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All major US, European and most APAC equity indices closed
higher. US government bonds closed modestly lower, while most
benchmark European government bonds closed higher. European iTraxx
and CDX-NA were close to flat on the day across IG and high yield.
The US dollar and natural gas closed higher, while oil, gold,
silver, and copper were lower on the day. All eyes will be on
tomorrow morning's 8:30am ET US CPI report for any significant
changes in monthly inflation beyond the higher or lower ends of
expectations.
Please note that we are now including a link to the profiles of
contributing authors who are available for one-on-one discussions
through our newly launched Experts
by IHS Markit platform.
Americas
All major US equity indices closed higher, with the DJIA +0.4%,
S&P 500 +0.4%, and Nasdaq +0.2% closing at new record highs for
a second consecutive day; Russell 2000 +0.1%.
10yr US govt bonds closed +1bp/1.37% yield and 30yr bonds
+1bp/2.00% yield.
CDX-NAIG closed flat/48bps and CDX-NAHY +1bp/277bps.
DXY US dollar index closed +0.1%/92.26.
Gold closed -0.3%/$1,806 per troy oz, silver flat/$26.24 per
troy oz, and copper -0.7%/$4.32 per pound.
Crude oil closed -0.6%/$74.10 per barrel and natural gas closed
+2.0%/$3.75 per mmbtu.
The world's publicly listed companies must dramatically
accelerate GHG emissions reductions if the 1.5-degrees Celsius
global warming target set out in the Paris Agreement is to be met,
warned global index provider MSCI. Without a dramatic turnaround in
emissions trajectory, public companies will exceed their share of
the world's "carbon budget" for meeting the Paris Agreement in less
than six years, it said as it released its new quarterly update,
MSCI Net-Zero Tracker. The tracker covers 9,300 companies on the
MSCI All Country World Investable Market Index (MSCI ACWI IMI),
accounting for 99% of listed equities. This information could put
added pressure on the world's largest companies to curb their
emissions. With the next global climate meeting, COP26, coming in
Scotland in November, nations have been announcing commitments to
greater reductions in emissions by 2030 on their way to goals of
net-zero emissions by 2050 (see here and here). But companies have
usually been looked at as individual entities, rather than as a
whole, though entire industries have mandatory and voluntary
emissions-reduction programs. The MSCI tracker puts it together at
the corporate level. Companies in the MSCI ACWI IMI emitted an
estimated 10.9 gigatons of direct GHGs (Scope 1) in 2019, it said.
To limit warming to 1.5 degrees Celsius by 2050, they would need to
collectively cap future direct emissions at 61.4 gigatons of
CO2-equivalent. Without any change, the companies would deplete
their remaining emissions budget in five years and eight months.
(IHS Markit Climate and Sustainability News' Kevin Adler)
Averaged over the last week, the count of seated diners on the
OpenTable platform was 13.2% below the comparable period in 2019.
This is somewhat below recent averages but is nevertheless
consistent with nearly a full recovery in dining out. We will be
watching these figures for signs that the recent upturn in new
COVID-19 cases in some areas is beginning to weigh on dining out.
Meanwhile, box office revenues over the week ending last Thursday
(8 July) were 59.1% below the comparable week in 2019, close to
readings in four of the previous five weeks. These data indicate
that the recovery in movie-theater activity is far from complete.
(IHS Markit Economists Ben
Herzon and Joel
Prakken)
COVID-19 infections in New York City are climbing for the first
time in months as the delta variant gains traction and vaccination
rates in some boroughs remain stubbornly low. The city's seven-day
average rate of positive tests has risen slowly throughout July,
and had roughly doubled in two weeks to 1.27% as of Saturday. On
average, there were 328 new confirmed and probable cases daily over
the past week, up from 208 as of June 28. Staten Island has emerged
as a miniature hot spot, with its seven-day positivity rate
averaging 2.34% as of July 8, well above the citywide average.
(Bloomberg)
The US government has unveiled plans to invest at least USD500
million to expand processing capacity and increase competition in
the meat and poultry sector. The USDA said the initiative would
ensure that farmers, ranchers, and consumers have more choices in
the marketplace. The department also announced more than USD150
million for existing small and very small processing facilities to
help them weather COVID, compete in the marketplace and get the
support they need to reach more customers. USDA said it is also
holding meatpackers accountable by revitalizing the Packers and
Stockyards Act, issuing new rules on 'Product of USA' labels, and
developing plans to expand farmers' access to new markets. Vilsack
said the measures would begin to level the playing field for
farmers and ranchers, while also making the food system more
resilient to shocks. The USD500 million investment will be used to
provide grants, loans, and technical assistance to support new meat
and poultry processing facilities. (IHS Markit Food and
Agricultural Commodities' Max Green)
US tobacco giant Philip Morris has announced that it has agreed
a deal to acquire UK inhaled-therapeutic specialist Vectura for a
price of GBP852 million (USD1.2 billion). Under the deal - which is
subject to a shareholder vote and regulatory approval -
shareholders would receive GBP1.50 per share, which represents a
46% premium on Vectura's ex-dividend closing price of GBP1.03 on 25
May 2021. With the dividend payments taken into consideration, the
acquisition price equates to about USD1.45 billion. For Philip
Morris, the deal aligns with the goal that it had announced in
February to generate more than 50% of its total net revenue from
smoke-free products by 2025. The company had also stated its aim to
generate at least USD1 billion in net revenues by 2025 from its
so-called "Beyond Nicotine" products. The deal is expected to close
in the second half of 2021. (IHS Markit Life Sciences' Milena
Izmirlieva)
Electronics contract manufacturer Foxconn and electric vehicle
(EV) startup Fisker have confirmed holding talks with Wisconsin
Economic Development Corporation (WEDC) regarding producing EVs at
a Foxconn facility in the state of Wisconsin, according to various
media reports. A joint statement from the two companies reportedly
said, "As part of the site selection process, Foxconn and Fisker
have engaged with the Wisconsin Economic Development Corporation to
discuss plans for electric vehicle manufacturing. Foxconn and
Fisker look forward to discussions with the WEDC." Although Foxconn
and Fisker have confirmed the talks, local media sources report
that WEDC has not confirmed the status of any discussions with the
two companies, preferring to keep the potential discussions
confidential. Foxconn built a manufacturing site in Wisconsin in
2018 after obtaining USD2.85 billion in state tax credits and
subsidies. Initially, the plant was to build LCD screens, and then
smartphone screens. According to media reports, Foxconn and the
state authorities later worked out a lower level of support (USD80
million), also based on job creation. (IHS Markit
AutoIntelligence's Stephanie
Brinley)
Startup Hercules Electric Vehicles has announced an agreement
with Pininfarina on vehicle design, to begin with the Hercules
Alpha electric pick-up truck. According to a statement issued by
Hercules outlining the deal, the Alpha pick-up is to be followed by
other electric vehicle (EV) products under development by the
startup. The two companies are to begin their collaboration
immediately, with production of the Alpha expected to begin in late
2022. (IHS Markit AutoIntelligence's Stephanie
Brinley)
In a press release, Penn Virginia Corporation announced the
signing of an agreement to acquire Lonestar Resources US Inc. in an
all-stock transaction valued at $430.5 million. The transaction is
expected to close in the second half of 2021. Under the deal,
Lonestar shareholders will receive 0.51 shares of common stock of
Penn Virginia for each share of common stock of Lonestar. Based on
Penn Virginia's closing price on 9 July 2021 and 11.2 million
Lonestar shares outstanding (including share warrants), the total
equity offer value is $131.6 million or $11.74 per share. The offer
price is a 17% premium to the 9 July closing price of Lonestar. The
total transaction value also includes the assumption of Lonsetar's
31 March 2021 working capital deficit of $38.6 million and
long-term debt and liabilities of $260.3 million. Lonestar's net
proved reserves were 79.2 MMboe (74% oil and NGLs; 37% developed)
at year-end 2020 and net production averaged 10,377 boe/d (74% oil
and NGLs) during the first quarter of 2021. The company reported
32,793 net undeveloped acres at year-end 2020. On closing, Penn
Virginia shareholders will own approximately 87% of the combined
company, and Lonestar will hold the remaining 13% of the combined
company. (IHS Markit Upstream Companies and Transactions' Karan
Bhagani)
Maire Tecnimont's subsidiaries NextChem and MET Development
have signed an agreement with FerSam to develop projects to produce
green ammonia and bioethanol in Latin America. As per agreement,
Maire Tecnimont and FerSam will undertake feasibility studies for
two projects. The first project is to evaluate and assess the
possibility of jointly producing green ammonia. The second project
is to develop a second-generation bioethanol project based on the
GranBio technology, which produces second generation ethanol from
non-food biomass. Maire Tecnimont will provide technological
solutions and its expertise in project development, design and
engineering, and execution. FerSam will secure the biomass
feedstock and energy sources for the projects, as well as provide
local regulatory expertise. (IHS Markit Upstream Costs and
Technology's Ravi Rawat)
Peru's consumer price index (CPI) increased 3.3% year on year
(y/y) in June, exceeding the upper bound of the 1-3% target range
set by the Central Reserve Bank of Peru (Banco Central de Reserva
del Perú: BCRP). The BCRP nonetheless left interest rates unaltered
at its June policy meeting. (IHS Markit Economist Jeremy Smith)
Consumer prices increased 0.5% in June, raising inflation to
3.3% y/y, the highest rate since early 2017.
Rising food prices - especially grains, oils, and meats -
accounted for around 60% of June inflation, with the remainder
mainly explained by the increasing cost of fuels and other energy
products.
Depreciation of the Peruvian sol, which lost 12.6% against the
US dollar in the 12 months ended in June, has made food and energy
imports even more expensive. The BCRP estimates that each
percentage point of currency depreciation is associated with a
0.1-0.2 percentage point increase in the rate of inflation a year
later.
Indeed, excluding products in the volatile food and energy
categories, annual inflation measured 1.9% in June. This value is
essentially unchanged from a year ago and is right at the midpoint
of the 1-3% target range.
Meanwhile, the wholesale price index surge continues unabated,
increasing 9.3% y/y in June on rising raw material costs.
Europe/Middle East/Africa
All major European equity indices closed higher; Italy +0.9%,
Germany +0.7%, France/Spain +0.5%, and UK +0.1%.
Most 10yr European govt bonds closed higher except for German
Bunds closing flat; Italy -3bps, Spain -2bps, and France/UK
-1bp.
iTraxx-Europe closed flat/47bps and iTraxx-Xover
flat/233bps.
The minutes of June's European Central Bank (ECB) meeting show
a "broad" consensus to continue net purchases at a significantly
higher pace than during the first months of the year and, while
July's meeting will incorporate an updated forward guidance, a
decision on asset purchases may be delayed until September. (IHS
Markit Economist Diego
Iscaro)
The ECB decided to maintain the higher rate of asset purchases
under its pandemic emergency purchase programme (PEPP), which was
initially introduced in March 2020, in its June meeting.
This decision was taken against a backdrop of ongoing financial
market concerns over rising inflationary pressures, inflation
reached 2.0% in May, and despite substantial upward revisions to
the ECB's macroeconomic projections in June's quarterly staff
projections. For example, the eurozone's real GDP is now projected
to grow by 4.6% in 2021 and 4.7% in 2022, an upward revision of 0.6
percentage points for both years compared to March's
estimates.
The annual Harmonized Index of Consumer Prices (HICP) inflation
projections for 2021 and 2022 were revised sharply upwards, by 0.4
percentage point to 0.9% in the former, and by 0.3 percentage point
to 1.5% in the latter. The growth and inflation projections for
2023 were unchanged at 2.1% and 1.4%, respectively.
The account of June's policy meeting shows that the Governing
Council sees risks surrounding the growth outlook as "balanced".
While the pace in which households unwind their savings accumulated
since the start of the pandemic was seen as a key upside risk, a
worsening of the epidemiological situation and a potential increase
in corporate bankruptcies may result in worsening economic
conditions.
Regarding inflation, there was a "broad agreement" with the
view that inflation is being boosted by temporary factors, such as
higher energy prices, while underlying price pressures were
expected to "remain subdued overall".
However, some members highlighted that the inflationary
pressures in place in some of the cyclically more advanced
economies, such as the United States, could "be a harbinger of
developments in the euro area further down the road".
Moreover, it was suggested that the current inflation situation
could be different from the past, as "companies had less scope for
absorbing pipeline pressures in their margins" and the expected
surge in demand "might offer an opportunity to adjust prices". Some
Governing Council members also expressed concerns about potential
side effects of the "highly accommodative monetary stance", noting
that property price dynamics are accelerating.
While it was argued that asset purchases under the PEPP should
be scaled back in line with the improved outlook for growth and
inflation, overall there was a "broad consensus" among Governing
Council members to continue net purchases at a significantly higher
pace than during the first months of the year.
An EU-wide mega petition for the European Commission to
introduce EcoScore labelling, giving the environmental profile of
food and other products, starts its year-long campaign to gather a
minimum million signatures from at least seven member states on
July 23. (IHS Markit Food and Agricultural Policy's Sara Lewis)
The latest European Citizen's Initiative (ECI) - European
EcoScore - calls on the Commission to propose "a reliable European
EcoScore" specifying that it should be "a mandatory label providing
consumers with information about the environmental impact of
products manufactured or sold on the EU market".
The "compulsory and clearly visible indication on the packaging
would provide simple and reliable information on the environmental
impact of the product according to the letter selected" with A
signaling a product was "very environmentally friendly" and F on
the other end of the scale "very harmful to the environment".
Like the Nutri-Score nutrition labelling system, the EcoScore
would be based on a standardized, calculation using science-based
criteria. The organizers stop short of spelling out what the
criteria will be, considering that this will be for the Commission
and experts to decide, but suggest life cycle analysis as a
possibility.
The International Organization for Standardization (ISO)
technical committee, along with an international group of experts
led by WMG, has published an international safety standard for
Level 4 low-speed automated driving (LSAD) systems. The new
standard, ISO 22737, which is claimed to be the first of its kind,
will provide specific minimum safety and performance requirements
for LSAD systems. In addition, it will offer a common language to
support the development and safe deployment of this technology
worldwide. (IHS Markit Automotive Mobility's Surabhi Rajpal)
German battery electric vehicle (BEV) startup Next e.Go Mobile
will build a factory to produce its low-cost city car concept in
Bulgaria, according to a Reuters report that cited comments from
Bulgarian Economy Minister Kiril Petkov. The politician informed
journalists that Next e.Go Mobile will invest EUR140 million
(USD166 million) in the project to build a factory in the city of
Lovech, with the plan for production to begin in 2023. Next e.Go
Mobile is positioning itself at the entry level for BEV ownership
with a novel, low-cost car concept aimed at urban environments.
Bulgaria, and its neighboring Eastern European countries, are seen
as the ideal target market for the vehicle; and the company plans
to produce its E.Go Life and E.Go Life Cross models there. (IHS
Markit AutoIntelligence's Tim Urquhart)
Vestas has been named as the pre-selected turbines tenderer for
EnBW's 900 MW He Dreiht offshore wind project. Under the agreement,
Vestas will supply 60 of its V236-15.0 MW turbines for installation
at the project from the second quarter of 2025. The He Dreiht
project is located in the German North Sea within 85 km of the
island of Borkum and 104 km west of the island of Helgoland in
water depths of approximately 40 meters. EnBW stated that the final
investment decision is planned for 2023 with the project to be
fully commissioned in the fourth quarter of 2025. A firm and
unconditional order will be made thereafter. EnBW is 100% owner of
the project with Tennet to own and operate the related export
transmission system. (IHS Markit Upstream Costs and Technology's
Monish Thakkar)
Georgia's wide current-account deficit narrowed by 15% in the
first quarter of 2021 in both annual and quarterly comparison, as
the service account returned to modest surplus after two quarters
of deficits, and goods exports returned to annual growth. (IHS
Markit Economist Venla
Sipilä)
Georgia's current account in the first quarter of 2021 posted a
deficit of USD364 million, narrowing by 14% year on year (y/y) and
by over a third in quarter-on-quarter (q/q) terms.
The goods trade deficit, in particular, narrowed by around 15%
in both y/y and q/q comparison. Exports increased by nearly 5% y/y,
while imports contracted, whereas a slightly steeper fall in
imports than in exports secured the strengthening from the previous
quarter.
Meanwhile, the service account balance encouragingly returned
to a surplus after two quarters of deficits. However, it dwindled
by over 90% y/y with service export income more than halving from
the first quarter of 2020.
With the service account surplus remaining very modest, the
secondary income surplus retained its position as the largest
positive component on the Georgian current account that it had
reclaimed from the first quarter of 2020. The surplus strengthened
by some 36% y/y, with income inflows rising by 30%.
In May, Turkey's current-account deficit narrowed year on year
(y/y) and net portfolio investment turned inward once again. The
country's overall current-account deficit remains dangerously
large, however, with net capital inflows still precarious in 2021
as a whole. (IHS Markit Economist Andrew
Birch)
Turkey's current-account deficit fell to USD3.1 billion in May
2021, down by nearly one-quarter as compared to a year earlier. A
USD1.1-billion turnaround in the services balance (from a deficit
to a surplus) was the overwhelming cause for the improvement in the
headline figure.
In April-May 2020, the worsening of the global coronavirus
disease 2019 (COVID-19) virus pandemic devastated service export
earnings. While Turkey has struggled to attract foreign tourists
back into the country, the low base nonetheless led to a more than
doubling of service export earnings in both months of 2021 as
compared to a year earlier.
A stabilization of its currency after the sharp losses through
the first quarter of 2021 reflected a return of net portfolio
capital inflows. In May, these net inflows reached USD836 million,
reversing huge net outflows in the previous two months. For the
first five months of the year as a whole, net capital was still
outward, by over USD900 million, but at least the losses were far
less severe than they had been in the same period of 2020 - USD11.3
billion.
The long-term erosion of foreign direct investment (FDI)
continued in the first part of 2021, however. The 12-month,
trailing net inflow of FDI was only USD4.1 billion as of May 2021,
down from USD5.8 billion just a year earlier and averages of
USD8-10 billion annually in the late 2010s.
Turkish officials are reportedly considering injecting
additional capital into state-owned banks to increase capacity for
new lending, unidentified bankers and government officials
interviewed by Reuters have suggested. Six sources contacted by
Reuters suggested that the capital injections are likely to come
before the recently extended deadline on the classification of
non-performing loans (NPLs) and other COVID-19-virus-related
forbearance arrives at the end of September. The same sources
suggested that moving bad assets from bank balance sheets to a
centralized asset management company is also still being discussed
but no concrete plans are under way. Meanwhile, Turkey's banking
sector regulator, the Banking Regulation and Supervision Agency
(BDDK), has asked banks to prepare a three-year strategy for NPL
management, including the creation of a separate unit to oversee
NPL resolution and an operational plan to reduce them. Even in the
absence of existing support from forbearance measures, which IHS
Markit's analysis of large banks' financial statements suggests is
adding around 300 basis points to reported capital adequacy ratios
(CARs), the sector's overall CAR of 18% when last reported would
still exceed the higher threshold of 12% (minimum 8%) targeted by
the BDDK. (IHS Markit Banking Risk's Alyssa
Grzelak)
Asia-Pacific
Most major APAC equity markets closed higher except for India
flat; Japan +2.3%, South Korea +0.9%, Australia +0.8%, Mainland
China +0.7%, and Hong Kong +0.6%.
Mainland China's new TSF—the broadest measure of net new
financing to the real economy - totaled CNY3.67 trillion (USD571.4
billion) in June, up by CNY201.9 billion year on year (y/y)
according to the People's Bank of China (PBoC). Stock TSF reached
CNY301.56 trillion by June end, up by 11.0% y/y - stabilizing after
three consecutive months of stock TSF growth rate decline. (IHS
Markit Economist Lei Yi)
Increased lending to the real economy was the main driver for
the uptick in June TSF, with CNY loans recording year-on-year gains
of CNY413.1 billion. While strength in medium-to-long term bank
borrowing by corporates sustained in June, the year-on-year
expansion in corporate borrowing largely came from paper financing,
which registered increase of CNY484.9 billion y/y.
Household borrowing on the other hand, saw a second month of
year-on-year contraction in medium-to-long-term loans. This may to
do with tightened mortgage availability - especially in cities
where local housing market has showed overheating signs - resulting
from the property loan ceiling imposed on commercial banks.
Bro ad money supply (M2) expanded by 8.6% y/y in June,
accelerating from 8.3% y/y in the prior month. M1 grew by 5.5% y/y,
down by 0.6 percentage point from May; note that year on year M1
growth has posted continuous decline so far this year.
Cumulatively, new TSF amounted to CNY17.74 trillion in the
first half of 2021, lower by CNY3.13 trillion y/y yet higher by
3.12 trillion from comparable 2019 level. New bank loans totaled
CNY12.76 trillion, up by CNY667.7 billion y/y through June.
Shanghai Zhenhua Heavy Industries (ZPMC) has loaded out a ±400
kv 1,100 MW high-voltage direct current (HVDC) offshore substation
for China Three Gorges New Energy's 800 MW Jiangsu Rudong H6 and
H10 offshore wind farm (OWF) and China General Nuclear Power's 300
MW Jiangsu Rudong H8 OWF in China. A loadout ceremony was held at
ZPMC's fabrication yard in Nantong on 8 July where the HVDC
offshore substation was loaded onto China Merchants Heavy
Industry's (CMHI) semisubmersible heavy lift vessel Zhao Shang
Zhong Gong 3. The HVDV substation will be installed between Jiangsu
Rudong H6 and H10 OWFs, approximately 70 km from shore, in water
depths of 17 m. In February 2020, ZPMC commenced the construction
work for the offshore substation and the jacket foundation. The
jacket foundation was delivered and installed in November 2020.
Three 220 kV offshore substations from Jiangsu Rudong H6, H8, and H
10 OWFs will be connected to the HVDC substation, which will
convert the 220 kv input power for transmission onward to the
onshore substation. (IHS Markit Upstream Costs and Technology's
Melvin Leong)
Chinese tech giant Xiaomi has reportedly acquired autonomous
vehicle (AV) technology startup DeepMotion. DeepMotion's team of
more than 20 employees will join Xiaomi, reports Pandaily. They
will assist Xiaomi in filling the staff line-up at its AV division
and its technology research and development. (IHS Markit Automotive
Mobility's Surabhi Rajpal)
SsangYong has decided to sell the site of its plant in
Pyeongtaek (South Korea) as part of self-rescue efforts, reports
the Yonhap News Agency. The Pyeongtaek city government has signed a
memorandum of understanding (MOU) with the court-appointed manager
of SsangYong and its labor union regarding the sale of the site,
which measures 850,000 square meters and is valued at KRW900
billion (USD785.1 million). The plant was constructed in 1979. The
automaker will build a new plant in Pyeongtaek, and the city will
provide administrative support in the process of construction and
relocation. "We will actively support SsangYong Motor to grow into
a global company that contributes to the development of the local
economy," said Jung Jang-seon, mayor of Pyeongtaek. Separately, the
automaker's employees also began to take unpaid leave in rotation
as part of self-help measures. From July through to June 2022, 50%
of assembly line workers at the Pyeongtaek plant and 30% of office
workers will take turns going on unpaid leave. (IHS Markit
AutoIntelligence's Jamal Amir)
India-based ride-hailing firm Ola has raised USD50 million from
the Singapore government's investment fund, Temasek, and Plum Wood
Investment, an affiliate of Warburg Pincus, reports The Financial
Express. Ola co-founder and chief executive Bhavish Aggarwal also
participated in the new investment, which is ahead of the company's
planned initial public offering (IPO). However, the company did not
disclose specific details of the deal and the timeline of its IPO.
(IHS Markit Automotive Mobility's Surabhi Rajpal)
The Reserve Bank of New Zealand (RBNZ) announced its intention
to consult over the development of a central bank digital currency
(CBDC), after releasing reports on 7 July that highlighted
declining use of physical cash. The RBNZ noted that some groups
were struggling with declining availability of physical cash and
the curtailment of traditional banking service provision. (IHS
Markit Economist Brian
Lawson)
The initial consultation will span "issues key to the future of
how New Zealanders pay and save". The RBNZ announced it will issue
a series of papers looking broadly at means of payment discussing
"what a stable cash and currency system… might look like" and how
to respond to "digital innovations".
In a second stage, it suggested that a subsequent paper will
look specifically at the possible role of a CBDC. Overall, the RBNZ
assesses that digital payment channels are now preferred by "the
majority of us" and that the future "will undoubtedly involve less
cash".
Posted 12 July 2021 by Ana Moreno, Director, Product Development, IHS Markit and
Chris Fenske, Head of Fixed Income Research, Americas, S&P Global Market Intelligence
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.