Strong pound affects 83% of UK corporates’ finances

More than four out of every five UK corporates (83%) have had their finances impacted by the stronger pound, according to a report from MillTechFX. While half of these companies saw positive outcomes, the other 50% experienced negative financial impacts, highlighting the intricate effects of currency fluctuations on business performance.

The MillTechFX UK Corporates CFO FX Report 2024 is the latest instalment of the firm’s global research series, gathering insights from 250 finance leaders at UK corporates to reveal their FX challenges and hedging strategies.

Rising costs are a key theme with most corporates (70%) reporting that FX hedging costs had risen over the past year, with smaller firms feeling the pressure more acutely (85%) compared to larger companies (59%). For those that don’t hedge, the main reason given was because it was too expensive (76%). In addition, two of the top three FX priorities for UK corporates this year are reducing costs (31%) and ensuring cost transparency (29%).

Despite the increase in hedging costs, over three-quarters (76%) of UK corporates hedge their forecastable currency risk, a slight increase from last year (75%). Among those not hedging, 68% are now considering it due to market conditions. The average hedge length has increased 47% to 5.55 months this year, up from 3.78 last year, indicating that firms are seeking longer-term protection and stability. Meanwhile, the average hedge ratio remains steady at 45%, the same as in 2023.

Global geopolitical tensions are adding to the uncertainty for corporates, with many bracing for increased volatility. Over half (53%) of respondents plan to extend their hedge durations in response to these growing concerns. FX fears surrounding the upcoming US election are also prominent, with the top three being counterparty risk in hedging transactions (40%), the impact of policy changes on currency values (37%), and unpredictable market movements (37%).

Other notable findings include a growing interest in FX options and AI. Finance leaders are diversifying their hedging strategies, with 64% now using FX options more frequently. All finance leaders polled (100%) are exploring artificial intelligence (AI) in some form.  Price discovery (34%), risk identification (30%) and trade execution (29%) are the key areas being explored for automation. Automating manual processes was corporates’ top priority (41%).

In less positive news, 94% of respondents reported that access to financing has become more difficult over the past year, while 79% noted rising interest rates and fees from their credit providers. And, despite advances in technology, manual processes are still proving sticky, as 34% of respondents still conduct financial transactions by phone, 32% via email, and 30% by sending or uploading files.

 

UK private sector growth slips to an 11-month low in October

October data pointed to a moderate increase in UK private sector output, but the rate of expansion slowed for the second month running, to its lowest since November 2023, according to the S&P flash Purchasing Managers’ Index (PMI) for the UK. Survey respondents widely commented on the impact of delayed decision-making among clients and heightened economic uncertainty in October. Employment was a particularly weak spot, with overall staffing numbers decreasing for the first time in 2024 to date.

Private sector firms indicated another robust rise in their average prices charged. Moreover, the rate of prices charged inflation edged up to a three-month high. Cost pressures receded again, as the latest increase in average input prices was the slowest since November 2020.

At 51.7 in October, the headline seasonally adjusted S&P Global Flash UK PMI Composite Output Index was down from 52.6 in September and the lowest for 11 months. The index signalled only a modest upturn in private sector output, with the rate of growth considerably slower than seen on average in the third quarter of 2024.

Service providers recorded a slightly faster pace of business activity expansion than manufacturing firms in October, but in each sector there was a loss of momentum since September. Anecdotal evidence cited business uncertainty ahead of the Autumn Budget on 30th October and concerns among clients about near term domestic economic growth prospects.

A wait-and-see approach to major spending decisions acted as a constraint on new business intakes during October. Although still solid, the overall rate of new order growth eased to its lowest since June. Resilient demand in the service economy contrasted with an outright decline in new work received by manufacturing firms. Latest data also pointed to divergent export sales trends, with service providers signalling the fastest growth since March 2023, whereas goods producers indicated the sharpest decline in new work from abroad for eight months.

Backlogs of work decreased again in October, suggesting a lack of pressure on business capacity. Lower volumes of unfinished work have been recorded throughout the past one-and-a-half years. Excess capacity, cost pressures and general concerns about the business outlook all acted as a brake on staff hiring in October. Total private sector employment decreased for the first time since December 2023, albeit only marginally. This was led by the sharpest reduction in service sector workforce numbers for 13 months.

The latest survey indicated a strong increase in average cost burdens across the private sector economy, but the rate of inflation eased to its lowest for 47 months. Survey respondents noted decreased fuel costs and some instances of falling commodity prices. Where higher input costs were reported, this mostly reflected increased salary payments and rising prices paid for technology services. Businesses once again sought to alleviate pressure on margins by increasing their average prices charged. The latest survey indicated a robust rise in output charges, with the rate of inflation the highest since July.

Survey respondents meanwhile signalled a downturn in their business activity expectations for the year ahead. Optimism has now softened for three months in a row and the overall degree of confidence was the lowest since November 2023. Weaker growth projections were seen in both the manufacturing and service sectors in October, with the former signalling the least upbeat sentiment for almost two years. Growth expectations were typically linked to planned business investment, hopes of a gradual improvement in economic conditions and forthcoming new product launches. However, survey respondents also widely suggested that heightened political uncertainty at home and abroad had weighed on business confidence.

 

AI patents at BofA increase 94% since 2022

Bank of America (BofA) has reported a 94% increase in artificial intelligence (AI) and machine learning (ML) granted patents and pending patent applications since 2022. Today, the company has nearly 1,100 AI and ML patents and pending applications in its portfolio, with more than half having already been granted. 

Overall, the bank holds nearly 7,000 granted patents and pending patent applications, and the most granted patents of any financial services company. This is thanks to the creativity of its more than 7,500 talented inventors based in 14 countries and 42 US states and a culture that empowers teammates to explore and develop innovative solutions for individuals and businesses around the world.

In addition to AI and ML, other technology categories in which new patents have been granted to BofA this year include information security, online and mobile banking, payments, data analytics, and augmented and virtual reality.

The bank says it spends over $12bn annually on technology, of which approximately $4bn will be directed to new technology initiatives in 2024. These ongoing investments continue to enhance client experiences and to drive operational efficiencies.

CashPro Chat is one example of how the bank deploys AI to assist its clients. CashPro is a digital banking platform used by 40,000 corporate and commercial clients around the world to manage their treasury operations. As the platform’s virtual service advisor, CashPro Chat uses the same AI and machine learning capabilities powering Erica, the bank’s virtual financial assistant. It helps clients view transactions, find information about accounts, and more. The questions CashPro Chat can assist with have doubled since its launch last year, and the capability now includes “intelligent advisor routing” – an AI-enabled feature that can recognise complex requests and routes clients to a live specialist with expertise in that area when needed and with a single click.

Another example is Bank of America Intelligent Receivables, a reconciliation solution that uses AI and data capture technology to bring together payment information and associated remittance detail from various payment channels, offering greater efficiency and insights to companies and their customers. Intelligent Receivables matches payments to outstanding invoices, reducing the time and costs associated with manual processing while speeding up reconciliation to enable new sales. The system, delivered in collaboration with a third party, also uses AI to learn customer patterns and behaviours to improve the accuracy of remittance data over time.

 

US sees robust output and sales growth in October

October’s flash US PMI survey signalled a further solid rise in business activity to mark a robust start to the fourth quarter. Growth was driven solely by the service sector, however, as manufacturing output contracted for a third month running. Meanwhile, employment fell slightly for a third successive month amid uncertainty ahead of the Presidential Election.

Confidence in the outlook over the coming year meanwhile recovered after a steep decline in September, as companies anticipated greater stability and certainty post-election.

The October survey also recorded slower rates of inflation for input costs and prices charged, the latter falling especially sharply to the lowest since May 2020 linked to a particular marked cooling of service sector inflation.

The headline S&P Global Flash US PMI Composite Output Index registered 54.3 in October, up from 54.0 in September, to signal a sustained solid expansion of business activity at the start of the fourth quarter. The latest reading was only marginally below the average recorded over the latest six months, which has witnessed a sustained period of steady robust growth. New orders for goods and services also rose at the sharpest rate for 17 months, reflecting higher sales and stronger demand.

By sector, growth remained uneven in October, characterised by strong service sector growth contrasting with falling manufacturing output. Service sector activity (output) grew at a marginally increased pace at the start of the fourth quarter, the latest expansion having been exceeded only once over the past two-and-a-half years by that recorded in August. The improvement was driven by the largest rise in new business into the service sector since April 2022, in turn, fuelled by rising domestic demand, which offset a marginal fall in export orders for services.

Manufacturing output meanwhile fell for a third successive month in October, albeit the rate of decline moderating to the slowest recorded over this period. However, while new orders also fell at a reduced rate, the rate of loss of orders remained steep, with weaker than anticipated sales also often having caused an unplanned rise in unsold stock levels. Inventories of finished goods consequently rose for a fourth successive month, keeping the forward-looking orders-to-inventory ratio at one of the lowest levels seen since the global financial crisis to signal further near-term production weakness.

Looking further ahead, having slumped to a 23-month low in September, optimism about output in the coming year rebounded sharply in October, hitting a 29-month high. The shift in sentiment underscores the unusual volatility of the current business and political environment as the US Presidential Election nears. The boost to confidence in October was often a reflection of hopes that paused spending and deferred decisions ahead of the election will lift once the political situation is clarified. Prospects of lower inflation, lower interest rates and stronger economic growth in 2025 also helped instil greater confidence. Future optimism struck a 16-month high in the service sector and a nine-month high in manufacturing.

 

Emirates NBD seeks to redefine cross border payments in Partior partnership

Emirates NBD has entered into a strategic agreement with Partior to explore participation in their blockchain-based platform for clearing and settlement. The goal of the collaboration is to offer the bank’s clients 24x7 availability, and faster, more seamless payment flows.

As part of the partnership, Emirates NBD will join the Partior network, becoming the first regional and UAE Dirham, Saudi Riyal and Indian Rupee settlement bank on the platform. In addition, Emirates is looking to serve as a participating bank for major foreign currencies, in a move designed to bolster its client offerings to provide real-time payments.

Launched in 2021, Partior is backed by DBS Bank, J.P. Morgan, Standard Chartered, Temasek, and Peak XV. The platform has pioneered the development of a blockchain-based unified ledger for payments, enabling real-time clearing and settlement for instant liquidity and transparency and overcoming challenges commonly associated with sequential processing in legacy payment systems.

Emirates NBD is also evaluating an equity investment in Partior, a move that would represent a strategic alignment within the financial ecosystem aimed at redefining the future of global value exchange. By integrating with the blockchain-based unified ledger platform, the bank should enhance transparency, efficiency, and security in global payments and settlement processes.

 

M&G launches sustainable bond strategy

M&G has announced the launch of its first sustainable corporate bond strategy in collaboration with responsAbility, the Swiss-based asset manager acquired by M&G in 2022. The M&G (Lux) responsAbility Sustainable Solutions Bond Fund, classified as Article 9 under SFDR, has been designed following active engagement with institutional and wholesale investors seeking sustainable active fixed income strategies.

Leveraging on M&G’s credit expertise and responsAbility’s record on impact and sustainable investing, the team will follow a credit strategy to construct a diversified portfolio of actively selected global investment grade bonds driving positive change in six distinctive areas: better health, better work and education, social inclusion, circular economy, environmental solutions and climate action. Investments will be mapped to the UN Sustainable Development Goals (SDGs) according to their contributions and bonds in the portfolio will either be:

• Project financing bonds: ESG bonds funding a specific project targeting either environmental (green bonds) or social outcomes (social bonds), or a combination of both (sustainability bonds).
• Solution provider businesses: Bonds issued by companies that actively address problems linked to environmental or social challenges through the core products and services they offer.

Ten years after the first corporate green bond was issued in 2013, the ESG bond market today presents investors with a growing universe of green, social and sustainability bonds. In the first three quarters of 2024, global ESG corporate bond issuance reached $306 billion, accounting for 23% of the current total corporate supply in the European investment grade space.