Global Focus; News and information on payments, foreign exchange, trade, and finance

 

In this edition of Global Focus by Wells Fargo

 

World headlines

Dave Napalo, Head of FX Risk Management for Wells FargoNumerous forces emerged in the first quarter of 2013 to create a varied and volatile economic landscape for the start of the year. Read more

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Numerous forces emerged in the first quarter of 2013 to create a varied and volatile economic landscape for the start of the year.

United States

Despite coming out of the fourth quarter with a weak 0.1 percent real GDP growth outcome, the U.S. economy seems to be finding its feet once again. After ongoing anxiety about the political situation in Washington, consumers and the markets have largely shrugged off the potential negative effects of the much-debated fiscal cliff, the federal budget sequestration, and even the expiration of the 2.0 percent payroll tax holiday.

Numerous aspects of the domestic economy show signs of encouragement. Consumer spending has held up relatively well despite higher gasoline prices. Motor vehicle sales have rebounded to the pre-recession level of just over a 15 million unit per year pace. Consumers are more willing to take on debt, as borrowing increased at its fastest pace since the recession. With the April 5th release of March unemployment data at a post-recession low of 7.6 percent, consumer confidence continues to improve gradually. Housing starts surged 15.4 percent in the fourth quarter, indicating this key sector of the economy is also gradually healing.

These favorable developments have translated directly into improving financial markets. While arguments about the permanence of the stock market rally abound on both sides, the S&P 500 Index has turned in a 10.3 percent rally from year-end 2012, setting an all-time new high in the process. With the U.S. market leading the charge for global equities, the U.S. dollar has been a leading beneficiary. The U.S. dollar index has rallied from a year-end close of 79.77 to around 83.0, gaining a healthy 4.0 percent in the process.

Europe

Against the improving backdrop of the U.S. economy, unsettling elements once again plagued Europe and thrust it into a crisis mode for much of the quarter. With the drama of Greece hardly played out, the spotlight focused once again on the Mediterranean region, this time on the unlikely player of Cyprus. The rapidly escalating banking problem resulted in another cobbled-together rescue package from the European Union. The rescue broke new ground by not fully protecting the depositors of the besieged Cypriot banks. Critics argue that such a precedent could be dangerous the next time there is a financial crisis, as authorities have signaled to European investors that even in a financial crisis, large accounts are no longer safe.

Also in southern Europe, Italy added to abounding uncertainty when its recent election failed to produce a majority government for the country. With the election more than a month ago, party leaders Bersani, Berlusconi, and Grillo have been unable to assemble a ruling coalition. Italian bond yields have been rising, and while not yet at a level that would seriously undermine the ability of European governments to stabilize their debt-to-GDP ratios, they have renewed fears about a looming European debt crisis.

After ending the year at 1.3200, the EUR/USD staged a mid-quarter rally to the 1.3600 level. With uncertainty from Italy and Cyprus, however, the single currency slid to the 1.2850 level, or a 5.5 percent depreciation, its lowest level since last November. Compared to the U.S., Europe's economic performance continues to lag and trends remain very soft. A growing gap between U.S. and European confidence surveys point to a declining euro. Wells Fargo Securities' Foreign Exchange Research targets a move in EUR/USD towards the $1.2300 within the next 12 months.

While outside the Eurozone itself, the British pound sterling is another currency that has suffered during the first quarter. The Cameron government's experiment with austerity has resulted in subdued economic growth of 0.2 percent in 2012. Further tepid economic growth, a credit downgrade by Moody's, and an increasing minority of central bank policymakers calling for further monetary easing all weigh on the currency. From a lofty peak of $1.6250 at year-end, the pound fell to a low of 1.4900 against the USD, an 8.3 percent depreciation, on March 12. Since then, it has staged a modest recovery to the $1.5300 level. Overall, we expect sterling to explore lower trading levels with a target of $1.4600 within 12 months.

Asia

The other major currency contributing to the rise in the U.S. dollar index was the Japanese yen. After spending most of 2012 hovering at or just under the 80.00 level (yen to the dollar), the yen began weakening in November and had reached 86.75 by year-end. Since then, it has depreciated further to nearly 100.00, its weakest level in four years. With whispers emerging about potential currency wars, the yen's decline has resulted from deliberate government policy to end a decade-long slumbering of the Japanese economy, plagued by bouts of deflation from the asset bubble that burst in Japan in 1990.

Since winning elections in December, the government led by Prime Minister Shinzo Abe has pursued its promise of stimulating the economy with bold monetary easing, flexible fiscal policy, and accelerating deregulation. Embarking on its own aggressive program of quantitative easing through open-market asset purchases, newly elected Bank of Japan Governor Haruhiko Kuroda has stated that he holds a goal of reflating the economy until a 2.0 percent rate of inflation is achieved. A weaker yen goes hand in hand with helping Japanese export performance, a crucial factor in overall economic performance.

Finally, another currency of note has been the Korean won. After a long and steady eight-month appreciation from May 2012 through January 2013, in which the won traded from 1180 to the dollar to 1060, or just over a 10 percent appreciation, it has reversed course this quarter and hit a low of 1139, a 7.5 percent depreciation. Political tensions have weighed on the currency as the regime of Kim Jong Un tests the resolve of the United Nations and its sanctions against the North Korean nuclear weapons program. Evidence suggests that onshore banks have begun to hoard U.S. dollars as they typically have in previous periods of risk aversion, furthering the won's current weakness. While the currency will continue to be subject to additional political nervousness, Wells Fargo Securities' Foreign Exchange Research envisions that fundamental trends will strengthen the won towards the 1080 level over the next 12 months.

Ask the expert

Managing foreign exchange transactions online to streamline your businessCameron Wallace, senior vice president for for Wells Fargo Foreign Exchange, shares how managing your foreign exchange transactions online helps to streamline your business. Read more

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Question: How does managing your foreign exchange transactions online help you to streamline your business?

Answer: Whether you're a U.S. retailer purchasing materials in rupees from India or a German publisher converting euro to USD to fund your operations in the U.S., your global business transactions likely require you to make and receive payments in foreign currencies. To oversee these transactions, treasurers need tools to navigate the complexity of global markets, and banking systems to manage currency risk. Exchange rates are volatile, and within a short period, a currency fluctuation can turn net profits into losses. It's important to have an efficient way to initiate, approve, and pay for foreign exchange transactions online.

A reliable online platform provides you with 24-hour access to the market, as well as features and functionalities so you can better manage your cash flow, control costs, protect profits, and compete more effectively in the global marketplace. As one of the foreign exchange market leaders in North America, trading over $20 billion per day, Wells Fargo's Foreign Exchange Online platform offered through the Commercial Electronic Office® (CEO) business portal provides that tool. In addition to competitive foreign exchange rates, it offers customizable workflows allowing you to tailor your online execution to fit your business.

Basic transactions include:

  • Spot contracts: Allows you to buy or sell foreign currency at competitive foreign exchange rates on a spot date, usually two business days after the trade date.
  • Forward contracts: Allows you to arrange to buy or sell foreign currency today with delivery of funds occurring on a future date beyond the spot date eliminating the impact of rate fluctuations.
  • Swap transactions: Allows you to inexpensively shift the dates of international money movement through the simultaneous purchase and sale of currencies.
  • Online confirmations and settlements: Allows you to work with a foreign exchange specialist over the phone and confirm, settle, and report the transaction online.

Additionally, you can make payments using foreign currency contracts via wire transfer or draft. Our simple and streamlined approach possesses the capabilities and expertise needed to support your growing needs while minimizing risk. Regardless of where you are across the globe, the right banking partner can help your company navigate the complexities of doing business internationally.

Cameron Wallace is a senior vice president and manages the Foreign Exchange Online delivery channel for Wells Fargo Foreign Exchange. He is based in San Francisco and can be reached at cameron.wallace@wellsfargo.com.

In the spotlight

Global ACH now available to the PhilippinesWells Fargo offers ACH to 41 countries and growing. Read more

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Wells Fargo offers ACH to 41 countries and growing.

Wells Fargo has now added the Philippines to the list of global ACH payment locations. With one of the largest English speaking populations in the world, the Philippines is a growing international business destination for many U.S. companies to outsource information technology, business processes, and customer service centers. In fact, the Philippines recently surpassed India as the number one call center in the world. Additionally, the country has historical cultural ties to the U.S. and low costs for doing business, making it an attractive place to establish operations.

Wells Fargo is one of the few banks that can offer you a cost-effective means to efficiently disburse and receive global payments. With Wells Fargo's Global ACH service, you can reduce the cost of moving funds, increase control over your cash flow, and integrate your domestic and international cash management systems. In addition to the Philippines1, ACH payments and collections are currently available for Canada (either Canadian or U.S. dollars), Mexico, Europe2, Australia, Hong Kong, India, New Zealand, and Singapore.

How you benefit

  • Reduced funds movement costs. Global ACH is the most cost-effective clearing method available, helping you to reduce your funds movement costs compared to wire transfers, foreign cash letters, checks, and drafts.
  • More predictable cash flow. Global ACH eliminates the unpredictability of sending and receiving paper payment instructions because you designate exact dates for settlement. You can more accurately manage your accounts and maximize your use of available funds.
  • Integrated disbursements. With Wells Fargo's Global ACH credit origination, you can initiate payments with ease to vendors, employees, or shareholders living in the U.S. or the countries we serve.
  • One-bank convenience. Wells Fargo eliminates the need to form foreign banking relationships because we provide complete format conversion as well as foreign exchange and settlement services through your existing Wells Fargo U.S. dollar or multi-currency account. You will not need to factor foreign exchange rates into each transaction prior to transmitting your file. Moreover, you can originate payments in either U.S. dollars or local foreign currency, including euros.
  • Easy implementation. The international ACH service works the same way as Wells Fargo's domestic ACH but with a foreign exchange component. You can send domestic and international payments to Wells Fargo in separate batches within one transmission.
  • Multiple origination options. You have three methods of transferring your global ACH files to Wells Fargo.
    1. Direct origination allows you to create ACH files in-house and deliver them by electronic data transmission.
    2. Global ACH Payments on the Commercial Electronic Office® (CEO®) business portal allows you to create and deliver ACH files online.
    3. Payment Manager® service allows you to initiate global ACH payments using any standard or proprietary file format.

Wells Fargo offers centralized customer service for your global ACH items and works with you to help your company expand its presence in the global marketplace. For more information about our Global ACH service, please contact your relationship manager or sales consultant, call International Connections at 1-877-593-2468, or email us at internationalconnections@wellsfargo.com.

1 The Philippine peso is currently offered through Payment Manager® and Direct Origination®. Origination through CEO® will be available later this year. For more information, contact your relationship manager or sales consultant.

2 Europe includes:

Austria France Liechtenstein Portugal
Belgium Germany Lithuania Romania
Bulgaria Greece Luxembourg Slovak Republic
Cyprus Hungary Malta Slovenia
Czech Republic Iceland Monaco Spain
Denmark Ireland Netherlands Sweden
Estonia Italy Norway Switzerland
Finland Latvia Poland United Kingdom

People power

Oliver Cordell, a senior relationship manager for Wells Fargo Global BankingOliver Cordell, a U.K. native and sports aficionado. Read more

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Hailing from the commuter town of Essex in the U.K., Oliver has spent his career traveling in and out of London or on airplanes. "I seem to have spent a fair amount of time waiting in line or delayed at the airport," Oliver jokes.

Prior to joining Wells Fargo in 2011, Oliver spent eight and a half years at Barclays in various roles including liquidity management, structured trade, and global banking. Now, as a senior relationship manager for Wells Fargo Global Banking, Oliver partners closely with 14 sales offices in the U.S. to provide seamless coverage to multinational corporations headquartered in the U.K. "I enjoy the challenge of growing Wells Fargo's business and presence here. We've come a long way in a short time, but there is still a long way to go," he shares. "Like climbing a mountain, as soon as you get to the top, there's always another peak in the distance."

As for life outside of work? "It's sports-related," states Oliver. "I'm a keen golfer and have participated in numerous trail running competitions. I'm not good enough to win, but I won't disgrace myself by being last either!" Furthermore, Oliver and his wife are soon-to-be parents. "We're expecting our little one around the same time as the Duke and Duchess of Cambridge, so you never know who we'll have around for a play date!"

Hanna Abraham, a trade solutions relationship manager for Wells FargoHanna Abraham, a mother of three with a passion for cooking and travel. Read more

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A native of Jerusalem, Hanna lived and worked in Charlotte and Atlanta before planting her roots in Miami more than nine years ago.

After more than a decade at Bank of America, Hanna joined Wells Fargo in 2012 as a trade solutions relationship manager, where she identifies trade financing opportunities for clients and prospects that import and export. "I was looking for an opportunity in a vibrant environment that allowed me to utilize my trade services experience to help companies improve their working capital and grow," she shares. "I enjoy working with a diverse portfolio of customers and having the opportunity to come up with unique solutions to meet their individual needs. There's never a dull moment."

When Hanna's not at work, you can find her in the kitchen. "I love cooking and entertaining," Hanna divulges. Aside from her culinary genius, the mother of three also enjoys traveling and spending time with her children, volunteering in the community, shopping, relaxing on the beach, and socializing with friends. She enjoys coordinating social events for others — making their special day memorable.

So how does she balance work, family, and fun? "Life is too short to sweat the small things. I try to enjoy every moment," she imparts. "Live each day as if it were your last, and most importantly, never forget to smile!"

News and events

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For comments or questions about this newsletter call International Connections at 1-877-593-2468 or send an email to Lindsay Seymour at Lindsay.Seymour@wellsfargo.com.

General disclosures

The views expressed are intended for Wells Fargo customers only. They present the opinions of the authors on prospective trends and related matters in foreign exchange markets and global markets as of this date, and do not necessarily reflect the views of Wells Fargo & Co. , its affiliates and subsidiaries. Opinions expressed are based on diverse sources that we believe to be reliable, though the information is not guaranteed and is subject to change without notice. This is not an offer to sell or the solicitation to buy or sell any security or foreign exchange.