Aurelia Butler

PARIS (Reuters) -France’s finance minister said he had struck a deal with food retailers and suppliers to step up the fight against inflation, but singled out Unilever (LON:ULVR), Nestle and PepsiCo (NASDAQ:PEP) as being among companies which he said were not “cooperating” with the agreement.After two days of talks with executives and representatives from 75 big retailers and producers, Bruno Le Maire said on Thursday companies had committed to freeze or cut prices on 5,000 everyday products.He said they had also agreed to bring forward annual price negotiations – initially planned for next year – to September. The negotiations will last until mid-October, with a view to having price cuts from January.Le Maire had already announced in June a deal with the 75 top retailers and industrial groups supplying them to cut prices on hundreds of products, but this week acknowledged that less than half of them had played ball.The French government is eager to bring down the price of food and other staples, as retailers warn that French consumers are slashing their purchases of essential goods because of the high cost of living.August data released on Thursday showed food inflation – though easing for the fifth consecutive month from a peak earlier this year – is still running at 11.1%, nearly twice the overall inflation rate.TRADING BLAMERetailers and consumer goods companies are trading blame for who is responsible for the increase in prices even as the cost of raw materials has been falling in recent months.On Wednesday, retail industry lobby group the Federation du Commerce et de la Distribution (FDC) said that only 25 out of 75 big consumer goods groups had so far agreed to reduce prices, and just on a limited number of products.Le Maire went a step further on Thursday, naming Unilever, Nestle and Pepsi Co as being among the companies which he said were refusing to toe the line on prices. The three companies did not immediately respond to requests for comment.”The large multinationals could do much more,” Le Maire said.He added that retailers which did not pass on price cuts by suppliers to their customers could face sanctions.An executive from a top beverage company with knowledge of the negotiations said it was unclear whether any of the companies involved would actually cut prices. “No one is willing to say ‘I am going to reduce my prices’ because the government is saying so,” he said.”There are two camps of problematic companies: those who raise prices and then a lot of companies who do ‘shrinkflation’ – that’s very fast growing and the government is trying to fight against it,” he said, referring to the practice of reducing the size of a product while maintaining its sticker price.Le Maire insisted that there would be checks by anti-fraud authorities to ensure retailers and producers complied with their commitments. “It was necessary to call back everyone to order,” he said. More

Futures tied to the Fed’s policy rate were little changed after the U.S. government reported the personal consumption expenditures price index rose 3.3% in July from a year earlier, outpacing the Fed’s 2% inflation target but in line with analyst expectations. Traders continue to see only about a one-in-ten chance of a rate hike at the Fed’s Sept 19-20 meeting, and just under a 50% chance of a rate hike at either the November or December meetings. More

The ECB has lifted rates from minus 0.5% to 3.75% in just over a year to fight a surge in inflation. Arguments for a pause are now on the rise, especially as economic growth is visibly slowing, underperforming the ECB’s already benign expectations. “A further rate hike in September would be necessary if there was no convincing evidence that the effect of the cumulative tightening was strong enough to bring underlying inflation down,” the accounts of the July 26-27 meeting showed. August inflation data on Thursday showed underlying price growth easing to 5.3% from 5.5%, a modest decrease that is still likely to add to arguments that price pressures are waning. The accounts acknowledged that underlying inflation could be expected to remain high for an extended period, even if growth was slowing. But some policymakers also argued that a September rate hike would not be needed because policy had already been tightened enough to bring down inflation in the years ahead. “It was argued that it was quite probable that the September ECB staff projections would revise the inflation path sufficiently downwards towards 2%, without the need for another interest rate hike in September,” the accounts showed. Others cautioned against putting too much emphasis on the September meeting or the new projections, and argued that the bank should instead adopt a risk management approach for the coming meetings, given the uncertainty. Nevertheless, the accounts appeared to show a more balanced debate than at previous meetings and policymakers were in broad agreement that they would go into the Sept. 14 meeting with an “open mind” – a change from recent months, when the ECB essentially committed to rate hikes well in advance. More

(Reuters) – For the first time in over a year, traders are struggling to gauge whether the European Central Bank will raise interest rates at its next meeting, with the outlook blurred by still sticky inflation and a stuttering economy.Data on Thursday showed euro zone inflation held at 5.3% in August rather than dropping. A core measure excluding volatile food and energy prices dropped more than expected, to 5.3%, but remained far above the ECB’s 2% target. Coming just a week after business activity numbers pointed to a darkening economic outlook, the data have added to a lack of clarity for investors who for the past year have confidently priced successive rises in euro zone interest rates. On Thursday, money markets were pricing in around a 30% chance of a 25 basis point hike at the ECB’s Sept. 14 meeting, down from as high as 60% last week. Danske Bank chief analyst Piet Christiansen said traders’ indecisiveness reflected “the battle between the growth and inflation outlooks”.Demonstrating the difficulty of calling the ECB’s move, trader bets over the past week have repeatedly swung between expecting a pause and a hike. Such uncertainty increases the scope for increased volatility for bond markets and the euro heading into the September meeting. Latest inflation prints suggest price pressures are still troubling the bloc, but with business activity contracting sharply, signalling deeper economic pain ahead, further rate increases are no longer a done deal.Indeed, it was last week’s forward-looking PMI activity data that pushed investors to price in a pause.”This balancing act is playing out right now,” Christiansen said, adding he still expects a 25 bps hike in September, given the ECB’s mandate to keep inflation in check. Even ECB board member Isabel Schnabel, a hawk, on Thursday refrained from taking a firm view, but said a weakening economy does not automatically void the need for more hikes. Another inflation hawk, Austrian central bank chief Robert Holzmann, said the ECB could deliver “another hike or two”. PAUSE COMING For those eyeing a pause, the lagged impact of 4.25 percentage points of ECB tightening over the last year are becoming more pertinent.Lending growth to companies slowed further in July, adding to mounting evidence that the ECB’s sharply higher interest rates are curbing credit creation and growth. Overall money supply in the bloc contracted in July for the first time since 2010, demonstrating the extent to which ECB policy has tightened financial conditions.”We went from a scenario where the ECB was the one likely to keep hiking because of inflation … to a more complex scenario, where it is harder for European central bankers to assess the impact of monetary policy and in particular the time for that impact to materialise,” said Mauro Valle, head of fixed income at Generali (BIT:GASI) Investments, which manages 505 billion euros in assets. Valle said it was now harder for the ECB “to balance the monetary policy in order to both avoid a recession and bring inflation down”.Euro zone government bonds have whipsawed in recent days amid U.S. and European data releases but were less hit by a selloff raising U.S. Treasury yields overall in August as investors expect a weaker economy than across the Atlantic. “It’s a difficult task for investors to get a grip on where bond yields should go over the medium term,” said Edward Hutchings, head of rates at Aviva (LON:AV) Investors, who favours longer-dated euro zone bonds.The euro, trading at around $1.09, has shed 1% in it biggest monthly fall since May. A pause or end to the hiking cycle could hurt over $20 bln euros of investor bets on the euro rising further, according to CFTC data. And even if investors are divided on September’s decision, the consensus is that the ECB will be done raising rates soon. “If they decide that another hike is warranted, it’s a case of now or never,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. More important for markets than the rates decision itself may be what ECB chief Christine Lagarde says. “As we are getting ever closer to the end of the tightening cycle … the narrative for us becomes far, far more important,” Aviva’s Hutchinson said. Longer-term, markets expect the ECB to start cutting rates by the second quarter of 2024.”The difficult part will be for Lagarde to keep a hawkish bias at the peak while preventing markets from pricing in rate cuts prematurely,” Pictet’s Ducrozet said. More

BENGALURU (Reuters) -The Bank of Canada is expected to hold its key interest rate steady at 5.00% on Sept. 6 and stay at that level through at least the end of March 2024, according to a majority of economists in a Reuters poll, with a small but growing minority expecting one more rate rise.Inflation, which the Canadian central bank targets at 2%, rose more than expected to 3.3% in July, and further price rises continue to be the upside risk to expectations the BoC has already reached its terminal rate.The housing market, where prices surged about 50% during the coronavirus pandemic and have fallen only about 10% from their peak, is also showing signs of a revival, with forecasters in a separate Reuters poll raising price expectations for this year.For the time being, an expected slowdown in economic growth to 1.1% in the second quarter and a rise in the jobless rate gives Bank of Canada policymakers plenty of room to leave interest rates unchanged next week.Thirty-one of 34 economists polled Aug. 24-30 expect no change to the central bank’s overnight rate, with the remaining three expecting a 25-basis-point rise. Interest rate futures are pricing in no change next week, but are nearly split over whether rates rise once more.”Our base case call at the moment is for them to keep the overnight rate steady at 5.00% … (and) throughout the rest of this year,” said Claire Fan, an economist at RBC.Fan pointed out that by the October meeting, policymakers will have two more job market and inflation reports to consider.In the latest poll, eight of 34 economists expect one more rate rise to 5.25% by the end of this year, compared with only one in a July poll. In response to an additional question, 60% of respondents, 12 of 20, said the risk of the central bank raising rates once more from the current level was high.”We expect the Bank will hold the overnight rate steady at 5.00% through mid-2024 as the full impact of past rate hikes helps push the economy into a moderate recession. Still, additional BoC rate hikes are possible if economic growth is stronger than we anticipate,” said Tony Stillo, the director of Canadian economics at Oxford Economics.A majority of economists, 24 of 34, expect the central bank will keep its policy rate at the current level or higher until at least the end of March 2024. The median shows 50 basis points worth of cuts by the end of June next year, in line with expectations for the U.S. Federal Reserve.A scenario in which Canadian interest rates stay higher for longer could increase pressure on highly-indebted households, with almost 20% of Canadian mortgages due for renewal next year.The Aug. 14-29 poll of 13 property analysts forecast average home prices would fall 5.0% this year, less severe than the nearly 9% drop expected just three months ago. Analysts expected a 12% fall in home prices at the beginning of the year.”We’re not anticipating further rate increases from the Bank of Canada, but that threat alone is enough to keep buyers on the sidelines for the rest of this year,” said Sal Guatieri, senior economist at BMO Capital Markets.”It won’t be until early next year … when it becomes clear the bank’s next move is to lower rates, that we’ll see the housing market strengthening once again.”The prospect of higher mortgage repayments on ever-more expensive property, along with record immigration, is expected to drive further demand for rentals.When asked what will happen to average rents for the rest of 2023, all 10 analysts said they would either rise slightly (5) or rise significantly (5). A majority of analysts also said rental affordability would worsen over the coming year.”I think rents will continue to rise across Canada because of the shortage of housing that we’re seeing and the underlying sturdy demand,” BMO’s Guatieri said.(For other stories from the Reuters global economic poll:) More

Elsewhere in the economy, the picture was rather bleaker, however.”Parts of the economy have already slowed down, and there is a decline in industry when excluding the pharmaceutical industry,” Economy Minister Jacob Ellemann-Jensen said.Overall, the government now expects gross domestic product to grow by 1.2% this year compared with its May forecast of 0.6%, the economy ministry said in a report.Drugmaker Novo Nordisk has seen huge growth with the success of its weight-loss drug Wegovy, which has been flying off store shelves worldwide.”The pharmaceutical industry, led by Novo Nordisk, has maintained a high production level in the first half of 2023 with June as a new peak,” the report said.But there are still many uncertainties regarding the broader economic outlook, Ellemann-Jensen said in the report.”Many of our neighbouring countries are currently experiencing stagnation or even regression. The Danish economy is also not avoiding a period of a slower growth pace,” he said.The government still expects Denmark’s GDP for 2024 to grow by 1.4% as projected in May.Inflation in the Nordic country has declined greatly since it reached a 40-year high of 7.7% last year. The government now forecasts inflation at 3.8% this year compared with its May forecast of 4.3%.Employment is forecast to grow by 32,000 people against 1,000 expected in May, it said. More