Aurelia Butler

The ECB has faced too high inflation for nearly three years, to which it responded with a long streak of rate hikes that it only recently began to dial back.Stournaras, the head of the Bank of Greece and one of the doves on the ECB’s Governing Council who favour lower rates, said growth was lower than the central bank expected and so could be inflation.”The renewed signs of weak economic activity and the high level of uncertainty will very likely dampen inflation more than had been expected,” he told German financial newsletter Platow Brief. “This suggests that there is a risk of inflation falling below the 2% target in the medium term.” Euro zone inflation for July and growth for the second quarter came in slightly hotter than economists expected this weak but traders still expect the ECB to resume lowering borrowing costs in September or October at the latest as surveys point to slowing activity.Stournaras backed that expectation although he cautioned this would depend on incoming data, especially on wages, and the ECB’s new economic projections published next month.”I still expect two rate cuts this year if disinflation continues as expected,” he said. “We are on the right track. In addition, growth is weaker than expected, which also speaks in favour of interest rate cuts.” More

Thursday’s decision was in line with the forecast in a Reuters poll of economists but financial markets had only seen just over a 60% chance of a cut. Governor Andrew Bailey – who led the 5-4 decision to lower rates by a quarter-point to 5% – said the BoE’s Monetary Policy Committee would move cautiously going forward.”We need to make sure make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” he said in a statement alongside the decision. MARKET REACTION:STOCKS: The domestically focussed FTSE 250 midcap index gained 0.3%%, having hit its highest in over two years. The blue chip index pared gains, trading unchanged on the day.FOREX: Sterling fell to a session low of $1.2752 immediately after the decision, before reversing some of those losses to trade at $1.2787, down 0.54% on the day. It also pared some of its losses against the euro, which was up 0.23% at 84.39 pence, off a session high of 84.57. BONDS: Benchmark 10-year gilt yields were last down 3.9 basis points on the day at 3.936%, unchanged compared to before the decision. Two-year gilt yields, which are more sensitive to shifts in monetary policy, were down 5 bps at 3.762%, around 15-month lows.COMMENTS:LAURA FOLL, UK EQUITIES MANAGER, JANUS HENDERSON, LONDON:“The market was struggling to price ahead this decision because of the absence of smoke signals from Threadneedle Street during the election campaign. But there was a growing consensus in the City over the past couple of days that a cut was coming.The Bank of England is still being cautious – it was a close decision and the message is clear – don’t expect rate cuts at every meeting. But peak interest rates are, for now, behind us. And that might be sufficient to nudge consumers sitting on savings to stop postponing those big decisions on house moves, renovations and big-ticket spending.”HARRY RICHARDS, PORTFOLIO MANAGER, FIXED INCOME, JUPITER ASSET MANAGEMENT, LONDON:“The BoE is entirely justified in starting to cut rates now. The economy has evolved to such an extent that the level of extreme monetary policy was simply no longer required and, instead, dialling-back the degree of restrictiveness makes ample sense. In our view, the BOE should loosen policy much more aggressively as we move into 2025 so as to avoid doing irreparable harm to the labour market and risk sparking the hard landing concerns once more.””On the more positive side, the election result has delivered an air of relative political stability to the UK which we believe may entice international investors to look favourably upon UK fixed income markets. Importantly, however, the new government’s recent acknowledgement that taxes will need to rise is likely to act as a further brake on economic growth, increasing the pressure on the BoE to lower rates in the medium term.” PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON: “The bigger picture is the MPC feels sufficiently relaxed about the risk of inflation persistence to cut the bank rate for the first time in over four years.The various signs of loosening in the labour market appear to be a big factor in the decision today and that’s outweighed the recent stuff on services inflation, which held at 5.7% in June.The question is where do we go now? We do think MPC will bring rates down again this year. The common thread with central banks is the Committee is in data-dependent mode and I think we’re going to see that phrase uttered a lot, not just in the UK but in other developed markets.” COLIN ASHER, ECONOMIST, MIZUHO, LONDON:”If you look at the headlines that Bailey produced: caution on cutting too quickly or by too much, it implies to me that they’re looking at a steady quarterly pace of reductions. So I would probably expect the next cut to come in November, assuming that the macro economic developments unfold as they expect.””Generally speaking, I would expect sterling to gradually strengthen. I think you might be able to term this a hawkish cut, as in, you have guidance from Bailey suggesting not to go too far or too fast. And then in contrast from (Chair Jerome) Powell, you have the Federal Reserve looking reasonably dovish and to me that suggests upside for sterling in the medium term.”DANIELE ANTONUCCI, CHIEF INVESTMENT OFFICER, QUINTET PRIVATE BANK, LUXEMBOURG:”Keeping rates too high for too long would have caused unwarranted economic weakness and therefore, an undershoot of the Bank’s inflation mandate to the downside.Even though it makes sense to proceed at a moderate pace, beginning to soften the degree of monetary tightening looks like the most sensible approach.We’ve increased our exposure to short-dated gilts. This is because short-dated bonds are most sensitive to central bank rate changes.With the Bank of England having just cut rates and likely to continue to do so, one-to-three-year gilts could benefit.” DEAN TURNER, CHIEF EUROZONE AND UK ECONOMIST, UBS GLOBAL WEALTH MANAGEMENT, LONDON: “In our view, further easing is likely in the coming months as the disinflationary trends continue into the new year. The prospect of lower interest rates should continue to favour taking exposure to high-quality corporate and government bonds.””As for sterling, it has struggled to build on its recent gains, but we see potential for upward momentum to resume when the Fed joins the interest-cutting cycle, which we expect it to do when it meets in September.”JEREMY BATSTONE-CARR, STRATEGIST, RAYMOND JAMES, FRANCE:”The UK’s economic performance has been stronger than expected in recent months, moving past the residual effects of earlier inflation and providing an economic boost for the newly installed Labour government.However, real interest rates remain high and there has been a stronger-than-expected strengthening in demand over potential supply constraints, notably in the labour market. Despite this, the Committee has taken a leap of faith in cutting rates, hoping to stimulate consumers with lower borrowing costs and increased spending power.”NEIL BIRRELL, CHIEF INVESTMENT OFFICER, PREMIER MITON INVESTORS, LONDON:”Falling UK interest rates have arrived at last. The Bank of England has moved from worrying about inflation to worrying about economic growth, although they are bound to be cautious about further cuts and can’t lead the bond market to expect too much too soon.But, it is an important move, with only the U.S. not joining the global rate cutting party to date. We could see financial markets further reflect the turn in the cycle, at aggregate level, but probably more so within asset classes.”JASON SIMPSON, SENIOR FIXED INCOME STRATEGIST, STATE STREET, LONDON:”If there’s a perception of fiscal loosening then the market will see a lot more gilt supply coming into the market that has to be absorbed and a bit of an inflationary impact so that shine on gilts might fade.”JULIUS BENDIKAS, EUROPEAN HEAD OF ECONOMICS AND DYNAMIC ASSET ALLOCATION, MERCER, LONDON:”We viewed this decision as a surprise, especially given elevated wage growth. Having said that, we expect 1 to 2 more rate cuts in 2024 with more to come in 2025. The economy has normalised, so should the interest rates.”MICHAEL BROWN, MARKET STRATEGIST, PEPPERSTONE, LONDON: “Looking ahead, a relatively gradual quarterly pace of cuts seems most plausible for the (Bank of England), with further normalisation likely to coincide with meetings at which a Monetary Policy Report is published, leaving the base case as just one more cut this year, at the November meeting. Such a pace would be broadly in line with that priced by markets, and that likely to be delivered by other G10 central banks, potentially limiting any prolonged sterling downside on the back of today’s decision.” More

LONDON (Reuters) – The Bank of England cut interest rates from a 16-year high on Thursday after a narrow vote in favour from policymakers divided over whether inflation pressures had eased sufficiently.Governor Andrew Bailey – who led the 5-4 decision to lower rates by a quarter-point to 5% – said the BoE’s Monetary Policy Committee would move cautiously going forward.”We need to make sure make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” he said in a statement alongside the decision.The rate reduction was in line with the forecast in a Reuters poll of economists but financial markets had only seen just over a 60% chance of a cut.Sterling was little changed and bond yields were slightly lower after the decision.”Falling UK interest rates have arrived at last,” Neil Birrell, chief investment officer at Premier Miton Investors said. “The Bank of England has moved from worrying about inflation … although they are bound to be cautious about further cuts,” he said.Rates have been on hold for almost a full year – the longest period rates have been left unchanged at the peak of a BoE tightening cycle since 2001 – and this is the first cut in rates since March 2020, at the start of the COVID-19 pandemic.In June the BoE voted 7-2 to keep rates on hold, and minutes of Thursday’s meeting showed the decision to cut rates had been “finely balanced” for some members – echoing the language used previously when rates were kept unchanged. None of the policymakers whose votes changed the balance at this meeting – Bailey and Deputy Governors Sarah Breeden and Clare Lombardelli – had spoken publicly about monetary policy since the previous meeting in June.Speaking opportunities had been limited by an election campaign which ended on July 4, which brought the Labour Party to power with a large majority.The BoE said policymakers had been briefed on the new government’s public sector pay and fiscal policy announcements this week, but their impact would only be incorporated into the BoE’s forecasts after the Oct. 30 budget.British consumer price inflation returned to the BoE’s 2% target in May and stayed there in June, down from a 41-year high of 11.1% struck in October 2022.This leaves British inflation lower than in the euro zone – where the European Central Bank cut rates in June – and the United States, where on Wednesday the Federal Reserve kept interest rates steady but opened the door to a September cut.INFLATION TO RISEHowever, the BoE expects headline inflation to rise to 2.75% in the final quarter of the year as the effect of last year’s steep falls in energy prices fades, before returning to its 2% target in early 2026 and later sinking below.The long time lags for interest rates to affect inflation mean the BoE is more focused on what it sees as medium term drivers of inflation: services prices, wage growth and more general tightness in the labour market.Services inflation came in well above the BoE’s forecasts in June, but the BoE put this down to “volatile components” and regulated prices that were influenced by high headline CPI earlier in the year. Wage growth at nearly 6% is almost double the rate the BoE views as consistent with 2% inflation but is slowing in line with the central bank’s expectations.The BoE now thinks Britain’s economy will expand by around 1.25% this year, revised up from its previous forecast of 0.5%, reflecting stronger-than-expected growth during the first half of this year.Unemployment will rise slightly as high interest rates continue to bear down on growth, the forecasts showed, reducing upward pressure on inflation.However, the BoE acknowledged the risk that inflation pressures might prove more persistent and keep inflation above target for longer than its main forecast.Before the meeting, financial markets priced in two quarter-point cuts by the BoE this year. The BoE forecasts were based on market expectations which show interest rates falling to about 3.7% by the end of 2026.Next month the BoE will also need to decide whether it continues the 100 billion pound a year reduction in its bond holdings built up between 2009 and 2020.In its report on Thursday, the BoE stuck with its assessment that these sales had a limited impact on the gilt market, and that the high level of interest rates gave it scope to fine tune monetary conditions if the impact proved greater in the future.The BoE estimated that its bond sales had contributed 0.1-0.2 percentage points to a 2.75 percentage point rise in 10-year gilt yields between February 2022 and June 2024. More

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Goldman Sachs economists estimate that nonfarm payrolls rose by 165,000 in July, below the consensus of 175,000 and the three-month average of 177,000. They also estimate a 125,000 increase in private payrolls, compared to the consensus of 148,000.”While an influx of labor supply at the start of summer typically leads to an acceleration in seasonally-adjusted job growth when the labor market is tight, alternative measures of job growth indicate a pace of job creation below the recent payrolls trend, and we assume a 15k drag from Hurricane Beryl,” they said in a note.Hurricane Beryl, which caused power outages for over 2 million Texans, significantly impacted employment in the state. Goldman noted its past analyses have shown that major hurricanes typically reduce payroll growth by around 25,000 on average, although the effects vary depending on the severity and timing of the storm.In fairness, the hurricane had only a modest impact on this week’s ADP employment report, with employment growth in the Texas region about 10,000 below its average pace from the first half of the year.For the unemployment rate, Goldman Sachs economists expect it to remain unchanged at 4.1%, in line with consensus.The Wall Street firm pointed out two-sided risks to this forecast. Continued, though slowing, above-trend immigration could increase the unemployment rate, while a catch-up of household employment towards nonfarm payrolls, after a period of underperformance, could decrease it.Economists also estimate that average hourly earnings rose 0.3% month-over-month, which would reduce the year-over-year rate by two-tenths to 3.7%, consistent with consensus and last month’s increase.”This month’s calendar configuration should weigh on average hourly earnings, but the impact of Hurricane Beryl could boost them, as reported hours typically fall more sharply than earnings during severe weather events,” they noted. More

Policymakers voted 5 to 4 to cut the Bank Rate by 25 basis points to 5.0%, after U.K. consumer price inflation returned to the BOE’s 2% target in May and stayed there in June, falling from the 41-year high of 11.1% seen in October 2022.There had been a great deal of uncertainty surrounding this meeting as key policymakers had not spoken publicly for more than two months in the run-up to the country’s general election in early July.Additionally, data released earlier Thursday showed that British factories recorded their best month for two years during July, with the S&P Global UK Manufacturing Purchasing Managers’ Index rising to 52.1 from 50.9, its highest reading since July 2022.Output and new orders increased at the fastest rate since February 2022, while manufacturers added staff for the first time in 22 months.Bank of England Chief Economist Huw Pill said last month that it was an open question whether the BoE would cut interest rates at the August meeting, as underlying price pressures showed “uncomfortable strength.”The Bank will publish its quarterly Monetary Policy Report alongside the rate announcement and hold a press conference.“We expect the updated BoE projections to show higher near-term growth projections, while continuing to show inflation dipping below 2% in 2026, thus signalling that rates will possibly need to be cut more than currently priced by the markets,” analysts at UBS said, in a note. More

The refund coordinated by the government of the city of Nanjing is believed to be the first such case in China, the New Beijing News reported this week, and could set a precedent for other cities and developers to resolve the problem of unfinished homes that has dogged the real estate sector. Since 2021, many developers across China have been unable to complete the construction of projects due to defaults. Policymakers are demanding developers to resolve the issue and deliver homes to buyers in order to ensure social stability.In the eastern city of Nanjing, 33 of the 42 buyers of a development called Zhujiang Siji Yuecheng, which began pre-construction sales in April 2022, have signed agreements with the developer to return their flats and recoup their deposit, the New Beijing News said.The developer is allowed to use the proceeds in the project’s escrow account, totalling 50.67 million yuan ($7 million), to refund the buyers. Escrow accounts are monitored by banks and the funds inside are usually allowed to be used to only finance construction.The project had stopped construction around mid-2022 after the main contractor – Jiangsu Suzhong Construction Group – was hit by liquidity problems as it was one of the main suppliers to now defaulted developer China Evergrande (HK:3333) Group, according to the newspaper.The debt crisis among Chinese developers has created a glut of unfinished presold homes that have heavily weighed on home prices, consumer confidence and economic growth.Even though the authorities have rolled out a slew of measures to boost property demand including reducing purchase costs and mortgage rates, homebuyers are still avoiding the market as they worry that new homes will not be delivered in a timely manner.The politburo, a top decision-making body, on Tuesday pledged to continue to support the delivery of unfinished projects and turn unsold apartments into affordable housing.Zhang Dawei, chief analyst at property agency Centaline, said the refund programme will likely make it more difficult to guarantee the delivery of unfinished homes.”The vast majority of local governments and developers are unable to refund the owners of unfinished developments on a large scale, and Nanjing’s practice can hardly serve as an example,” Zhang said.($1 = 7.2426 Chinese yuan renminbi) More

The U.S. Federal Reserve left interest rates unchanged at the conclusion of its latest policy-setting meeting on Wednesday, as widely expected, but acknowledged recent progress on inflation, raising investor hopes that the central bank could begin cutting rates in the near future.The Federal Open Market Committee, the FOMC, kept its benchmark rate in a range of 5.25% to 5.5%, as it has done over the past year as it battled elevated inflation.However, recent data point to progress on inflation, suggesting that the Fed’s restrictive policies are working.”Inflation has eased over the past year but remains somewhat elevated,” the Fed said Wednesday in its July policy statement, with the addition of the word “somewhat” marking a subtle change from its June statement. A September rate cut of 25 basis points is now almost fully priced in, according to Investing.com’s Fed Rate Monitor Tool, but traders also added to bets the Federal Reserve will go big when it does cut.Rate futures prices now reflect about a 17% chance of a 50-basis point rate cut in September, versus about 5% before Wednesday’s meeting.The Fed also acknowledged a cooling in the labor market, stating that the committee is “attentive to the risks to both sides of its dual mandate” – to maintain stable prices and strive for maximum employment.Friday sees the release of the closely watched monthly nonfarm payrolls report, as investors try to gauge whether recent signs of cooling in the labor market continued in July.Economists are expecting the U.S. economy to have created 177,000 jobs in July, moderating from 206,000 in the prior month.U.S. stock futures traded in a steady manner Thursday, as investors digested the latest Federal Reserve meeting as well as more corporate earnings. By 04:25 ET (08:25 GMT), the Dow futures contract was 40 points, or 0.1%, lower, while S&P 500 futures climbed 7 points, or 0.1%, and Nasdaq 100 futures rose by 45 points, or 0.2%.The Wall Street indices closed higher Wednesday, with the S&P 500 gaining 16%, its best day since February, the Nasdaq Composite surging 2.6%, and the Dow Jones Industrial Average rose 0.2%.These gains followed the Fed signaling that a rate cut could occur in September if inflation continues to cool. There are more earnings to digest Wednesday, including from Apple (NASDAQ:AAPL) [see below] and Amazon (NASDAQ:AMZN) after the close. Other names set to release numbers include Intel (NASDAQ:INTC), Booking Holdings (NASDAQ:BKNG) and Moderna (NASDAQ:MRNA).Economic data due for release Thursday includes weekly jobless claims data, construction spending for June and ISM Manufacturing data for July, ahead of Friday’s widely-watched monthly jobs report.Meta Platforms (NASDAQ:META) reported strong second-quarter earnings after the close Wednesday, bucking the recent trend of poorly received results from the country’s mega cap tech companies.Meta Platforms, the company that owns and operates Facebook, Instagram, Threads, and WhatsApp, among other products and services, beat market expectations for second-quarter revenue, seeing quarterly growth of 22%.Meta Chief Financial Officer Susan Li told analysts on a call that the company was “continuing to see healthy global advertising demand”, benefiting from its plans to use artificial intelligence to improve targeting, ranking and delivery systems for digital ads on its platforms.The tech giant also issued a rosy sales forecast for the third quarter, signaling that robust digital-ad spending on its social media platforms can cover the cost of its artificial-intelligence investments.Although Meta’s costs rose 7% in the second quarter, its revenue jump topped expense growth substantially and led to a 9-point rise in operating margin, to 38% from 29%.Meta stock soared over 7% after hours, contrasting with the losses that both Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) suffered when they released these numbers over the last few days.It’s Apple’s (NASDAQ:AAPL) turn to face the judgment of investors, as the iPhone maker releases its fiscal third-quarter results after the close Thursday.Apple’s revenue is expected to have risen 3.3% in the third quarter from a year earlier, bouncing back after a decline of 4.3% in the second quarter, as it won back some customers in China with big iPhone discounts.Sales of the iPhone, which account for nearly half of Apple’s revenue, are expected to have decreased by 2.2% in the three months ended June, a big improvement from the 10.5% decline in the second quarter, according to LSEG data.Under pressure from a resurgent Huawei in China, Apple in May offered hefty discounts on select iPhone models, helping narrow sales declines in the country.Elsewhere,  iPad sales likely jumped 14.1%, the fastest growth since the holiday quarter of 2022, after Apple launched a new AI-focused iPad Pro and a larger iPad Air in May to revive demand for this product line.Apple’s shares have risen nearly 30% in the past three months, though a recent market selloff led by megacaps led to the stock slipping more than 7% from its July 15 record.The Bank of England completes this week’s round of central bank rate decisions later Thursday, after the Bank of Japan delivered its second interest rate hike in 17 years and the U.S. Federal Reserve hinted it could lower rates in September after standing pat.The moves, or lack of them, by the BOJ and the Fed were largely expected, but there is greater uncertainty than usual of the Bank of England’s meeting as key policymakers have not spoken publicly for more than two months in the run-up to the country’s general election in early July.The Bank of England has held its benchmark interest rate at a 16-year high of 5.25% for the past year as it tackled inflation, which soared to a 41-year high of 11.1% in October 2022.U.K. consumer price inflation returned to the BOE’s 2% target in May and stayed there in June, suggesting a cut later Thursday is a distinct possibility.In June, the MPC voted 7-2 to keep rates on hold, but minutes of the meeting recorded that several of those who voted to hold had been close to voting for a cut. More