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Likwidity Quarterly Q423 -How normal is this cycle?

Hi There

Welcome to the Q423 edition of the Likwidity Quarterly, where we review the past few months and examine the implications for Treasurers and other Finance Professionals. In this edition, we’ll look at some highlights from the emerging economic trends around the globe as well as focusing on what’s in store for cash rates and bank deposits over the coming years.

Rate cycle and duration

There are numerous contrasting views around interest rates and how long the higher rates will remain in place. We are NOT experts and thought this article and graph is very instructive (see link below), (courtesy of The Visual Capitalist). Essentially it shows that the past decade of low rate

s was an aberration and that rates are now returning the normal levels of circa 5%. The main question is how long this may last and if we look over the last 25 years, it would appear that these cycles take between 5 to 8 years. So how long do you think this higher cycle will last.

Underlying Trends

It is well understood that wages are a key component of interest rate decisions, so this less appreciated insight is noteworthy. Membership and power of trade unions in the USA has surged in the past few years with 2023 witnessing a string of major victories in Automotive, Healthcare, Postal industries to name a few. And the size of their victories has been unprecedented with wage package increases ranging from 7-21%. In the majority of cases, the increases are significantly more than inflation and triggering similar increases in non-union rates. For example, Toyota USA pre-empted the markets by awarding workers increases without being asked to by between 7-9%. With US manufacturing rebounding, these inflationary increases are like cement. They will be baked in the entire ecosystem for many years and will be hard to unwind. The reality is that the US is still the major

economic engine, and these costs will be exported. Many assume that the Australia economy is unconnected and view interest rate decisions in isolation. This is not true.

Fund allocation and risk over the ages

In the US market, structural changes in deployment of cash funds have occurred over the years. In1955, households in the USA accounted for 62% of bank deposits declining to 50% in the 90's and now sitting at around 28%. In Australia, the reverse has happened with households share increasing from 31% to about 35%. One inference may suggest that Australian banks have significant market power compared to a diverse and competitive USA.

In the USA, institutions have replaced households at around 65% today. A large part of that change was movement to Money Market Funds (MMF) and this has altered the risk dynamics. Because MM

F invest in s/t securities, the risks have increased with exposure to market declines, and instead of assuming $1 deposit equals $1 withdrawal, the capital could fluctuate down depending on stock market. This has occurred in 1994 and again in 2008.

Concentration Risk regarding Banks-How do you compare?

We have retained this segment in most of our quarterly views and that is about corporate concentration risk with banks. Too many organisations only have 1-bank relationship and that creates a potential concentration risk. This is probably a good moment to ensure that your organisation adopts a multi-bank strategy to spread the concentration risk and also introduce new banking options.

How does your organisation compare to your peers.

See our poll results over here (

Trends in Treasury Tech

In our previous article, we touched on the buzzwords in treasury tech being AI and Automation. According to the PWC Treasury Survey 2023, the key priorities for Treasury and Finance staff remains as No1 and 2 being Funding and Capital structure and Cash and Liquidity management. Does this sound fair to you? Other research also highlights that Digital Transformation in treasury is receiving very high attention and anecdotally, we believe that higher interest rates is changing the priority and attention to treasury as compared to a low-rate environment.

That, of course, brings us to Likwidity where you get a tool that will get you the best rates from the banks and perform all of the necessary reporting and logging associated with the deposit process. Likwidity offers more options, visibility, and efficiencies than any other tool and importantly, it’s the only independent and unconflicted platform, having rejected the bank-paid commission model used by everyone else.

If you'd like to talk the only independent and unconflicted Deposit Management Platform, get in touch with us and find out more about how Likwidity can improve your cash management process.



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