Aurelia Butler

The economy of the 20-nation bloc sharing the euro has broadly stagnated for the past three quarters as manufacturing is deep in recession, and economists see no rebound this year, pointing to just barely positive GDP growth in 2023.”There’s a lot of reasons to believe the European economy will grow over the next couple of years,” Lane said in a podcast published by the ECB.A key argument is that the euro zone economy still has not caught up with its pre-pandemic trend so this catch up process should boost growth.”We’re well below the level of the economy we might have expected (if) the pandemic had not happened,” Lane said. “That kind of trendline we would expect to emerge over time.”Energy prices are sharply lower than in the initial months of Russia’s war in Ukraine and that too will eventually feed through to consumers, leaving households with greater disposable income, Lane argued.”Over time, households should be in a better financial position,” Lane said.The ECB has been raising interest rates at a record pace for the past year to cool demand and inflation, but Lane argued that the ECB did not want to drive demand “deeply negative” and the goal was merely to make sure it grew more slowly than supply.The ECB expects the euro zone economy to grow by 0.9% this year and 1.5% next year, although some economists see these forecasts as too optimistic. More

LONDON (Reuters) – Global shares were stuck around two-month lows on Friday, capping a week when bond investors became more convinced that interest rates will remain high for longer than initially thought, sending U.S. yields to near 16-year peaks.Wall Street was headed for a weaker start, with little in the way of economic data for markets to digest, though Thursday’s sell off in U.S. government bonds paused on Friday before the opening bell for U.S. stocks.S&P 500 futures and Nasdaq futures were down by 0.5% to 0.8%”The US calendar is empty today and the focus will likely be on bond market dynamics after back-end yields touched fresh multi-year highs yesterday,” ING bank analysts said.The greenback was set for a fifth consecutive week of gains, its longest winning streak for 15 months, helped by the prospect of U.S. interest rates remaining high or rising even further, and a safe haven in the face of growing risks in China.Crude oil was set to snap a seven-week winning streak as China’s slowing economic growth clouded the picture for demand. The sour mood in markets extended to cryptoassets, with bitcoin hitting a fresh two month low.Jason Da Silva, director, global investment strategy at Arbuthnot Latham, said stock markets were paying the price for bond yields soaring as economic data from the United States smash expectations, despite all the rate hikes so far.The MSCI All Country stock index was down 0.3%, hitting its lowest since early June after falling 5.85% during August, though it remains 10% up for the year.There was little market response to news of a package of measures from China’s securities regulator to revive a sinking stock market.Ten-year U.S. Treasury yields eased 8 basis points to 4.2251%, after surging about 30 basis points this month alone to a 10-month top of 4.3280% and near the highest levels since 2007.Euro zone government bond yields also eased on Friday as concerns about the global economy nudged investors into safe-haven government bonds and further signs emerged that euro zone inflation has peaked.Britain’s 10-year bond yield had risen on Thursday to its highest since 2008 at around 4.76%, but eased slightly on Friday as sterling softened.”The bond yields are saying you are probably going to have to keep rates higher for longer, and if growth starts to really pick up again, we might need to tighten further and stock markets are not liking that,” Da Silva said.Minutes from the Federal Reserve this week showed most members of the rate-setting committee continued to see significant upside risks to inflation, suggesting more hikes are in the pipeline.Attention now turns to the Fed and other top central banks’ annual gathering in Jackson Hole, Wyoming, next week, with investors set to scrutinise a speech from Fed Chair Jerome Powell on Aug. 25 for latest clues on potential rate hikes.Markets are already scaling back rate cuts bets next year.CHINA SHADOW BANKINGInvestors were keeping a close eye on the liquidity crunch that appeared to be spreading to China’s vast shadow banking sector, with Zhongzhi, a major Chinese asset manager, telling investors it needs to restructure its debt.In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9% to flirt with nine-month lows, bringing the total loss for the week to over 3%. That marked the third straight week of declines for the index. Chinese blue-chips dropped 1.2% and Hong Kong’s Hang Seng Index slumped another 2%, heading for the biggest weekly losses in two months.Shares of Chinese property developers listed in Hong Kong fell 2%, after China Evergrande (HK:3333) filed for protection from creditors in a U.S. bankruptcy court.The onshore yuan moved away from a nine-month trough after the central bank set the daily fixing much higher than expected to support the currency, with traders on edge for any more direct intervention by Beijing or state-owned banks. [CNY/] Japan’s Nikkei also lost 0.5%, heading for a weekly drop of 3.1%. Data on Friday showed Japan’s core inflation slowed in July, a result that is likely to support market wagers that the Bank of Japan is in no hurry to phase out monetary easing.The U.S. dollar recovered from an earlier dip and was standing tall near a two-month top at 103.42 against its major peers. It was up about 0.5% on the week. The Japanese yen was trading at 145.39 against the dollar, having been hammered this week to a nine-month low of 146.56 per dollar as yield differentials between the U.S. and Japan widened. It is near levels that sparked an intervention by Japanese authorities late last year.Oil prices were lower. Brent crude futures eased 0.5% to $83.67 and U.S. West Texas Intermediate crude futures were off 0.4% at $79.99.The gold price was 0.2% higher at $1,892 per ounce. More

The G20 trade ministers are likely to discuss trade and World Trade Organisation reforms in their meeting, trade secretary Sunil Barthwal also told reporters.More than 300 delegates from G20 members are to gather in Jaipur, about 300 km from the capital New Delhi, for the Aug. 24-25 Trade and Investment Ministerial meeting.The Trade and Investment Working Group was set up in 2016 under the Chinese G20 presidency and has continued to hold talks on related issues at subsequent meetings.”WTO reforms is one of the priority issues at G20,” the official, said noting that the agenda for the G20, who account for nearly 85% of global GDP, will include the role of logistics in expanding global value chains and small businesses.Among others, France, Indonesia, South Korea, Turkey, UK, USA and EU have confirmed their participation in the meeting.The trade ministers are likely to aim to build a consensus on the issue of reducing transaction costs through a paperless global trading system, while helping small businesses to become part of global trade, the trade ministry said in a statement. More

The ECB has lifted rates from deep in negative territory to two-decade-highs in just a year to combat a historic surge in inflation and policymakers are now contemplating whether they have done enough to put price growth back on a path to 2%. Consumer prices increased by 5.3% in July versus 5.5% in June, extending a downtrend that started last autumn. Meanwhile price growth excluding food and energy, the underlying measure closely watched by the ECB, was flat at 5.5%, Eurostat said, confirming preliminary figures.Services inflation, however, picked up to 5.6% from 5.4%, a potential worry since services costs are heavily driven by wages and tend to be sticky. The relatively benign figures are not likely to settle the ECB’s dilemma on rates and markets still expect once more rate hike, to 4%, this year, even if not necessarily in September. Policymakers are pulled in opposing directions by incoming data.Underlying price pressures are still strong and the labour market is unusually tight, suggesting that wage pressures will persist as workers enjoy superb bargaining power.This could perpetuate high inflation and markets see price growth holding above 2% for years to come, suggesting that getting down to 3% will be easy but the last mile of disinflation is seen as painfully difficult. But economic growth is stagnating, investment is falling and overall consumption is flat, at best, suggesting that price pressures should ease as the economy suffers.Energy prices, a key culprit of the earlier surge, are now sharply lower and this too, will eventually feed through to consumers, even if with a lag. More

LONDON (Reuters) – The dollar hovered around a two-month high on Friday, set for a fifth consecutive week of gains in the longest winning streak for 15 months, buoyed by demand for safer assets on worries over China’s economy and bets U.S. interest rates will stay high.The People’s Bank of China (PBOC) set a much-stronger-than-expected daily fixing, lifting the yuan from a 9-month low hit on Thursday, while sterling fell after British retail sales weakened more than expected in July. The yuan fell 0.13% against the dollar to 7.3098 in offshore trading, bouncing back from Thursday’s nine-month lows, after the PBOC set the official mid-point at 7.2006, more than 1,000 pips stronger than Reuters’ estimate.China’s economic troubles have deepened, with property developer China Evergrande (HK:3333) seeking Chapter 15 protection in a U.S. bankruptcy court, and concerns also growing over default risks in its shadow banking sector.China’s securities regulator unveiled a package of measures aimed at reviving a sinking stock market, but investors said they would do little to boost confidence if the economy remains sluggish.Beijing has so far disappointed with stimulus, while the PBOC cut rates earlier this week in a surprise move that widened the yield gap against the U.S., rendering the yuan even more vulnerable to decline.”Developments in the distressed Chinese financial and property sector are emerging as the most prominent driver for market sentiment,” said Francesco Pesole, FX strategist at ING. “High yields and growing risks in China suggests the balance of risks is moderately tilted to the upside for the dollar,” he added. The U.S. dollar index, which measures the currency against six peers, edged 0.1% higher at 103.53, after touching a two-month high at 103.59 on Thursday. For the week, it is set to gain 0.6%.Minutes from the Federal Reserve’s last meeting showed this week that most members of the rate-setting committee continued to see “significant upside risks to inflation,” suggesting a bias toward further rate increases.Strong economic data this week, particularly retail sales, had already bolstered the case for additional tightening.STERLING SLIDESElsewhere, sterling fell 0.2% against the euro to 85.51 pence after British retailers reported a bigger-than-expected drop in sales in July as heavy rain put off shoppers who are also feeling the hit from high inflation and 14 back-to-back increases in interest rates. It touched a five-week high of 85.24 pence against the single currency on Thursday. The euro edged 0.1% lower at $1.0861, after touching on Thursday a six-week low of $1.0856.ING’S Pesole said the single currency has been surprisingly resilient given the euro zone’s economic exposure to China. INTERVENTION RISKThe recent depreciation of the yen kept traders on edge against the risk of intervention by Japan’s authorities.Against the yen, the dollar eased 0.3% to 145.38, after reaching a nine-month peak of 146.56 on Thursday.In autumn of last year, the dollar’s surge beyond 145 triggered the first yen buying intervention from Japanese authorities in a generation.The Australian dollar, which often trades as a proxy for China and has tended to track the yuan in recent days, fell 0.2% to $0.6387, after hitting a nine-month low of $0.6365 on Thursday.Meanwhile, the world’s biggest cryptocurrency, bitcoin, slipped 0.9% to $26,400 after dipping to a fresh two-month low at $26,172, adding to a more than 7% plunge on Thursday, as a wave of risk off sentiment grips world markets. More