Global Focus; News and information for companies doing business internationally


In this edition of Global Focus by Wells Fargo


World headlines

Nick Bennenbroek, Head of Currency Strategy for Wells Fargo Foreign ExchangeU.S. political developments were an important theme during the fourth quarter. In the November elections, President Obama secured a second term, the Democrats retained control of the Senate, and the Republicans retained control of the House. Read more

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U.S. political developments were an important theme during the fourth quarter. In the November elections, President Obama secured a second term, the Democrats retained control of the Senate, and the Republicans retained control of the House. Following the election, attention quickly turned to the fiscal cliff, with U.S. political leaders needing to reach an agreement to avoid a series of tax increases and spending cuts that will otherwise take place in 2013 based on existing legislation. While the U.S. political rhetoric was constructive at times, progress towards an agreement was frustratingly slow. As a result, the S&P 500 equity index fell around 2% during the quarter, even as the Federal Reserve embarked on another round of quantitative easing with an open-ended program of treasury and mortgage/agency bond purchases.

European developments were more encouraging during the fourth quarter, contributing to a significant improvement in Eurozone peripheral bond markets, and gains in European equities. Spanish ten-year government bond yields fell 63bp to 5.20% and Italian ten-year yields fell by 57bp to 4.48%, while Eurozone equity markets rose by 7% during the quarter. After months of talks, the Greek government secured a further tranche of funding from its European partners, with 49 billion euros being paid from December through the first quarter so long as Greece adheres to the conditions of its aid agreement. More broadly, Eurozone finance ministers agreed in December that the European Central Bank should be the single banking supervisor for the region, with a target of having a legal framework in place by the end of February 2013, and the supervisor becoming operational by the start of March 2014. These encouraging developments are potentially coming to an end however — following Italian Prime Minister Monti's resignation in late December, the market's focus will likely shift to the upcoming Italian elections, which should take place by late February. Finally, Japanese equities fared well during the fourth quarter with the Nikkei jumping by 17%, as new Prime Minister Shinzo Abe signaled the likelihood of more expansive monetary and fiscal policy.

For foreign exchange, the broader financial market mood was favorable for some foreign currencies, given monetary easing in the U.S. and Japan, and market supportive political and policy developments in Japan and Europe. Among the G10 currencies the euro and Norwegian krone gained 2.5% to 3.0% versus the greenback, with the euro reaching its strongest level since April. The Australian, Canadian and New Zealand dollars were steady to slightly lower, while the yen slumped by some 10%. In emerging markets, the shekel, zloty and koruna gained 3% to 5%, supported by favorable Eurozone sentiment. Emerging Asian and Latin American currencies were mixed however — the won gained 4.5% and the Philippine peso by 2%, while the rupee fell by 4%, the rupiah fell by 2%, and the Brazilian real fell by 1%.


Recent U.S. economic figures have been steady, showing resilience given uncertainty around the U.S. budget outlook and the impact of Hurricane Sandy. Q3 GDP growth firmed to 3.1% q/q annualized, while payroll growth has averaged 139,000 in the past three months and jobless rate fell to 7.7% by November. The November ISM manufacturing index fell to 49.5, but the ISM services index of 54.7 remains comfortably in growth territory. Inflation is relatively tame, with the November core CPI at 1.9% y/y. Given only a moderate pace of labor market improvement, the Federal Reserve eased monetary policy further during the quarter. In September, the Fed announced open-ended purchases of $40 billion per month in mortgage agency-backed bonds, while in December the central bank also transitioned from its Operation Twist program to open-ended purchases of $45 billion per month of Treasury bonds. The Fed also pledged to keep the fed funds rate exceptionally low, at least while the jobless rate was above 6.5% and the 1-2 year inflation outlook was below 2.5%.

In Canada, Q3 GDP growth slowed to just 0.6% q/q annualized although growth in domestic demand was somewhat firmer. Inflation is also subdued, with the CPI slowing 0.8% y/y by November. The labor market has been somewhat firmer however, including average job growth of 38,000 in the latest three-months, and the Bank of Canada has maintained its overall tightening bias. Mexico's Q3 GDP slowed to 3.3% y/y, industrial and retail activity have moderated, and the November CPI also eased to 4.2% y/y. Still, the Bank of Mexico has maintained its rate hike bias and there are increased investor hopes for reform under the new Mexican president. Brazil's economy is bouncing along the bottom. Q3 GDP growth firmed to just 0.9% y/y, while inflation quickened to 5.5% y/y by November. The central bank cut its Selic rate by 25bp to 7.25% in October but has held rates steady since. A weak currency (the real fell by 0.7% in the quarter) also prompted Brazilian authorities to reverse some of their prior currency measures in an effort to stabilize the exchange rate. In Chile, growth is strong (Q3 GDP rose 6.9% y/y) and inflation is benign (the November CPI rose 2.1% y/y), prompting the central bank to keep its overnight rate steady at 5.00%. Regional central banks were otherwise relatively quiet, although the Colombian central bank did cut rates by 25bp in both November and December, to 4.25%.


The Eurozone remains in recession, with Q3 GDP falling by 0.1% q/q and 0.6% y/y. Confidence surveys have improved slightly, including a December manufacturing PMI of 46.3 and a services PMI of 47.8, but remain at levels consistent with contraction. With CPI inflation also slowing to 2.2% y/y in November, the European Central Bank has a dovish bias. The central bank kept its monetary policy stance steady at its December meeting but cut its growth and inflation forecasts, and said that a rate cut was widely discussed. On the political front, markets will likely be focused on a late February Italian election following the resignation of Prime Minister Mario Monti in December. In the U.K. Q3 GDP jumped by 0.9% q/q, a result that was nonetheless boosted by temporary factors including the London Olympics, while CPI inflation has also picked up, to 2.7% y/y in November. While the firming in activity may be temporary, recent growth and inflation trends were enough to prompt the Bank of England to pause its quantitative easing policy in November. In Switzerland, growth has been a bit firmer but deflation persists, with a 0.4% y/y decline in the November CPI. The Swiss National Bank kept its three-month LIBOR target at zero at its December announcement, and maintained its policy of capping the value of the Swiss franc against the euro. Sweden's central bank cut its policy interest rate by 25bp to 1.00% in December as economic growth has been subdued and confidence surveys have been soft. Norway's GDP growth has been sturdier, and Norway's central bank has held its deposit rate at 1.50%.

Emerging European currencies were mostly stronger in the fourth quarter, including gains of 3%-5% for the shekel, zloty and koruna, helped by encouraging developments on the European debt crisis front. In contrast, local economic developments were disappointing. The Czech and Hungarian economies remained in recession in Q3, while Poland's GDP growth slowed to just 1.4% y/y. In response to those slower trends the region's central banks were active during the quarter. Poland cut rates by a cumulative 50bp to 4.25%, Hungary cut rates by a cumulative 75bp to 5.75%, and the Czech Republic cut rates by 20bp to 0.05%, while also warning that it could intervene in currency markets to weaken the koruna. Israel's central bank cut rates by 25bp in both October and December, to 1.75%, while South Africa's central bank held rates steady.


The yen slumped by 10% during the fourth quarter on a combination of economic, monetary and political factors. While there have been small pockets of strength, economic figures have generally disappointed, including a 3.5% q/q annualized decline in Q3 GDP, and a soft Tankan survey for Q4. That survey showed drop in the large manufacturers index to -12, and a drop in the large non-manufacturers index to +4. The Bank of Japan eased during Q4 as the data softened, expanding its asset purchase target by 21 trillion yen to 76 trillion yen. Political factors also played a part in central bank easing and yen weakness. The opposition Liberal Democratic Party won the December election as widely expected, and new Prime Minister Shinzo Abe has called for more aggressive easing from the country's central bank.

In China, there are early signs that the growth slowdown may be at an end. Third quarter GDP slowed to 7.4% y/y, but subsequent figures have been stronger. Industrial output firmed to 10.1% y/y by November, while retail sales firmed to 14.9% y/y by November. Confidence surveys have also improved. On the political front, Xi Jinping was named head of the Communist Party at the 18th Party Congress in November, and will become President in March. Recent comments suggest Chinese authorities are comfortable with a 7.5% annual GDP growth target, and there have been no changes in China's monetary policy stance in recent months. In other central bank activity across Asia, October saw Korea's central bank cut rates by 25bp to 2.75%, Thailand's central bank also cut rates by 25bp to 2.75%, and the Philippine central bank cut rates by 25bp to 3.50%. The Reserve Bank of India lowered its Cash Reserve Ratio during the quarter.

The Australian dollar was unchanged in the fourth quarter, with the news flow not proving to be especially currency supportive. Q3 GDP slowed to 0.5% q/q and 3.1% y/y, while employment has risen by 14,000 on average over the past three months. Business confidence softened further during the quarter, and the Reserve Bank of Australia cut its Cash Rate by a cumulative 50bp to 3.00%. New Zealand economic figures have generally disappointed. Third quarter GDP rose just 0.2% q/q, while real retail sales fell 0.4% q/q, employment fell by 0.4% q/q, and the jobless rate rose to 7.3%. Nonetheless, the Reserve Bank of New Zealand has held its Official Cash Rate at 2.50%, and said it expects the economy to strengthen next year.

Ask the expert

Gain insight on how cross border lending can help you expand your business globallyAndrew Moy, regional vice president for Global Banking, shares how cross border lending can help you obtain the financing support you need to grow or establish operations overseas. Read more

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Question: How can cross border lending help you expand your business overseas?

Answer: Locating financing for investments in emerging markets can be difficult. Cross border lending is a great way to obtain the financing support a company needs to grow or establish operations overseas. That said, it is highly specialized and can be very complex.

Let me step back for a moment and explain it in simple terms. Cross border lending is a term loan or working capital financing — in U.S. dollars or another currency — for subsidiaries or joint ventures of U.S. parent companies that have established or are seeking to establish operations overseas. It can help you to increase your company's borrowing base by leveraging assets domiciled outside the U.S. In addition, it simplifies your company's accounting while allowing the convenience of borrowing in a local time zone or currency.

Before borrowing overseas, it is important to understand the country's government infrastructure, banking regulations, and business culture. Consult with your tax adviser to mitigate the risk of borrowing overseas and understand any possible tax implications associated with certain credit structures.

In summary, with the proper due diligence, cross border lending allows you to leverage offshore assets and take advantage of a debt facility to provide the working capital necessary to fund your business growth overseas. At Wells Fargo, we work collaboratively with our colleagues in Europe and Asia to support the cross border borrowing needs of our customers. Cross border lending isn't for every company, but it is one of the tools Wells Fargo provides to support our clients in non-U.S. markets.

Andrew Moy is a regional vice president for Wells Fargo Global Banking in Southern California based in Los Angeles. For more information, please email Andrew at

In the spotlight

Documentary collectionsBenefits of using documentary collections to process shipments. Read more

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Whether you are an importer or exporter, the payment vehicle you choose can affect the terms you negotiate with your counterparty overseas and can have a significant impact on your cash flow.

Documentary collection provides an excellent solution for trading partners with a well-established relationship who want to decrease costs and expedite processing yet maintain control over the transfer of goods and funds. When a documentary collection is used to process shipping documents, a sight draft or time draft is drawn on the buyer's account. Wells Fargo retains the documents until the draft is paid or accepted by the buyer, allowing sellers to maintain control of the shipment. Buyers also benefit by not having to release payment until the goods have been shipped. Fees are also typically lower than other payment vehicles.

Documentary collection is one of a wide variety of financing alternatives we can provide, ranging from simple open account arrangements to letters of credit. With our experience in global trade services, our knowledgeable staff, and an extensive correspondent banking network, we can help you choose the best financing and payment services for your international transactions.

People power

Nelson de Castro, Head of Global Trade Sales for Global BankingNelson de Castro, a waterman with a passion for global trade finance. Read more

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Born in Lisbon, Portugal, Nelson spent much of his early years living and working in Europe and Brazil, where his family has owned and managed businesses for many generations. Now living in Chicago, Nelson spent a lot of time on the east and west coasts before establishing his current home base near his wife's family in the Midwest.

Passionate about global trade finance, Nelson spent seven years with Royal Bank of Scotland managing a national sales team of global trade finance professionals. Before that, he worked for J.P. Morgan Chase's International Division, spending time in Global Financial Institutions, International Cash Management, Foreign Exchange, and Trade. Now, as head of Global Trade Sales for Wells Fargo, Nelson leads a nationwide team that delivers the bank's suite of trade services products to middle-market and large corporate customers. "I've spent a lot of time working in international banking and I love what I do. My number one priority is always the client. "

An entrepreneur at heart, Nelson started his first business at the young age of nine. "I grew up near the ocean and loved to surf, so I started my own surf wear company that ended up being very successful," he shares.

So, when Nelson's not managing the bank's global trade sales business? You guessed it; you can find him on his surf board! "I've surfed waves on every continent," he says, adding, "I also enjoy motorcycling, skateboarding, and spending time with my family. "

While Nelson has certainly mastered the art of balancing work and fun, he feels very fortunate. "Throughout my career, I've had the opportunity to learn many languages and interact with multiple cultures. " Nelson keeps a simple outlook on life. "I always do my best on things I can control and try not to sweat the small stuff," he imparts. "To stay focused, I like to follow a Japanese proverb that states, 'Vision without action is a daydream. Action without vision is a nightmare. '"

Caroline Wharton, Senior Relationship Manager for Global BankingCaroline Wharton, an Irish native with a love for sports and travel. Read more

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Hailing from Cork in the south of Ireland, Caroline has worked for Irish, German, South African, and U.S. financial institutions — all while never straying too far from her roots. "It surprises me because I never expected to still be in Dublin," shares Caroline. "I've had the opportunity to work in some very interesting sectors and experience different organizational cultures. "

A five-year company veteran, Caroline worked in several areas within the bank before joining Global Banking in 2009. As a senior relationship manager, Caroline covers Irish, French, and German corporations with substantial operations in the U.S. "I enjoy meeting my customers, learning how their businesses work, and then how Wells Fargo can support them. I've had the chance to meet some really innovative people. "

"I'm very proud to be one of the founding members of the Global Banking team in Europe which was formed three years ago," she adds. "Today, we're active all across Europe with customer relationships in Belgium, Finland, France, Germany, Ireland, Israel, the Netherlands, Sweden, Switzerland, and the U.K. "

When Caroline's not out meeting with prospects or clients, you can find her traveling off the beaten path to exotic destinations which have included Borneo, Rwanda, Colombia, and the Galapagos Islands. Caroline confesses, "I am also a bit of a sports nut. I will give almost anything a go, though my colleagues will tell you that ice skating is certainly not my forte!" She also enjoys triathlons and recently ran the Dublin Marathon last October. "It was my first — and possibly my last!" she jokes.

As for her advice to others? "Don't see change as a threat," Caroline imparts. "Embrace it and you never know what opportunities it will bring. The glass is always half full. "

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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.