Aurelia Butler

(Reuters) – Money markets in the euro zone have started pricing in a chance of an ECB rate cut late next year, as traders bet the bank may end up overtightening monetary policy by delivering a series of big rate hikes.Last week the European Central Bank lifted its deposit rate by an unprecedented 75 basis points (bps) to 0.75% to “frontload” policy tightening and get a hold of soaring inflation. The bank implied rate rises could continue into early 2023 even as the bloc braces for recession.Since that meeting, traders have ramped up their bets on larger moves. Money markets now price in around 70 bps of hikes in both October and December. They see rates peaking at around 2.7% in mid-2023, according to ICAP (LON:NXGN) data provided by Refinitiv.Yet because of those steeper expectations, traders have also started to bet the ECB will then start cutting rates — money markets see rates at around 2.6% by February 2024. Before last week’s ECB meeting, an additional 90 bps of hikes were priced in by year-end and rates were seen peaking at around 2.2% and then holding steady.GRAPHICS: Traders start betting on ECB rate cut: https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrxnqopm/uzX46-traders-start-betting-on-ecb-rate-cut-after-mid-23-peak.png”With the ECB in front-loading mode and taking a leaf out of the Fed’s book I expect further inversion,” said Antoine Bouvet, senior rates strategist at ING, referring to a rate cut being priced in.The moves in euro zone money markets echo what has been happening in the United States.There, the Federal Reserve has also been frontloading rate hikes, delivering a combined 200 bps of increases since May. Fears that aggressive rate hikes will push the U.S. economy into recession have led traders to price in some 50 bps of Fed rate cuts next year after they peak above 4% in March.For the euro zone, a Reuters poll expects the ECB’s deposit rate to peak at 1.50% and hold there, but investment banks Nomura, BofA and German insurer Allianz (ETR:ALVG) are among those already predicting rate cuts next year or in 2024.The shift since last week implies traders pricing in over a 40% chance of a 25 bps cut by February 2024. But Piet Christiansen, chief analyst at Danske Bank, sees a one-off rate cut as unlikely, and instead says it reflects the market pricing a small probability of multiple 25 bps rate cuts.”I think the hurdle is quite high and also because inflation is going to print above 2% until spring 2024 in Europe so politically, can (ECB chief Christine) Lagarde cut rates with inflation above 4%? I’m not sure,” he added. More

MOSCOW (Reuters) -Russia’s central bank cut its key interest rate by 50 basis points to 7.5% on Friday as inflation slows and the economy needs cheaper lending to limit a slump, but did not repeat recent guidance that it would study the need for further cuts.It was the fifth scheduled board meeting where the rate has been cut this year. In the immediate aftermath of Moscow’s despatch of armed forces into Ukraine on Feb. 24, the central bank had hiked its key rate to 20% from 9.5% in order to mitigate risks to financial stability.The 50-basis-point cut was in line with a consensus forecasts of analysts polled by Reuters earlier this week.The central bank omitted forward-looking rate guidance from the statement, saying that the inflation expectations of households and businesses remained elevated. This suggests the likelihood of another rate cut has declined.”There is no direct signal in today’s press release. And this is a clear indication that the rate-cutting cycle may be over,” said Evgeny Suvorov, an economist at CentroCreditBank.The central bank said will take into account actual and expected inflation dynamics along with risks posed by domestic and external conditions and the reaction of financial markets when making next rate-setting decision.The rouble showed limited reaction to the rate move, hovering near 60 against the dollar.Inflation stood at 14.1% as of Sept. 9 and is on track to finish this year in a range of 11-13%, the central bank said. It reiterated its hope that inflation would slow to 5-7% in 2023.The central bank said a tighter monetary policy could be needed to bring inflation to the 4% target in 2024 if Russia’s budget deficit expands.”It cannot be ruled out that the central bank will start raising rates as early as in the first half of next year,” said Suvorov from CentroCreditBank.High inflation dents living standards and has for years been one of Russians’ main concerns. However, the economy currently needs stimulation in the form of cheaper credit to address the negative effects of sweeping Western sanctions imposed in response to Russia’s intervention in Ukraine.The central bank maintained its forecast for a 4-6% economic contraction this year but said the decline in gross domestic product may be closer to 4%. In late April, it had expected GDP to shrink 8-10%.Central bank governor Elvira Nabiullina will shed more light on the bank’s forecasts and policy in a media briefing at 1200 GMT.    The next rate-setting meeting is scheduled for Oct. 28. More

OTTAWA (Reuters) – Canadian housing starts fell 3% in August compared with the previous month as a decline in multi-unit urban starts offset a slight increase in single-detached, data from the national housing agency showed on Friday.The seasonally adjusted annualized rate of housing starts was 267,443 units in August, down from a revised 275,158 units in July, Canadian Mortgage and Housing Corporation (CMHC) data showed. Analysts had forecast starts would dip to 265,000. More

The United States on Thursday sanctioned the chief executive of the Bank of Russia’s National Card Payment System (NSPK), which runs Mir, saying it was seeking to hold the Russian government accountable for its Feb. 24 invasion and continuing war against Ukraine.”Russia has scrambled to find new ways to process payments and conduct transactions,” the U.S. Treasury said. “Directly and indirectly, Russia’s financial technocrats have supported the Kremlin’s unprovoked war.”The importance of Mir cards for Russians rose substantially this year after U.S. payments firms Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) suspended operations in Russia and their cards that were issued in Russia stopped working abroad.Cuba, South Korea, Turkey, Vietnam and a handful of former Soviet republics accept Mir, which means both “peace” and “world” in Russian, with others such as Iran intending to follow suit soon.The central bank said Mir cards and other NSPK services would continue working as usual in Russia. “Foreign partners themselves take decisions about opening their infrastructure to accept Mir cards,” the central bank said. “At the same time, we intend to continue dialogue about expanding the geography of Mir card acceptance.” The U.S. Treasury said it had blacklisted 22 individuals, including four financial executives whose actions could directly or indirectly support Russia’s war effort by helping it evade financial sanctions imposed on Russia after the invasion.One of those four was named as Vladimir Komlev, the head of NSPK.”Russia created its own state-run card payment system in 2014 out of fear of U.S. and European sanctions,” the Treasury said. “In his role, Komlev has promoted the Mir network in other countries, which ultimately could assist Russia in circumventing international sanctions.”NSPK did not immediately respond to a Reuters request for comment.Moscow says that what it calls a “special military operation” in Ukraine was necessary to prevent its neighbour being used as a platform for Western aggression, and to defend Russian-speakers. Kyiv and its Western allies dismiss these arguments as baseless pretexts for an imperial-style war of aggression. More

(Reuters) -European shares slid 1.2% on Friday as recession warnings from two major global financial institutions and bets of a large interest rate hike from the U.S. Federal Reserve next week knocked down sentiment. The declines put the continent-wide STOXX 600 on track for a weekly drop of 2.4%.All major sectoral indexes were lower as of 0809 GMT, with rate-sensitive tech stocks the top drag, down 1.7%. Post and logistics firms tumbled after U.S. peer FedEx Corp (NYSE:FDX) on Thursday withdrew its financial forecast, warning of a global demand slowdown. Shares of Deutsche Post (OTC:DPSGY), Kuehne & Nagel, DSV Panalpina and Royal Mail (LON:RMG) Plc slumped between 2.9% and 12.0%. The World Bank said late on Thursday that the global economy might be inching toward a recession as central banks aggressively tackle sticky inflation, while the International Monetary Fund said it expected a slowdown in the third quarter. “(The World Bank) highlighted that because the new tightening polices are synchronised across a number of countries, the effects of these interest rates could be compounded and magnified, leading to a steeper-than-expected slowdown in global growth,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, wrote in a note. Ailing German gas importer Uniper SE (OTC:UNPRF) tumbled 14.6% to the bottom of the STOXX 600, as it struggled to keep up with costs after the sudden stoppage of a major natural gas pipeline by Russia earlier in the month.The STOXX 600 has shed a little over 1% so far this month, heading for its second straight monthly decline, as investors fret over soaring prices and an energy and cost of living crisis in the region. UK’s FTSE 100 index fell 0.2% after data showed retail sales fell much more than expected in August, in another sign that the British economy is sliding into recession. But the exporter-heavy index fell the least across Europe as the pound weakened. (L) In a rare positive spot, shares of London-listed South African lender Investec rose 2.2% after Berenberg started its coverage on the stock with a “buy” rating. More