Economy

The ECB is expected by investors to cut interest rates at every one of its upcoming meetings at least through next June and the 3.25% deposit rate is now expected to end 2025 at 1.75%, a level low enough – in the view of many economists – to start stimulating growth. Schnabel, however, appeared to push back on those bets, arguing that central bank stimulus does not resolve structural issues and even squanders valuable policy space for when an economic shock would require speedy ECB action. “Given the inflation outlook, I think we can gradually move toward neutral if the incoming data continue to confirm our baseline,” Schnabel said, referring to an interest rate level that neither stimulates nor slows growth. “I would warn against moving too far, that is into accommodative territory. I don’t think that would be appropriate from today’s perspective,” Schnabel said in an interview published on Wednesday. Some policymakers have called for faster rate cuts and possible stimulus because inflation is falling more quickly than predicted and could undershoot the target, a premise Schnabel also rejected. “Risks to inflation are now more balanced. But I don’t see a significant risk of an undershoot, in particular one that would warrant a response from our side,” she said.Schnabel added that she did not see a recession in the euro zone and said there were some signs of a consumption-led recovery, which could underpin the bank’s narrative for a modest recovery. More

The US is set to release the Personal Consumption Expenditures Price index, the Federal Reserve’s preferred gauge of underlying inflation, later Wednesday.There remains a degree of uncertainty over whether the US central bank will deliver another 25-basis point cut in December given recent stubbornly strong inflation data.While the US is due to release November data on both consumer and producer prices before the Fed’s next meeting on Dec. 17-18 this will be the final PCE report before then.Economists are expecting the PCE index to have risen 2.3% annually in October, an increase from 2.1% the prior month.The minutes of the Fed’s November meeting, released Tuesday, suggested members continue to support a gradual approach to monetary policy easing.US stock futures edged lower Wednesday, with investors acting cautiously ahead of the release of Federal Reserve’s most closely followed gauge of inflation. By 04:00 ET (09:00 GMT), the Dow futures contract was down 25 points, or 0.1%, S&P 500 futures dropped 8 points, or 0.1%, and Nasdaq 100 futures fell by 45 points, or 0.2%.The main benchmarks closed positively Tuesday, with both the S&P 500 and the Dow Jones Industrial Average posting fresh intraday and closing highs.Activity is likely to be subdued Wednesday, with the market closed for the Thanksgiving holiday on Thursday and then set to end early Friday. Today’s main focus will be the release of the personal consumption expenditures price index [see above], as investors seek more clues over future Fed rate policy, particularly at its December meeting.There are more quarterly earnings to digest Wednesday, while Dell Technologies (NYSE:DELL) traded sharply lower premarket after the tech gaint issued disappointing guidance for the current quarter.Donald Trump is not even in the White House for his second term yet, but is already causing waves in global markets after threatening to impose more duties on imports from China, Canada and Mexico. Trump claimed that the measures were aimed at curbing illegal immigration and illicit drugs, but they also have the potential to dent corporate earnings, according to analysts at Citi, and the broader market had still not priced in this risk. Citi said on the earnings front, tariffs could cut earnings estimates for the S&P 500 in 2025 by “a few percentage points,” and could erode gross margins by more than 250 basis points. Still, the brokerage noted that a large number of corporations were granted relief from the tariffs during Trump’s first term. Citi said markets were moving from a period of election uncertainty into a period of policy uncertainty, citing the many unknowns over what Trump’s second term will bode for markets. Apple (NASDAQ:AAPL) CEO Tim Cook appeared at the China International Supply Chain Expo in Beijing at the start of the week, using the opportunity to endear himself, and by association his company, to the country.China is a key market for Apple, and is also a major part of the company’s supply chain, with a bulk of its devices being assembled in the country. Cook’s appearance in China comes as Apple grapples with sluggish iPhone sales in the country, as the tech giant struggles with heightened competition from local players, including Huawei.Sales of foreign-branded smartphones, including Apple’s iPhone, in China fell 44.25% in October year-on-year, according to data released earlier Wednesday from a government-affiliated research firm.Apple’s upcoming iOS 18.2 release, set to debut in December, is set to be a critical factor for the company’s iPhone replacement cycle in the coming quarters, according to analysts at Citi.The “rollout of iOS 18.2 in December will be an important determinant for the pace of iPhone replacement,” Citi added.Crude prices edged higher Wednesday, with traders assessing the potential impact of a ceasefire deal between Israel and Hezbollah as well as an unexpected, substantial draw in US oil inventories.By 04:00 ET, the US crude futures (WTI) climbed 0.5% to $69.08 a barrel, while the Brent contract fell 0.3% to $72.54 a barrel.Both benchmarks settled lower on Tuesday after Israel agreed to a ceasefire with Lebanon’s Hezbollah. The deal will take effect today, potentially ending a conflict across the Israeli-Lebanese border, quelling some concerns that persistent fighting in the Middle East will disrupt oil supplies from the crude-rich region. Data from the American Petroleum Institute, released on Tuesday, indicated that US oil inventories shrank by nearly 6 million barrels in the week to Nov. 22, compared with the small build expected.If confirmed by official data later Wednesday, this would increase hopes that US fuel demand remained strong, potentially tightening oil supplies in the coming months.Attention will now turn to next week’s meeting of the Organization of Petroleum Exporting Countries and allies, known as OPEC+, to determine future production plans.    More

The debt brake – which played a part in breaking the coalition, precipitating the calling of a snap election – limits the public deficit to 0.35% of gross domestic product and can only be changed with a two-thirds majority in the upper and lower houses of parliament.”I can definitely rule that out,” the Christian Democrats’ (CDU) Merz told Deutschlandfunk radio station. “Lifting the debt brake just before the end of this coalition has always been a clear answer from us: No, we won’t do that,” Merz added.Merz was somewhat more open, albeit sceptical, about after the election: “We can discuss the debt brake, but not if it involves simply increasing spending, because then all the other problems are not solved,” he said. State spending would first have to be reformed before he would consider a change to the debt brake, said Merz, and even then, he was “very, very sceptical” as to whether this was the right way to create more debt. Merz had showed openness to reforming the brake, which was introduced by his party under Angela Merkel, earlier this month after previously arguing the country should stick with it. More

COLOMBO (Reuters) -Sri Lanka’s central bank set a new single policy rate of 8% on Wednesday, easing monetary settings below previously used benchmarks, in an effort to shore up the island nation’s fragile recovery from a deep financial crisis.The introduction of an overnight policy rate (OPR), which had been flagged as likely earlier this year, would help markets more easily adjust to lower rates and help foster growth, the Central Bank of Sri Lanka (CBSL) said.Until now it set two key rates, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR), which economists had expected would be reduced by 25 basis points each to 8% and 9%, respectively.The SDFR and SLFR will no longer be considered policy interest rates, CBSL said but added that banks can continue to use them to borrow or lend from it and these would be set 50 basis points on either side of the OPR.Factors that prompted further easing include deeper-than-expected deflationary conditions in the near term as well as further moderation of underlying inflationary pressures and inflation expectations, the bank said.The lack of further leeway to reduce market lending rates and better-than-expected developments for the global macro economy were also factors, it said.”I don’t expect the kind of sharp easing we had since last year to this year – don’t expect that kind of trend to continue but whether we ease further, will need to wait and see,” Governor P. Nandalal Weerasinghe said.He added that the bank will monitor inflation-growth dynamics, external balances, real interest rates and the output gap to decide on policy.The South Asian economy is gradually emerging from a debt crisis after a $2.9 billion assistance package from the International Monetary Fund (IMF) was secured in March 2023.Sri Lanka’s economy is expected to grow by 4.5%-5% in 2024, slightly above the World Bank’s estimate of 4.4%, an official at the bank said.Weerasinghe said the baseline expectation is for the economy to expand 3% in 2025 but he was confident it would grow much faster.”There is no direct signalling of an end to the easing cycle,” said Thilina Panduwawala, head of research at Frontier Research.”But they do say that without further policy easing, they did not see further space for market rates to reduce. That might imply CBSL assumes rates can bottom out after this rate cut and that can make sense given their inflation forecast expects inflation to rise going into mid-2025.”On Tuesday, Sri Lanka launched a long-awaited bond swap, a major step to completing its $12.55 billion debt restructuring and enabling its fragile economic recovery to continue.Bondholders have until Dec. 12 to vote in support of the proposal, which would see them swap existing bonds for a set of new issues.Completion of the nearly 30-month debt restructuring process and a budget aligned with the IMF programme could bring down interest rates of government securities and boost credit growth, analysts said. More

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BEIJING (Reuters) – China’s state media shrugged off U.S. President-elect Donald Trump’s pledge to slap additional tariffs on Chinese goods in editorials late on Tuesday, accusing the former president of blaming China for the country’s failure to address the fentanyl crisis.Trump, who takes office on Jan. 20, said on Monday he would impose “an additional 10% tariff, above any additional tariffs” on imports from China. He previously said he would introduce tariffs in excess of 60% on Chinese goods. The tariff threat is rattling China’s industrial complex, which sells goods worth more than $400 billion annually to the U.S. and hundreds of billions more in components for products Americans buy from elsewhere.Economists have begun downgrading their growth targets for the $19 trillion economy for 2025 and 2026.Editorials in Chinese communist party mouthpieces China Daily and the Global Times focused squarely on the reason Trump gave for imposing the tariffs: fentanyl.”Scapegoating others can’t end U.S.’ drug crisis,” read the headline of a China Daily editorial on Tuesday, while the Global Times urged the “U.S. not to take China’s goodwill for granted regarding anti-drug cooperation after Trump’s remarks.””The excuse the president-elect has given to justify his threat of additional tariffs on imports from China is farfetched,” China Daily said. “The world sees clearly that the root cause of the fentanyl crisis in the U.S. lies with the U.S. itself,” it added.”There are no winners in tariff wars. If the U.S. continues to politicise economic and trade issues by weaponising tariffs, it will leave no party unscathed.”Trump’s team maintains China is “attacking” the U.S. with fentanyl.China is the dominant source of chemical precursors used by Mexican cartels to produce the deadly drug. Trump on Monday also pledged 25% tariffs on goods coming from Mexico and Canada until they clamp down on drugs and migrants crossing the border.Trump is threatening Beijing with far higher tariffs than the 7.5%-25% levied on Chinese goods during his first term. S&P Global on Sunday lowered its growth forecast for China for 2025 and 2026 by 0.2 and 0.7 percentage point, respectively, to 4.1% and 3.8%, citing the impact Trump’s tariffs could have.”What we assumed in our baseline is an across-the-board increase from around 14% now to 25%. Thus, what we assumed is a bit more than the 10% on all imports from China,” said Louis Kuijs, Chief Asia Economist at S&P Global Ratings.”For now the only thing we know for sure is that the risks in this area are high.” More