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The global financial environment in 2015: a framework forecast for FDs and corporate treasurers    
Economic forecasting is an inexact science, if even it can be regarded as a science, but nevertheless corporate financial managers, whether they like it or not must forecast, at least as a backdrop for scenario planning for financial and cash flow hedging strategies, as well as providing a longer term decisionmaking framework regarding their corporate funding strategies. As we enter 2015, they are faced with an unique environment, and gradually changing world financial market conditions, perhaps of the most radical nature seen since the onset of the financial crisis in 2007. Below, we outline a 2015 routemap for Irish treasurers for the main key indicators, starting with the most important seismic change likely in 2015: the final ending of virtual zero cost funding in the money markets, with the beginnings of a gradual rise in global interest rates, starting in the United States.
The scale of the coming interest change is provided by the official forecaster of the world’s biggest economy - the Federal Open Markets Committee of the United States Federal Reserve Board.

In December, in her last public comment on interest rates, Fed Chair Janet Yellen said the Fed was unlikely to raise the fed funds rate at its next 2 meetings. The median forecast expectation of FOMC members was, at year end, for a fed funds rate of 1.125 p.c. by December 2015, 2.5 p.c. by December 2016, and 3.6 p.c. by December 2017. The Fed did not remove “for a considerable time” language in its statement on how long the benchmark would remain unchanged.
US Federal Reserve Chair Janet Yellen



In Europe, with QE still signalled for here, because of the ‘uneven and patchy’ (as per the ECB’s chair Draghi) recovery (which will see Ireland growing at 3.5% according to IBEC’s December 2014 forecast, for GNP-GDP), interest rates are expected to stay more stable, and not to follow upwards. So, hedging, if you are not a contrarian, and wish to follow the consensus (usually the best option in today’s increasingly regulated and conformist corporate governance environment) against interest rises in euros is probably going to be an expensive option.

The consequence of higher interest rates against Europe was of course, that the dollar would settle on an upward trajectory against the euro, indicating that hedging against a stronger dollar would be advisable, for both companies liable to US dollar fluctuations, especially for supplies priced in dollars. This could, now ironically, apply to those dependent on hedging against fuel energy and oil prices.

This brings us to one of the other key financial indicators currently on the move - oil. At the start of 2014 Finance Dublin posited a weakening in oil prices in 2014, but the scale of that weakening, particularly in the final quarter of 2014 was not anticipated in our forecasts of the potential of oil at around $90. With $50 oil currently in sight it may be that an overcorrection has taken place, but still, it could reflect an effect that has been unanticipated - the impact of environmental consciousness on capital markets industries, such as aircraft and automotive, allied with a consumer consciousness across the world of energy conservation, as well as a switch towards green energy sources, and fracking - effecting a medium term rather than short term cut in real energy costs.

If so, that is a net positive for the world, especially energy importing countries (such as Ireland).

With energy and other commodities under downward pressure, consensus strategists are suggesting that hedgers should be looking to lock in the low price options achieved in the final quarter of 2014, before long. This applies, too in asset markets, as asset managers will seek value in securities, debt, and equity, of transport-related stocks, for example, and sectors that indirectly are set to benefit from the benefits of this.
The interest rate outlook will continue to influence equity and bond markets, resulting in the need for users of capital market solutions for corporate funding to be judicious about their timing.

In capital markets, 2015 will see a continued shift in emphasis from corporate restructuring in the investment banking markets to debt issuance, and mergers and acquisitions. The Irish IPOs of Dalata Hotel group in March, and last month’s launch on the NYSE of aircraft lessor Avolon will give encouragement to other Irish companies, to look at equity and debt options in 2015.

Commercial corporate banking will continue to recover, and corporate treasurers and finance directors, will find an increasingly receptive response from corporate bankers willing to participate in solutions that involve both capital strengthening exercises, either of the securities, corporate bond or equity kind.

The mix of credit and capital markets will change in the coming year, but creative approaches to the overall mix will be rewarded.

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