O F C UR RE NC Y CO NSU LTA N C Y FO R BU S IN E S S G R O W T H
In this month’s issue:
• Invoice finance – myths and facts
• Diminished support for Draghi
• US economy still not at 100%
Outlook
November
– December 2014
CURRENCY BUSINESS
Making currency our business
Outlook November – December 2014
2
Key economic
data releases
for November 2014
Date Area Key event/data release
Nov 18 UK Inflation data
Nov 19 UK Official bank rate votes
Nov 20 EUR French & German
manufacturing data
Nov 20 US Inflation data
Nov 25 US Preliminary growth data
Nov 26 UK Growth estimate
Nov 26 US Housing data
Nov 26 EUR Inflation data
UK - Sterling
Changing fortunes: UK versus US
After a strong performance in the summer, and a rollercoaster month in September owing to the Scottish vote on independence, sterling’s fortunes fell from grace in October. The UK currency was swept up in the tide of global uncertainty in the first half of October, which unsettled currency markets.
Sterling’s performance was lacklustre against the US dollar in particular, as the US economy strengthened, continually picking up the pace since its slow start to the year. The completion of the US Federal Reserve’s quantitative easing (QE) programme – signifying central bank confidence in the US economy – served to weaken sterling further. Looking forward to the remainder of 2014, the question is whether the US will raise interest rates before the UK. Although the US economy appears in better health, UK unemployment has been falling. However, the Bank of England (BoE) has been cautious in its approach to interest rates and slack in the economy, so it is still uncertain which of the two major economies will act first.
At the time of writing (13th November), mid-market rates were at £1/€1.2723 and £1/$1.5989
Welcome to our latest
edition of Outlook!
Dear Reader,
This issue, we look at the myths behind invoice finance, a form of funding that helps businesses improve their cash flow, and address these head-on. You will also find our usual economic and currency reports and forecasts. At Smart Currency, we aim to provide useful information about currency and related business topics to
companies. To this end, we are also delighted to introduce Charles Purdy’s Forbes.com blog, as well as our latest publication, Insights: Aviation Business. We’re always happy to discuss all matters related to your international money transfers, and how we can help your business – simply call us on 020 7898 0500 or email us at [email protected]. Happy reading,
Carl Hasty, Director Smart Currency Business
Invoice finance
– myths and facts
A healthy cash flow is vital to any business, but businesses that issue invoices to other businesses may sometimes find that they are not receiving payment promptly or early enough, causing cash flow issues. These businesses may find that their problem can be solved with invoice finance, a form of funding that advances cash from unpaid invoices to businesses in advance of payment, thereby helping to ease their cash flow. It also helps a business know when it will be paid upon the issuance of an invoice – allowing the business to engage in more accurate financial planning. Myth 1: Invoice finance is only used bybusinesses in financial trouble.
Fact: Although invoice finance is key in helping businesses with cash flow problems to obtain the funding needed to keep afloat, it can also be useful for businesses that are thriving. Receiving advances from unpaid invoices on time means that a business will have more in their coffers – these are funds that can be used to finance business growth.
Myth 2: Invoice finance is only available to small/large businesses.
Fact: Invoice finance is available to businesses in a wide size range. It is often not the size of the business that matters, but their sales ledger. For instance, a company that has one client can be a risky proposition for an invoice finance company, as any defaults on payments would mean that the finance provider is not able to offset the non-payment against other invoices. Myth 3: Having an invoice finance facility will mean extra work for my business.
Fact: Businesses can choose between two broad types of invoice finance, factoring and invoice discounting. Invoice discounting involves collecting payment of invoices of your own accord, whereas factoring involves the provider collecting payments on your behalf.
Myth 4: Having an invoice finance facility means losing credibility in front of my existing and prospective clients.
Fact: Using an invoice finance facility if necessary is good business sense. We have heard of cases where a company is nervous about letting a client know about the invoice finance facility – only to find out that the client also has a similar service in place. Even so, businesses that require a confidential service can opt for confidential invoice discounting. This allows them to deal directly with clients, who need not know of the facility.
Myth 5: Opting for invoice finance means being saddled with a contract that I may not need. Fact: While invoice finance contracts can benefit some businesses, others may benefit from one-off transactions – this is commonly known as ‘single invoice finance’. Single invoice finance gives businesses that do not require a steady stream of advances the freedom to obtain advance funding on an ad hoc basis. Myth 6: Invoice finance can help my business to grow, but not internationally.
Fact: Invoice finance is not relegated to just domestic transactions. One type of invoice finance is trade finance, which allows an exporter to obtain advance funding on an invoice. This helps the exporter to finance the operations leading up to the provision of the goods or services in question. Cash flow problems can sometimes be a significant deterrent for a business wishing to make an international trade – invoice finance can facilitate the transaction.
Smart Currency Business is partnered with invoice finance providers who focus on different types of clients and problems. For more information, please contact us by calling 020 7898 0500 or emailing [email protected]
Outlook November – December 2014
4
Eurozone
Summary
The Eurozone continues to falter
The Eurozone economy continued to falter, with industrial production growth figures showing contraction. Inflation remained a major concern – even though consumer prices rose 0.4% in October, up from 0.3% in September, core inflation slowed down, keeping the Eurozone economy stagnant. Current inflation levels are still a long way off from the central bank’s 2% target.
Diminished support for Draghi
More recently, national central bankers planned to challenge European Central Bank (ECB) President Mario Draghi, in the aims of fostering more transparency and better communications. Draghi has also been under pressure to start a dedicated QE programme in order to boost the economy. Although he has pledged to extend stimulus measures (if needed), there is no substantial programme in place as yet.
At the time of writing (13th November), mid-market rates were at €1/£0.7859 and €1/$1.2566
Forecasts
The situation in the Eurozone is still very difficult. There is a split between the state of the economies of the northern states and that of the southern states. Previously, those in the north were growing and those in the south contracting. There is still a two-speed Eurozone when it comes to their economies, but the problem is that the northern states are now either growing very slowly or stagnating – France is a prime example.
Although the recent review of the European banks identified a few problems, the outcome was probably better than expected, but the debt problems are still significant. There has also been a lack of change in the employment framework and the need for flexibility and reduced costs.
It therefore comes as no surprise that the universal view of the banks is that the euro will weaken against sterling and the US dollar over the next twelve months. It is still very difficult to know when the major movements will be, but the most likely drivers will be when the suggested QE for the Eurozone is formalised and/or when interest rates are raised in the UK and/or the US.
Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
1.2500 1.2750 1.3000 1.3500 1.3750 1.4000 1.3250 Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
1.5750 1.6000 1.6250 1.6750 1.7000 1.7250 1.6500 GBP/USD EUR/USD GBP/EUR 1.1600 1.1800 1.2000 1.2400 1.2600 1.2800 1.2200 Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
1.2500 1.2750 1.3000 1.3500 1.3750 1.4000 1.3250 Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
1.5750 1.6000 1.6250 1.6750 1.7000 1.7250 1.6500 GBP/USD EUR/USD 1.1600 1.1800 1.2000 1.2400 1.2600 1.2200 Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
5 Outlook November – December 2014
GBP/EUR expectations for November
1 month 3 months 6 months 12 months
Barclays 1.2820 1.3158 1.3513 1.4285
Goldman Sachs 1.2698 1.3008 1.3166 1.3304
HSBC 1.2804 1.2832 1.2968 1.3035
Reuters Smart Estimate* 1.2790 1.2888 1.3097 1.3222
*Reuters Smart Estimate by StarMine, a division of Thomson Reuters Source: Reuters
EUR/USD expectations for November
1 month 3 months 6 months 12 months
Barclays 1.2700 1.2200 1.1700 1.1000
Goldman Sachs 1.2600 1.2300 1.2000 1.1500
HSBC 1.2542 1.2434 1.2234 1.1967
Reuters Smart Estimate* 1.2504 1.2413 1.2294 1.2165
Outlook November – December 2014
6
United States
Summary
End of an eraThe biggest news for the US economy in October was the completion of its QE programme. The programme provided the US Federal Reserve with $4.5 trillion worth of assets, which the central bank is planning to retain in order to keep interest rates low in the long run.
Although the central bank is confident enough that the economy can survive without its monthly dose of capital, the US economy is still far from in pristine health, which had an impact on the US dollar. In fact, it was relative weakness elsewhere – such as in the UK – that allowed the dollar to remain comparatively strong, particularly given its recovery from a very slow start to 2014.
Still not a 100% bill of health
Other disappointing data continued to plague the once-ailing US economy: retail sales data was reported in October to have dropped by 0.3% the month before, and inflation levels – reported in October to have grown just 1.4% in September from the year before – were still nowhere near the Federal Reserve’s target of 2%.
At the time of writing (13th November), mid-market rates were at $1/£0.6254 and $1/€0.7956
Forecasts
It is very difficult to bet against the US dollar in the current climate. Against a basket of currencies, the US dollar is close to four-year highs and has been the best-performing major currency of 2014. Interest rate increases are very much on the horizon as the economy continues to grow and employment to fall.
The UK economy is certainly much closer to the US than the Eurozone, but the BoE, with justification, is reluctant to increase UK interest rates too soon given our dependence on the Eurozone economy and the lack of traction in wage increases.
The major banks do see further weakness for sterling, but in no way outright capitulation, and if there is an undue blip in the US economic performance, or a reduction in the likelihood of increased interest rates in the first half of 2015, we could see sterling take the upper hand.
Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
1.2500 1.2750 1.3000 1.3500 1.3750 1.4000 1.3250 Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
1.5750 1.6000 1.6250 1.6750 1.7000 1.7250 1.6500 GBP/USD EUR/USD 1.1600 1.1800 1.2000 1.2400 1.2600 1.2200 Oct 2014 Nov
2013 2013Dec 2014Jan 2014Feb 2014Mar 2014Apr 2014May 2014Jun 2014Jul 2014Aug 2014Sep
Outlook November – December 2014
GBP/USD expectations for November
1 month 3 months 6 months 12 months
Barclays 1.6282 1.6053 1.5811 1.5714
Goldman Sachs 1.6000 1.6000 1.5800 1.5300
HSBC 1.6059 1.5956 1.5866 1.5599
Reuters Smart Estimate* 1.6022 1.5969 1.5995 1.5798
*Reuters Smart Estimate by StarMine, a division of Thomson Reuters Source: Reuters
As many of our clients and partners are aware, Smart Currency is not your typical international payments specialist. On top of providing first-class currency exchange strategies and services at competitive rates, we also engage in producing, promoting and sharing educational material related to currency and other business topics, which may be of interest to businesses.
This month, we are pleased to announce two new projects which do just that: 1. Forbes.com
Smart Currency CEO Charles Purdy will be blogging regularly on Forbes.com. He will be covering currency markets as well as other related topics in his posts. Charles has spent the last 25 years helping businesses reduce their risk and improve the efficiency of their overseas trade. A trained Chartered Accountant, he was also previously the Chief Financial Officer of a listed company operating on three continents. Charles’s Forbes.com blog will translate hard-hitting technical knowledge into educational pieces that are accessible to a general business audience.
You can read Charles’s latest blog post here: forbes.com/sites/charlespurdy
2. Insights: Aviation Business Part of the Smart Currency Business thought leadership programme, the Insights series provides a variety of information on different business themes and industries. They include articles by and interviews with business owners, entrepreneurs and specialists in relevant fields.
Insights: Aviation Business features articles and interviews with industry experts. Contributors include Grahame Jones from Farnborough International Ltd., Christopher Whiteside from AJW, Dustin Dryden from Hangar8, Steve Varsano from The Jet Business and Jeffrey Emmenis from Vertis, as well as articles on the African market, aviation insurance and currency. You can find Insights: Aviation Business here:
smartcurrencybusiness.com/insights
Smart Currency Business Thought Leadership
Spotlight
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