US inflation data primes markets for September rate cut

The latest US Consumer Price Index (CPI) showed that headline inflation rose 3.0% for the 12 months ending June versus a consensus expectation of 3.1%. It was a smaller increase than the 3.3% increase for the 12 months ending May. Core CPI rose 3.3% over the last 12 months, the smallest 12-month increase in that index since April 2021.

Notable contributing factors in the latest inflation data include the index for gasoline falling 3.8% in June after declining 3.6% in May, more than offsetting an increase in shelter. The energy index fell 2.0% over the month, as it did the preceding month. The index for food increased 0.2% in June. The food away from home index rose 0.4% over the month, while the food at home index increased 0.1%. 

Daniel Casali, Chief Investment Strategist at wealth manager Evelyn Partners, commented: “Given this benign inflationary backdrop, the Fed could well cut interest rates by a quarter point at its 18 September FOMC, as now expected by the Fed Futures market. There is even the potential for the Fed to cut interest rates sooner, possibly at its 31 July FOMC.”

Reflecting on different data point, Ryan Brandham, Head of Global Capital Markets, North America at Validus Risk Management, noted: “US Initial Jobless Claims were slightly stronger than expected as the US Labour market softens only at a gradual pace. On its own, this would suggest caution against cutting rates in September, but today it will most likely be overshadowed by the CPI number.”

 

UK GDP ticked up in May

According to the Office for National Statistics, the UK's monthly real gross domestic product (GDP) was estimated to have grown by 0.4% in May 2024 after showing no growth in April 2024.

In the three months to May, GDP is estimated to have grown by 0.9% compared with the three months to February 2024, driven by a growth of 1.1% in services output.

Services output grew by 0.3% in May 2024, following growth of 0.3% in April 2024 (revised up from 0.2% in the previous data set), and was the most significant contributor to monthly GDP growth in May 2024.

Production output grew by 0.2% in May 2024 following an unrevised fall of 0.9% in April 2024 and showed no growth in the three months to May 2024. Construction output grew by 1.9% in May 2024, following a fall of 1.1% in April 2024 (revised up from a fall of 1.4% in the previous publication), and fell by 0.7% in the three months to May 2024.

Douglas Grant, Group CEO of Manx Financial Group, said: “The most recent GDP figures in the UK serve as a reminder that Labour’s [general election] victory brings uncertainty, meaning it is crucial for SMEs to reassess their lending arrangements to strengthen financial stability and operational resilience. This preparation is vital in light of potential economic and policy changes.”

 

Retail investors bearish on both S&P 500 and NASDAQ 100 despite rallies 

The latest SERIX sentiment data from Spectrum Markets, for European retail investors for June, has revealed bearish trading behaviour for both US indices, the S&P 500 and NASDAQ 100.

The SERIX value for the S&P 500 fell to 93 points, whereas on 28 June at market closure, the S&P 500 index climbed up to 5,460 points. Similarly, SERIX sentiment on NASDAQ 100 fell to 96 points while the index itself rose to 19,682 points.

The SERIX value indicates retail investor sentiment, with a number above 100 marking bullish sentiment and a number below 100 indicating bearish sentiment. 

“The strong performance of NVIDIA has significantly boosted both US indices,” said Michael Hall, Head of Distribution at Spectrum Markets. “However, some retail investors may now be sceptical about the sustainability of this growth or may simply be engaging in profit-taking.”

In June 2024, order book turnover on Spectrum was €201.5m, with 34.7% of trades taking place outside of traditional hours (i.e. between 17:30 and 9:00 CET). The order book turnover was distributed among various underlying assets as follows: 76.2% on indices, 5.1% on currency pairs, 8.9% on commodities, 8.1% on equities and 1.7% on cryptocurrencies. The top three traded underlying markets were NASDAQ 100 (26.2%), DAX 40 (23.9%), and DOW 30 (11.3%).

Looking at the SERIX data for the top three underlying markets, the NASDAQ 100 and DOW 30 remained bearish at 96 and 99, respectively, while the DAX 40 increased from a bearish 98 to a bullish 101.

“Both US indices are strongly driven by the ‘Glorious Seven’ stocks: NVIDIA, Meta, Amazon, Microsoft, Alphabet, Apple and Tesla,” Hall added. “Eight of the ten largest companies in the world are based in the United States, five of which are pure technology stocks closely tied to Artificial Intelligence (AI). The development and impact of AI will continue to play a crucial role and strongly influence both major US indices.”

 

BofA adds intelligent transaction search to banking platform

Bank of America has unveiled a transaction search engine with integrated investigation capabilities on CashPro. The new capabilities were developed with feedback from Bank of America’s clients and are the latest updates to CashPro Data Intelligence, a suite of tools that companies can use to gain insights into their treasury operations and processes.

In addition to speed, the search engine delivers visibility into a company’s transactions, providing details such as payment status, incoming and outgoing messages, Swift GPI tracking details and images.

From CashPro Search, clients can now launch an inquiry into a transaction – an extremely common task in banking – to validate the status or details of a payment, which could include domestic or international wires, automated clearing house (ACH) payments, real-time payments, and even incoming FX credit transactions or loan proceeds.

The data captured from the transaction inquiry is automatically routed to the service team. Clients can track the progress of the resolution and get real-time status updates and view correspondence from a beneficiary’s bank.

“We’ve significantly streamlined service requests, so that rather than picking up the phone or having to send an email, a client can directly initiate and track their request within CashPro,” noted Abbey Novack, CashPro Product Executive in GPS at Bank of America.

 

Report calls for standardisation in the ETF primary market

For the past three decades, the exchange traded fund (ETF) market has skyrocketed, with ETF assets under management (AUM) increasing by 9.2% to US$12.71 trillion globally. Recognising the rapid growth and potential of ETFs, Calastone, in partnership with ETF Stream, surveyed the three leading players in the ETF primary market ecosystem – the asset servicers, authorised participants (APs) and fund issuers – to gain a deeper understanding of the ETF primary market and explore how it can evolve alongside its continued growth.  

As the ETF market grows, asset servicers are increasingly aware of the rising complexity of ETF products. In the survey, 40% of asset servicers highlighted this growing product complexity as the main challenge requiring further improvements in primary market servicing and technology. This concern was cited the most frequently among all options surveyed.

ETF issuers highlighted the move to T+1 settlements as the most significant challenge (38%) to ETF primary market servicing. There are also concerns within the broader industry around whether asset servicers are ready, with nearly half (44%) of those surveyed responding that they are not confident asset servicers can meet the challenges given the current state of ETF technology. The current state of play highlights the need for more robust, scalable tech – specifically to improve workflow management, order management, and settlements.

The research also reveals a significant disparity in how different parties feel about the existing servicing technology. Over 60% of asset servicers consider the current servicing technology ‘very good’, compared to just over 10% of APs and less than 5% of fund issuers. While most asset servicers feel the status quo is working just fine, their clients feel there is vast room for improvement, as manual processes exacerbate the challenges around growing transaction volumes.

This has accelerated the need for efficiency, automation and, most importantly, standardisation – something that has not gone unnoticed by the key players, nearly all of whom, the survey found, felt that the need for standardisation in European ETFs has become equally or more important over the past decade.

 

DTCC releases public-facing VaR calculator

The Depository Trust & Clearing Corporation (DTCC) has launched a public-facing Value at Risk (VaR) calculator. The calculator is designed to provide market participants with the ability to evaluate potential margin and clearing fund obligations associated with becoming a member of DTCC’s Fixed Income Clearing Corporation (FICC) Government Securities Division (GSD).

With US Treasury clearing activity processed through FICC expected to rise by US$4 trillion daily after the SEC’s expanded clearing mandate is implemented in 2025 and 2026, DTCC’s VaR calculator aims to help firms accurately determine VaR and potential margin obligations for any simulated portfolio.

The new calculator allows market participants to calculate potential margin obligations on a simulated portfolio for given positions and market value using FICC’s VaR methodology.

“VaR is a widely used risk management concept in the financial services industry and is the primary component of GSD’s clearing fund requirements,” said Tim Hulse, Managing Director, Financial Risk & Governance, at DTCC. “The calculator considers factors such as historical data, volatility and confidence levels to estimate VaR, increasing market transparency.”

 

BNP Paribas and Mistral AI sign partnership agreement

BNP Paribas and Mistral AI have signed a partnership agreement covering all Mistral AI models. The agreement is a multi-year partnership to provide access to current and future Mistral AI commercial models across all the bank’s business lines. 

The news follows a relationship dating back to September 2023 when the Global Markets division of BNP Paribas began experimenting with Mistral AI’s models. This first engagement produced strong results, and, as a consequence, BNP Paribas extended the collaboration to the wider Group starting in February 2024. Since that time, BNP Paribas has been extensively piloting Mistral AI commercial models across several of the bank’s divisions.

By using Mistral AI Large Language Models, BNP Paribas is developing several use cases in its businesses across customer support, sales, IT and other areas. Mistral AI’s offering and strategy is complementary to highly regulated institutions, facilitating controlled deployment of cutting-edge models on premises. A further advantage of working with Mistral AI is scalability, as they strive to deliver energy-efficient models.

 

RTP network has billion dollar day

Businesses and consumers sent over US$1bn in instant payments on 28 June over the RTP network, a single-day record for the largest instant payments system in the US operated by The Clearing House. The RTP network also experienced a record 82 million transactions in the second quarter, valued at a record US$55bn, as financial institution customers continued to use the network for all types of instant payments.

This record-setting quarter continues a trend for the RTP network, which previously set records in Q1 2024. In Q2, payment volume grew 7%, while overall payment value jumped 30% on the RTP network, as businesses and corporations increased the number of higher-value payments sent on the system as they leveraged instant payments for cash concentration.

“The increase in transaction value is due to broad adoption of the RTP network across a number of use cases, including account-to-account transfers, title insurance and mortgage closing payments, gig economy payouts, earned wage access, and more,” said Margaret Weichert, Chief Product Officer at The Clearing House. “Banks and credit unions that have joined the RTP network are seeing how instant payments can grow deposits, while meeting member and customer expectations for instant payment availability, 24/7.”

 

Thunes powers LianLian Global’s new payment service

LianLian Global, a Chinese e-commerce cross-border payment service provider, has joined the Thunes Global Network. The Chinese payment company is offering a new LianLian Global Payout Service (LGPS) solution that leverages Thunes’ fully compliant payment network to facilitate payouts to digital wallets and bank accounts in over 130 countries. 

LGPS aims to address the challenges of traditional cross-border payments, such as high costs, slow processing times and complex procedures. By joining the Thunes Global Network, LianLian Global can offer a real-time and secure payment solution for cross-border payment service providers (PSPs), banks and other licensed financial institutions.

Through the partnership, over 1 million Chinese businesses will be able to send payments to over 3 billion digital wallet accounts and 4 billion bank accounts in over 130 countries in more than 80 currencies.