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Inflation Data for EURUSD
13-02-2020 | treasuryXL | XE |
Markets have once again turned risk averse overnight, with the Chinese city of Hubei the latest outbreak focus. With a European tech conference cancelled, as well as fears in South Korea and Japan. The medium and long-term impacts are still non quantified. Currency markets do not like uncertainty.
And so, the now go-to bellwether currency is the USD, which moved above the psychological level of 99.00 which has been touted for some days. As a consequence most currency pairs have moved lower against the Greenback. One of the more notable casualties is the most liquid pair – EURUSD. Generally regarded as a low volatility play, it’s has now moved down over 13.5 % in the last two years, and tests key support.
GBPEUR has gained momentarily as a result, and indeed UK importers can be buoyed by a much healthier session for GBP across the board. Risk bearing currencies like AUD, NZD and CAD have all suffered as a by-product, and will be dictated to by Geopolitical fears related to the Coronavirus outbreak.
Yesterday did not help the EUR on the data from with Industrial production numbers much lower than expected at -2.1%, a huge shift. And this fragility for the single currency will today be magnified by German CPI inflation releases. For the EURUSD traded pair, the release of US CPI inflation numbers later in the session could have a similar push/pull impact.
Back to the UK and today we see PM Boris Johnson reshuffle his cabinet, and whilst not significantly market moving; the emphasis will be closely eyed for negotiations with Brussels.
One final thing to note is the release this morning of the RICS house price balance numbers here in the UK. This number has shown a positive swing, the post UK. election decision clearly has people moving on up. Long may it continue.
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XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.
Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.
Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multibillion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.
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Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.
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Financing a Livable World
11-2-2020 | by Aastha Tomar
If Greta Thunberg doesn’t inspire us, breathing some Delhi air may. While these might have been in news recently, more of this discussion is on social media rather than real action.
Sustainability has thus mostly been associated with activist connotation and, less with real, on-ground impact.
As we evaluate on-ground actions, investments towards such actions become first step and these need to make “financial sense” for investors to flock in. That’s when, I believe, that traditional financial acumen fails us. The foundational elements of investment rationale shall make such investment difficult. Let’s evaluate how –
Of all, these foundation elements make investment capability of capital markets to adapt in disruptive situations, like we are facing now for climate change, difficult. Financial markets, in its prevailing methods, would only consider climate change once its impacts are visible, but that, I guess, would be too late.
Having worked in Debt capital markets (DCM) my first reaction was to search of how DCM is contributing in sustainability and this led me to know about a beautiful concept of green bonds. The bond by their very name “green bonds” click into mind that there is something related to sustainability in it.
Green bond principles, intended to provide a framework for debt funding for projects which shall contribute to sustainability, is a step in the right direction. It has been framed with four core pivotal elements –
It’s the use of proceeds which sets apart green bonds from regular bond issues. The eligible projects for such issuance should be from around ten categories including renewable energy, energy efficiency, pollution prevention and control, green buildings etc.
A cumulative $580 billion of green bonds were sold through 2018, according to Bloomberg New Energy Finance. According to climate bond initiative in quarter 3 of 2019 itself USD 6.2 bn worth green bonds were issued worldwide, which is 87% up YoY. There were 139 issuers from 32 countries. There are many issuers joining the race and many nations as well. European nations being the ones taking the lead.
Though figures for green bonds may seem encouraging when we see them standalone but when compared to the global bond markets which are more than USD 100 trillion market, green bond market is hardly a fraction of it. Europe alone needs about 180 billion euros ($203 billion) of additional investment a year to achieve 2030 emission targets set by the European Union in the 2015 Paris Agreement on climate change.
In nutshell, green finance initiatives are steps in right direction but need more muscle and speed to enable actions on ground.
What are your thoughts?
FX & Derivatives | Debt Capital Markets | MBA Finance
Electrical Engineer | Sustainability
Factoring – Unlocking the (hidden) potential of your working capital
31-1-2020 | by Ron Wessels
Do you also wait for your customers to pay you after a sale is closed? In today’s world it is getting more difficult to arrange cost efficient traditional bank financing and not everybody has sufficient cash reserves. If funding for you is tight, you can search for alternatives. Many suppliers of alternative funding are quite expensive and their business ethics are not always solid. Perhaps your working capital offers a better solution.
There is a way to convert your outstanding debtors into cash. This is called “Factoring”, offered by factoring companies.
How does Factoring work?
Depending on your existing AR (accounts receivable) portfolio an arrangement with a specialist factor provider can be made to sell those invoices on the date your issue them and get paid within a couple of days (mostly 2-3 days).
You receive most of the cash upfront but yet you are still in charge of the collection process and dunning (there are factoring companies that also offer credit collection services). You want to stay in control of the collection side as this is very important for your Customer Relation, e.g. you want to know if things are not going as they should be. You do not want to outsource the management of potential conflicts with your important clients. Your customers will pay into a bank account in your name but under custody of the factor provider. Obviously, you will have/need full insight on the activities on this bank account. Typically, you get funded about 90% of the face value of the invoice (ex.VAT) and the remainder minus costs, upon collection from the customer. The costs for factoring are depending on the size of your AR portfolio sold but vary around 1,5 to 4%, depending on aforementioned size (this is an estimate and have to be explored during an evaluation). This cost includes the credit insurance.
The factoring program can be tailored either on-balance or off-balance to optimize your accounting processes and your balance sheet strength. Factoring most of the times also requires a credit insurance for the outstanding accounts receivables. Both you as well as the factoring company want to mitigate the risk of clients who cannot pay.
Why is Factoring interesting?
Often factoring, including a credit insurance, is cheaper than traditional bank financing. Especially for companies with no or low credit rating. The factoring industry is more mature than many of the suppliers of alternative funding. This results in more stable processes and improvement of existing processes. Last but not least, the build-up of your balance sheet will be different resulting, amongst others, better financial ratios.
Is factoring difficult to implement?
Not necessarily, you need to agree on the terms and conditions with the factor, the credit insurance and it involves some legal advice/work. Furthermore, you need to agree with the factor on how to deliver the AR data (preferable automated) and the frequency of submission. As this is a mature industry, it is relatively easy to compare quotes of different factoring companies. Two further aspects are very relevant. The first is the quality of your existing processes. If your AR is a bit chaotic, it will be harder to implement the factoring services. Furthermore, the size and activity of your company is important. Small companies with a low number of deals will be treated differently by a factoring company. For example, a mobile telephone operator.
Conclusion
Factoring is a good alternative for traditional bank debt to finance your working capital. It will require up front work but once installed it is easy to maintain at a low cost. A quick scan of your existing AR outstanding can prove whether it is cost efficient to enter such program.
If you are looking for independent advice on factoring before reaching out to suppliers, please contact us. We are happy to help you.
Ron Wessels
Group Treasurer