HSBC fined £57.4m by the Bank of England for ‘serious failings’ to protect customer deposits.
The bank failed to accurately identify deposits eligible for the UK’s Financial Services Compensation Scheme, the Bank’s Prudential Regulation Authority (PRA) announced.
HSBC was fined by the Bank of England’s Prudential Regulation Authority (PRA) for failing to properly implement the depositor protection rules, which are meant to safeguard customer deposits in case of a bank collapse.
Serious concerns
The PRA said the failings were ‘serious‘ and ‘materially undermined the firm’s readiness for resolution’. HSBC reportedly said it was pleased to have resolved the ‘historic matter’ and cooperated with the investigation. The ‘failings’ occurred between 2015 and 2022. The fine is the second highest to date imposed by the regulator.
Protected up to £85,000 per person per institution
Under the scheme, customer deposits are protected up to the value of £85,000.
Under depositor protection rules, banks must have systems and controls in place to make sure that financial information is logged correctly. This information is needed if the FSCS has to make payments to customers upon a bank collapse.
However, the PRA said HSBC Bank incorrectly marked 99% of its eligible beneficiary deposits as ‘ineligible’ for FSCS protection.
Unfortunately this episode doesn’t give me much faith in the banking system that is supposed to protect the ‘saver’. At least the PRA discovered the failings.
The Federal Open Market Committee (FOMC) held interest rates steady and indicated a willingness stop raising interest rates.
But a cut anytime soon is unlikely until inflation is brought fully under control and nearer to the Fed’s 2% inflation target.
The Federal Reserve sent a signal that it is finished with raising interest rates but made it clear that it is not ready to start cutting, just yet. It also said there are no plans yet to cut rates with inflation still running above the central bank’s target.
Federal Reserve interest targets and increases since 2022 to January 2024
The U.S. economy grew at a much faster pace than expected in the final three months of 2023.
The U.S. easily avoided a recession that many had forecast as inevitable, the U.S. Commerce Department reported Thursday 25th January 2024.
Gross domestic product (GDP), a measure of all the goods and services produced, increased at a 3.3% annualised rate in the final quarter of 2023, according to data from the Commerce Department.
Core prices for personal consumption expenditures (PCE), a preferred measure by the Federal Reserve as a longer-term inflation calculation, rose 2% for the period, while the rate was 1.7%.
On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food and energy posted a 3.2% increase annually, compared with 5.1%.
Good news
Inflation falling, GDP rising, stabilizing interest rates and no recession thus far the U.S. economy is looking rock-solid despite all the negativity.
Turkey’s central bank on Thursday 25th January 2024 hiked its key interest rate to 45%.
It comes amid an ongoing struggle against double-digit inflation for Turkey’s policymakers, with the rate hike the latest step in that ongoing fight.
30 Turkish Lira to 1 U.S. dollar
Inflation in Turkey increased nearly 65% year-on-year in December 2023, up from 62% in November, and the country’s currency, the lira, hit a new record low against the U.S. dollar earlier in January 2024 at 30 Lira to $1.
Analysts predict this will be the last hike for some time, especially with local elections approaching in March 2024
Spinning the benefits of a tax cut scenario as Chancellor Jeremy Hunt hints at further tax cuts
The Chancellor, Jeremy Hunt, has given strong hints that he wants to cut taxes in the spring Budget.
Mr Hunt reportedly said that countries with lower taxes have more ‘dynamic, faster growing economies.‘ Didn’t Liz Truss say something like that too? But of course, she didn’t ‘cost it out’ in her mini budget apparently – but she also wanted lower taxes for growth none-the-less.
Autumn statement
In the Autumn Statement, the chancellor reduced national insurance for workers by 2% and announced tax relief for businesses. If inflation falls, followed by lower interest rates, Mr Hunt may consider he has scope for further tax cuts.
At the World Economic Forum, in Davos, Switzerland – he was also reported to have said that the: ‘direction of travel’ indicates that economies growing faster than the UK, in North America and Asia tend to have lower taxes. ‘I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS,’ he reportedly said.
It is widely expected that the chancellor will focus on income tax in the upcoming Budget due on 6th March 2024
Lower than expected government borrowing last month has increased the possibility of tax cuts in the Budget, analysts say.
UK Borrowing fell to £7.8bn in December 2023, the Office for National Statistics (ONS) indicated. Interest payments dropped sharply due to a faster than expected decline in inflation. Analysts said the latest figures could give the chancellor more wiggle room for tax cuts.
December’s borrowing figure was £8.4bn less than a year earlier, and the lowest figure for the month since 2019.
Interest payments on government debt fell to £4bn, down by £14.1bn from December 2022.
The S&P 500 index reached a new all-time high of 4,839.81 on Friday, January 19, 2024.
This was the first time the index closed above its previous high set January 3rd 2022. The rally was driven by strong earnings from the magnificent 7 tech giants such as Nvidia and Microsoft.
The expectation of a Fed interest rate cut later this year also helped the S&P500 break new ground.
Inflation, rose marginally to 4% in December, up from 3.9% in November 2023.
Economists had forecast a slight fall but unexpected rises in alcohol and tobacco prices were behind the surprise rise.
However, with energy bills predicted to come down in 2024, there are still expectations of interest rate cuts later this year.
On target still for 2%?
As we have seen in the Germany, the U.S., and France, inflation does not fall in a straight line, ‘but our plan is working and we should stick to it,‘ Jeremy Hunt reportedly said in a statement.
UK inflation from April 2019 to December 2023
UK inflation from April 2019 to December 2023
Unprepared for both the start and the end of the pandemic
Increases in the cost of energy and food costs, started by pandemic lockdowns ending exasperated further by Russia’s invasion of Ukraine and more recently the conflict in Israel have put household finances under extreme pressure.
The UK and other countries were woefully underprepared for all of these events as they ‘began’ and at the ‘end’. We did not prepare to come out of them – there was no exit plan!
Markets and traders are still expecting BoE to cut its base rate in 2024 due to the fast-falling inflation rate. It peaked at 11.1% in October 2022 – and now sits at 4%.
The question is: will the economic recovery be good enough to allow the Bank of England to start cutting rates?
The UK interest rate currently sits at 5.25%.
‘What’s inflation?’ ‘Dunno, but my beer’s gone up!’
Stocks moved lower Thursday 11th January 2024, reflecting the higher-than-expected December 2023 inflation data.
The S&P 500 in early trade edged lower by around 0.7%, while the Nasdaq Composite dropped nearly 0.8%. The Dow Jones Industrial Average dropped by 0.6%. The S&P 500 briefly touched 4800 after climbing above its record high of 4,796.
Higher than expected
December’s consumer price index figure came out slightly higher-than-expected, reflecting a 0.3% increase in consumer prices for the month, pushing the annual rate to 3.4%.
Core CPI, excluding volatile food and energy prices, came out in line with expectations, however, pointing to persistent, but easing inflation pressures. The new inflation data figures suggests that future interest rate cuts may be slower to come.
This move up in CPI is an absolute reminder of the unpredictable nature of economic recovery.
According the High Pay Centre, a thinktank that campaigns for fairer pay, the average pay of FTSE 100 chief executives is 103 times the £33,000 average salary for full-time UK workers.
This means that by lunchtime on the third working day of 2024, a FTSE 100 company boss will have been paid more than a UK worker’s full annual salary.
So, this means that it takes approximately just three working days for a CEO to earn the FULL years pay of an average worker in the UK.
The study also shows that the pay gap between bosses and workers has increased since 2020, as executive pay has risen by 9.5% while worker pay has risen by only 6%.
Shocking inequality
This is a disturbing example of inequality in the UK workplace, which has been exacerbated by the cost-of-living crisis and the strike action by many low-paid workers.
Some economists have called for UK government to intervene and reduce the unfair pay gap, such as putting workers on company boards, taxing wealth more fairly, and working with employers and unions to create better living standards.
Wealth creators
There is a place for wealth creators but not for greedy wealth takers. We need businesses to be successful to maintain good levels of employment. But unnecessary wealth greed has no place in our modern society.
The U.S. labour market accumulated strong gains as the pace of hiring was greater than expected, dampening the chance of an early rate cut.
December’s jobs report showed that 216,000 jobs were added for the month while the unemployment rate remained steady at 3.7%. Estimates were in the region of 170,000 as analysts were looking for their ‘goldilocks figure.
Job boost from U.S. government
The hiring boost came from a gain of 52,000 in government jobs and another 38,000 in health care-related occupations.
Average hourly earnings rose 0.4% on the month and were up 4.1% from the same period 2023, both higher than the respective estimates for 0.3% and 3.9%.
U.S. unemployment chart Jan 2021 – December 2023
S&P500 and Nasdaq
The S&P500 and Nasdaq recovered some early 2024 losses as the fresh data encouraged the debate and chance of a rate cut again. Later however, the strong U.S. jobs growth dampened the likelihood of rate a cut anytime soon. Yields were on the rise again.
Strong streak
Government hiring drove the gains, which extended one of the strongest streaks of job creation on record. The job growth has confounded forecasters expecting job losses as higher borrowing costs slowed the economy.
Mortgage lenders have started 2024 by cutting interest rates.
The UK’s biggest lender, the Halifax, has cut some interest rates by nearly a full 1%, with other lenders expected to follow suit. HSBC has announced it will also make cuts in January.
Halifax is reducing its rates, with interest on a two-year fixed deal being cut by up to 0.83%. HSBC is due to reduce rates on its two-year fixed rate for remortgages (for someone with at least 40% equity in their home) falling below 4.5% for the first time since early June last year.
Mortgage rate chart October 2021 – January 2024
The Bank of England’s (BoE) benchmark interest rate has been held three times at 5.25%, analysts now expect the next move to be down.
House prices have ended the year 1.8% lower in the UK, according to Nationwide Building Society
The Nationwide forecasts no growth or a further fall in 2024.
The lender said the average house price across the UK was £257,443 in December 2023. This was flat compared to November 2023 but down compared to December 2022.
The lender reportedly said that consumer confidence ‘remains weak’, despite some mortgage rates falling in anticipation for Bank of England (BoE) to cut borrowing costs in the months ahead.
The number of housing transactions has been running at around 10% below pre-Covid levels, Nationwide reported. The fall was more pronounced for those buying a house using a mortgage – down 20% compared to before the pandemic.
However, the volume of cash deals continues to run above the levels recorded before Covid hit.
The UK is at risk of recession after revised figures indicate the economy shrank between July and September 2023.
A recession is defined as when the economy shrinks for two three-month periods in a row.
Gross Domestic Product (GDP), which measures the health of the economy, contracted by 0.1% after previous estimates suggested growth has been flat. There was no growth between April and June 2023, after it was first calculated to have risen by 0.2%.
There have been concerns over the UK’s weak economic growth for a while now, but the UK has managed to avoid a recession so far. Whether or not there is a small recession, the bigger picture for analysts is that they expect real GDP growth to remain subdued throughout 2024. However, bear in mind that projections and forecasts do change, as already demonstrated.
Earlier this week, data showed that inflation, which measures the rate of price rises, slowed by more than expected to 3.9% in the year to November 2023, down from 4.6% in the previous month.
The Nasdaq and Dow hit new all-time highs in recent days and the S&P 500 is hot on their heels.
After nine straight days of gains, Wall Street suddenly reversed an hour and a half before the closing bell on Wednesday 20th December 2023.
The sell-off expanded into Asia overnight, with Japan’s Nikkei 225 leading losses, before stocks across Europe also slid into the red on the Thursday morning, 21st December 2023.
Some indicated Wednesday’s sell-off was as simple as investors taking profits after a nine-day mini bull run, in the absence of any obvious catalyst and with U.S. stocks widely seen as overbought.
Other market analysts pointed to a high volume of zero-day options trading as the death knell for the winning streak.
Time left for a Santa rally?
Markets have been on a tear in recent eeks and months, maybe it’s time for a breather. But some suggest U.S. equities are overbought in general – so, is this something more discerning?
UK inflation fell by more than expected in November 2023, driven largely by a drop in fuel prices.
Inflation dropped to 3.9% in the year to November 2023, down from 4.6% in October 2023. Other than fuel, slowing food and household items were also behind the drop.
Inflation has fallen a long way from its peak in 2022, it is still almost double the Bank of England’s 2% target.
The Bank has put up interest rates 14 times since December 2021 to try to slow price rises, pushing up savings rates but also borrowing costs.
The Bank of England Interest rate is currently at 5.25%, a 15-year high.
The Nasdaq Composite index reached a new all-time intra-day of 16,764 points on Monday 18th December 2023.
This was a remarkable achievement for the index, as it surpassed its previous record of 16,729 points. The Nasdaq Composite index has been on a strong uptrend since March 2020, when it bottomed out at 3,193 points amid the COVID-19 pandemic.
Nasdaq 100 index chart -18th December 2023
Nasdaq chart
Since then, the index has recovered thanks to the rapid development and adoption of vaccines, economic stimulus measures, digital transformation trends, consumer demand for online services and products and through the arrival of AI.
The Nasdaq is one of the most popular and widely followed indexes in the world, as it tracks the performance of over 3,000 companies listed on the Nasdaq stock exchange.
The Nasdaq is known for its high concentration of technology and innovation stocks, such as Apple, Microsoft, Amazon, Google, Facebook, Tesla, and many others.
The 10-year Treasury yield slipped further on Monday 18th December 2023, as the final full trading week of 2023 gets underway.
Traders are attempting to digest the ‘dovish’ tone of the U.S. Federal Reserve. The central bank held its key interest rate at 5.5% and revealed that policymakers were pencilling in at least three rate cuts in 2024 marking a more aggressive series of cuts than what was previously expected.
The yield on the 10-year Treasury was marginally lower at 3.913%. Last Thursday, the yield fell below the 4% level, hitting its lowest since July this year.
Bank strategists described the Fed’s move as a ‘big shift’
Guessing game starts
The question now is when will these rate cuts happen, and on Friday we had some mild pushback from Fed officials against the market excitement.
Deflation is an economic phenomenon characterized by a general decline in prices for goods and services. It occurs when the inflation rate falls below 0%, resulting in a negative inflation rate.
This means that the purchasing power of currency increases over time, allowing you to buy more with the same amount of money. It can be as damaging to the economy as inflation.
Consumer and Asset Prices: During deflation, both consumer and asset prices decrease, which might seem like a good thing because it increases the purchasing power.
Economic Impact: However, deflation can be harmful to the economy. It often signals an impending recession or hard economic times. If people expect prices to fall further, they may delay purchases, hoping to buy later at a lower price. This leads to reduced spending, which can cause producers to earn less, potentially leading to unemployment and higher interest rates.
Measurement: Deflation is measured using economic indicators like the Consumer Price Index (CPI), which tracks the prices of commonly purchased goods and services. When the CPI shows that prices are lower than in a previous period, the economy is experiencing deflation.
Causes: The main causes of deflation include a decrease in demand or an increase in supply. A decline in aggregate demand can lead to lower prices if supply remains unchanged. Conversely, an increase in supply can also cause prices to drop if demand does not increase accordingly.
It’s important to note that deflation is different from disinflation. Disinflation refers to a slowdown in the rate of inflation, where prices are still rising but at a slower pace than before.
Deflation can have complex effects on an economy, and while it may benefit consumers in the short term, it can lead to broader economic challenges.
Deflation, friend or foe?
Deflation, often perceived as a relief during times of high prices, is a complex economic condition that presents both benefits and challenges. It is defined by a general decrease in the price level of goods and services, leading to an increase in the real value of money. This means consumers can buy more for less, but this apparent advantage masks the potential dangers lurking beneath the surface.
The immediate effect of deflation is an increase in consumer purchasing power. As prices drop, money buys more, which can be particularly beneficial for individuals on fixed incomes. However, this boon is short-lived if deflation persists. Consumers, anticipating further price drops, may postpone purchases, leading to a decrease in consumer spending, the lifeblood of any economy. This reduction in demand can force businesses to lower prices further, creating a vicious cycle that’s hard to break.
Deflation can lead to a reduction in demand and can force businesses to lower prices, creating a vicious cycle that’s difficult to break.
Moreover, deflation can exacerbate debt burdens. As prices and revenues fall, the real value of debt increases, making it more challenging for borrowers to repay their obligations. This can lead to increased loan defaults and financial instability. For businesses, falling prices mean reduced profit margins, leading to cost-cutting measures such as layoffs, reduced investment, and even bankruptcy.
Causes
The causes of deflation are multifaceted, often stemming from a decrease in aggregate demand or an oversupply of goods. Technological advancements, while boosting productivity, can also contribute to deflation by lowering production costs and increasing supply faster than demand. Additionally, a strong currency can make imports cheaper, contributing to lower prices domestically.
Tools
Central banks and governments typically combat deflation with monetary and fiscal policies aimed at stimulating demand. Lowering interest rates, increasing government spending, and quantitative easing are common strategies employed to inject money into the economy and encourage spending.
While deflation can initially seem like a welcome development, its long-term effects can be detrimental to economic health. It is a delicate balance that policymakers must navigate carefully to ensure stability and growth in the economy.
During this period of inflationary pressure, no country is beyond the grasp of deflation.
A message for governments and central banks around the world – don’t push too hard!
UK interest rates have been held at 5.25%. This is the third time in a row the Bank of England has opted to hold rates the same.
The decision, which was widely expected by financial markets, means borrowing costs will remain at their highest level for 15 years.
the Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to keep rates at a 15-year high.
There was reportedly no discussion of cutting interest rates, and it’s still concerned that price rises might be stickier in the UK economy than in the U.S. or Eurozone.
The U.S. yesterday, 13th December 2023 indicated that 2024 could see three interest rate cuts. No such indication was forthcoming from the UK.
The Dow Jones Industrial Average (DJIA) hit a new all-time high, on 13th December 2023. It closed at 36799 surpassing its previous record of 36585points that it had set on 4th January 2022. This was the fourth consecutive record close for the index.
Record high
The Dow’s record high was driven primarily by the Fed holding the interest rate at 5.5% and signalling that it expects to cut interest rates three times in 2024 to stimulate growth and inflation.
Other factors such as strong corporate earnings, optimism about the economic recovery from the COVID-19 pandemic, the emergence of AI and its effect on the economy and for a U.S. ‘soft landing’ all played their part.
Dow a bellwether for the U.S. economy
The Dow is not only a measure of stock market performance, but also a reflection of the overall health and confidence of the U.S. economy. It is often used as a benchmark for investors and analysts to evaluate their portfolios and strategies. The Dow is also closely watched by policymakers and media outlets as a measure of public sentiment and expectations.
Dow hits new all-time high
Dow hits new all-time high
The Dow, in intraday trading, continued to climb to over 37200.
Fed holds U.S. rates at 5.5%, indicates three cuts coming in 2024
The Federal Reserve on Wednesday 13th December 2023 held its key interest rate steady for the third time in a row and set the scene for multiple rate cuts in 2024 and 2025.
With inflation easing and the economy holding up policymakers Federal Open Market Committee policymakers voted unanimously to keep the rate in a range between 5.25%-5.5%.
Possible three Fed rate cuts pencilled in for 2024
Along with the decision to stay on hold, the FOMC pencilled in at least three rate cuts in 2024, assuming quarter percentage point increments. That’s less than market pricing of four, but more aggressive than what officials had previously indicated.
Markets had widely anticipated the status quo decision which could end a cycle that has seen 11 hikes, pushing the interest rate to its highest level in more than 22 years. There was uncertainty, though, about how ambitious the FOMC might be regarding policy easing.
The FOMC’s so called ‘dot plot’ of individual members’ expectations indicate another four cuts in 2025, or a full 1%. Three more reductions in 2026 would take the Fed rate down to between 2%-2.25%, close to the longer-term outlook, though there were considerable difference in the estimates for the final two years.
Dow at new all-time high!
Following the Fed update the Dow Jones Industrial Average jumped more than 400 points, surpassing 37,000 for the first time creating a new Dow all-time high.
In a significant development that has raised concerns among investors and policymakers worldwide, China’s debt outlook has been downgraded as the country grapples with a slowing economy. This move reflects growing apprehensions about the sustainability of China’s economic growth and its ability to manage its burgeoning debt.
Moody’s issued the warning as it cut its outlook on the government’s debt to negative, from stable. China said it was disappointed by the move, calling the economy resilient. China also reported to have said it is unnecessary for Moody’s to worry about China’s economic growth prospects and fiscal sustainability.
Rapid Expansion
For years, China’s rapid economic expansion has been the engine of global growth, but recent trends indicate a deceleration. The once double-digit growth rates have now tapered, with projections suggesting a further slowdown in the coming years.
China exports
This deceleration is attributed to various factors, including trade tensions, demographic shifts, and a maturing economy.
Downgrade
The downgrade, announced by a prominent credit rating agency recently, underscores the risks associated with China’s increasing debt levels. The country’s total debt, which includes government, household, and corporate debt, has climbed to around 85%* of its GDP. This debt accumulation is partly due to the government’s efforts to stimulate the economy through infrastructure spending and lending to state-owned enterprises.
Property Sector
The property sector, a significant pillar of China’s economy, has also shown signs of strain. High-profile defaults and a cooling housing market have added to the concerns, prompting fears of a ripple effect across the economy. The government’s crackdown on excessive borrowing and speculative investments has further tightened liquidity, impacting developers and homeowners alike.
The burden of debt sits heavy in China’s property sector.
Response
In response to the downgrade, China’s finance ministry has expressed confidence in the country’s economic resilience. Officials argue that the fundamentals of the Chinese economy remain strong, with continued efforts towards high-quality development and structural reforms. They assert that the concerns raised by the credit agencies are overstated and that China’s fiscal position remains robust.
Warning signal
Nevertheless, the downgrade should serve as a warning signal. It highlights the need for careful fiscal management and policy adjustments to navigate the challenges ahead. As the global economy faces uncertainty, the world will be closely watching how China addresses its debt dilemma and maintains its trajectory of growth.
This situation presents a complex puzzle for China’s leadership, balancing the goals of economic stability and sustainable development. The outcome will have far-reaching implications, not just for China but for the entire global economy.
The world awaits to see how China will write the next chapter in its remarkable economic story. If this goes wrong – it will go wrong in a big way.
Update Friday 8th December 2023
China’s top decision-making body of the ruling Communist Party on Friday said that the country’s fiscal policy ‘must be moderately strengthened’ to stimulate economic recovery, according to state-run news outlet.
85%* debt to GDP ratio
China’s debt-to-GDP ratio was recorded at around 77% of the country’s Gross Domestic Product in 2022. This ratio is an important indicator of a country’s economic health, reflecting its ability to pay back its debts. This ratio has been on the rise in recent years, indicating an increase in national debt relative to the GDP. For instance, the ratio was around 23% in 2000 and grew to 34% in 2012, with a significant jump to the current level.
China’s projected debt to GDP ration
Forecasts suggest that China’s debt-to-GDP ratio could reach 104% by 2028
It’s important to note that such figures can vary and should be interpreted within the context of each country’s economic structure and policies.
The economy fell by 0.3% October, after growth of 0.2% in September 2023.
UK GDP is 0.0%
The UK economy shrank more than expected in October 2023, as higher interest rates hit consumers. The bad weather didn’t help either.
Household spending has been dented by rate rises as the Bank of England tries to tackle inflation. It is due to make its next rate decision on Thursday 14th December 2023. Retail and tourism were hit by severe weather hit the UK in October 2023.
Analysts had predicted that the economy would fall by just 0.1% but services, manufacturing and construction sectors all contracted more than expected.
The UK economy has been stagnating and the Prime Minister has promised to speed up economic growth. But no significant recovery is expected until January 2025.
Chancellor’s spin
Commenting on the latest figures, Chancellor Jeremy Hunt said it was ‘inevitable economic growth would be subdued, whilst interest rates are doing their job to bring down inflation.’
The figures underline the ongoing impact of the cost-of-living crisis and the tools employed by our ‘decision’ makers on our behalf.
Prices across a wide spectrum of goods and services moved slightly higher in November 2023 but were mostly in line with expectations, thus further easing pressure on the Federal Reserve.
The consumer price index, a closely watched inflation gauge, increased 0.1% in November, and was up 3.1% from a year ago, the U.S. Bureau of Labor Statistics reported Tuesday 12th December 2023.
While the monthly rate indicated a pickup from the flat CPI reading in October 2023, the annual rate showed another decline after hitting 3.2% a month earlier.
