obtained a Money Service Business licence in Canada and opened a Toronto office.

Container shipping rates heading for downturn, says HSBC

After two years of substantial increases, a downturn in container shipping rates is unavoidable and by 2023-24 profits will be 80% lower, driven by overcapacity according to forecasts in an HSBC Global Research report.

The good news is that HSBC does not believe the sector will return to losses, which regularly characterised it over two decades before the Covid-19-pandemic, says Parash Jain, its Head of Shipping, Ports and Asia Transport Research.

“There are signs that spot rates could fall to pre-pandemic levels swiftly on the widening demand-supply gap (as seen in the Baltic Dry Index (BDI)), but we maintain that contract rates should settle above their pre-pandemic levels and that capacity discipline will keep spot rates from lingering at trough levels,” Jain said.

He said profits are set to fall from their peak expected for 2022 but would still be better in the past. The largest public-listed container line AP Moller – Maersk has forecast EBITDA of US$37 billion for this year.

The fall in rates from current levels will be driven by a mismatch between container growth and the supply of new vessels. HSBC projects global container trade will decline by 2% in 2022 and 3% in 2023 before recovering by 2.5% in 2024. By contrast vessel capacity will increase by 6.2% in 2022, and 6.5% and 8% in 2023 and 2024 respectively

HSBC expects the sector to bottom out in 2024, noting its forecasts were well below consensus for 2023-24. Despite forecasting lower profits, it has maintained a ‘buy’ recommendation on two container shipping stocks -  Maersk and SITC International.

Rabobank Australia and New Zealand signs deal with nCino

Cloud banking and digital transformation solutions nCino announced that Rabobank Australia and New Zealand (RANZ) has selected the nCino Bank Operating System, leveraging nCino’s automated spreading solution, powered by nCino IQ (nIQ). It said that the partnership will benefit the bank’s Australian and New Zealand employees and customers, representing a multi-currency, cross-country commitment to provide a better banking experience.

As a major specialist food and agribusiness bank, Rabobank is one of Australia and New Zealand’s largest agricultural lenders and a major provider of business and corporate banking services to their food and agribusiness sectors.

By adopting the nCino Bank Operating System, RANZ “gains a digital solution that intelligently transforms the process of spreading financials by leveraging machine learning and optical character recognition (OCR),” the release added. RANZ will be able to reduce the time it takes to spread and process documents by a significant margin, enabling profitable portfolio growth by improving the speed and quality of credit decisions

In separate news, Rabobank announced the successful closing of a US$225 million senior secured credit facility for Sucro Can Sourcing, a “highly integrated sugar refiner operating primarily in North America,”

The revolving credit facility, which initially launched at US$175 million was considerably oversubscribed with strong demand from new and existing institutions. The US$225 million revolving credit facility was led by Rabobank as the sole lead arranger, sole bookrunner, and administrative agent. A total of eight lenders participated in the transaction, including Macquarie Bank and Valley National Bank as Syndication Agents. Proceeds from the facility will be used for general working capital purposes.