Week in Review

What We're Reading:

July 20, 2020

China’s economy rebounds after steep slump, weak demand, US tensions raise risks. Asian share markets and the Chinese yuan fell, partly reflecting the broad challenges facing the world’s second-largest economy as it grapples with the double-whammy of the pandemic and heightened tensions with the United States over trade, technology and geopolitics. (HSN)

'The stakes couldn't be higher': EU recovery plan summit under way. European Union leaders met on July 17 for tense summit talks on a multi-billion-euro plan to breathe life into their economies, their first face-to-face meeting since the coronavirus pandemic plunged the bloc into its latest crisis. (Reuters)

IMF warns small- and mid-sized business bankruptcies may triple. The International Monetary Fund warned that the rate of bankruptcy for small- and medium-sized businesses may triple this year in the absence of sufficient government support, threatening to stall the economic recovery and cause financial instability. (Business Mirror)

US warns firms about sanctions for work on Russian pipelines. The Trump administration on July 15 hardened its efforts to prevent the completion of new German-Russian and Turkish-Russian natural gas pipelines by warning companies involved in the projects they’ll be subject to U.S. penalties unless they halt their work. The move will likely increase tensions in already fraught U.S.-European ties as well as anger Russia. (AP News)

China says will stick with US trade deal, but respond to ‘bullying.’ China said on July 16 it will stick to the Phase 1 trade deal it reached with the United States earlier this year but warned that it will respond to “bullying” tactics from Washington, as relations continue to deteriorate. (HSN)

Dollar value continues to fall. This decline is coming because of United States’ weakness and not because the U.S. is moving rates reflecting its strength. Furthermore, the Federal Reserve is committed at this time to err on the side of monetary ease to keep the U.S. economic situation from getting worse, not helping the value. (Seeking Alpha)

COVID-19 and trade: Taking stock of the ‘new normal.’ The coronavirus pandemic has brought swift, dramatic changes to trade and supply chains around the world. While the much-vaunted ‘next normal’ after Covid-19 is still a long way away, exporters, policymakers and financiers alike are now navigating the ‘new normal,’ keeping trade moving despite demand and supply shocks. (Global Trade Review)

Five charts that illustrate COVID-19’s impact on the Middle East and Central Asia. The Middle East and Central Asia countries acted quickly and decisively in response to COVID-19. Despite their efforts, the pandemic has inflicted heavy economic damage on the region. (IMF)

Collateral leakage on the rise as pandemic pushes borrowers into distress. The coronavirus pandemic and related economic downturn have led borrowers suffering severe operational disruption to leverage the range of actions permitted by their loan documents in an attempt to survive the tumultuous economic environment. (Fitch)

US President Donald Trump signs Hong Kong Autonomy Act, and ends the city’s preferential trade status. New law is the latest salvo from a united Washington as it retaliates against Beijing for further eroding Hong Kong’s autonomy. (SCMP)

India, US discuss possibility of free trade pact: India trade minister. India and the United States on July 16 discussed the “possibility” of a free trade pact, India’s Commerce and Industry Ministry said in a statement. (HSN)

Putin 5.0? The question of what comes after Putin has been answered, at least for now. It is Putin. But what would a Putin 5.0 or 6.0 term look like? So far, the new constitution promises more of the same, with an increasingly aging leadership. Indeed, some are already likening it to the late Brezhnev era—domestic stagnation coupled with foreign policy activism. (Brookings)

How to read US economic data, without the spin. Here are some guidelines to judge the health of the U.S. economy for yourself in the months to come. (HSN)

A glossary of international shipping terms. The wide variety of terms that relate to the process of moving goods through a supply chain can seem overwhelming. But understanding the different types of shipment and related terms is crucial to ensure your goods get shipped on-time, within compliance, and in good shape. (Shipping Solutions)

Bolsonaro called his isolation from the coronavirus ‘horrible’ and was shortly afterwards bitten by an emu. The president of Brazil, Jair Bolsonaro, has been in isolation for almost a week at the official residence of Alvorada, after confirming that he had contracted the new coronavirus. (Web24)

The consumer is something of a weathervane when it comes to the overall economy. Decisions about what to buy and how much to spend occupies the minds of the entire retail community.

It has been frequently repeated that the U.S. economy is dependent on the consumer for some 70% to 80% of its GDP and a like number of jobs. Other nations are not all that far behind with consumption accounting for more than 60% of European GDP and more than 50% of the Chinese GDP.

The fact is that the global economy is a tight little circle of people making stuff so that other people can buy that stuff. The actions of the consumer are reactive and quick. This has been the nature of trends and fashions for years. The fact that suddenly the consumer cannot get enough of a particular clothing item or a specific toy has driven more than a few holiday seasons. At this point, the consumer is sending signals as to what to expect in the new world after COVID 19.

There have been many changes showing up as a result of the shift to working from home. One of the most dramatic has been the utter collapse of more formal attire for men and women. Sales of suits, ties and sport coats have utterly tanked, and the same has taken place as far as women’s business attire.

The surge is now in casual wear that ranges from sport shirts to sweatpants. This trend is pretty easily tracked just by looking at how people show up on virtual meetings. It seems that we are lucky if the other attendees have bothered to shower. Not that casual wear had not become more popular in the workplace prior to this shift, but the trend is getting carried to the extreme.

Another adjustment to the new working environment has been more expensive and complex. As people are working from their home office, they actually want such a thing as opposed to trying to spread out on the kitchen table. Those in the home remodeling industry report a growing demand for such things as private spaces with locking doors in the home, a studio-like environment for conducting all those virtual meetings and furnishings that are conducive to office work. Thus far, it seems that people are not demanding an in-home water cooler to stand around, but that may be coming.

Eating habits are starting to change, but it isn’t entirely clear how. The number of people who regularly ate at restaurants at least three times a week was a staggering 56%. The highest percentage of those eating out were millennials (70%) and the lowest was boomers (40%). That percentage has changed as restaurants have not entirely reopened. There is a great deal of take out now, but more and more people are locating the oven and the microwave and learning how to use them. This has meant an increase in demand for cooking gear and demand for more ingredients to actually make things. It has also provoked a surge in demand for frozen and otherwise prepared goods. It has even been reported that people are making their own coffee.

Finally, there has been a shift towards home entertainment. There is concern over when and if public entertainment will return, and that threatens the future of everything from movie theaters to events and sports. The restrictions are still largely in place and then there is the trepidation of the consumer.

This has led to an explosion of interest in home-based diversions. This had already been a trend, and it has now accelerated as people watch movies at home, play video games and develop activities for their kids at home. It may even signal the return of actual “play” in which kids are booted out of the house and ordered to return by dusk. There has been a rush in demand for swimming pools and basketball hoops and more interest in sports that are outside and away from crowds.

India saw a steep drop in confidence among companies in June, according to the latest IHS Markit India Business Outlook. The survey finds sentiment negative for the first time in nearly 11 years of data collection.

With business activity expected to decrease and a negative outlook for profits signaled, firms are set to cut staffing levels. Input costs are predicted to fall, while output prices were forecast to rise only slightly amid weak customer demand.

The business activity net balance fell sharply to -30% of companies in June, from +26% in February. This was the lowest reading on record and the first time that a negative outlook has been signaled since the series began in late-2009. Moreover, Indian companies were the most pessimistic of the 12 countries for which comparable data is available.

Pessimism was largely a reflection of the spread of COVID-19 across India and the prospect of the pandemic continuing for some time to come. Several firms indicated that if the outbreak was brought under control then this would provide a strong opportunity for growth. However, many respondents indicated that the outlook was unusually uncertain and were subsequently unsure of how activity would develop over the coming 12 months.

Key findings:

• Outlook turns negative for first time in survey’s nearly 11-year history
• Confidence in India the lowest of all monitored countries
• Profits and employment also set to decline over coming year
• Input costs predicted to fall, but slight rise in selling prices expected

In June, CNBC identified India as one of the most affected countries from the coronavirus pandemic, with more than 400,000 reported cases since January. India’s government implemented a national lockdown from late-March to May, and the International Monetary Fund has projected a sharp contraction of 4.5% for the Indian economy this year—a historic low.

On Tuesday, at 10 a.m. ET, Juniper Networks’ Kevin Tucceri, CICP, and Samuel Robert, CICP, will share firsthand experience, tips and techniques when doing business in India and the APAC region in today’s economic environment.

Webinar topics include:

• Credit review practices
• Payment challenges and solutions
• Monitoring and interacting with customers
• Strategies for working from home

Take advantage of this opportunity to ask questions about the current business environment in India.

The Monetary Authority of Singapore (MAS) and Temasek have jointly released a report to mark the conclusion of the fifth and final phase of Project Ubin. MAS announced the fifth phase of the project on 11 November 2019, following the successful development of a blockchain-based prototype for multi-currency payments.

The report, entitled “Project Ubin Phase 5: Enabling Broad Ecosystem Opportunities,” provides technical insights into the blockchain-based multi-currency payments network prototype that was built and describes how the network could benefit the financial industry and blockchain ecosystem.

“As with all innovation adoption, there is a time for experimentation, and a time for commercialization," said Sopnendu Mohanty, chief fintech officer at MAS. "Project Ubin has worked with the financial industry and blockchain community on a journey of experimentation, prototyping and learning. This has built a strong foundation of knowledge, expertise and experience, and paved a path towards commercial adoption. Following the successful experimentation over five phases, we look forward to greater adoption and live deployment of blockchain technology.”

Commercialization of blockchain-based solutions

The report, which Accenture was commissioned to publish, examines the use of blockchain technology in commercial applications across different industries, and how these applications could benefit from integrating with the blockchain-based payments network prototype developed. MAS says these benefits were validated through workshops conducted with more than 40 financial and non-financial firms engaged in Phase 5 of Project Ubin.

“Through Project Ubin, we have identified areas where blockchain-based solutions can be deployed at scale and drive greater payment efficiency across industries," said Lay Lim Teo, Accenture’s country managing director for Singapore. "The financial ecosystem is an integral part of Singapore's ambition to be a Smart Nation. The collaboration between financial and non-financial firms to create the network necessary to support multi-currency payments will also drive new products and services that generate new revenue streams.”

Key findings

The key findings of the report include:

• The multi-currency payments network prototype developed under Project Ubin Phase 5 successfully settled payments in different currencies on the same network. An international settlement network, modelled after this payments network prototype, could enable faster and cheaper transactions than conventional cross-border payments channels.
• Project Ubin Phase 5 validated the use of smart contracts on the payments network prototype in use cases such as delivery-versus-payment (DvP) settlement with assets on private exchanges, conditional payments and escrow for trade, as well as payment commitments for trade finance.
• The commercial applications of the payments network prototype include cross-border payments in multiple currencies, foreign currency exchange, settlement of foreign currency denominated securities, as well as integration with other blockchain-based platforms to enable end-to-end digitalization across many industries and use cases.

“Blockchain technology has great potential in transforming businesses and opening up new business opportunities," commented Chia Song Hwee, deputy chief executive officer at Temasek. "Phase 5 of Project Ubin has demonstrated the commercial applicability, viability and benefits of blockchain technology across industries, beyond capital markets and trade finance. This validates Temasek’s efforts in exploring and building blockchain solutions focusing on digital identity, digital currencies and financial asset tokenization. We look forward to supporting commercialization efforts emanating from Project Ubin and other application areas, with a view to drive greater adoption of blockchain technology.”

The payments network prototype, developed in collaboration with J.P. Morgan and Temasek, can serve as a test network to facilitate collaboration with other central banks and the financial industry for developing next generation cross-border payments infrastructure. Technical specifications for the functionalities and connectivity interfaces of the prototype network have been made publicly available to spur further industry development.

“We have been an active contributor to Project Ubin since its inception, leveraging our learnings and infrastructure including Quorum, Interbank Information Network (IIN) and JPM Coin," said Umar Farooq, managing director and head of Blockchain at J.P. Morgan. "Phase 5 has demonstrated how broadly blockchain technology can impact the future of business and we look forward to working with MAS, Temasek and other banks to develop and scale commercial solutions for the industry.”

Reprinted with permission from CTMfile.

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 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations