Cash & Liquidity Management

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Treasury Outlook for 2017 Thomson Reuters look back at how macroeconomic and geopolitical events of the past year affected treasurers - and consider the way forward in 2017.

Treasury Outlook for 2017

Treasury Outlook for 2017 

by Ritu Singh, Market Development Manager, Corporate Treasury and Alex Goraieb, Head of FX & Corporate Treasury Market Development Europe, Thomson Reuters 

How have the unprecedented macroeconomic and political events of 2016 affected treasurers?

Geopolitical events have had a bigger impact in 2016 than in recent years. Brexit was the most prominent example of populist politics with the electorate exercising its dissatisfaction with the status quo and fuelling a growing trend of reverse globalisation. 

FX volatility is now less driven by macroeconomic trends but more by political risk. The recent dramatic movements in sterling can be directly correlated to speeches by politicians or government officials- recently witnessed with the extreme volatility in GBP following the rollercoaster speculation surrounding the hard vs soft Brexit decision. There has been some speculation around the GBP flash crash being sparked by comments originally attributed to the French president François Hollande regarding the European response to a hard Brexit being recycled in the media. This however is yet to be proved.

Political instability in the Middle East and Africa has led to the largest involuntary migration since the Second World War. This has unwittingly fuelled the populist politics within developed Europe, further exacerbating the protectionist attitude and popularity of extreme politics. This is not confined to Europe, but indeed contributed to an anti-globalisation, anti-free trade business environment in which most MNCs thrive.

On the other hand, MNCs whose treasury operations are centralised are also looking to keep regional and even subregional presence in place. This is particularly relevant for China where language and government bureaurocacy may create significant challenges. The drastic fall of oil prices in recent years has meant that cash may become trapped in economies that are dependent on oil production and impose hard currency controls... as recently voiced by the head of treasury operations at one of the leading global oil firms. 

Political events will also have a bearing on counterparty/country risk mangement. Treasurers are increasingly integrating market-based and political data such as GDP per capita, stability of reserves, unemployment rates as new inputs into their risk models. 

Global growth can be seen in four quadrants. The US is improving albeit at a slow pace, Europe is at a standstill, China is slowing and the rest of the emerging world has shown resilience to a great extent in the wake of a strong dollar. Treasurers will be considering this when planning new projects. We at Thomson Reuters believe we can only provide the right level of sub-regional insight to our corporate customers by being on the ground in over 100+ countries, gathering key data points, as well as the latest news scoops on the macroeconomic, geopolitical and central bank events. This information is the life blood of our corporate customers’ decision-making and strategic planning processes on a day-to-day basis.

What other challenges have been particularly significant this year?

Historically financial regulation did not have significant impact on a treasurer’s agenda. This, coupled with tax and accounting directives and rules, is now very much at the forefront. Treasury now has an added compliance function. Basel III and Basel IV mean that the attractiveness of placing short-term deposits for corporates is diminished. MiFID II extends the stricter collateralisation and clearing requirements of OTC instruments, such as commodities derivatives, that many corporates use to hedge price risk. 

Treasurers are responding to the BEPS regulations by working more closely with their tax, finance and boardroom executive colleagues to ensure that the processes that they put in place are coherent with the strategic goals of the company and more importantly that they are compliant from a tax reporting perspective. 

IFRS (while not effective until January 2018) requires all financial instruments to be recognised at fair value. Observable market rates are required by auditors as key inputs into achieving this objective. Intercompany loans that are not made at arm’s length will be given a difference in accounting treatment and so it is incumbent to show ‘arm’s length’ rates through independent market data rather than relying on bank rates or the parent’s credit rating. 


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