Economy

The BoC slashed its key policy rate by 50 basis points to 3.75% last month, its fourth cut in a row and the first larger-than-usual move in more than four years, after declaring an almost victory over inflation.The members of the rate-setting committee, however, discussed the merits of a 25 basis point cut but saw a strong consensus among them for the larger step, the summary of deliberations said. “Governing Council members wanted to convey that a larger step was appropriate given the economic data seen since July,” it said.There was concern among the members that many would construe the bigger rate cut as a sign of economic trouble, leading to expectations of further moves of this size or to assumptions that the policy interest rate would need to become very accommodative in the future.”Members felt that a larger step was appropriate given the ongoing softness in the labor market and the need for stronger economic growth to absorb excess supply,” it said. Inflation in Canada eased to 1.6% in September, falling below the bank’s mid-point of the 1% to 3% control range as over a 23-year high interest rate shrunk consumer prices. But it has also throttled growth with the GDP stalling in August and expectations are that it would miss the BoC’s revised 1.5% target in the third quarter.The central bank and economists feel the latest government’s efforts to curtail population growth would soften the GDP and consumption in the coming quarters. “The slowing rate of population growth would act as a brake on total consumption growth,” the minutes said, adding it could slow in the near term even though reductions in interest rates would ultimately support stronger growth in consumption. Prime Minister Justin Trudeau’s government announced measures last month which could lead to a population decline of 0.2% in both 2025 and 2026 before returning to a marginal growth in 2027.The six-member committee also discussed the risk that lower interest rates, pent-up demand, and new rules for mortgage qualification could increase demand for housing and boost housing prices more than expected. By Promit Mukherjee, editing by Dale Smith(promit.mukherjee@thomsonreuters.com) More

MADRID (Reuters) -Damages to businesses in towns hit by floods in eastern Spain could rise to over 10 billion euros, with banks loan exposure to the area worth alone around 20 billion euros ($21.82 billion), representatives for local firms and a Bank of Spain official said on Tuesday.On Tuesday, the government earmarked around 10.6 billion euros to help victims of some of Europe’s worst flooding in decades. At least 217 people died and more are still unaccounted for.Spanish banks’ loans to areas worst hit by floods mainly in Valencia region would rise to around 13 billion euros to households and 7 billion euros to companies, said Angel Estrada, the central bank’s head of financial stability.In total, the central bank identified 23,000 companies with outstanding loans and 472,000 loan holders in those regions.Of those 150,000 were mortgage contracts on which the government and banks agreed to offer loan moratoriums. Clients will be spared from paying monthly instalments for the first three months and just pay interests for an additional nine months on their mortgages.Estrada said it was important to make sure that those moratoriums would not lead to reclassification of credits that might trigger higher provisions.Jose Vicente Morata, Chairman of Commerce for Valencia region, said that the damage to businesses in the worst affected area of this region would provisionally rise “well over” 10 billion euros.Estrada said it was still too early to assess the precise economic impact of the floods though he acknowledged that there had been a more “significant destruction of capital” than during the COVID-19 pandemic.He said the banking sector would be “able to absorb” any impact, though they had laid bare that climate risks were materialising faster than expected and banks should now focus on measuring accelerating physical risks as well as addressing the transition risks of shifting to a lower carbon economy.Mirenchu del Valle, chairman of Spain’s UNESPA insurance association, said the Valencia floods would represent Spain’s “most significant damages claim for a climate event”, without putting a potential figure on it. A spokesperson for the Economy Ministry, which oversees the insurance sector, declined to provide a figure for the claims so far.So far, the most costly economic event by floods took place in Bilbao in 1983, when claims rose to more than 821 million euros and 1.08bln included associated damage for high winds, according to data from the Spanish insurance consortium.($1 = 0.9175 euros) More

LONDON (Reuters) – Hedge fund performance, on average, is better when the U.S. president is a Democrat, data from research firm HFR showed on Tuesday, as U.S. voters headed to the polls.Under Democratic Party presidents, hedge funds averaged a 10.2% annualized return, whereas under a Republican president hedge funds returned 8.7% on average, showed the data from Hedge Fund Research’s main index which tracks the returns of global hedge funds.This data from HFR’s HFRI Fund Weighted Composite Index tracked hedge funds’ performance averaged over presidential terms from 1990 to 2024.Hedge funds performed roughly twice as well when the House and Senate majority were in one party than they did with a split legislative body, the HFR data showed.    Performance when Democrats had a majority in the U.S. Congress came in higher than with Republicans, the data also showed.By strategy, stock hedge funds fared the best under Democrats — averaging a 12.7% return compared to 9.6% under the Republicans, over the last 34 years, said HFR data. Hedge funds trading M&A deals and the relative value between different financial assets also had higher returns during years when the president was a Democrat, the data showed.Funds speculating on macroeconomics or so-called macro hedge funds were the only strategy listed with higher returns during Republican presidents, according to HFR. The dispersion between hedge fund performance, or the difference between the best and worst performing funds differed the most during years when the president was a Democrat, it added.  Hedge funds’ annualized performance averaged the highest during the first year of a president’s term and came in lowest during two term presidencies in the second, sixth and last year.With 2008 and the financial crisis removed, the result skewed marginally towards Republicans. Hedge funds returned 10.7% with Republicans during these years, compared to a 10.2% result with presidents from the Democratic Party, HFR said.   (This story has been refiled to fix a typo in ‘tracked,’ in paragraph 3) More

COPENHAGEN (Reuters) -Demand for green power in the United States will grow regardless of who is the country’s next president, major players in the wind energy sector Vestas and Orsted (CSE:ORSTED) said on Tuesday.Offshore wind developers have seen profits shrink in recent years due to rising raw material costs, high interest rates, inadequate grid connections, supply chain bottlenecks, and Chinese competition, prompting companies like BP (NYSE:BP) and Equinor to scale back their ambitions.In the United States, the nascent offshore wind industry has been roiled by cancelled projects, postponed lease sales and a construction accident at the country’s first major offshore wind project.Orsted on Tuesday flagged construction problems and higher costs at a large U.S. offshore wind project.Democratic Vice President Kamala Harris has championed ambitious offshore wind targets as part of President Joe Biden’s administration.She is in a tight race with Republican candidate Donald Trump, who has said he will scrap offshore wind projects through an executive order on his first day in office if he retakes the White House, claiming wind turbines ruin the environment and kill birds and whales.”We see many – both corporates and states – having an increased demand from reshoring of industries and from the tech industry,” Orsted CEO Mads Nipper told journalists on Tuesday.”We see it as an all boats rise situation where all energy sources, not least for electricity, are needed no matter who ends up in the White House.”NEW GREEN ELECTRICITY NEEDEDShares of Vestas, the world’s largest wind turbine manufacturer, slumped more than 10% on Tuesday after the company warned of lower profit margins this year.Vestas CEO Henrik Andersen downplayed investor concerns around Tuesday’s election outcome.”I don’t think there’s any of the order intake that is dependent on today’s election,” he said at an analyst call.”There is a general need and demand higher than the supply right now for new green electrons to data centres among other things,” he added.Orsted, the world’s biggest offshore wind farm developer, last year booked massive impairments for cancelled U.S. offshore projects due to rising inflation, higher interest rates and supply chain delays.”It’s an industry being built from scratch and it is being very strongly supported by not least the northeastern states, where the alternatives for energy supply and especially green energy supply are difficult,” Nipper said.Orsted said scarce installation vessels and problems with installing an offshore substation at the 704 megawatt (MW) Revolution Wind project contributed to costs rising by another 1.7 billion Danish crowns ($248 million) in the third quarter. Group operating profit fell 14% to 4.44 billion crowns in the quarter. Analysts had on average forecast 4.61 billion in a company-provided poll.Profits were helped by a reversal of some of the losses Orsted booked last year in the United States. Its shares were down 1.5% at 1239 GMT. They have risen some 12% this year but are down more than a third from their peak in early 2021.($1 = 6.8472 Danish crowns) More

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The Treasury set a growth target of 1% this year and 1.2% in 2025 in its multi-year budget plan unveiled in September.Italian gross domestic product stagnated in the third quarter compared with the previous three months, preliminary data showed last week, missing forecasts and casting a shadow over growth prospects in the euro zone’s third largest economy.Barring further revisions, reaching 1% growth this year would require a very strong GDP reading in the fourth quarter, which the Bank of Italy said looks unlikely.”According to recent data, which is still insufficient to paint a complete and reliable picture, economic activity is seen struggling to regain momentum at the end of this year,” the central bank said in parliamentary testimony on Rome’s 2025 budget.Italy’s strong growth rebound from the COVID-19 pandemic, fueled by costly government-funded building incentives, is already petering out.ING economist Paolo Pizzoli said after the third quarter flash estimate that without a strong fourth quarter rebound this year’s growth would be no higher than 0.5-0.6%, following last year’s 0.7% rate.Budget watchdog UPB also warned on Tuesday that the government’s estimates were increasingly subject to downside risks.” Next (LON:NXT) year’s target relies heavily on domestic demand, which depends to a large extent on the implementation of Italy’s post-COVID recovery plan,” UPB said.Italy has spent around 45% of the more than 100 billion euros ($108.96 billion) it has received so far from European Union COVID-19 recovery funds, short of a target set in 2022.Implementation of the plan is seen by investors and rating agencies as an important measure of Italy’s ability to boost its sluggish economy and keep in check the country’s creaking public finances.($1 = 0.9178 euros) More

LONDON (Reuters) – The global monetary easing cycle ground along in October, with central banks across developed and emerging economies lowering interest rates ahead of the year’s biggest geopolitical event, the U.S. election.Three of the four central banks overseeing the 10 most heavily traded currencies that held meetings in October lowered benchmarks. Central banks in New Zealand and Canada each shaved 50 basis points off their interest rates while the European Central Bank delivered a 25 bps cut.Japan left rates unchanged while the U.S. Federal Reserve as well as central banks in Australia, Switzerland, Norway and the UK did not hold rate-setting meetings. Attention has now moved on to how deep and how long the rate-cutting cycle across developed markets will be. The U.S. election results could play a key role in shaping U.S. and global monetary policy going forward, with the Fed widely expected to cut rates by 25 bps on Thursday.Democrat contender Kamala Harris is seen as broadly maintaining the status quo in terms of growth and inflation in the world’s largest economy. Republican candidate Donald Trump had pledged to ramp up trade tariffs, likely sparking a tit-for-tat trade war, which would probably be inflationary and limit rate-cutting potential.Across emerging markets, 13 of the Reuters sample of 18 central banks in developing economies held rate-setting meetings in October. Six of them delivered cuts, with China, South Korea, Thailand, the Philippines and Chile trimming benchmarks by 25 bps each and Colombia lowering by 50 bps. Russia was the sole emerging market central bank to hike, upping rates by 200 bps, while the remaining six kept rates unchanged. Emerging market central banks had frontrun their developed market peers in the latest rate-cutting cycle. Recent easing by developing nations’ policymakers had bolstered emerging market bonds this year, analysts said. “We think those rate cuts may soon be paused,” Jean Boivin, head of the BlackRock (NYSE:BLK) Investment Institute said in a note to clients. The latest moves in emerging markets took the tally of cuts since the start of the year to 1,710 bps across 42 moves – outstripping last year’s total of 945 bps of easing. Total (EPA:TTEF) hikes so far in 2024 stood at 1,300 bps. More