Category: Economoney

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China cuts lending rates by 0.25%

China cuts interest rates

China on Monday 21st October 2024 lowered its main benchmark lending rates by 0.25%

The People’s Bank of China (PBOC) has announced a reduction in the one-year loan prime rate (LPR) to 3.1% and the five-year LPR to 3.6%.

The one-year LPR affects corporate and most household loans in China, whereas the five-year LPR is a reference for mortgage rates.

This adjustment was anticipated. The governor of China’s central bank reportedly on Friday 18th October 2024 hinted at a forum in Beijing that the loan prime benchmark rates would decrease by 0.20% to 0.25%.

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China reports GDP growth of 4.6% – above expectations

China data screen

China’s National Bureau of Statistics announced on Friday that the GDP growth for the third quarter was 4.6% year-on-year, marginally above the 4.5% forecasted by economists. But slightly lower than the second quarter’s year-on-year growth of 4.7%.

In terms of quarterly growth, the third quarter experienced a 0.9% increase, which is higher than the 0.7% seen in the previous quarter.

Additional data released on Friday 18th October 2024, including retail sales and industrial production, also exceeded expectations, indicating a positive outlook for the world’s second-largest economy.

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ECB cuts rates for the third time this year by 0.25% to 3.25%

ECB interest rate cut

On Thursday 17th October 2024, the ECB announced its third interest rate reduction of 2024, as inflation risks within the European Union diminished more rapidly than anticipated.

At its October meeting, the central bank decreased the deposit rate by 0.25%. This decision followed a slowdown in the euro area’s price increases to 1.8% in September 2024, falling below the central bank’s target of 2%.

The EU interest rate is now: 3.25%

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UK inflation in surprise fall to 1.7%

UK Inflation down below target

UK inflation fell unexpectedly to 1.7% in the year to September 2024, the lowest rate in three-and-a-half years

This indicates that inflation, which is the rate at which prices increase over time, is currently below the Bank of England’s target of 2%, potentially leading to further reductions in interest rates next month.

The Office for National Statistics (ONS) reported that petrol and diesel prices saw a notable decrease, falling by 10.4% in September 2024compared to the same month the previous year.

Additionally, the cost of fares for domestic, European, and long-haul flights contributed to the lower inflation rate. While fares typically decrease after the summer peak, this year they have reduced more than usual.

UK interest rate at 1.7% below the Bank of England target of 2%

UK interest rate at 1.7% below the Bank of England target of 2%

With inflation dropping below economists’ expectations, the markets are anticipating a cut in interest rates at the Bank of England’s upcoming meeting in November 2024. The present rate stands at 5%, and a reduction of 0.25% is now deemed highly probable.

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Labour tries to attract new business investment to the UK

Union Jack Flag UK

The UK Labour government aimed to attract foreign investment on Monday 14th October by hosting its first International Investment Summit in London

Prime Minister Keir Starmer, Chancellor Rachel Reeves, and Business Minister Jonathan Reynolds headed the one-day event at London’s Guildhall, with an attendance of approximately 200 executives from both the UK and abroad.

Notable attendees were former Google Chairman Eric Schmidt, Goldman Sachs CEO David Solomon, BlackRock CEO Larry Fink, and GSK CEO Emma Walmsley. Poppy Gustafsson, the newly appointed Investment Minister and co-founder of the British cybersecurity company Darktrace, were also present to advocate for the UK as a favourable business environment.

The UK government unveiled a relaxation of regulations and announced investment deals worth billions of pounds in sectors such as artificial intelligence, life sciences, and infrastructure, while Starmer proclaimed it’s ‘a great moment to back Britain.’

‘We will rip out the bureaucracy that blocks investment and we will make sure that every regulator in this country take growth as seriously as this room does,‘ Starmer reportedly told delegates.

UK Prime Minister Keir Starmer on Monday 14th October 2024 vowed to slash regulatory red tape to boost investment in the country.

“We’ve got to look at regulation across the piece, and where it is needlessly holding back investment … mark my words, we will get rid of it,” he reportedly told delegates at the UK’s International Investment Summit.

The government on Sunday 13th October 2024 announced the launch of a new industrial strategy, designed to focus on eight “growth-driving sectors.”

The prime minister reportedly restated that growth was the “No. 1 test of this government,” and reiterated plans for the U.K. to become the fastest-growing G7 economy.“

Starmer also outlined stability, strategy, regulation and improving Britain’s global standing as “four crucial areas” in his pitch for Britain.

“Private sector investment is the way we rebuild our country and pay our way in the world,” Starmer said

In a panel discussion with Starmer, Google’s ex-CEO Eric Schmidt expressed his surprise upon learning that the Labour party had shifted to ‘strongly’ support growth.

Schmidt is eager to see the execution of this approach and encouraged the government to increase investment in artificial intelligence to fulfill broader growth objectives.

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China’s PPI deflation deepens in September 2024

Economic data China

In September 2024, China witnessed a decline in consumer inflation rates and an intensification of producer price deflation, despite efforts to implement additional stimulus measures aimed at reviving weak demand and stabilizing economic activity

The consumer price index (CPI) rose by 0.4% from the previous year, a slowdown from the 0.6% increase observed in August, as reported by the National Bureau of Statistics (NBS) on Sunday 13th October 2024. This increase was below the 0.6% rise economists had forecasted.

Month-on-month, the CPI remained unchanged, contrasting with the 0.4% increase in August and missing the expected 0.4% rise.

The producer price index (PPI) registered a year-on-year fall of 2.8% in September 2024, a sharper decline than the 1.8% decrease in the previous month and exceeding the 2.5% drop projected by analysts.

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China’s exports and imports came in less than expected in September 2024 – missing targets

China exports and imports

China’s exports increased by 2.4% in September 2024 compared to the previous year when measured in U.S. dollars, and imports saw a rise of 0.3%, customs data showed Monday 14th October 2024

The figures fell short of expectations. China’s exports were predicted to rise by 6% year-on-year in September 2024, measured in U.S. dollars, as per reported analysts’ data. This increase would be less than the 8.7% rise seen in August 2024.

Imports were also projected to grow by 0.9% in September from the previous year, based on analysts’ data, which would be a slight uptick from the 0.5% growth in August 2024.

Exports have been a highlight for China’s economy amidst subdued consumer spending and a downturn in real estate.

According to reported analysis of the official data, China’s exports to the U.S., its biggest trading partner, went up by 2.2% in September year-on-year, while imports from the U.S. saw a 6.7% increase.

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Is it job done for the Federal Reserve now?

Federal Reserve

Recent inflation data suggests that the Federal Reserve is fast approaching its goal, if not already there – following the central bank’s significant interest rate reduction of 0.50% a few weeks ago

Both consumer and producer price indexes for September 2024 aligned with forecasts, indicating a decline in inflation towards the central bank’s 2% target.

Economists believe the Fed may have already achieved that target.

Last Friday, it was predicted that the personal consumption expenditures (PCE) price index for September 2024 would reveal an annual inflation rate of 2.04% upon its release later in the month.

Should economists’ estimates prove accurate, the figure would be rounded to 2%, aligning precisely with the Fed’s longstanding goal, marking a significant shift from the 40-year inflation peak over two years ago, which led to a series of substantial interest rate hikes.

The Fed favours the PCE as its measure of inflation, although it considers various factors in its decision-making process.

Inflation has significantly decreased over the past 18 months, and the job market has settled at a level that may represent full employment.

The U.S. economy several obstacles in reaching and sustaining the 2% inflation target

Supply chain disruptions

Persistent supply chain problems can escalate the costs of goods and services, potentially increasing inflation.

Labour market tightness

A constrained labour market may result in rising wages, which companies typically offset by raising prices for consumers.

Global economic factors

International events, like geopolitical conflicts or other countries’ economic statuses, can influence inflation via alterations in trade and commodity costs.

Consumer expectations

Anticipations of higher inflation might prompt consumers to increase spending now, which can elevate prices and lead to a self-fulfilling prophecy.

Monetary policy timing

The economy takes time to respond to monetary policy adjustments, leading to a lag between policy implementation and its effects on inflation.

These elements pose difficulties for the Federal Reserve in precisely managing inflation to meet its goal.

While managing inflation is challenging, recent data suggests that although prices haven’t fallen from their peak levels of a few years ago, the rate of increase is slowing down.

The 12-month consumer price index for all items stood at 2.4% in September, while the producer price index, indicative of wholesale inflation and a precursor to pipeline pressures, was at an annual rate of 1.8%.

The 0.50% cut in September 2024to a federal funds rate range of 4.75% to 5% was extraordinary for a growing economy, and it is anticipated that the Federal Reserve will revert to its standard quarter-point adjustment.

Excessive monetary loosening could trigger a surge in consumer demand just as it begins to reach a manageable rate.

Could we witness deflation if the 2% target is overshot?

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Are new electric car sales stalling in the UK?

Electric car sales to private buyers are 6.3% lower so far in 2024 despite £2 billion of manufacturers discounts

Electric car sales in the UK are facing challenges despite the growth in the number of electric vehicles (EVs) on the roads. The Society of Motor Manufacturers and Traders (SMMT) has indicated that the proportion of EV sales has not surpassed 18%, with the market mainly propelled by fleet operators, not private consumers.

It has been suggested that the industry will struggle to meet the government target of 22% of new car sale in 2024 being ‘zero-emission vehicles’.

Contributing factors to this slowdown include the high costs, a limited public charging infrastructure, and range anxiety.

Nonetheless, September 2024 saw a record number of new electric car registrations, exceeding 56,000. Yet, the long-term viability of these figures is uncertain, as they were bolstered by substantial discounts.

And yet the electric car still remains an equally expensive option by direct comparison.

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UK economy grows 0.2% in August 2024

UK GDP economic data

In August 2024, the U.K. economy experienced a 0.2% growth on a month-on-month basis, according to preliminary figures released by the Office for National Statistics on Friday 11th October 2024.

But there is a warning of a potential UK slowdown despite the August pick-up.

The gross domestic product (GDP) matched the 0.2% growth anticipated by economists.

Over the three months leading to August, Britain’s economic growth also registered a 0.2% increase, which was marginally below the expectations of economists.

A rebound in construction and a robust month for accountancy, manufacturing, and retail sectors contributed to a 0.2% boost in the economy, following a stagnation in growth over the prior two months.

However, the Office for National Statistics (ONS) noted that economic growth has been weaker relative to the first half of the year and of a potential slowdown.

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U.S. consumer prices rose by 0.2% in September 2024 – higher than expected at 2.4%

U.S. CPI

Over the past year, the rate of U.S. price increases accelerated unexpectedly in September 2024, as policymakers considered their decision on interest rates, as indicated in a U.S. Labor Department report on Thursday 10th October 2024.

Sticky U.S. inflation

The consumer price index (CPI), which measures the cost of goods and services throughout the U.S. economy, rose by 0.2% for the month, resulting in an annual inflation rate of 2.4%. Both figures were 0.1% than ‘forecast’.

When food and energy are excluded, the core prices saw a 0.3% increase for the month, leading to an annual rate of 3.3%. These core figures were also 0.1% above the ‘forecast’.

The report from the Bureau of Labor Statistics noted that the majority of the inflation rise – over three quarters of the increase was due to a 0.4% surge in food prices and a 0.2% rise in shelter costs.

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The Fed says smaller rate cuts not bigger to come

Federal Reserve

Federal Reserve Chair Jerome Powell recently stated that the latest half-percent reduction in interest rates should not be interpreted as a sign that future measures will be equally as aggressive.

The Fed suggests that subsequent adjustments will likely be more ‘modest’.

In his address, the central bank’s chief highlighted their goal to balance curbing inflation with maintaining a robust labour market, basing future decisions on data insights.

‘Moving forward, should the economy evolve as widely expected, our policy stance will progressively adjust towards neutrality. Yet, we are not bound to a fixed course,‘ he clarified during in his statement. ‘Risks are two-way, and our resolutions will be determined one meeting at a time.‘

The Federal Reserve believe, as noted in a recent update, that they are just millimetres away from that ‘elusive’ economic soft landing.

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Chinese stocks tumble amid stimulus benefit scepticism

China stocks drop

On Wednesday 9th October 2024, Chinese stocks experienced a sharp decline, with the Shanghai benchmark plummeting by 6.6%

Hong Kong’s index fell by 1.5%, in contrast to the mostly positive performance of other global markets.

Beijing’s recently detailed economic stimulus plans did not meet the high expectations set after the central bank and other agencies announced measures aimed at revitalising the struggling property sector and accelerating economic growth.

The Shanghai Composite Index fell 6.6% reversing a 4.6% gain from Tuesday 8th October 2024 when it re-opened following a weeklong national holiday.

The CSI 300 Index, which follows the top 300 stocks in the Shanghai and Shenzhen exchanges, relinquished 7.1% – ending a 10-day winning streak.

In Shenzhen’s smaller market, the benchmark tumbled by 8.7%.

The Hang Seng index in Hong Kong dropped 1.5% – and this coming after a steep decline of over 9% the previous day.

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New Zealand central bank cuts rates by 0.50%

New Zealand Central Bank

New Zealand’s central bank has reduced its benchmark interest rate by 0.50% points following its monetary policy meeting, resulting in a consecutive interest rate reduction

This decrease sets the Reserve Bank of New Zealand’s interest rate at 4.75%, down from 5.25%. Economists surveyed by Reuters had anticipated this move.

Previously in August, the RBNZ made an ‘unexpected’ interest rate cut of 25 basis points. The central bank indicated that the extent of future reductions would hinge on its confidence in maintaining a low inflation environment.

In a statement, the central bank stated that it ‘assesses that annual consumer price inflation is within its 1% to 3% inflation target range and converging on the 2 percent midpoint.“

New Zealand’s annual inflation rate reached 7.3% in the June quarter 2022, its highest level in over some 30 years. NZ inflation has since dropped to 3.3% as of June 2024, but still remains above the central banks medium term target range of between 1% and 3%.

Analysts are expecting a further cut in November 2024.

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UK house prices closing in on new high according to Halifax

UK House Prices

Last month, the average UK house price nearly reached a record high, buoyed by decreasing mortgage rates that have lifted buyer confidence, Halifax reports.

Halifax, the UK’s largest mortgage lender, noted that the average house price climbed to £293,399 in September 2024, narrowly missing the record of £293,507 set in June 2022.

According to Halifax, house prices have been on an upward trend for three consecutive months as market conditions have improved.

Easier mortgage affordability, driven by robust wage increases and declining interest rates, has enhanced confidence among buyers, leading to a rise in the number of mortgages agreed upon over the past year.

Halifax has recorded a 4.7% increase in house prices compared to the previous year, marking the most rapid growth rate since November 2022.

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U.S. non-farm payrolls surged by 254,000 in September 2024

U.S. non-farm payroll data

In September 2024, the U.S. economy saw a significant increase in job additions, substantially surpassing expectations and contributing to a robust employment landscape as the unemployment rate declined, according to the U.S. Labor Department’s report issues Friday 4th October 2024.

U.S. Non-farm payroll numbers rose by 254,000 in September 2024, a jump from the revised figure of 159,000 in August and exceeding the forecast of 150,000.

The unemployment rate dropped to 4.1%, a decrease of 0.1 percentage point, while the household employment survey reported a substantial increase of 430,000 jobs.

Average hourly earnings grew by 0.4% for the month and saw a 4% rise compared to the previous year, outpacing the projected estimates.

U.S. Bureau of Labor Statistics

U.S. Bureau of Labor Statistics
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There is a UK budget coming and the new chancellor reportedly needs to raise £20 billion – to fill a ‘black hole’ – how can this be done without upsetting the electorate?

Tax black hole

Tax Reforms

Increase in VAT: Adjusting the Value Added Tax (VAT) rate could generate substantial revenue.

Pension Tax Relief: Limiting pension tax relief to the basic rate of income tax could raise around £15 billion per year. Pension tax relief raid.

Windfall Tax: Increasing the windfall tax on the profits of oil and gas companies could also contribute significantly.

General Tax Increases: N.I., Income Tax, Capital Gains Tax, Inheritance Tax,

Public Sector Efficiency

Improving Productivity: Enhancing public sector productivity by just 5% could deliver up to £20 billion in benefits annually.

New Taxes or Levies

Green Taxes: Introducing or increasing taxes on carbon emissions and other environmental levies could help raise funds while promoting sustainability.

Digital Services Tax: Expanding the scope of the digital services tax to cover more online businesses could also be a potential revenue source.

Electric vehicle tax: new tax bands for electric cars

Spending Cuts

Reducing Public Expenditure: Identifying and cutting down on non-essential public spending could help balance the budget.

Economic Growth

Stimulating Growth: Policies aimed at boosting economic growth, such as investing in infrastructure and innovation, could increase tax revenues indirectly by expanding the tax base. But this will take time to fully materialise.

Each of these measures comes with its own set of challenges and implications, so the government would need to carefully consider the economic and social impacts before implementation.

Black hole?

The Chancellor has recently pointed to a ‘black hole’ in the public finances, referencing the recent uncovering of an ‘unbudgeted’ £22bn overspend in the current tax year following her tenure commencement at No. 11 Downing Street in July.

The reality of this newfound deficit is subject to debate. However, given that the Chancellor has ruled out the possibility of borrowing for day-to-day expenses, it seems she very likely she might be compelled to raise taxes to offset these expenditures.

N.I. and Pension raid?

In its last year, the Conservative government cut taxes by £20 billion by reducing the National Insurance rate. Reversing this cut would be a direct way to increase revenue, taking us back to the financial situation before last November.

Currently, many people receive a 40% tax relief on pension contributions but are taxed at 20% when they withdraw. This ‘inconsistency’ could easily become a target for the Chancellor.

Additionally, employers’ National Insurance contributions are not applied to pension contributions or withdrawals, and individuals can even take a tax-free lump sum from their pension after having received tax relief on their contributions.

Understanding the complexities is not necessary to see that a chancellor in search of extra tax revenue may consider pension contributions as a significant source of additional income.

The UK budget is due on: 30th October 2024 – let’s see just by how much UK taxes are increased – because they will be.

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Euro zone inflation falls to 1.8% in September 2024 below the ECB target of 2%

In September 2024, inflation in the Euro zone fell to 1.8%, falling below the European Central Bank’s target of 2%, according to early data from Eurostat released on Tuesday 1st October 2024

Excluding the more volatile prices of energy, food, alcohol, and tobacco, the core inflation rate stood at 2.7%, marginally below the anticipated forecasts.

This inflation figure matched the predictions of economists.

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German inflation falls to 1.8% in September 2024

CPI data Germany

In September 2024, the German consumer price index softened to 1.8%, falling below expectations based on preliminary data from Destatis, the national statistics office.

Month-on-month, the preliminary harmonized CPI saw a slight decrease of 0.1%.

According to recent analysis, the last instance of the German harmonized CPI falling below 2%, the inflation target rate of the European Central Bank, was in February 2021.

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Swiss central bank cuts rates by 0.25% in third reduction this year

Swiss Bank interest rate cut

The Swiss National Bank on Thursday 26th September 2024 took another step to loosen monetary policy this year, bringing its key interest rate down by 0.25% to 1.0%

The cut in interest rates occurs against a backdrop of muted domestic inflation and a surge in the Swiss franc’s value.

Notably, it marked the first instance of a major Western central bank lowering interest rates in March 2024.

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Mervyn King’s perspective on interest rates and inflation – too low for too long

Bank of England ex-governor

Lord Mervyn King, the former Governor of the Bank of England, has been a prominent voice in the ongoing debate about interest rates and inflation. His insights are particularly valuable given his extensive experience in central banking and economic policy

King has been critical of the Bank of England’s approach to interest rates in recent years. He argues that the central bank kept rates too low for too long, which he believes contributed significantly to the current high levels of inflation. According to King, the prolonged period of low interest rates created an environment where inflation could take root and grow unchecked. This, he suggests, was a misstep that central banks around the world are now grappling with.

In his recent comments, King has emphasised the need for a balanced approach to managing inflation. While he acknowledges that raising interest rates is a necessary tool to combat rising prices, he also warns against the potential negative impacts of aggressive rate hikes. King points out that rapid increases in interest rates can stifle economic growth, leading to higher unemployment and other economic challenges.

King’s perspective is that central banks should have acted more decisively when inflation first began to rise. By delaying action, they allowed inflation to become more entrenched, making it harder to control. He advocates for a more proactive stance in the future, where central banks are quicker to adjust interest rates in response to economic indicators.

As policymakers prepare for potential further rate hikes, King’s cautionary advice serves as a reminder of the delicate balance required in monetary policy. His insights underscore the importance of not only addressing inflation but also considering the broader economic implications of interest rate decisions.

In summary, Mervyn King calls for a nuanced approach to interest rates, one that carefully weighs the need to control inflation against the potential economic fallout of higher rates. His views highlight the complexities of monetary policy in today’s economic landscape

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UK economic growth revised down to 0.5%

UK growth lower

The UK’s economic growth for the period between April and June 2024 was lower than initially estimated, as reported by the ONS

The Gross Domestic Product (GDP), which quantifies the economic activity of companies, governments, and individuals within a country, increased by 0.5%, a revision from the preliminary figure of 0.6%.

Both the manufacturing and construction sectors experienced greater declines than initially calculated.

This information comes to light as the Labour government, which prioritises economic growth, gears up to present its first Budget at the end of October 2024.

The Office for National Statistics (ONS), the publisher of these statistics, noted a significant 3.1% decrease in the production of transport and related equipment during this quarter, following a sustained period of expansion, a stark contrast to the initially estimated 0.7% decrease.

The ONS indicated that this downturn could be attributed to factories scaling back production in anticipation of the transition towards electric vehicle manufacturing.

Additionally, the construction sector saw a downturn, continuing the trend of decreased new home construction.

However, the ONS said that the outlook was improving.

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U.S. Fed preferred inflation measure came in at 2.2% in August 2024

U.S. Core PCE inflation measure

In August 2024, U.S. inflation edged closer to the Federal Reserve’s target, potentially paving the way for future reductions in interest rates, according to a report from the U.S. Commerce Department released Friday 27th September 2024

The personal consumption expenditures price index (PCE), which is the Fed’s preferred gauge for assessing the cost of goods and services in the U.S. economy, increased by 0.1% for the month. This increment set the annual inflation rate at 2.2%.

Economists had anticipated a 0.1% monthly increase in the PCE inflation figure and a 2.3% rise from the previous year.

When food and energy are excluded, the core PCE, which rose by 0.1% in August 2024, showed a 2.7% increase from the same period last year.

Federal Reserve officials often give more weight to the core PCE as a more accurate indicator of long-term inflationary trends. The projections were 0.2% monthly and 2.7% annually.

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China’s tech stocks rally to 13-month high on new stimulus

Tech stocks up China

Chinese technology stocks, such as the previously underperforming Alibaba, have surged this week, reaching peaks not observed in over a year

The stock surge follows the announcement of stimulus measures by China’s central bank to boost the world’s second-largest economy.

On Thursday 26th September 2024 in the U.S., Alibaba’s shares closed above $100 for the first time since August 2023.

Tencent’s shares ended at their highest point in over two and a half years.

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Yuan hits strongest level against U.S. dollar in over 16 months

Dollar vs Yuan

China’s yuan hit its strongest level in over 16 months on Wednesday 25th September 2024 after Beijing unveiled a slew of stimulus measures to shore up the slowing economy on Tuesday 24th September 2024.

The Chinese yuan had weakened against the U.S. dollar over the last several weeks, as the dollar strengthened, and as investors fretted about China’s economic growth prospects pre-stimulus measure.

Unlike the Fed’s focus on a main interest rate, the PBOC uses a variety of rates to manage monetary policy.