Sweden’s economy continues to shrink

Winter has come early for Sweden’s economy this year, and it is expected to cool down even more as rising interest rates and high inflation continue to weigh on households’ purchasing power. The Riksbank will raise the policy rate one more time in the current cycle, but policy rate cuts are expected next year, according to the Swedbank Economic Outlook.

“Households continue to hold back on spending, and this is expected to weigh on GDP for some time to come,” commented Mattias Persson, Group Chief Economist, Swedbank. “At the same time, housing construction is at a standstill and housing investments will fall further in the future. We also expect significantly more subdued export growth against the backdrop of weak prospects in Europe and the United States.”

The Swedish economy is expected to shrink this year and next, with significantly weaker development than in other European countries. For 2023, Swedbank forecasts that Sweden’s GDP will shrink by 0.5%, which is a slightly better development compared to Swedbank’s previous forecast, issued in August. For 2024, its forecast is fundamentally unchanged; the economy is expected to contract by 0.4%. A clear recovery will not occur until 2025, with growth of 2.0%.

On the Swedish housing market, the cooling trend continues. Mortgage rates are rising simultaneously as many newly produced homes are still being completed, contributing to the record number of unsold homes. At the same time, it is becoming increasingly evident that the Swedish labour market is weakening. The number of temporary workers has decreased since mid-2022, indicating that overall employment will soon decline. Swedbank expects unemployment to peak at 8.5% in 2024; however, there is a risk that the labour market will weaken even more if the public sector experiences pressure to make significant staff cutbacks. However, the resilience of the labour market will vary, given that demand differs between industries. 

Inflation has continued to fall during the year, although high inflation is expected to linger a little longer in Sweden. The downturn in inflation can mainly be explained by declining electricity prices, but also by the normalisation of underlying price pressure. Swedbank expects CPIF inflation to continue to fall, approaching 2% in the summer of 2024 and then falling below the 2025 inflation target.

“Given the high inflation and the weak Swedish krona, the Riksbank will continue to tighten its monetary policy during the winter,” added Persson. “We expect the policy rate to be raised by 25 points in November, to 4.25 per cent. In June next year, a series of policy rate cuts will begin, and the policy rate will eventually fall to 2.5 per cent by the end of 2025.” 

 

US headline inflation softens

US annual headline CPI inflation came in at 3.2% for October against expectations of 3.3%. That is a retreat from the 3.7% recorded in September. On a monthly basis, CPI was unchanged in October, compared to an increase of 0.4% in September.

The core figure, which excludes volatile food and energy prices, came in at an annual 4.0% (consensus 4.1%), compared to 4.1% in September.  In monthly terms, core CPI increased 0.2% (consensus 0.3%), which compares to 0.3% in September.

Declining global oil prices meant gasoline prices fell 5% over the month and were the biggest drag on headline CPI inflation. Used car prices, a key driver as recently as May this year, continued their deflationary contribution, as -0.8% on the month. Overall shelter cost inflation came back down to 0.3% on the month from the higher print last month of 0.6%, which had concerned markets.

“Only eight among 65 forecasters in Bloomberg’s survey anticipated core monthly CPI as low as 0.2%,” commented David Goebel, Associate Director of Investment Strategy at Evelyn Partners. “The Fed will be pleased but aware that one lower inflation print does not mean they should pivot to a more dovish stance. We think the ‘higher-for-longer’ bias will be maintained for the time being.

“That said, markets are not now anticipating any further interest rate increases from the central bank and the committee are likely to continue their 'wait and see' attitude about any further increases. Both the Fed and investors will be paying close attention to potential continued softening in the labour market.”

 

Investors think SEC US Treasury reforms go too far

The SEC has proposed a series of notable changes to the market structure for trading US Treasuries to clear up opaque transparency and enhance liquidity during times of stress. Most prominently, the agency has proposed or discussed a clearing mandate, registration requirements for nonbank market makers and more stringent registration requirements for electronic trading venues.

However, 85% of buy-side traders across North America, Europe and Asia interviewed in a research study from Coalition Greenwich do not believe the market needs sweeping change. Study findings reveal that more than half of the US Treasury traders interviewed think the market does not require significant change, while one-third feel only minor adjustments are needed.

“Market participants are not against market reform, but the majority are convinced the current proposals have gone too far or miss the mark of the SEC’s stated intentions of improving U.S. Treasury transparency and liquidity,” said Kevin McPartland, Head of Research at Coalition Greenwich Market Structure & Technology and author of U.S. Treasury Market Reform: The Buy-Side View.

Central clearing is arguably the most impactful recent proposal from the SEC. In late 2021, 14 of the 18 US Treasury traders Coalition Greenwich spoke with did not believe the SEC should mandate clearing. That sentiment remains essentially unchanged today.

So, what reforms do traders support? Nearly half of the study participants suggest that banks should be encouraged to hold more US Treasuries to support their market-making businesses via lower capital charges on those holdings. In addition, requiring all U.S. Treasuries to be traded electronically - something never formally proposed by regulators - was surprisingly high on the list of improvements endorsed by study participants.

“Continuously working to improve the market structure for US Treasury trading is prudent, but that process must include cost-benefit analyses to ensure the time spent yields the needed results,” added McPartland.

 

Citizens expands digital solutions for business banking customers

Citizens has launched Cash Flow Essentials, an online and mobile cash management platform, and Digital Invoicing, a solution designed to allow small businesses to enhance their cash flow quickly and securely within the bank’s online banking platform. These expanded capabilities aim to allow customers to easily manage the movement of cash into and out of their accounts.

The Cash Flow Essentials platform provides access to real-time information, seamless payment functionality and practical tools to help customers meet daily cash flow requirements. Payment options include Real-Time Payments, domestic ACH payments, domestic and international wire transfers and unlimited mobile cheque deposits.

With Digital Invoicing for Small Business, Citizens customers no longer need to wait for cheques to clear because payments are sent directly to eligible checking accounts, typically within two business days. Small business customers can now accept credit card and electronic payments that directly settle in their Citizens checking account, improving cash flow and liquidity. Customers can sign up for digital invoicing in online banking at no cost. There is a fee only when a business's customer makes an electronic payment.

 

Modern Treasury announces instant microdeposits with RTP and FedNow

Modern Treasury has launched instant microdeposits using FedNow and RTP to let customers verify bank accounts instantly and 24x7. The traditional method of account verification using ACH microdeposits often involves waiting days for small deposits to appear in a customer's bank account, leading to delays in accessing funds or services. It doesn’t work on weekends and has to adhere to the bank’s ACH processing windows.

With FedNow and RTP, this once time-consuming process becomes real-time - instantly verifying bank account information, 24x7. Instant microdeposits work for both B2C and B2B account verifications. 

Instant microdeposits use a combination of FedNow, RTP, and ACH. The payments are sent via FedNow or RTP, and are recovered automatically via ACH debit. Payments are automatically routed between FedNow and RTP, depending on what rail is supported at the counterparty’s bank. Modern Treasury then automatically reconciles the transactions when completed.

The firm says the new service will enhance customer experience as businesses can onboard customers faster. They won’t need to wait several days to access the product or remember to check their account when the microdeposits arrive. It should also enable customers to complete the sign-up or checkout process quickly, thereby lowering drop off rates. The service also aims to strengthen supplier relationships and build trust by verifying account details promptly and efficiently. By ensuring that accounts payable and receivable processes run smoothly with rapid verification it could reduce delays and optimise cash flow.

 

UK small business owners unable to pay themselves due to cash flow issues

Ongoing economic challenges have caused two in five (41%) small business owners to sacrifice their salaries and one in three (34%) to use their personal funds to keep their businesses running, according to global small business platform Xero research. The Money Matters report found that economic fragility is causing half (50%) of small business owners to worry about their financial futures. Almost three-quarters (72%) of small business owners admitted experiencing cash flow issues in the past 12 months, with one in 10 experiencing significant difficulties.

The financial impact of these cash flow issues is clear; the findings show that a quarter (24%) of small business owners cannot pay company bills and overheads, and 18% experience stalled revenue. However, the effects also trickle down to the personal lives of owners and operators. Of those who have felt a negative impact from cash flow issues, eight out of ten small business owners are affected by stress (82%) and anxiety (80%), while almost two-thirds have trouble sleeping (60%). Similarly, the toll of these financial obligations is reflected in 35% reporting a worsening diet and 29% saying they miss out on time with family and friends.

Unsurprisingly, inflationary pressures have made managing cash flow a priority for many (62%) small businesses in the UK. The report also revealed that 56% of small businesses have raised prices in the last year. Other strategies used to overcome cash flow constraints and stimulate revenue include reducing overheads (35%) and reducing marketing spend (28%).

Despite the perceived importance of managing cash flow, most small businesses are not using digital tools to help this process. Only 24% of respondents currently use accounting software to track payments, and just 8% use cash flow forecasting tools to help them predict and plan for future financial shortfalls. Half (51%) of small business owners attribute inertia around digital tools to a lack of relevance. In comparison, a quarter prefer to manage payments using traditional methods (26%) or don’t think enough of their customers use digital payment methods to make adoption worthwhile (25%).

 

Banking Circle to explore tokenised deposit innovations with Ant Group

Banking Circle has announced a partnership with Ant Group to work on a liquidity management project, exploring technology innovations on tokenised deposits, which will improve the efficiency and speed of global fund settlements.

Banking Circle infrastructure and the blockchain platform developed by Ant Group will be leveraged to issue and distribute the tokenised deposits. The blockchain platform can facilitate cross-border payments and liquidity management more efficiently.

Alongside the liquidity management benefits, the structure is Web3 compatible and provides further opportunities for cost-saving with FX and additional currencies to follow shortly.

“We are glad to partner with Banking Circle on technology innovations for tokenisation, which is aimed at improving the efficiency of liquidity and corporate treasury management, and facilitate the development of scalable and sustainable fintech solutions,” said Kelvin Li, Head of Global Fund Platform of International Business Group at Ant Group.

BNP Paribas and Goldman Sachs lead Fnality's £77.7m Series B funding round

Blockchain technology fintech Fnality has announced a £77.7m Series B funding round led by Goldman Sachs and BNP Paribas, with participation from DTCC, Euroclear, Nomura and WisdomTree. There were also additional investments from Series A investors Banco Santander, BNY Mellon, Barclays, CIBC, Commerzbank, ING, Lloyds Banking Group, Nasdaq Ventures, State Street, Sumitomo Mitsui Banking Corporation, and UBS.

The culmination of this latest round brings Fnality's total capital raised to £132.7m as it readies for the commencement of initial Sterling Fnality Payment System (£FnPS) operations in 2023, subject to regulatory approval.

Fnality’s latest funding will be used to continue progress towards establishing a global liquidity management ecosystem for new digital payment models in wholesale financial markets and emerging tokenised asset markets. The goal is to reach milestones like FnPS launching in key currencies, including USD, robust ecosystem and network growth, and a suite of use cases designed to transform payments, settlement, and collateral management in global markets.

Several proofs of concept have demonstrated many of these capabilities, including for real-time settlement of tokenised securities, real-time cross-border FX swaps, and real-time repo transactions, each of which evidences the potential inherent in leveraging distributed ledger technology (DLT) to facilitate traditional financial activity and achieve faster, safer and more efficient exchange of value in global wholesale markets.

“Fnality’s solution is a key enabler for the digital asset ecosystem and the company is well-positioned to be at the forefront of payment innovations and institutional adoption of DLT,” commented Mathew McDermott, Global Head of Digital Assets at Goldman Sachs. “Fnality’s application of blockchain technology offers a resilient way for institutions to use central bank funds across a wide set of potential use cases, including instantaneous, cross-border, cross-currency payments, collateral mobility, and security transactions.”

 

Tranch unveils B2B payments tool for enterprises

B2B payments platform Tranch has rolled out its expanded product to enterprise clients across the US. The Tranch checkout platform is tailored for the software and services industry with a suite of payment options, including its Pay Now, Pay by Card and Pay Later products.

Enterprise clients, including law firms Paul Hastings, Wilson Sonsoni, and Gunderson Dettmer, can now use Tranch’s secure payment experiences for their clients.

With the firm’s technology, clients can use Pay Now, which integrates with the Real-Time Payment Network and FedNow to accelerate transactions through authenticated payments. Through Pay Later, Tranch has enabled its client’s customers to pay flexibly over 2 to 12 months up to US$500,000. To date, Tranch says it has extended payment terms by 100 years, improving the working capital for enterprise CFOs and their customers.

 

Lightyear connects with the IBEX 35 to offer Spanish stocks to investors

Investment platform Lightyear has connected with the Madrid and Barcelona stock exchanges via the IBEX35 to give Spanish investors low-cost access to 35 local stocks. New listed instruments include the likes of Caixabank, Banco Santander, Melia hotels and Repsol. 

While stocks on the IBEX 35 are some of Spain’s biggest exports and local favourites, a number of them are also globally recognised brands; Telefonica is a parent company for Movistar and O2, two of Europe's biggest network providers for mobile phones, and Inditex (Spain’s largest stock by market cap) owns eight global home and clothing brands including Zara, Bershka and Massimo Dutti.

“We’re seeing more and more Spanish investors fighting inflation by moving idle cash from banks and investing in financial instruments such as stocks and funds to diversify their portfolios,” said Álvaro Quesada Vargas, Head of Growth at Lightyear. “However, still too few Spaniards invest, not least because of the fragmented offers by current brokers in the market, for example with time-limited and capped interest offers. We aim to change that.”