US inflation data dents interest rate cut prospect

Hopes that the Federal Reserve will be ready to begin cutting US interest rates by mid-year were dented as economic data released by the Bureau of Labor Statistics (BLS) suggested that America’s inflation is proving more resilient than anticipated.

The consumer price index (CPI) rose by 0.4% month-on-month (MoM) and 3.5% on the yearly figure in March, up from 3.2% in February and exceeding estimates of a rise to 3.4%. Underlying CPI, which excludes volatile items like food and energy, was above projections but remained unchanged compared to February’s data at 0.4% MoM – against an expected slight easing to 0.3% – and 3.8% year-on-year (YoY).

The data added to evidence that the US economy has cooled less than policymakers would like in the face of 23-year-high borrowing costs. Traders now believe the Federal Reserve will only reduce borrowing costs twice rather than three times this year, with the first cut delayed from September to November. 

Markets on both sides of the Atlantic fell sharply in response to the data. James Knightley, chief international economist at Dutch bank ING, said the monthly rate suggested “we are still running at double the pace we need to be at”, ruling out cuts before September at the earliest. 

The strength of the US economy could now mean that the European Central Bank (ECB) and the Bank of England (BoE) will instigate earlier and deeper interest rate reductions than the Fed.

“Markets are now pricing in just one or two rate cuts in the US this year - behind Fed projections from March," commented Hal Cook, senior investment analyst at financial services firm Hargreaves Lansdown. "Reminder: Markets were pricing in six or seven at the start of the year. This shift hasn’t done much damage to equities in recent months, and it still looks like the hope of cuts coming at some point is enough to keep bulls happy.

"The primary cause of the shift in expectations has been continued sticky price and wage inflation, both remaining higher than expected in the US. This makes it less likely that the Fed will cut soon, as was expected at the start of the year."

Meanwhile, the Bank of Canada held its policy rate steady for a sixth consecutive meeting, as officials signalled they are getting closer to rate cuts but still need more evidence of slowing inflation.

Policymakers led by Governor Tiff Macklem left the benchmark overnight rate unchanged at 5% ; a decision expected by both the markets and economists.

 

CHIPS marks migration to ISO 20222 messaging

CHIPS (Clearing House Interbank Payment System), the US’s first high value clearing and settlement system to adopt ISO 20022, successfully migrated to the new messaging format at the start of this week, clearing and settling 555,345 payments for a value of US$1.81 trillion on 8 April, the first day post-migration. said

In a release, The Clearing House (TCH) said that the adoption of the format enhances the efficiency of CHIPS’ payments processing.

It also enables participants and end-user customers to gain value from enriched data content like extended remittance information and lets users query structured message formats for multiple purposes, such as sanctions and compliance screening.

“These figures exceed expectations for volume and value for Day 1 and parallel a typical operating day on the CHIPS network,” TCH Chief Product Officer Margaret Weichert said in the release. “They reflect confidence in the performance of the CHIPS ISO 20022 platform and the promise that the new message format will deliver meaningful benefits to participants and customers.”

ISO 20222 offers various benefits to adoptees, such as richer and more structured data within financial messages compared to older standards. The increased data granularity enables better transparency, risk management, and regulatory compliance. It also facilitates more sophisticated analytics and reporting, leading to improved decision-making processes.”

It is also becoming mandatory for banks that want to use the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system, starting in November 2025.

All the same, some financial institutions have found migration problematic due to resource and time constraints, having initially assumed that the migration would be an easy technical exercise.

TCH’s announcement comes days after the organisation reported that CHIPS saved participants US$4.9 billion last year, with those derived from the system’s liquidity savings algorithm totalling around US$13.8 million per day.

“These savings are proving especially relevant following an unprecedented cycle of monetary tightening and rising interest rates,” TCH said in a news release.
 

World faces continued low growth unless productivity boosted, says IMF

Global economic growth will reach just 2.8% by 2030, a full percentage point below the historical average, unless major reforms are made to boost productivity and leverage technologies such as artificial intelligence (AI), according to the International Monetary Fund.

The IMF released a chapter of its forthcoming World Economic Outlook (WEO) that showed further declines in the global growth rate, which has slowed steadily since the 2008-09 global financial crisis.

“Without ambitious steps to enhance productivity, global growth is set to fall far below its historical average,” the IMF warned. Expectations of weak growth could discourage investment, possibly deepening the slowdown.

The global lender said the persistent low-growth scenario, combined with high interest rates, could also restrict governments’ ability to counter economic slowdowns and invest in social welfare or environmental initiatives.

“All this is exacerbated by strong headwinds from geoeconomic fragmentation, and harmful unilateral trade and industrial policies,” the IMF declared in a blog accompanying Chapter 3 of the WEO, to be released in full on 16 April.

A year ago, the IMF said it expected medium-term growth to hover around 3%. The new forecast reflects downward revisions for medium-term growth across all income groups and regions, most significantly in emerging market economies.

The IMF urged countries to take urgent action to counter the weakening growth outlook, warning that it worsened prospects for living standards and global poverty reduction.

“An entrenched low-growth environment, coupled with high interest rates, would threaten debt sustainability and could fuel social tension and hinder the green transition,” it said.

The IMF said a range of policies, including better allocation of capital and labour and tackling labour shortages in major economies with aging populations, could offer hope, The growth rate of the global labour supply would reach just 0.3% in 2030, less than a third of its average in the decade before the Covid-19 pandemic, it added.

However, its research showed modest gains could be won by increasing labor force participation, integrating more migrant workers into advanced economies, and optimising talent allocation in emerging markets.

 

Fitch downgrade for China outlook riles Beijing

Fitch Ratings has cut its outlook on China’s sovereign credit rating to negative, citing risks to public finances as the world’s second-biggest economy faces increasing uncertainty in its shift to new growth models.

The downgrade reflects “increasing risks to China’s public finance outlook” as the country attempts to move away from real estate-led growth, said the New York-based ratings agency.

Fitch, one of the “big three” ratings agencies along with Moody’s and Standard & Poor’s, said it expected the government deficit to rise to 7.1% of gross domestic product (GDP) in 2024, up from 5.8% last year. Government debt was forecast to rise to 61.3% of GDP this year, up from 56.1% in 2023.

The downgrade follows a similar move by Moody's in December and comes as Beijing ratchets up efforts to enliven a tepid post-Covid economic recovery with fiscal and monetary support.

“Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective,” the agency said.“Fitch believes that fiscal policy is increasingly likely to play an important role in supporting growth in the coming years which could keep debt on a steady upward trend.”

Fitch also pointed to liability risks in the future. “We view fiscal risks as higher than suggested by official government debt metrics, given perceptions that certain government-related entities carry implicit government support.

“However, judging from the results, the indicator system of Fitch’s sovereign credit rating methodology fails to effectively reflect, in a forward-looking manner, the positive effects of the fiscal policy of ‘moderately increasing the strength, improving the quality and efficiency’ on promoting economic growth and further stabilising the macro leverage ratio.”

China’s Finance Ministry denounced Fitch’s report, insisting that China’s deficit is at a moderate and reasonable level and risks are under control.

China’s fiscal policy in the long run will help maintain good sovereign credit by “keeping deficit at an appropriate size, utilising proceeds from debt issuance to expand domestic demand, and supporting economic growth”, the ministry said.

“The Chinese government has always insisted on taking into account the multiple objectives of supporting economic development, preventing fiscal risks and realising fiscal sustainability. It has made scientific and reasonable arrangements for the size of deficits according to changes in the situation and the needs and possibilities and has kept the deficit rate at a reasonable level.”

Fitch maintained China’s credit rating at A+, pointing to the country’s “large and diversified economy, still solid GDP growth prospects relative to peers, integral role in global goods trade, robust external finances, and reserve currency status of the yuan”.

 

Japan's GPIF and Dutch APG to partner on infrastructure investments

Dutch pension fund APG (All Pension Group) is collaborating with Japan’s Government Pension Investment Fund (GPIF) on a series of infrastructure investments.

GPIF is the largest pension fund in the world and the two funds manage a collective US$1.48 trillion of assets, although no figures were disclosed as to how much capital will be devoted to the new collaboration. APG, together with GPIF, will be investing “multibillion-euros into global infrastructure projects,” a spokesperson for the firm said in an email.

The joint programme will target infrastructure projects in developed markets and “investment opportunities that align with the long-term strategies” of the two funds.

The infrastructure mandate is managed in-house and APG will continue with that strategy. All investments will be managed by APG Infrastructure. Investments will be made in the large, high-profile global infrastructure projects that aim to advance digital connectivity, promoting the energy transition and spearheading decarbonisation efforts in transportation, the spokesperson added.

The alliance is also a further example of GPIF’s efforts to recruit more international partners and to actively manage more of its portfolio.

“GPIF has been increasing exposure to alternative investments [infrastructure, private equity, and real estate] in expectation of greater portfolio diversification, seeking to improve investment efficiency and further ensure the stability of pension finance,” said GPIF president Masataka Miyazono in a statement.

Infrastructure has become a popular investment target for various pension funds and sovereign wealth funds in the region. In February the Indonesian Investment Authority teamed up with Canada’s Manulife IM and Global Infrastructure Partners in two separate partnerships to invest in infrastructure development and real estate projects in Indonesia.

 

HSBC takes US$1 billion hit from Argentina exit

HSBC will take a US$1 billion loss as it offloads its business in Argentina at amid a battle to calm hyperinflation by Javier Milei, the country’s self-styled "anarrcho capitalist" president,

The group announced that it will sell HSBC Argentina to Grupo Financiero Galicia, the largest private lender in the country. The business comprises 100 branches across Argentina and 3,100 employees.

HSBC, which is selling the operation for US$550 million, will take a US$1 billion loss on the sale and book about US$5 billion of historical losses once the deal closes, which is expected within the next 12 months.

The bank said that its Argentine arm had started to create volatility in its financial results. In February it booked a US$500m charge for hyperinflation in the country after translating HSBC Argentina’s earnings in pesos into US dollars.

Since taking office in December, President Milei has devalued the Argentine peso by 54% amid an economic crisis in the country and has attempted to subdue inflation after it reached 140% last year.

Noel Quinn, chief executive of HSBC, said exiting Argentina would allow the bank to focus on better opportunities across its empire. “HSBC Argentina is largely a domestically focused business, with limited connectivity to the rest of our international network,” he added.

“Furthermore, given its size, it also generates substantial earnings volatility for the Group when its results are translated into US dollars. Galicia is better placed to invest in and grow the business.

“We remain committed to Mexico and the US, and to serving our international clients throughout our global network with our leading transaction banking capabilities.”

Earlier this month, reports suggested that HSBC had embarked on a review of its German businesses to assess the prospects for a potential part or full sale.

 

Africa’s CMA revamps cross-border payments over AML concerns

Countries in southern Africa’s Common Monetary Area (CMA) are changing how cross-border payments are processed, after the system triggered concerns over the potential for money laundering.

Starting September 2024, low-value cross-border payments in the CMA will be processed by regional infrastructure, said Emmanuel Letete, governor of the Central Bank of Lesotho.

 “Low-value cross-border payments within the Common Monetary Area have historically been processed through South Africa’s domestic retail payment system,” he said, adding that transition would be challenging but nonetheless smooth.

Meanwhile the Bank of Namibia has postponed the rollout of changes by the country’s banking sector regarding how clients make and receive payments between CMA countries Namibia, Eswatini, Lesotho and South Africa. Announced last month, the changes were scheduled to become effective from next Monday, 15 April.

“Following the latest directive issued by the Bank of Namibia, the implementation date for MA cross-border payments under PSD 9 has been extended,” banking group FNB Namibia said. “FNB Namibia shall align with the industry on this new date. Therefore, we will continue to facilitate low-value electronic fund transfer (EFT) payments and receipts between MA countries to FirstRand Bank Limited (FNB), ABSA Bank Limited, Standard Bank of Southern Africa Ltd, and Nedbank Limited until September 2024. More communication will follow in due course.”

According to FNB Namibia, the implementation of these changes will mean that all cross-border EFT payments processed and received by clients within the CMA will no longer be permitted through domestic payment methods and channels. Instead, they must be initiated as a Global Payment on the FNB App and FNB Online Banking platforms.

FNB Namibia said as part of the planned changes, global payments will only be made from a transactional account and not a credit card. Additionally, the Pay2Cell functionality, as well as the scheduled payments functionality, will be disabled for global payments for its clients.

The payment changes, according to FNB Namibia, are necessary to comply with regulatory requirements while also meeting modernisation expectations at both national and regional levels.

 

Watershed launches CSRD sustainability software

Climate solutions software provider Watershed is launching Watershed for CSRD, a new software solution aimed at helping companies to collect and manage data for disclosure under the Eurropean Union’s (EU) new Corporate Sustainability Reporting Directive (CSRD).

The CSRD, which began applying to some companies at the start of 2024, will significantly expand the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently, and introduce more detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk. Over time, the CSRD will also apply to many large non-EU based businesses that operate in the EU.

Watershed said that the new solution enables companies to collect, calculate, and manage the full set of ESG data required under the CSRD, covering over 1,100 data points. Key features of the new solution include guided workflows and project management tools aimed at streamlining collaboration across sustainability, finance, compliance, audit, IT, and supply chain teams, and an automated report builder to help identify data gaps or inaccuracies, and to track progress against CSRD standards. Watershed’s platform also includes data governance tools and allows access to be granted to external auditors

Launched in 2019, Watershed’s platform includes a climate database for granular emissions measurement, dedicated software tools for sustainability reporting and supply chain engagement, and a carbon removal and clean power marketplace. The launch of the new solution follows a US$100 million capital raise by Watershed in February, with the new funding aimed at supporting the company’s expansion and investments in emissions measurement, sustainability reporting and decarbonisation solutions.

Watershed co-founder Taylor Francis said: “2024 marks a new era of regulated climate disclosure. Under the CSRD, corporate climate reporting will go from voluntary and inconsistent to fully regulated and subject to the same high standards as financial reporting. Watershed for CSRD helps finance and compliance teams meet this new bar with confidence, while giving sustainability leaders the data they need to drive decarbonisation.”

 

PayDo adds embedded finance feature

PayDo, the London-based electronic money institution (EMI), announced that it will launch an embedded finance feature for SEPA, SEPA Instant, Faster Payments Service (FPS) and SWIFT transactions.

In a release, the company said: “Now more than ever, financial agility and global connectivity are crucial. PayDo’s shift to embedded finance is a game-changer for businesses and individual clients.

“PayDo aims to improve cross-border payments. It will do this by providing access to SEPA, SEPA Instant, and SWIFT transactions. Besides, PayDo’s clients will be able to embed such payments directly into their products via API. This will make transfers in euro and pound sterling faster and more reliable.”

PayDo added that key benefits of using an embedded finance feature for SEPA, SEPA Instant, and SWIFT are as follows:

• Access to SEPA and SWIFT networks via API. PayDo customers can utilise major payment networks via API, making transactions faster and more efficient.
• Expanded currency offerings. By adding euro and poundsSterling transactions, PayDo expands to serve a wider range of customers.
• Enhanced financial flexibility. PayDo Business Account holders gain great control over their international transactions and benefit from real-time processing and competitive rates.

“Starting this journey with embedded finance is a huge step for PayDo and our customers,” said its Head of Operations, Alexander Persidsky. “We integrate directly with SEPA and SWIFT. As a result, we’re not just adding services, we’re reshaping the approach toward global payments.”

 

Atto partners with FICO to build predictive models for UK credit risk

Software developer Atto, a specialist in credit risk solutions using transactional data, announced a strategic partnership with global analytics software develop FICO, for the UK market. “This partnership will enable UK lenders to easily integrate Open Banking data into the credit scoring process,” the company announced in a release.

“Atto and FICO are combining their expertise to deliver transaction-based scores that rank-order consumers’ risk by analysing up-to-date consumer-permissioned current account and tradeline transaction data. The combination of Atto’s Open Banking technology and FICO’s rich heritage in transaction data analytics can provide lenders with predictive models built on Open Banking data for more targeted risk decisioning. Both companies have extensive experience with Open Banking data; FICO has built scoring models using Open Banking data for other markets since 2018.”

Clare McCaffery, chief commercial officer (CCO) at Atto said: “We are excited to join forces with FICO to bring transaction-based predictive models to the forefront of the credit risk industry.

“Risk managers can leverage these scores informed by Open Banking transactional data, giving them a to-the-second view of their customers. We’re delighted to be pushing the world of credit risk forward alongside FICO.”