Aurelia Butler

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LONDON (Reuters) -The European Central Bank would happily, if quietly, cheer an even weaker euro exchange rate – and may be far more wary of the opposite at just the wrong time.The euro is likely still too strong for the sort of subdued growth and outsize trade risks the zone faces next year and, far from being a brake on more monetary easing, its depreciation may well be encouraged. And it could argue for at least one deeper half-percentage-point interest rate cut at upcoming meetings. The ECB meets next Thursday for the last time in 2024 and economists overwhelmingly expect another 25-basis-point rate cut – which would be the fourth such move this year.Market thinking and the general thrust of ECB arguments are that the central bank has inflation more or less licked and should return to a neutral policy rate – somewhere around 2% if inflation holds at ECB targets. At that point it would simply sit and pray a cyclical recovery takes hold, while being alert to multiple political and trade risks unfolding through 2025.ECB President Christine Lagarde basically sketched that scenario earlier this week in a European parliament hearing, despite a lively debate among her policymakers about bigger and faster rate cuts to get across a pervasive German-led economic funk.If the gradualists hold sway, that suggests a quarter-percentage-point cut at every meeting until the middle of 2025 to get the current 3.25% deposit rate back to those rough estimates of “neutral”.As such, at least 125 basis points of ECB expected easing contrasts with market pricing for half that from the U.S. Federal Reserve.And yet many strategists claim that sort of Transatlantic divergence is already largely discounted by the euro/dollar exchange rate, which has dropped about 5% in two months. The euro’s nonchalant reaction to the week’s political drama in Paris suggests as much. Morgan Stanley (NYSE:MS) on Thursday raised a red flag about the unintended consequences of a softly-softly approach from the ECB around next week’s expected rate cut and how that may pose “upside risks” for the currency. “Markets are sufficiently bearish on the euro area outlook and the euro that any sign of unchanged messaging could be treated as a hawkish surprise,” it said.AVOIDING A EURO REBOUNDThe ECB has good reason to avoid a euro rebound just at this juncture – not least because the currency’s trade-weighted index is far higher than the swoon versus the dollar suggests.Despite the euro being just 5% from dollar parity, which was last seen in the wake of Russia’s invasion of Ukraine in 2022, the ECB’s nominal euro exchange rate index against the bloc’s main external trading partners is still only 1% below all-time highs hit in September.The inflation-adjusted real effective exchange rate index is not quite as lofty, due largely to the decade in which the bloc flirted with deflation after the 2008 global banking crash and 2010-2012 euro debt crisis. But despite ebbing in recent months, it too is little changed from where it was 10 years ago – even after the serial shocks seen in recent years. And for a region potentially facing 10%-20% U.S. tariff hits from President-elect Donald Trump’s incoming administration, a simmering bilateral trade row with China and a contraction in Germany, its export-dependent weakest link, currency depreciation would be a blessing.Even if still-sparky wage growth remains an ECB irritant, that’s even more of reason for a weaker currency to recapture some competitiveness in a global trade war. As euro consumer price inflation remains close to target and producer price deflation is still running at more than 3%, the ECB has ample scope to ease big. And even if trade tariffs could skew the price outlook somewhat, the ECB’s chief economist, Philip Lane, has argued the growth hit from any trade war would be a much greater consideration than any temporary price-level bump from tariff hikes.The only question in some minds then is whether a euro plunge through dollar parity would be in some way jarring for regional confidence, especially at a time of nervy German and French domestic politics.But currency weakness is not the euro zone economy’s problem right now. Arguably, it’s the opposite. The opinions expressed here are those of the author, a columnist for Reuters.(by Mike Dolan X: @reutersMikeD; Editing by Paul Simao) More

Several policymakers are due on Friday to give their final public remarks before the policy meeting after a week that has solidified market expectations that the Fed will cut rates by another quarter percentage point to a range of 4.25% to 4.50%.Fed Governor Michelle Bowman, Chicago Fed President Austan Goolsbee, San Francisco Fed President Mary Daly and Cleveland Fed President Beth Hammack are all due to speak or publish remarks through the day. The Fed’s internal communications rules forbid public comments on monetary policy beginning on the Saturday preceding the week before each two-day meeting.Earlier this week top Fed officials pointed to Friday’s jobs numbers for November as among the chief remaining data points they need to make a decision. On Monday, Fed Governor Christopher Waller said he was “leaning towards” a rate cut but would reserve final judgment to review the jobs numbers and inflation data due next week.In comments on Wednesday Fed Chair Jerome Powell noted that inflation was running higher than policymakers had expected at this point, and repeated his prior comments that the Fed could be careful in managing the endgame of its roughly three-year fight against inflation. Along with progress on inflation stalling in recent months, with some key measures still more than a half point above the Fed’s 2% target, the economy overall has been stronger than expected – something the Fed may get further confirmation of in the jobs report.The caution Powell spoke of, however, may come more into play next year, with many analysts expecting a cut in December but a pause after that.The chair’s comments were “well short of challenging the market’s growing confidence that a December cut is the base case,” wrote Evercore ISI Vice Chair Krishna Guha. More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

(Reuters) -Futures linked to U.S. stock indexes dipped on Friday, as investors exercised caution in anticipation of a crucial monthly jobs report that could influence the Federal Reserve’s upcoming interest-rate decision.U.S. job growth likely surged in November after being severely constrained by hurricanes and strikes, but economists believe this might not signal a material shift in easing labor market conditions, which should allow the Fed to cut interest rates again this month.”Recent Fed speakers have taken pains to leave all options open in December and the decision remains too close to call,” said Max McKechnie, global market strategist at J.P.Morgan Asset Management.”However, if we do get strong payrolls data today, revisions to the Fed’s anticipated path for interest rates next year are all but guaranteed.”Data at 8:30 a.m. is expected to show nonfarm payrolls likely increased by 200,000 jobs last month, while the unemployment rate is expected to climb to 4.2%, according to a Reuters survey of economists.Traders currently see a near 68% chance the Fed will cut interest rates by 25 basis points when it meets later this month, according to CME’s FedWatch Tool.A preliminary reading of December U.S. consumer sentiment calculated by the University of Michigan is also due for release shortly after markets open on Friday.Four Fed officials including San Francisco President Mary Daly and Governor Michelle Bowman are scheduled to make public appearances throughout the day, on the eve of a media blackout that kicks in on Saturday in the run-up to the central bank’s Dec. 17-18 policy meeting. U.S. stocks closed lower in the last session, with UnitedHealth (NYSE:UNH) down sharply and technology shares giving up some gains after a steady increase through the week. Despite Thursday’s pullback, the S&P 500 and the Nasdaq were on track for their third consecutive weekly gains, while the blue-chip Dow was set for minor losses. The three indexes are hovering near record highs as a relentless rally in heavyweight tech stocks – a bid to cash in on the euphoria around artificial intelligence – has led to robust gains throughout this year.U.S. President-elect Donald Trump’s win in the Nov. 5 election has been another recent tailwind for stocks. Analysts expect his tax cut policies and looser regulations could support corporate performance.At 06:58 a.m., Dow E-minis were down 32 points, or 0.07%, S&P 500 E-minis were down 6 points, or 0.10% and Nasdaq 100 E-minis were down 11 points, or 0.05%.Among early premarket movers, Ulta Beauty (NASDAQ:ULTA) advanced 11.9% after the cosmetics retailer raised its annual profit forecast, signaling a revival in demand for perfumes and makeup during the holiday shopping season. Lululemon Athletica (NASDAQ:LULU) added 9.1% after the sportswear maker increased its full-year forecasts, betting on resilient demand for its athletic wear in the U.S. during the holiday shopping season as well as continued strength in its international business. Hewlett Packard Enterprise (NYSE:HPE) gained 1.2% after the maker of AI servers beat Wall Street expectations for fourth-quarter revenue and profit on Thursday. More

The loss of access to the comments by Gao Shanwen, chief economist at state-owned SDIC Securities, come ahead of a meeting of Chinese leaders this month to set the economic agenda for 2025, including growth targets.China’s economy has struggled for momentum this year largely due to a prolonged property crisis, high local-government debt and sluggish consumption, prompting various measures by Beijing to stimulate the economy.Gao said on Tuesday that China’s youth are dragging down consumption due to high unemployment, while spending among older people has plateaued since the COVID-19 pandemic.”The younger a province’s population, the slower the consumption growth,” he said at an invitation-only investor conference, according to a transcript of his speech.He spoke of China’s “dispirited youth” and its “disenchanted middle-aged” and also estimated that China’s GDP growth may have been overstated by 10 percentage points between 2021 and 2023.Gao’s speech was shared online and went viral on social media, but access was later blocked. Local online news reports that had carried his comments were also not accessible.Attempts to follow Gao’s blog on WeChat, or reach him there, were blocked by the platform with a notice that the account had violated rules.Telephone calls to Gao went unanswered. Reuters has sought comment from Tencent Holdings (OTC:TCEHY), which runs WeChat.China’s ruling Communist Party exerts a high degree of control over domestic media and social media platforms in the name of safeguarding social stability and preventing the spread of rumours and fake news. Reports and public discussions on what the party considers as sensitive and potentially disruptive to social order are also routinely removed from the internet, including views critical of the economy and any veiled criticism of policymakers.ONLINE CAMPAIGNIn a similar case, access to a video social media account of Fu Peng, the chief economist at Northeast Securities, was blocked after comments he made in September at a conference.Fu said weaker consumption stems from falling property prices, leaving some middle-class homeowners with negative equity, according to media reports. Such losses, given real estate’s dominance in household wealth, cannot be offset by other income sources, he said.He questioned if an increase in middle class consumption in the past decade had been driven more by the wealth effect of higher property prices than rising incomes.”If it was driven by rising incomes, say, salaries increasing from 10,000 yuan to 20,000 yuan, and then doubling to 40,000 yuan – there would be no issue.”If the consumption upgrade of the past decade was based on the wealth effect created by rising real estate prices, then that is a very dangerous signal.”When Reuters checked Fu’s account on Friday, a notice said access had been blocked. Reuters has asked Tencent for comment but could not find contact details for Fu.In October, the Cyberspace Administration of China – the country’s cyberspace regulator – said it had launched a special campaign to better regulate online news and information and would “rectify” any illegal conduct, following increased scrutiny over independent content creators online including commentaries.The administration did not immediately respond to a request for comment.Ahead of this month’s annual economic work conference, state newspaper People’s Daily said that China is not wedded to achieving specific GDP growth rates.A pace of less than 5% for the economy is acceptable as there is no need for the “worship of speed”, it said on Wednesday.Reuters reported last month that government advisers were recommending that Beijing should maintain an economic growth target of around 5.0% for next year. More

Per capita productivity was unchanged compared to the same quarter a year earlier while it expanded by 0.5% based on hours worked, or at about half the rate of overall economic growth, Eurostat said. Productivity growth has been especially weak since the pandemic and a large gap has opened between Europe and the U.S., driven by a host of factors that could persist. Europe is struggling with an excessive reliance on expensive, imported energy, inefficient labour markets, fragmented regulation and reliance on exports in a period of deglobalisation. The euro zone’s economy expanded by 0.4% on the quarter, unchanged from a previous estimate, while employment was up 0.2%, also in line with a preliminary figure. But there is little to suggest a sustainable recovery with industry still in recession, exports weak, investments muted and households continuing to keep consumption down and opting to save their cash instead. Still, there appears to be a modest improvement in productivity, which reached its lowest level a year ago and has now turned positive, at least based on hours worked.A key issue for the ECB is that poor productivity growth puts upward pressure on prices and makes it harder for the European Central Bank to steer price growth back to its 2% target. More