Aurelia Butler

(Reuters) -Germany’s debt office will not need to seek alternative ways to invest its central bank cash deposits after the ECB decided to temporarily pay interest on government deposits, a finance agency spokesperson told Reuters on Friday. The ECB said on Thursday it would pay interest on governments’ cash deposits until April 30 2023, temporarily removing a 0% cap after it hiked rates. Analysts had warned that had the 0% cap remained after Thursday’s rate hike, it would have incentivized government debt offices to cut some of their cash balances at their central banks.Cash balances held by euro area debt management offices are worth some 600 billion euros ($598 billion), according to ING Bank.A further bond squeeze would have potentially put downward pressure on overnight money market rates, hindering the transmission of ECB rate hikes into the financial system at a time of record high inflation.”As it remains possible for us to deposit liquidity with the central bank at market conditions, as of today we don’t have to make use of alternative investment options,” the spokesperson said. She confirmed the finance agency would not make changes or seek alternative investments until the ECB’s removal of the cap expires in April 2023. Noting that central banks will effectively stop paying interest on the deposits from May 2023, “how our cash balance will look like from that point onwards remains to be seen. If still positive we would use alternatives to the deposit at the Bundesbank,” the spokesperson said, referring to Germany’s central bank. A particular concern was that debt offices would stop lending out their bonds in return for cash through repurchase agreements, or repos, or conduct reverse repos, where they lend cash in return for bonds.Reverse repos are a tool the finance agency has always used when required and “economical”, the spokesperson said. The lending of bonds to investors in the repo market is a crucial part of market infrastructure. It has been critical for investors this year as benchmark issuer Germany has increased lending given a worsening bond shortage. More

The ECB raised its key rates by an unprecedented 75 basis points on Thursday and promised further hikes, prioritizing the fight against inflation even as the bloc is likely heading towards a winter recession and gas rationing.”It is likely to be another close call in October and we have shifted our view to expect another 75bp hike (previously: 50bp),” Deutsche Bank (ETR:DBKGn) analysts said in a note. They noted guidance from ECB chief Christine Lagarde that rates are “far away” from levels appropriate for getting inflation back to target in a timely fashion and that hikes should be anticipated at the “next several meetings.” “This underscores the ECB’s insensitivity to the growth headwinds and laser focus on bringing inflation down,” the Deutsche note said.Credit Suisse on Friday also raised its ECB rate-hike forecast, noting the ECB’s language pointed to more aggressive tightening ahead.It said it now expected a 75 bps rate hike in October, versus a forecast for a 50 bps move earlier, and lifted its forecast for the ECB’s terminal rate to reach 2.5% from a previous estimate of 2%.Citi meanwhile said it continued to expect a 75 bps ECB hike in October and a 50bp hike to 2% in December before the weak economy stops further hikes. Money markets were on Friday fully pricing in a 50 bps rate hike in October and implied a roughly 25% chance of a more aggressive 75 bps move.Still, anticipation of more hawkish stance from the ECB appeared to be supporting the euro, which was trading back above $1 on Friday. More

LONDON (Reuters) – The euro rose back above parity to a three-week high against the dollar on Friday following a large rate hike and hawkish comments from the European Central Bank, while U.S. stock futures indicated a higher open on Wall Street.The euro was plotting 1.2% gains for the week after the ECB raised rates by a record 75 basis points on Thursday and signalled further hikes to fight inflation, even as the bloc’s economy eyed a winter recession.Recession was not inevitable, but the risk of one had increased, European Economic Commissioner Paolo Gentiloni said on Friday.Meanwhile, Federal Reserve Chair Jerome Powell said on Thursday the bank is “strongly committed” to controlling inflation but hopes it can do this without the “very high social costs” involved in past inflation fights.”We have seen more hawkish comments out of central banks not only in the U.S. but globally – the Bank of England and the ECB,” said Matthias Scheiber, global head of portfolio management for multi-asset solutions at Allspring.”You can see it in short-term interest rates.”The euro rose 0.73% to $1.0065, slightly below earlier highs, but off two-decade lows of $0.9864 hit earlier this week. Germany’s two-year bond yield hit its highest since 2011 for a second day before trimming gains to trade flat at 1.316%. “A further 75bp rate step is quite possible for the October (ECB) meeting, as inflation is likely to rise further for now,” Commerzbank (ETR:CBKG) analysts said in a note.The dollar fell 0.74% against a basket of major currencies, as its yield differentials narrowed. [FRX/]The yield on two-year U.S. Treasury notes fell 2 bps to 3.4733%.U.S. S&P 500 futures rose 0.8% and Nasdaq futures were up 1.1%, after Wall Street’s main indexes posted modest gains overnight, following heavy selling earlier in the week. Investors sold $14.5 billion in equities in the week to Wednesday and U.S. equity funds recorded their largest weekly outflow in 11 weeks, BofA said on Friday citing EPFR data.FED WATCHU.S. rate futures have priced in an 85% chance the Fed will hike by another 75 basis points at this month’s meeting, which would increase the Fed funds rate to a 3.0%-3.25% range. That is up from a 77% probability a day ago.The MSCI world stock index rose 0.7% to a 9-day high, heading for a 1.7% weekly gain.European stocks climbed 1.5%, helped by bank stocks on the euro zone rate hike expectations, while Britain’s FTSE 100 also rose 1.5%.Sterling rose 0.8% against the dollar after Britain’s new leader, Liz Truss, on Thursday announced a cap on soaring consumer energy bills for two years to cushion the economic shock of the war in Ukraine. The death of Queen Elizabeth on Thursday has heightened an uncertain state of affairs in Britain after the pound hit a 35-year low on the dollar earlier this week. [GBP/]”There’s a strong chance that King Charles III will be the first British monarch to pay more than a pound for a dollar, or more than a pound for a euro, or both,” Societe Generale (OTC:SCGLY) strategist Kit Juckes said in a note.The Bank of England postponed its September interest rate decision for a week, to Sept. 22, following Elizabeth’s death.ASIA GAINSThe dollar dropped 1.5% against the yen to 141.94, pulling back from recent 24-year highs.The Japanese currency has been a victim of the dovish monetary stance from the Bank of Japan, in contrast with rate hikes elsewhere.MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.5%, driven by a 2.7% rise in Hong Kong’s Hang Seng index and a 1.4% advance in China’s bluechips. China’s consumer and producer prices rose less than expected in August, data showed on Friday, fanning hopes for more stimulus from Beijing as the economy wobbles.Japan’s Nikkei gained 0.5%. Oil prices rose as investors considered Russia’s threat to halt oil and gas exports to some buyers. U.S. crude advanced 2% to $85.20 a barrel while Brent crude also jumped 2% to $90.97 per barrel. [O/R]Spot gold climbed 1.13% to $1,727.50 per ounce, helped by the weaker dollar. [GOL/]Bitcoin surged past the $20,000 barrier and was eyeing its best day in six weeks as the U.S. dollar fell. More

King Charles III is preparing to address the nation for the first time as head of state following the death of his mother, Queen Elizabeth II, after seven decades on the throne.The new King will travel from Balmoral, the royal estate in Scotland, to London and is expected to hold an audience with Liz Truss, who became prime minister just three days ago. He will then make a televised address at 6pm.The death of the Queen at 96 — announced by Buckingham Palace yesterday evening — has left the UK in mourning but reflecting on a life of duty in which she bound the country together through momentous change.The official period of mourning will last until seven days after the funeral, Buckingham Palace said today. It did not confirm the date of the funeral. Parliament will gather at noon today for a 10-hour session for MPs to pay their respects to the Queen while bells will toll at St Paul’s Cathedral, Windsor Castle and Westminster Abbey.A ceremonial bell at Windsor Castle will toll 96 times, once for each year of the Queen’s life — and a 96-gun salute will be fired in Hyde Park.Crowds gathered outside the Queen’s residences including Buckingham Palace and Windsor Castle, leaving flowers and tributes. World leaders paid their respects to the longest serving monarch in British history. In America, there was a rare outbreak of bipartisanship in Washington and an unusual hush on Wall Street when the news of Queen Elizabeth II’s death was announced.King Charles III’s formal accession to the throne and proclamation as monarch will take place tomorrow, when parliament will sit for senior MPs to swear an oath of allegiance.The new King said that the death of his mother was a moment of “the greatest sadness for me and all members of my family”.Our live blog will keep you up to date with the latest developments as they are announced.Read and watch more: Obituary: The Queen became a symbol of continuity and unity in an ever-changing political landscape.King Charles III The Queen’s eldest son, 73, has become the oldest monarch to accede to the throne.Inside Politics: The Queen was a canny political operator, writes Stephen Bush in his appreciation of her majesty.

Video: Queen Elizabeth II: a long life of duty and service

What did Queen Elizabeth II mean to you? Please share your thoughts with us at [email protected]. Thank you for reading FirstFT Americas — GordonFive more stories in the news1. Justice department appeals against ‘special master’ decision The Department of Justice has appealed against a judge’s decision accepting Donald Trump’s request to appoint a court official to review thousands of documents the FBI retrieved from his Florida resort.2. Citigroup wins appeal over $500mn it sent by mistake A US appeals court has overturned a ruling that allowed hedge funds to keep half a billion dollars that Citigroup mistakenly sent to them, in a victory for the Wall Street bank that could enable it to recoup the money.3. Republicans warn Apple against using Chinese group’s chips in new iPhone Apple has been warned that it will face intense scrutiny from Congress if it procures memory chips from a controversial Chinese semiconductor manufacturer for the new iPhone 14.4. EY bosses back radical break-up Leaders of the Big Four accountant yesterday approved a plan to split the audit and advisory businesses, a radical proposal that will now proceed to a vote of the firm’s 13,000 partners.5. Kim Jong Un toughens nuclear policy The North Korean leader has enshrined his country’s status as a nuclear power in law and allowed the use of pre-emptive strikes, as the regime seeks to take advantage of mounting tensions between the US and Russia and China.Go deeper: North Korea seizes on Russian isolation to deepen ties with Putin.Have you kept up with the news this week? Take our quiz. The days aheadJoe Biden visits Ohio The president will visit a new Intel chip plant and is likely to speak about American manufacturing following the passage of the Chips and Science Act that provides subsidies to US microchip manufacturers along with technology and science investments.Monetary policy Fed governor Christopher Waller will deliver a speech at the Vienna macroeconomics workshop in Austria. The speech comes a day after Federal Reserve chair Jay Powell doubled down on his message that the US central bank would act “forthrightly” to ensure increased inflation did not become entrenched. Company earnings Kroger, the US grocery chain, reports results before the market opens and will offer insight on the state of the American consumer as shoppers prioritise spending on groceries in the face of elevated inflation. Analysts expect revenue to increase to $34.36bn from $31.68bn a year earlier, according to Refinitiv.Economic data Economists expect Canada’s jobless rate to tick up slightly to 5 per cent, from 4.9 per cent in July, according to Refinitiv estimates. Tennis The women’s singles final of the US Open Tennis Championship takes place in New York tomorrow, followed by the men’s singles final on Sunday.9/11 Sunday marks the 21st anniversary of the terrorist attacks in New York and Washington. What else we’re reading Elizabeth II: an appreciation by Simon Schama The UK’s longest-serving monarch was so much more than a head of state. She was quintessential Britain, writes the historian and broadcaster. From the archive: The Queen in style In February of this year, as the Queen marked her platinum jubilee, the FT charted the strategy and influence of her wardrobe — and the legacy she would leave for her successor.Can Japan feed itself? When the Japanese food retail industry’s collective doors open on October 1, shoppers who have barely experienced inflation since the early 1990s will be hit by the most severe price shock in almost two generations. Without immediate agricultural reforms, the country is vulnerable to an intensifying global food crisis.Ukraine claims significant gains in counter-offensive Ukraine claimed to have regained territory in the eastern Kharkiv region as Moscow focused on repelling Kyiv’s southern offensive around Kherson. The gains, which represent Ukraine’s most successful counter-attack since fending off Russia’s initial assault, could weaken Moscow’s hold on the Donbas region, analysts said.Advertising agencies ask ‘where are all the people?’ In an industry disrupted by tech, employees have options to seek higher salaries and fulfilment elsewhere. “The good — and the bad — news is our people are very talented, which means they’re always in demand outside [the company],” says one executive.A life in picturesExplore these enduring images of the journey to the throne and the service of the UK’s longest-reigning monarch.

Elizabeth II wears St Edward’s Crown and carries the sceptre and rod during her coronation in Westminster Abbey © PA More