Economy

All 16 analysts in the poll saw a quarter point cut on Tuesday with the policy rate expected to end the year at 3.00% before falling further in early 2025.”Swedish inflation and activity data have been weaker than policymakers expected,” Adrian Prettejohn, Europe Economist at Capital Economics said. “We think this will encourage them to cut the key policy rate from 3.75% to 3.50% … and to indicate at least a further 50 basis points of cuts over the remainder of the year.”After cutting the policy rate for the first time in eight years in May, the central bank left it unchanged at 3.75% in June. It said then that it could make up to three more cuts before the end of the year amid lower price pressures.The pace of headline inflation has continued to ease from its peak of above 10% in 2022, and has undershot the central bank’s target of 2% for two months in a row.The economy has slowed with manufacturers, households and the construction sector all weakening in the second quarter.With markets expecting the U.S. Federal Reserve to start cutting interest rates in September, worries that rapid local rate cuts could hurt the crown and push inflation back up have also moderated, with a minority of analysts seeing scope for faster Swedish cuts this year.”We stand firm with our forecast that the policy rate will be cut at all the four upcoming monetary policy meetings and a policy rate at 2.75% year-end,” Nordea economist Torbjorn Isaksson said. “We see an additional rate cut early next year.”However, with stubborn inflation in the euro zone and the European Central Bank only expected to cut rates twice more this year, Swedish rate setters may opt for a degree of caution.The central bank of neighbouring Norway held its key rate on Aug. 15 and said a tight stance will likely be needed for some time to combat inflation.The Swedish central bank has three more rate-setting meetings this year after Tuesday, in September, November and December.The Riksbank publishes its policy decision at 0730 GMT. More

The week’s key event will be the Federal Reserve’s annual economic symposium in Jackson Hole, Wyoming, starting on Friday, with investors seeking more clues about the pace and timing of rate cuts over the coming months.Markets just recorded their best week of the year, on expectations of a very soft landing for the U.S. economy, as recent positive data relieved worries over the prospect of a recession.Most market participants believe the Fed will cut rates at its upcoming September meeting, with the main debate being over the size of the cut – a quarter percentage point or a half point.Fed chief Jerome Powell’s speech will be the highlight of the gathering, and markets are clearly priced for a dovish outlook, especially after Fed members Mary Daly and Austan Goolsbee flagged the possibility of easing in September over the weekend.The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July, after hiking its policy rate by 525 basis points since 2022.U.S. stock futures traded with small losses Monday, consolidating after the previous week’s strong gains amid growing optimism over the underlying strength of the world’s largest economy. By 04:05 ET (08:05 GMT), the Dow futures contract was 10 points, or 0.1%, lower, S&P 500 futures dropped 3 points, or 0.1%, and Nasdaq 100 futures fell by 28 points, or 0.2%.The benchmark Wall Street indices are coming off a winning week, with the  broad-based S&P 500 gaining 3.9% for its best week since 2023. The tech-heavy Nasdaq Composite added 5.2% and the blue chip Dow Jones Industrial Average rose 2.9%.Investors will focus this week on the minutes from the Federal Reserve’s most recent meeting, which are due on Wednesday, ahead of Friday’s Fed Chair Jerome Powell’s Jackson Hole speech on Friday.The earnings season continues this week, results due Monday from Palo Alto Networks (NASDAQ:PANW) and Estee Lauder (NYSE:EL).Monday sees the start of the four-day Democratic National Convention, with Vice President Kamala Harris set to formally accept the party’s nomination to run for president on Thursday night with a highly anticipated speech.President Joe Biden abandoned his reelection bid after his poorly-received debate against the Republican candidate Donald Trump in late June prompted many within the party to demand he step aside.Harris is heading into the convention enjoying a significant shift in momentum, with opinion polls having turned in her favor in some battleground states.”Recent polls suggest that Harris is better positioned in a head-to-head contest against Donald Trump,” UBS said, citing recent polls, after gaining more than 6 points in national polls, improving on Biden’s position by a “similar margin in some of the critical swing states.””The abbreviated campaign probably helps Harris as it allows less time for Republican critiques of her policy positions to alter perceptions,” UBS said, though added that Harris still has to introduce herself and expand on her policies to win over uncommitted voters.But this week’s Democratic National Convention “will give her an opportunity to do so, as will next month’s scheduled debate with Donald Trump,” it added. Goldman Sachs has lowered the odds of the United States slipping into a recession in the next 12 months to 20% from 25% following the release of recent healthy economic data.Earlier this month, the brokerage raised the odds of a U.S. recession from 15% after the unemployment rate jumped to a three-year high in July, sparking fears of a downturn.”We have now shaved our probability from 25% to 20%, mainly because the data for July and early August released since August 2 shows no sign of recession,” Goldman Sachs chief U.S. economist Jan Hatzius said in a note on Saturday.Thursday’s jobless claims report showed the number of Americans filing for unemployment benefits dropped to a one-month low in the previous week, while separate data revealed on the day that retail sales increased by the most in 1-1/2 years in July.Hatzius said if the August jobs report, due in early September, seems “reasonably good”, he would cut back the U.S. recession probability to 15%.He maintains the Federal Reserve will cut interest rates by 25 basis points at its September meeting, but did not rule out a 50 bps cut if the jobs report falls short of expectations.Crude prices fell Monday on concerns of weaker demand in top oil importer China, with the ceasefire talks in the Middle East remaining in focus. By 04:05 ET, the U.S. crude futures (WTI) dropped 0.9% to $74.83 a barrel, while the Brent contract fell 0.9% to $78.98 a barrel.Both benchmarks fell nearly 2% at the end of last week after data from China showed its economy lost momentum in July, with new home prices falling at the fastest pace in nine years, industrial output slowing and unemployment rising.Attention turns now to Gaza ceasefire talks, which are set to continue this week in Cairo, following a two-day meeting in Doha last week.U.S. Secretary of State Antony Blinken on Monday called the latest diplomatic push by Washington to achieve a ceasefire deal in Gaza “probably the best, maybe the last opportunity” and urged all parties to get the agreement over the finish line.There has been increased urgency to reach a ceasefire deal amid fears of escalation across the wider region, an upsurge that could impact supply from this oil-rich region. More

Following the July jobs report that triggered the “Sahm rule,” the Wall Street giant raised its recession estimates from 15% to 25%.The increase was positioned midway between the long-term average recession probability of 15%—based on the historical occurrence of a recession every seven years—and the 35% estimate during the bank turmoil in early 2023.However, recent economic indicators have prompted a reassessment.Specifically, the nonmanufacturing ISM index for July rebounded, with its employment component entering expansion territory for the first time since November 2023, economists noted.Moreover, retail sales for July beat expectations, suggesting strong real consumption growth. Also, initial jobless claims have declined over the past two weeks, aligning with the idea that the previous increase was partly due to weather and residual seasonality effects. The Financial Conditions Index (FCI) has also eased since the payroll report.”When recession strikes, it usually strikes quickly,” economists explained.“This means that the reassuring news on economic activity, layoffs, and financial conditions deserves some weight in assessing whether the July jobs report was an indication that recession is starting or just one weak print.”They further observe that if the U.S. continues on its current growth trajectory, it could start to resemble other G10 economies where the Sahm rule has been less predictive, holding true in less than 70% of cases. Several smaller economies, such as Canada, Sweden, Norway, and New Zealand, have seen significant unemployment increases without slipping into recession.Looking ahead, Goldman Sachs economists indicate that if the August jobs report, set to be released on September 6, shows positive signs, they may lower their recession probability back to 15%.On the monetary policy front, economists are more confident in their forecast of a 25-basis-point rate cut at the September 17-18 FOMC meeting. However, they do not rule out the possibility of a 50-basis-point cut if the jobs report disappoints again, given that “with inflation very benign and the labor market fully rebalanced, it has become increasingly obvious that a 5.25%-5.5% policy rate—now the highest across the G10—is excessive.”Still, the economists point out that the current level of the federal funds rate is less significant for financial conditions than the medium-term path priced into financial markets. They suggest that the Federal Reserve could achieve similar accommodation by signaling a series of smaller 25-basis-point cuts as by delivering a larger 50-basis-point cut. More

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ORLANDO, Florida (Reuters) – By one measure, the speculative Japanese yen-funded carry trade has been completely unwound.The latest Commodity Futures Trading Commission data show that hedge funds and speculators have flipped their long-standing short yen position and are now net long of the currency for the first time since March, 2021. It may have taken a lot in recent weeks to prompt the turn – a hawkish Japanese rate hike, yen-buying intervention and a burst of safe-haven demand amid the historic spike in U.S. stock market volatility early this month – but the flip was quick.Data for the week ending August 13 show that funds held a net long position of just over 23,000 contracts, effectively a bullish bet on the currency worth $2 billion. Just seven weeks ago they were net short to the tune of 184,000 contracts. That was their biggest short position in 17 years, a $14 billion bet against the currency. The scale and speed of the bullish momentum shift in July and so far this month is historic. A short position is essentially a bet that an asset will fall in value, and a long position is a wager its price will rise.As analysts at Rabobank point out the yen was the best-performing G10 currency against the dollar in July, rising more than 7%. But it has begun to ease lower again as the vol shock of August 5 fades and investors recover their appetite for risk.The question now is whether CFTC funds and speculators more broadly are inclined to go back into yen-funded carry trades or not. There are persuading arguments on both sides. The bar to extending long yen positions and for further yen appreciation may be higher. The U.S. economy is still growing at a decent clip – a 2% annualized rate, according to the Atlanta Fed GDPNow model’s latest estimate – and the dollar’s interest rate and yield advantage over the yen remains substantial.The yen ‘carry’ trade – selling the yen to fund the purchase of higher-yielding currencies or assets – is an attractive strategy from a fundamental perspective despite the recent turmoil.”We still hold the view that it is hard for the Dollar to go down (or to be bullish Yen) substantially or durably in the current environment,” FX analysts at Goldman Sachs wrote on Friday.On the other hand the recent turmoil is not in the rear view mirror completely, and volatility may stay above pre-August 5 levels for some time yet. This is bad for carry trades, which rely on low and stable volatility. Measures of implied volatility in dollar/yen from one week to six months out are all higher, especially further out the curve. It may take a more meaningful decline in volatility before speculators consider shorting the yen again. And figures on Friday are expected to show that inflation in Japan climbed to 2.7% last month, the highest since February, likely to keep the Bank of Japan minded to continue tightening policy. All while the Fed is about to start cutting rates.”While the (U.S-Japanese) rate spread will remain attractive, the danger is that we have entered a period of more sustained volatility that will encourage further liquidation of yen carry positions over the coming months,” Morgan Stanley’s FX strategy team wrote on Friday. (The opinions expressed here are those of the author, a columnist for Reuters) (By Jamie McGeever; Editing by Michael Perry) More

BENGALURU (Reuters) – The Bank of Thailand (BOT) will keep interest rates unchanged on Wednesday and through Q1 2025 to balance growth with inflation control while assessing the impact of ongoing political instability on the economy, a Reuters poll found.While inflation, at 0.83% in July, remained below the BOT’s target range of 1%-3%, Governor Sethaput Suthiwartnarueput said the current interest rate is appropriate and there is no need to cut despite the government’s repeated calls to lower it.With growing political uncertainty following the dismissal of Thai Prime Minister Srettha Thavisin, the BOT – previously bickering with Srettha’s government over the scale of cash handouts to tackle high household debt – will remain in a wait-and-watch mode to assess the impact on the economy. Thailand’s parliament elected Paetongtarn Shinawatra as its youngest prime minister on Friday, daughter of divisive political heavyweight Thaksin Shinawatra.All but three of the 27 economists in the Aug. 8-16 Reuters poll expected the BOT to keep its benchmark one-day repurchase rate unchanged at 2.50% on Aug. 21. Three economists predicted a 25 basis point cut.”We are not anticipating any policy rate changes. A lot will depend on the growth outlook. If political calm prevails … the BOT is likely to keep its policy rate on hold through 2024, before modest rate cuts in mid-2025 when growth is likely to slow,” wrote Khoon Goh, head of Asia research at ANZ.”However, intensifying political risks in the coming weeks and disruptions in fiscal policy implementation would strengthen the case for a recalibration in monetary policy settings sooner rather than later.”Still, a weak Thai baht, which is down about 2% against the U.S. dollar so far this year, suggests any move before the U.S. Federal Reserve’s expected policy easing in September will likely be inflationary.”We do not expect the BOT to ease aggressively or make a preemptive rate cut ahead of the U.S. Federal Reserve. By easing along with the Fed, the BOT can avoid putting additional downward pressure on the baht,” wrote Eugene Tan, associate economist at Moody’s (NYSE:MCO) Analytics.Median forecasts showed interest rates will remain steady at 2.50% through the first quarter of 2025 before a 25 basis-point cut to 2.25% in Q2, whereas a July survey had predicted the first cut would occur in the first three months of 2025.A much smaller sample of economists who provided forecasts until end 2025 expected rates to decrease by 50 basis points to 2.00%.However, a few economists in the poll said the ongoing political upheaval is likely to pose significant risks to that outlook, and that policy easing could occur sooner than anticipated.”The central bank really doesn’t have much reason to adjust its policy stance. However, given the situation we will monitor risks to that call … especially if political uncertainty prolongs and the policy continuity that we expect does not materialize,” said Lavanya Venkateswaran, senior ASEAN economist at OCBC.Venkateswaran expects no change in rates until end-2025. More