Economy

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The ISM monthly survey of purchasing managers showed that just 47.2% reported expansion in August, above the July reading but below the consensus forecast.
Another weak economic reading raises the probability the Fed will be cutting interest rates by at least a quarter percentage point later this month.

Workers assemble second-generation R1 vehicles at electric auto maker Rivian’s manufacturing facility in Normal, Illinois, U.S. June 21, 2024. 
Joel Angel Juarez | Reuters

U.S. factories remained in slowdown mode in August, fueling fears about where the economy is headed, according to separate manufacturing gauges.
The Institute for Supply Management monthly survey of purchasing managers showed that just 47.2% reported expansion during the month, below the 50% breakeven point for activity.

Though that was slightly above the 46.8% recorded for July, it was below the Dow Jones consensus call for 47.9%.
“While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty,” he added.
While the index level suggests contraction in the manufacturing sector, Fiore pointed out that any reading above 42.5% generally points to expansion across the broader economy.
It was a weaker-than-expected reading last month that sent markets further into a tailspin, ultimately costing the S&P 500 about 8.5% before recovering most of the losses. Stocks added to declines following the latest ISM release on Tuesday, with the Dow Jones Industrial Average off nearly 500 points.

Another weak economic reading raises the probability the Federal Reserve will be cutting interest rates by at least a quarter percentage point later this month. Following the ISM report, traders raised the odds of a more aggressive half-point reduction to 39%, according to the CME Group’s FedWatch measure.
With the survey, the employment index edged higher to 46% while inventories jumped to 50.3%. Regarding inflation, the prices index nudged higher to 54%, possibly giving the Fed some pause when deciding on the extent of the fully priced-in rate cut.
The ISM results were backed up by another PMI reading from S&P, which showed a decrease to 47.9 in August from 49.6 in July.
The S&P employment index showed a decline for the first time this year, while the input cost measure climbed to a 16-month high, another sign that inflation remains present if well off its mid-2022 highs.
“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward-looking indicators suggest this drag could intensify in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

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LONDON (Reuters) – British home prices will make solid gains in the next two years, outpacing overall inflation, but affordability for first-time buyers is likely to improve based on expectations for lower borrowing costs, a Reuters poll of housing market experts forecast.Those saving for a cash deposit and wanting to get on the property ladder face rents increasing at an even faster pace, however, eating into disposable income and making it harder to save the money needed to be granted a mortgage.Home values would rise 2.5% this year and then 3.0% in 2025 and 4.0% in 2026, the Aug. 19-Sept. 3 poll of 21 analysts predicted, largely unchanged from a May survey. Consumer inflation was predicted at 2.3% next year and 2.0% in 2026, a separate Reuters poll found.”There is likely to be a modest surge in prices next year as interest rates fall back a bit,” said Mike Scott at estate agency Yopa.Like its peers the Bank of England raised borrowing costs sharply after the COVID-19 pandemic to combat inflation but trimmed Bank Rate last month and is expected to do so again once more this year. By the end of 2025 it is forecast to stand at 3.75% versus the current 5.00%.”It’s the fall in mortgage rates that has provided a small boost to the housing market and seems to have set a firm floor under future price falls,” said Aneisha Beveridge at Hamptons estate agency.British home prices unexpectedly fell in August in their first monthly drop since April but the outlook for the property market is likely to strengthen, mortgage lender Nationwide Building Society said on Friday.With interest rates falling, affordability for first-time buyers would improve, 15 of 17 respondents to an extra question said.”As wages continue to increase above the rate of inflation and the Bank of England reduces rates further, with house prices only just in positive territory, logic says affordability is improving,” said Russell Quirk at estate agency Emoov.Incomes were expected to rise 4.8% in 2024 and 3.2% next year, the other Reuters poll found.Valuations in London, long a draw for foreign investors, are also forecast to increase, by 1.8% this year and 3.2% in 2025. In 2026 they are predicted to rise 3.5%.”As for London, it is ‘back’ and given a world on fire, the UK capital is also a more and more popular safe haven,” said Tony Williams at advisory firm Building Value.Average home prices in London have risen from around seven times median income in 2002 to about 13 times last year, according to data from the Office for National Statistics.Nationally, rents would rise far faster than home prices, increasing 6.0% in the coming year, the survey predicted.”There is a dramatic shortage of houses/flats for owner-occupiers, but it is even worse in the rental market because so many landlords are exiting the market due to regulatory changes,” Williams added.Prime Minister Keir Starmer’s government plans a Renters’ Rights Bill that will remove the threat of arbitrary evictions and make it illegal for landlords to discriminate against families with children, while insurers have pulled back from offering cover, particularly for residential landlords.Starmer has pledged to boost the supply of cheap properties, building 1.5 million homes in his parliamentary term, and shake up planning laws.(Other stories from the Q3 global Reuters housing poll) More

Salameh has been charged in Lebanon with financial crimes including money-laundering, embezzlement and illicit enrichment. He has denied all wrongdoing. Neither he nor his lawyer immediately responded to Reuters attempts to reach them for comment on Tuesday.The judicial source said that Salameh was arrested at Lebanon’s justice palace following a hearing about the central bank’s dealings with Optimum Invest, a Lebanese firm that offers income brokerage services, according to its website. The source said that Optimum had dealt with Lebanon’s central bank to buy and sell treasury bonds and certificates of deposit in Lebanese pounds. Optimum did not immediately respond to a Reuters request for comment. An undated statement on its website said that a financial audit had found “no evidence of wrongdoing or illegality” in the company’s dealings with Lebanon’s central bank. Salameh, 73, was Lebanon’s central bank governor for 30 years until July 2023. In his final months as governor, France and Germany issued arrest warrants for him on corruption charges. More

BENGALURU (Reuters) – Home prices in Canada will barely rise in 2024 and only modestly in coming years despite expectations for many more interest rate cuts, with affordability improving but remaining stretched, according to analysts polled by Reuters.After surging nearly 55% during the COVID pandemic, average prices in Canada’s interest rate-sensitive housing market have declined only 14% from an early 2022 peak despite 475 basis points worth of Bank of Canada rate rises through July 2023.Housing affordability is at around its worst since 1990, according to the BoC’s own index. Two 25-bps rate reductions since June, and expectations for another on Wednesday followed by several more later this year and into 2025, have done little to spur demand despite some signs of improving supply.Average Canadian home prices, which are down 1% this year so far, will rise around 1% in calendar year 2024, according to the Aug. 19-Sept. 2 poll of 14 analysts. If realised, that would lag overall inflation, expected to be 2.5% this year.Home prices are forecast to climb a median 2.8% and 3.0% in 2025 and 2026, respectively – broadly unchanged from a May poll.”Interest rate cuts have so far failed to stimulate the housing market, although the sharper drop in borrowing costs … will lend more support,” said Olivia Cross, a North America economist at Capital Economics.”Even after the latest drop in borrowing costs, affordability is far more stretched than prior to the pandemic … Accordingly, we expect price gains to be modest.”Improving supply alongside anaemic demand could put downward pressure on prices over the coming years.While housing starts jumped 16% in July on a monthly basis, according to the Canada Mortgage and Housing Corporation (CMHC), and new listings rose nearly 1%, home sales fell 0.7%, Canadian Real Estate Association data showed.More supply could come as many Canadians, at risk of sharp rises in borrowing costs over the coming years due to mortgage renewals, are expected to list their properties for sale. Roughly C$300 billion ($222.4 billion) of mortgages will come up for renewal next year.In Canada, mortgages are typically for 25 years and renewed every three or five years, unlike the U.S. where homeowners can enjoy a flat rate for a 15-year or 30-year mortgage.All 10 analysts but one said purchasing affordability for first-time homebuyers would improve over the coming year. But the question remains on how significant this will be.”More interest rate cuts are likely to stimulate homebuyer demand across the country. But, we expect this will be gradual,” said Rachel Battaglia, an economist at RBC.”Significant reductions in rates will be needed to make a noticeable difference in ownership costs, especially in Canada’s priciest markets.” Persistently high house prices could apply further pressure on rental markets, which may keep rents rising faster than home prices over coming years, according to some respondents. (Other stories from the Q3 global Reuters housing poll)($1 = 1.3488 Canadian dollars) (Reporting and polling by Indradip Ghosh; Additional reporting by Mumal Rathore; Editing by Ross Finley and Mark Heinrich) More

According to Citi, “The pivot from inflation to jobs is complete,” signaling a shift in focus from inflation metrics to employment data in determining Federal Reserve policy.Citi’s projection suggests that a job growth of 125,000, combined with an unemployment rate of 4.3%, would be sufficiently soft to prompt the Federal Reserve to cut interest rates by 50 basis points.The note indicates that if the unemployment rate drops slightly to 4.2%, the Fed might opt for a smaller, 25 basis point cut, though this would not alter Citi’s outlook for a continued loosening in the labor market and a broader economic slowdown.The bank says that the volatility surrounding the labor market has become as pronounced as that seen with inflation data in recent years.Citi states that “relatively small differences in Friday’s jobs reading could materially affect Fed policy.”For instance, they believe that if the unemployment rate holds steady at 4.3% while payrolls are healthier at around 175,000, the Fed is still likely to implement a 50 basis point rate cut.Conversely, if payrolls fall below 125,000 with a 4.2% unemployment rate, a larger cut could be on the table.The bank adds that broader labor market trends indicate a steady weakening, with slowing hiring, declining hours worked, and rising unemployment.”We know from past cycles that once this cycle begins it has always progressed to a US recession,” says Citi. “The jobs report Friday as well as JOLTS on Wednesday will help us assess whether this progression continued.” More

LONDON (Reuters) – Moody’s (NYSE:MCO) Ratings upgraded its outlook on global reinsurers to positive from stable owing to reinsurers’ higher prices and more restrictive policies, along with healthy investment income, the ratings agency said in a statement on Tuesday. Reinsurers insure the insurers and have raised their rates and excluded some business in recent years in response to sharp losses from the COVID-19 pandemic, wars and natural catastrophes. Higher interest rates have also boosted reinsurers’ investment income.”We expect property reinsurance pricing to remain favourable,” said Brandan Holmes, senior credit officer at Moody’s.”Solid balance sheets will help reinsurers withstand potentially high catastrophe losses.”Reinsurance buyers expect property reinsurance price hikes to slow next year, however, following years of “significant” rate increases, according to a Moody’s annual survey of global property and casualty reinsurers.Reinsurers meet for their annual conference in Monte Carlo next week, to hammer out deals with insurers for the key Jan 1 renewal date.S&P Global said on Tuesday it retained its stable outlook for global reinsurers. The global reinsurance industry earned its cost of capital in 2023 for the first time in four years, and the ratings agency said it expected the industry to do so again in 2024 and 2025. More