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Pandemic Risks to Shape Treasury Strategy in the Short and Medium-term, a New EIU Survey Reveals

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T-Bill

Shape Treasury Strategy to be Affected by Pandemic Risk in Medium Term

  • Top drivers of strategic change in 2020 are changes to internal company strategy (27%) and new regulatory requirements (26%)
  • The replacement of LIBOR[1] is the most challenging regulatory initiative for treasurers
  • There is a growing reliance on technology to address treasury challenges, with 74% of treasurers having identified the use of new technologies in order to improve KYC processes 78% of respondents are very or somewhat concerned about the quality of the data they are working with

A new report was written by The Economist Intelligence Unit (EIU) “The resilient treasury: Optimising strategy in the face of COVID-19” explores the forces that will shape and define the corporate treasury function and the priorities of the future.

It identifies the macro and financial risks that impact strategy as drivers of strategic change, the regulatory initiatives that are currently top of mind and the technologies and the skills that the function requires. The research, supported by Deutsche Bank, is based on a global survey of 300 corporate treasury executives (conducted between April and May 2020).

The pandemic risk will have the most impact on corporate treasury in the short term (43%) and medium-term (27%). Other risks, notably concerns over global economic growth (31%) and geopolitical risks (25%) are also high on the list over the medium-term. In response, treasurers plan to increase investments in long-term instruments (55%), bank deposits (48%) and local investment products (48%) over the next 12-24 months.

But the pandemic has eclipsed other risks that were previously high on the corporate agenda: environmental, weather and climate risks were only treasurers’ sixth most pressing risk for 2020.

Regulatory challenges remain very much top of mind. Respondents indicate that the replacement of the LIBOR, and other Interbank Offered Rates (IBORs), is the most challenging regulatory initiative for treasury (38%), followed by GDPR (32%), the OECD’s initiative against BEPs[2] ( 31%) and MiFID II[3] (30%). The regulatory burden will continue to affect different parts of the treasury function and could lead to structural adjustments. The functions most affected by regulatory actions and initiatives in 2020 are funding strategies (25%), overall operating model (25%) and cash/liquidity investment policies (24%).

Treasurers have become increasingly reliant upon new technologies and data for their day-to-day activities. However, close to 80% of respondents are either very or somewhat concerned about the quality of data available within the business (a noticeable increase from last year’s survey, at 69%).

Having the correct skills within the treasury function to take advantage of new technologies is critical, and their efforts to upgrade their tech and data skills are starting to bear fruit: almost 30% of respondents say they have all the skills necessary to meet new challenges posed by technological change (compared to 22% in 2018).

Looking ahead, the utmost priorities on the treasury agenda in 2020 are managing relationships with banks and suppliers (32%) and collaborating with other functions in the business (32%). Looking ahead, the data-driven approach of treasury will allow the function to become an even more supportive and proactive partner to the rest of the business.

Melanie Noronha, the editor of the report, said: “The covid-19 pandemic has drastically altered business plans in 2020. It has placed a certain level of strain on treasury processes, but the challenge it presents has been managed by traditional treasury skills. It is clear that pandemic risk will be on the treasury checklist for years to come, but it is one of many risks the department faces and will continue to manage.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply

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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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Crude Oil

Oil Rises Over Concerns of Fuel Shortages

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Oil prices rose on Tuesday, as lingering fears of gasoline shortages due to the outage at the largest U.S. fuel pipeline system after a cyber attack brought futures back from an early drop of more than 1%.

Brent crude futures rose 35 cents, or 0.5%, to $68.67 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose 49 cents, or 0.8%, to $65.41.

Benchmark gasoline futures prices rose 1 cent to $2.14 a gallon.

On Monday, Colonial Pipeline, which transports more than 2.5 million barrels per day (bpd) of gasoline, diesel and jet fuel, said it was working to restore much of its operations by the end of the week.

Right now there’s a generalized anxiety premium being built into prices because of Colonial and it’s keeping a floor under the market,” said John Kilduff, partner at Again Capital LLC in New York.

Fuel supply disruption has driven gasoline prices at the pump to multi-year highs and demand has spiked in some areas served by the pipeline as motorists fill their tanks.

Traders booked at least four tankers to store refined oil products off the U.S. Gulf Coast refining hub after a cyber attack that knocked out the pipeline, shipping data showed on Tuesday.

North Carolina, the U.S. Environmental Protection Agency and Department of Transportation issued waivers allowing fuel distributors and truck drivers to take steps to try to prevent gasoline shortages.

OPEC on Tuesday raised its forecast for demand for its crude by 200,000 bpd and stuck to its prediction of a strong recovery in global oil demand this year as growth in China and the United States counters the coronavirus crisis in India.

Meanwhile, the rapid spread of infections in India has increased calls to lock down the world’s second-most populous country and the third-largest oil importer and consumer.

India’s top state oil refiners have already started reducing runs and crude imports as the new coronavirus cuts fuel consumption, company officials told Reuters on Tuesday.

On the bullish side for crude, analysts are expecting data to show U.S. inventories fell by about 2.3 million barrels in the week to May 7 after a drop of 8 million barrels the previous week, a Reuters poll showed.

Gasoline stocks are expected to have fallen by about 400,000 barrels, analysts estimated ahead of reports from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday.

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Markets

SEC To Ban Unregistered CMOs From Operating By Month End

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The Securities and Exchange Commission (SEC) says it will stop operations of Capital Market Operators (CMOs) that are yet to renew their registration on May 31, 2021.

This was contained in a circular signed by the management of SEC in Abuja on Monday.

On March 23, SEC had informed the general public and CMOs on the reintroduction of the periodic renewal of registration by operators.

The commission noted that the reintroduction of the registration renewal was due to the need to have a reliable data bank of all the CMOs registered and active in the country’s capital market.

“To provide updated information on operators in the Nigerian Capital Market for reference and other official purposes by local and foreign investors, other regulatory agencies and the general public, to increasingly reduce incidences of unethical practices by CMOs such as may affect investors’ confidence and impact negatively on the Nigerian Capital Market and to strengthen supervision and monitoring of CMOs by the Commission,” SEC explained.

According to the circular, the commission said CMOs yet to renew their registration at the expiration of late filing on May 31, would not be eligible to operate in the capital market.

It explained that CMOs were required to have completed the renewal process on or before April 30, however, the commission said late filing for renewal of registration would only be entertained from May 1 to May 31.

SEC also said that asides from barring the CMOs who failed to comply accordingly, their names would be published on its website and national dailies.

It added that names of eligible CMOs would be communicated to the relevant securities exchanges and trade associations.

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