Evelyn Reynolds

Bank of England Governor Andrew Bailey hinted that four interest rate cuts could be in the pipeline over the coming year.
Bailey told the Financial Times that inflation had come down faster than the central bank had been anticipating.
Markets are currently pricing in three rate cuts from the Bank of England over the next year, with investors expecting the institution to hold rates steady at its December meeting.

Andrew Bailey, governor of the Bank of England, at the central bank’s headquarters in the City of London, U.K., on Nov. 29, 2024. 
Hollie Adams | Bloomberg | Getty Images

Bank of England Governor Andrew Bailey on Wednesday signaled that the U.K. could be on track for four interest rate cuts over the next year, if inflation continues on a downward path.
Asked during a Financial Times video interview whether the central bank would be poised to carry out four quarter-point cuts over the coming year, if its projections of “a little bit of [inflation] persistence” come to fruition, Bailey responded, “Exactly.”

Markets are currently pricing in a hold on interest rates at the Bank of England’s December meeting, according to LSEG data, followed by three 25-basis-point rate cuts. If all four trims materialize, they would bring down the bank’s key interest to around 3.75%, adding to the two BoE reductions this year to date. The institution began cuts over the summer, with Bailey telling reporters in November that the bank would need to take a “gradual” approach to lowering rates.
“Monetary policy will need to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target over the medium term have dissipated further,” he said at the time.
Surveying the inflation picture on Wednesday, the BoE governor added that consumer prices had come down faster than the central bank had anticipated.
“A year ago, we were saying that inflation today would be around 1% higher than it actually is,” he said during the interview. “And that, I think, is a good test of the [central banking] regime.”
U.K. inflation surprised markets with a rise to a sharply higher-than-expected 2.3% in October, up from the 1.7% of September.

Sterling was trading flat on Wednesday morning, reaching $1.2671 by 11:52 a.m., erasing some of its earlier losses.
Meanwhile, the yield on the U.K.’s 10-year gilts was flat at around 4.273%. More

French lawmakers will hold a vote of no-confidence in the fragile minority government of Prime Minister Michel Barnier on Wednesday which is expected to pass.
Economists warned that the lack of a fresh 2025 budget would set the country’s deficit higher, spur higher bond yields and deter international investors.
The political turbulence comes as Germany heads for its own no-confidence vote, adding to headwinds for the euro.

A pedestrian crosses a flooded street following heavy rainfall in Paris on October 17, 2024.
Joel Saget | Afp | Getty Images

French lawmakers will hold a no-confidence vote in the fragile minority government of Prime Minister Michel Barnier on Wednesday, as economists warn the political stalemate likely to ensue will come at a high economic cost.
Two so-called “motions of censure” filed by both the left-wing and far-right opposition parties will be debated and voted on from 4 p.m. local time. The administration is widely seen as likely to be ousted, just three months after it was formed. If the government collapses, Barnier — who failed to find compromise within the heavily-divided National Assembly to pass a 2025 budget bill aimed at reducing the hefty French deficit — will then be forced to tender his resignation to President Emmanuel Macron.

From there, uncertainty reigns. Macron will eventually need to name a new prime minister, after already struggling to make such an appointment in the wake of the snap summer election which delivered the most votes to the left-wing coalition, but did not give any party a majority. Long-time minister Barnier had been seen as a technocratic compromise.
“Once Barnier resigns, Macron will likely ask him to continue as a caretaker. The alternative option of formally renominating Barnier looks unlikely given the manifest lack of a majority,” Carsten Nickel, deputy director of research at Teneo, said in a Tuesday note.
This caretaker status could drag on for months, since fresh elections cannot be held until next year, while another possibility is Macron’s resignation triggering presidential elections within 35 days, Nickel said.

French budget surprises with focus on tax hikes as analysts warn of ratings downgrades

He added that such a series of events would leave the budget bill unpassed, with a last-minute deal appearing improbable.
The caretaker government is therefore likely to present a special constitutional law which would “effectively roll over the 2024 accounts without any of the previously envisaged spending cuts or tax hikes, while empowering the government to keep collecting taxes,” he said.

Amid the turmoil, French borrowing costs are climbing while the euro has been caught up in negative sentiment — exacerbated by bleak manufacturing data from the euro area and concurrent political volatility in Germany.
“France is facing a prospect of a growing fiscal deficit that will become more expensive to finance as their [government bond] yields rise amid this uncertainty,” analysts at Maybank said in a note Wednesday.

Deficit challenge

To international investors, the situation in France looks “very bad,” Javier Díaz-Giménez, professor of Economics at Spain’s IESE Business School, told CNBC by phone.
“Without a budget, they really would default, not because they can’t pay interest on their debt, but because they won’t without a budget. Ratings agencies are already putting in warnings, 10-year French bonds have a higher premium than Greece’s, which is crazy in terms of fundamentals,” he said. Greece had briefly lost its investment grade credit rating status amid the euro area debt crisis, which led to the nation’s sovereign default.
“But that’s because pension funds don’t care, they just want an assured steam of revenue with no concerns about legal shenanigans. So they will dump [French bonds] and go elsewhere,” Díaz-Giménez said.

“Beyond economic growth and stability, this will send debt in a non-sustainable direction in France.”
Economists had already trimmed their growth forecasts for France following the publication of the budget proposal in October, given its sweeping tax hikes and public spending cuts.
Analysts at Dutch bank ING, who previously forecast French growth slowing from 1.1% in 2024 to 0.6% in 2025, said Tuesday that the fall of Barnier’s government “would be bad news for the French economy.”
They also predicted the passing of a provisional budget mirroring the 2024 framework.
“Such a budget will not rectify the trajectory of public spending,” they said, throwing out Barnier’s target of reducing the public deficit from 6% of GDP to 5% in 2025 — which would mean France would not move toward meeting the European Union’s new fiscal rules.

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“At a time when economic growth in France is slowing markedly, this is bad news. The public deficit will remain high, debt will continue to grow and the next government – whenever that may be – will have an even tougher task to put public finances right,” the ING analysts said.
Gilles Moëc, group chief economist at AXA, observed in a note Monday that “France can count on large reserves of domestic savings to replace international investors, and the euro area dataflow helps to decouple European from US yields, but in the medium run, directing too much of domestic savings to funding the government can become costly in terms of growth dynamics.”

Here’s how investors are trading France’s political chaos

“Consumer confidence has already declined, and the savings rate could rise further, thwarting the rebound in consumption on which the government is counting to support tax receipts in 2025,” Moëc said.

German comparison

While both countries are mired in their political turbulence, the spread between France’s borrowing costs over those of Germany stretched to a fresh 12-year high this month.
However, Díaz-Giménez of IESE Business School said that in some ways, the French outlook was more positive than that of the euro area’s largest economy.
“In France, economic prospects are pretty bleak, but it’s not going to be a disaster if ancillary risks can be avoided. The high fiscal deficit is hard to fix and requires political harmony but they could still find a way through, it just puts pressure on politicians to do their jobs and solve the real problems, in this case fiscal sustainability,” he told CNBC.
“But in Germany the problem is growth. The German economy needs major adaptation to a new environment without Russian gas and in which making cars in Europe looks like a really bad business plan. From an economic point of view, that is harder to solve than the French problem.”

Barclays prefers Germany over France as it sends ‘bond vigilante’ warning More

Job openings totaled 7.74 million on the month, up 372,000 from September.
Hiring tailed off at a time when the labor market was disrupted by violent storms in the Southeast as well as two major labor strikes involving dockworkers and Boeing.

Available jobs rose in October while hiring fell during a month in which payrolls growth hit its lowest level in nearly four years, the Bureau of Labor Statistics reported Tuesday.
Job openings totaled 7.74 million on the month, up 372,000 from September and more than the Dow Jones estimate for 7.5 million, the BLS said in its Job Openings and Labor Turnover Survey. The rate of openings as a share of the labor force rose to 4.6% from 4.4%.

That brought the ratio of available positions to unemployed workers up to 1.1, about half of where it was during the peak of a massive gap between supply and demand in 2022.
Hiring also tailed off at a time when the labor market was disrupted by violent storms in the Southeast as well as two major labor strikes involving dockworkers and Boeing. Hires totaled 5.31 million, down 269,000 on the month, lowering the hiring rate to 3.3%. That’s also a decline of 0.2 percentage point.
Layoffs, though, fell to 1.63 million, a decrease of 169,000 from September. Also, voluntary job quitters increased to 3.33 million, up 228,000 from September.
The data comes for a month in which the BLS reported nonfarm payroll growth of just 12,000, the worst month since December 2020.
The Federal Reserve watches the JOLTS report closely for signs of tightness or slack in the labor market. Markets expect the Fed to lower its benchmark borrowing rate by a quarter percentage point when it meets later this month, in part an effort to head off any potential weakness in the labor market.

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Federal Reserve Governor Christopher Waller said Monday he is anticipating an interest rate cut in December but is concerned about recent trends on inflation.
Waller cited recent data indicating that progress on inflation may be “stalling.”
Markets expect the Fed to lop another quarter-percentage point off its benchmark overnight borrowing rate when it meets Dec. 17-18.

Federal Reserve Governor Christopher Waller speaks during The Clearing House Annual Conference in New York City on Nov. 12, 2024.
Brendan Mcdermid | Reuters

Federal Reserve Governor Christopher Waller said Monday he is anticipating an interest rate cut in December but is concerned about recent trends on inflation that could change his mind.
“Based on the economic data in hand today and forecasts that show that inflation will continue on its downward path to 2 percent over the medium term, at present I lean toward supporting a cut to the policy rate at our December meeting,” Waller said in remarks before a monetary policy forum in Washington.

However, he noted the “decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation.”
Waller cited recent data indicating that progress on inflation may be “stalling.”
In October, the Fed’s preferred inflation indicator, the personal consumption expenditures price index, showed headline inflation moving up to 2.3% annually, and core prices, which exclude the cost of food and energy, moving up to 2.8%. The Fed targets a 2% rate.
Though the data was in line with Wall Street expectations, it showed an increase from the prior month and was evidence that despite the progress, the central bank’s goal has proved elusive.
“Overall, I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out, yet it keeps slipping out of my grasp at the last minute,” Waller said, referring to mixed martial arts. “But let me assure you that submission is inevitable — inflation isn’t getting out of the octagon.”

Markets expect the Fed to lop another quarter-percentage point off its benchmark overnight borrowing rate when it meets Dec. 17-18. That would follow a half-point cut in September and a quarter-point reduction in November.
“As of today, I am leaning toward continuing the work we have started in returning monetary policy to a more neutral setting,” Waller said.
Waller said he will watch incoming employment and inflation data closely. The Bureau of Labor Statistics this week will release reports on job openings and nonfarm payrolls, the latter coming after gains in October came in at a paltry 12,000, due largely to labor strikes and weather issues.
Even with the slowing progress on inflation, Waller said broader economic health has him feeling like it will be appropriate to continue to ease monetary policy.
“After we cut by 75 basis points, I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard,” he said.
Also Monday, New York Fed President John Williams expressed confidence that inflation is heading lower and said he still thinks it will be likely to put policy in a more “neutral” setting over time, without providing specifics.

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India’s economy expanded by 5.4% in its second fiscal quarter ending September.
Economists polled by Reuters had forecast growth of 6.5% for the period, while the Reserve Bank of India expected an expansion of 7%.
Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, said India’s economy will slow but not “collapse” in 2025.

Construction workers in Mumbai, India, on June 5, 2024. 
Bloomberg | Bloomberg | Getty Images

India’s economy expanded by just 5.4% in its second fiscal quarter ending September, well below estimates by economists and close to a two-year low.
The print follows 6.7% growth over the previous quarter and is the lowest reading since the last quarter of 2022. Economists polled by Reuters had forecast growth of 6.5% for the period, while the Reserve Bank of India expected an expansion of 7%.

The country’s statistics agency noted sluggish growth in manufacturing and the mining sector.
The yield on the country’s 10-year sovereign bond quickly sank to 6.74% after the release, from around 6.8%.
The weak GDP reading could potentially affect the country’s interest rate trajectory, with the RBI’s Monetary Policy Committee scheduled to meet between Dec. 6-8. Markets watchers had been expecting an eleventh consecutive pause by the RBI, with the repo rate currently at 6.5%.
Harry Chambers, an assistant economist at Capital Economics, said the Friday reading showed that weakness was “broad based.” His firm expects economic activity “to struggle over the coming quarters.”
“That bolsters the case for policy loosening, but the recent jump in inflation means the RBI won’t feel comfortable cutting interest rates for a few more months yet,” he said in research note.

Speaking to CNBC “Squawk Box Asia” before the GDP release, Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, forecast that India’s economy will slow but not “collapse” in 2025.
She said that Natixis has a 2025 growth forecast of 6.4% for India — without clarifying whether this refers to the fiscal or calendar year — but added that the print could also come in as low as 6%, which she qualified as “not a bit problem, but it’s not welcome.”
Separately, the RBI projected that GDP growth for the 2024 fiscal year ending in March 2025 will reach a higher 7.2%.
Asked how India’s economy will fare under President-elect Donald Trump’s second presidency, Herrero said the country is “not really at the center of the reshuffling of the value chain that China has been conducting.”
“If I were the Trump administration, I would start [looking at tariffs for] Vietnam. That’s a much more obvious case,” she noted.
She said that China could make products in India for Indian consumption instead of exporting products globally — and as such, New Delhi could avoid getting hit by tariffs. More

Annual euro zone inflation rose to 2.3% in November, statistics agency Eurostat said Friday.
While it takes price rises back above the European Central Bank’s 2% target, the increase was expected and primarily down to effects from the energy market.

The stalls at the 590th Dresden Striezelmarkt are brightly lit at the opening.
Sebastian Kahnert | Picture Alliance | Getty Images

Annual euro zone inflation rose to 2.3% in November, statistics agency Eurostat said Friday, climbing back above the European Central Bank’s 2% target.
Economists polled by Reuters had expected the 2.3% annual rate for the month, up from 2% in October.

Price rises in the bloc have ticked higher for two straight months after dropping to 1.7% in September, as was expected due to the fading deflationary pull from energy prices.
Core inflation, excluding volatile energy, food, alcohol and tobacco prices, held at 2.7% for a third straight month in November.
The core rate is being propped up by the stickiness of services inflation, which only slid slightly to 3.9% in November from 4% during the previous month.

Markets have fully priced in a 25-basis-point interest rate cut from the ECB in December, which would mark the institution’s fourth trim of the year.
Speculation that the central bank could be pushed into a larger 50-basis-point cut has faded since last month, after slight improvements in the weak euro area growth outlook and a rebound in inflation.

Inflation came in slightly higher than forecast in October, while ECB policymakers, including executive board member Isabel Schnabel, have stressed the need for caution in monetary easing.
The ECB’s decision will largely be informed by the latest staff macroeconomic projections it will receive just ahead of its upcoming Dec. 12 meeting. The central bank will also be weighing the potential global impact of the recent election of Donald Trump as U.S. president, including whether he will follow through on his threats of universal trade tariffs and how such a step would impact European Union exports.

The euro was little-changed against the U.S. dollar and British pound following the data release.
Kyle Chapman, FX market analyst at Ballinger Group, said in an emailed note that the uptick in headline inflation was solely down to year-on-year energy price volatility, and that the ECB would look favorably on a 0.9 percentage point fall in month-on-month services inflation.  
“With the growth picture looking soft, there is still no doubt that inflation will fall to 2% on a sustainable basis next year,” Chapman said, adding that the market nonetheless appeared to have settled on a 25-basis-point move in December.
“The economy is not falling off a cliff just yet and there is uncertainty about where the neutral rate is, so there is no pressing need to start frontloading cuts,” he noted.
Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said the inflation figures, combined with recent data showing record low unemployment and higher negotiated wage growth in the third quarter, will prevent a 50-basis-point cut.
The final monetary policy decision will nevertheless remain a “close call,” with the more dovish members of the ECB pushing hard for a 50-basis-point trim, Debono said. If the central bank does stick with a 25-basis-point move, it will likely follow this step with cuts of the same size at both of its following meetings in January and March, she added. More