Economy

Bailey said he was “very encouraged” by the downward path of inflation since it peaked at 11.1% nearly two years ago.”I do think the path for interest rates will be downwards, gradually,” he told the Kent Messenger newspaper.”Inflation has come down a long way,” Bailey added. “We still have to get it sustainably at the target and we have quite an unbalanced mix of components of inflation at the moment.”British inflation was 2.2% in August but the central bank remains concerned about high rates of growth in services prices and regular wages, both of which are rising at an annual pace of more than 5%.Asked where interest rates would settle, Bailey said he did not expect them to return to the historic lows close to zero last seen four years ago, and his best guess was that it would settle at a neutral rate which he was unable to specify. Last week the BoE kept its main interest rate unchanged at 5% after cutting it from a 16-year high of 5.25% in August. Economists polled by Reuters expect the BoE to cut rates to 4.75% at its next meeting in November.Last week Bailey said he was optimistic rates would fall further, but also said cuts would need to be gradual and the BoE needed “to be careful not to cut too fast or by too much”.Bailey spoke to the Kent Messenger during a visit to southeast England, including the port of Dover (NYSE:DOV), the main route for freight and much passenger travel between Britain and continental Europe.Asked about the economic impact of Brexit, Bailey said: “What we have seen, there will be some short-term painful effect on trade. But over a longer period of time … that trade will be redirected.” More

1. Futures edge upUS stock futures pointed higher on Tuesday, after comments from Fed officials regarding the jumbo rate cut drove up equities on Wall Street in the prior session.By 03:22 ET (07:22 GMT), the Dow futures contract had added 37 points or 0.1%, S&P 500 futures had inched up by 8 points or 0.1%, and Nasdaq 100 futures had gained 47 points or 0.2%.The 30-stock Dow Jones Industrial Average, benchmark S&P 500 and tech-heavy Nasdaq Composite all gained on Monday, as investors assessed statements in support of the Fed’s outsized 50-basis point rate reduction last week. Fed officials including Neel Kashkari, Raphael Bostic, and Austan Goolsbee all backed the move and argued for further slashes to borrowing costs this year.Meanwhile, new data showed that US business activity held steady in September and average prices for goods and services climbed at the fastest pace in half a year. The figures, along with the release of the latest personal consumption expenditures (PCE) price index — one of the Fed’s preferred inflation gauges, could provide an updated glimpse into the state of price growth in the world’s biggest economy.Traders are now betting that there is a roughly 53% chance the Fed will bring rates down by a half-point again at its next meeting in November, according to the CME Group’s (NASDAQ:CME) closely-monitored FedWatch Tool.2. Fed’s Bowman to speakMarkets will likely be following comments on Tuesday from Fed Governor — and sole dissenter to the size of last week’s rate cut — Michelle Bowman.Bowman is due to speak at 09:00 ET at the Kentucky Bankers Association Annual Convention, according to the Fed.The statements will come after Bowman said last week that she had favored a quarter-point drawdown due to concerns that a bigger reduction would be misinterpreted by the public as a sign that the Fed’s long-standing fight against inflation had been won.In particular, she noted that so-called “core” PCE, which strips out volatile items like food and fuel, currently stands above the central bank’s preferred 2% target.”We have not yet achieved our inflation goal,” Bowman said on Friday, adding a more measured rate cut would “avoid unnecessarily stoking demand.”3. Boeing puts improved pay offer to striking workersBoeing has offered a sweetened labor deal to its more than 30,000 striking workers in the US Pacific Northwest, although their union has said it would not put the proposal to a vote.The aerospace giant’s latest offer includes a 30% general pay bump over four years as well as improvement in retirement benefits and an increased ratification bonus if the workers accept the proposal by Friday. Boeing said it was its “best and final” offer.However, the International Association of Machinists and Aerospace Workers District 751, which represents the workers, rebuffed the approach, saying it was “thrown at us” by Boeing without prior negotiations. The company, meanwhile, said it had presented the offer to the union and then to the employees.Finding a resolution to the strike, which began after workers rejected a prior compensation package earlier this month, has become critical for Boeing. Analysts have flagged that a prolonged work stoppage could place a further crimp on the firm’s finances during a time when it is already facing production delays and heightened scrutiny over its safety record.4. Chinese stocks surge on stimulusChina’s Shanghai Shenzhen CSI 300 and Shanghai Composite indices rose more than 4% on Tuesday, while Hong Kong’s Hang Seng index also rallied, following fresh stimulus measures from Beijing.Chinese officials unveiled a slew of planned measures to further spur economic growth, with the People’s Bank of China (PBOC) set to cut reserve requirements for banks by 50 basis points to unlock more liquidity.For the ailing property market, the government said it would reduce mortgage rates for existing loans. Bloomberg reported that the government was planning at least 500 billion yuan ($70.8 billion) of liquidity support for local stocks.The moves come after the PBOC cut a short-term repo rate on Monday in a bid to further boost liquidity. Officials in China are pushing to shore up growth as the world’s second-largest economy struggles with persistent disinflation and an extended property market downturn.5. Crude risesCrude prices advanced on Tuesday, boosted by the monetary stimulus from top importer China as well as escalating tensions in the Middle East.By 03:23 ET, the Brent contract climbed 1.2% to $74.08 per barrel, while U.S. crude futures (WTI) traded 1.4% higher at $71.34 a barrel.China’s broad stimulus measures boosted hopes of expanding demand for crude from the world’s largest importer.Elsewhere, Israel’s military said it launched airstrikes against Hezbollah sites in Lebanon on Monday, raising concerns of a disruption to supplies from this oil-rich region, tightening global markets. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Spain is pushing other wealthy countries to allow developing nations hit by famines, droughts and hurricanes to suspend debt repayments, as climate change increases the threat from natural disasters.Paula Conthe, the head of Spain’s Treasury, told the Financial Times that official and private creditors should incorporate emergency so-called pause clauses for natural disasters into all loans to poor countries, after Grenada became the world’s first country to use such a clause last month.The Caribbean nation was able to suspend payments on a $112mn bond for a year after damage from Hurricane Beryl, which struck in July, triggered a clause in its debt terms agreed almost a decade ago. The interest will be added on to the bond’s principal. However, such clauses are rare in debt documents.The loan clauses that Spain is putting in its own debt documents will pause debt service for 12 months following a trigger event. Conthe said the Covid-19 pandemic showed how an exogenous shock can threaten a fiscally prudent country’s ability to repay debt in the short term.More severe and frequent droughts and floods are complicating debt crises, particularly in Africa. Zambia emerged from a bond default this year only to find its finances strained even further by the worst El Niño drought in southern Africa in four decades.Spain wants to use its clout as a member of the Paris Club of rich-country creditors to push for the wider uptake of similar clauses and across more types of disasters that can befall developing nations. “Otherwise, they might go into a negative debt spiral where their liquidity problems would turn into solvency problems,” she said.Madrid also wanted to make the pauses a standard feature of a G20 common framework for lending to poor nations, as well as some middle-income ones, Conthe added. It plans to make these agreements part of all concessional and commercial lending to low-income countries.Spain carries weight as a member of multilateral development banks active across emerging markets, including the Asian Infrastructure Investment Bank, the Central American Bank for Economic Integration, and the Development Bank of Latin America and the Caribbean.Spain has already inserted food crisis-related pause provisions into loans to Rwanda and Senegal this year. The clauses will only be able to offer “true relief” to borrowers if they are widely adopted, Conthe said.Some analysts say it is very difficult to design pause clauses that derive specific triggers from disasters such as drought, which can be harder to measure. Beyond Grenada, few countries have adopted the clauses even for risks such as hurricanes, which can be quantified relatively easily.However, Brad Setser, a senior fellow at the Council on Foreign Relations, said such clauses would be beneficial for both lenders and borrowers, and would not add much to a developing country’s borrowing costs. “The ability to stop payments for a year in the face of an act of God, so to speak, helps the debtor and helps the creditor. It helps avoid unnecessary default, and means the debtor doesn’t have to worry about coming up with funds during a disaster,” he said.“All insurance comes with a price,” Setser added, but the likely cost for loan payment suspension clauses done at issuance would be tens of basis points, not in the percentage points. More

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SINGAPORE (Reuters) – Asian stocks were perched at their highest in more than two months on Tuesday as expectations for more U.S. rate cuts kept risk sentiment aloft, while investors awaited a policy decision from Australia’s central bank.In an eagerly awaited press conference, China’s top financial regulators including the central bank unveiled a slew of measures to aid the stuttering economy, including moves to reduce mortgage rates for existing homes.The Reserve Bank of Australia is widely expected to stand pat on rates but the Federal Reserve’s 50 basis point cut last week has raised some expectations Australia could follow the Fed.”The RBA is likely to stick to its hawkish stance for now, aiming to keep inflation expectations anchored,” said Charu Chanana, head of currency strategy at Saxo.”A potential pivot may come only at the November 5 meeting depending on further labour market data and the Q3 CPI report.” That has left the markets steady, with MSCI’s broadest index of Asia-Pacific shares outside Japan 0.04% higher at 586.31, levels last seen on July 15.Japan’s Nikkei was the biggest mover in early trading, soaring 1.69% to a near three-week high ahead of an eagerly awaited speech by Bank of Japan Governor Kazuo Ueda.China’s central bank on Monday lowered its 14-day repo rate by 10 basis points, days after disappointing markets by not cutting longer-term rates.Overnight, the U.S. stocks closed modestly higher as traders digested the Fed’s big move last week, with policymakers explaining the need for the 50 bp cut.”I am comfortable with a starting move like this – the 50 basis point cut in the federal funds rate announced last Wednesday – as a demarcation that we are back to thinking more about both sides of the mandate,” Chicago Fed President Austan Goolsbee said. “If we want a soft landing, we can’t be behind the curve.”Markets are currently evenly split on whether the U.S. central bank will go for another 50 bps cut or a 25 bps cut in November, CME Fedwatch tool showed. They are pricing in 76 bps of easing this year.Brown Brothers Harriman Senior Markets Strategist Elias Haddad said the market is overestimating the Fed’s capacity to ease. “However, it will likely take strong U.S. jobs data to trigger a material upward reassessment in Fed funds rate expectations.”The next non-farm payrolls report is due Oct. 4 and until then, Haddad said a more dovish Fed and a strong U.S. economy offer financial market risk sentiment support and can further undermine the dollar mostly against growth-sensitive currencies.The dollar index, which measures the U.S. currency against six rivals, was at 100.95, not far from the one-year low of 100.21 touched last week. The yen was little changed at 143.65 per dollar. [FRX/]The euro was steady at $1.11055 in early Asian hours, having dropped about 0.5% on Monday as business activity reports for the euro zone economy disappointed, raising expectations for more interest rate cuts by the European Central Bank this year.The Australian dollar was 0.15% lower at $0.6828 but hovering close to the nine month high it touched on Monday.In commodities, oil prices were slightly higher in early trading, with Brent crude futures up 0.26% at $74.09 a barrel, while U.S. crude futures 0.3% higher at $70.6. Oil prices had slid on Monday on demand worries as well as weak economic data from Europe. More

TORONTO (Reuters) -The Canadian province of Saskatchewan has vowed to compete with China in processing and production of rare earths and become the first North American commercial alternative source for the metals, used to make magnets for electric vehicles and wind turbines. The Saskatchewan Research Council Rare Earth Processing facility is betting on demand for these magnets to jump in the next couple of years, driven by demand from original equipment manufacturers such as automakers. The Canadian province, home to copper, potash and uranium mines, is known for its mining prowess.China controls 95% of the global production and supply of rare earth metals. The near-monopoly allows the country to dictate prices and create uncertainty for end users through export controls. In the last year, China has placed export controls on some critical metals such as germanium, gallium and antimony, forcing western governments to look for alternatives.The SRC Rare Earth processing facility has begun production on a commercial scale and expects to hit a production target of 40 tonnes of rare earth metals per month by the end of this year. And it will produce 400 tonnes of the NdPr metals per year, which is enough to produce 500,000 EVs, according to SRC. The facility has already tied up with potential clients in South Korea, Japan and the United States. “Our focus is to remain competitive within the Asian Metals Price Index,” said Muhammad Imran, vice president of the SRC Rare Earth Element. “We are constantly looking to optimise our facility using artificial intelligence applications that would keep our process efficient,” Imran said. The price of rare earth metals such as neodymium praseodymium, known as NdPr, fluctuates between US$65,000 and US$75,000 per tonne, a price determined by the Chinese government. However, some miners have been asking for a premium price for metals produced outside China, arguing that Chinese metals are produced with low environmental, social and governance standards.Regardless, Imran said, the market will remain competitive and manufacturers have to be prepared to meet the reference point of the Asian Metals Index. “This is what the market is telling you the price for rare earth is, if someone can strike a better deal that’s great, but premium or no premium the market is going to be competitive,” he said. More