2024-09-30 07:30

Key takeaways Average temperatures are rising; the sensitivity of food prices across each category to temperatures has risen sharply. In fact, temperatures have become far more useful than rains in forecasting food inflation. Normalising temperatures in recent months will likely open the door for RBI easing in 4Q2024; but over time, with average temperatures rising, inflation management could get harder. A couple of years ago, we pointed out that reservoir levels matter more than rains for India’s food production and inflation. In this report, we go a step further, moving from rains and reservoirs to temperatures. We find that temperatures do a much better job in explaining and predicting food output and inflation. Average temperatures and their volatility have risen over time. Global warming is indeed a well-documented reality. In India, the impact of the March 2022 and March 2024 heatwaves are fresh in the mind. The correlation between average temperatures and India’s food inflation has risen sharply over the last decade. And this is true across individual food groups –perishable crops, durable crops, and animal protein sources. This, then, brings us to another important question. If the importance of temperature has risen over time, what role do rains and reservoirs play? We bring out our trusted food inflation model, which explains food inflation with changes in reservoir levels, minimum support prices, and government food management steps. When we throw in temperatures, reservoir levels lose importance. They get ‘crowded out’. When we include temperatures but exclude reservoirs, the model becomes even better than before in predicting food inflation (i.e. the R-squared rises). What does this mean? Temperatures have become far better than rainfall in explaining and forecasting food inflation. There are several possible reasons. One, with irrigation facilities improving over time, the impact of low rains can be better managed, while there’s no magic wand for rising temperatures. Two, reservoir levels and temperatures have a 50% correlation. A lot of the information contained in the reservoir variable gets picked up by temperatures. Three, there is a non-linear relationship between temperatures and food inflation. With temperatures rising, the sensitivity of non-perishable food inflation to average temperatures has grown even faster than perishables (5x vs 3x over 10 years). What should we expect in the short run? Following the debilitating March heatwave, temperatures have normalised. Applying our model coefficient, food inflation could fall by 2ppt over the next few months, lowering headline inflation by 1ppt. Headline inflation has averaged about 5% so far in 2024. By end-2024, headline, core, and food inflation are all likely to converge towards the 4% target, opening up space for rate easing. We expect two 25bp repo rate cuts, taking the policy repo rate to 6% by March 2025. Forget the raindrops... A couple of years ago, we pointed out that reservoir levels matter more than rains for India’s food production and inflation, as reservoirs not only capture contemporaneous rains, but also hold rain that has fallen in previous rain episodes. This is important at a time when unseasonal showers have increased in frequency. In a more recent report, we pointed out that trends in reservoir levels have changed in recent years. For instance, they are much lower now in the important sowing month of July than they used to be. Not a surprise that seasonality patterns in food prices are changing too. All these weather changes are making inflation more volatile and inflation expectations harder to anchor (see exhibits 1 and exhibit 2). It is no surprise that inflation forecasting errors have risen. In this report, we take a next step, from rains and reservoirs to temperatures. True, the two are somewhat correlated. Periods of low rainfall tend to have higher temperatures. Climate events like El Niño are associated with low rains and high temperatures, and climate events like La Niña are associated with stronger rains and lower temperatures. We find a 50% negative correlation between rains and temperatures over the last two-odd decades. Yet, we find that temperatures carry more information than rains and do a much better job in explaining and predicting food output and inflation. There are some good reasons why you should be tracking temperatures more closely than you have in the past. Let’s explain. ...bring out your thermometers We have an extensive database of average surface temperatures across India since the 1950s. We created a monthly deviation-from-normal series, which shows that average temperatures are rising over time. And alongside this, so is temperature volatility (see exhibit 3). Neither of these is a surprise. Global warming is indeed a well-documented reality. What we find next is that, with an appropriate lag, the correlation between average temperature and India’s food inflation has been rising consistently over time (see exhibit 4). As the earth is heating up, crop yields are falling. Indeed, scientists and researchers project that a 2.5-4.9 degrees Celsius increase in temperature across the country could lead to a decrease in wheat yields of 41-52%, and a fall in rice yields of 32-40% The heatwave of March 2022 lowered the sugar cane crop yield by 30%, while hurting the production of vegetables, as well as oilseeds. In the heatwave of March 2024, temperatures rose to 50.5 degrees Celsius in some areas, leading to heat stress. The sharp rise in vegetable prices was a reflection of the crop damage. Temperature’s rising impact on perishable and durable food All of this is clearly visible across various food items. Analysing a decade of data, we find the correlation between average temperature and food inflation has been rising across all the main crops – perishables (vegetables and fruits) and durables (cereal, pulses, oilseeds and sugar). And this is not just limited to crops. Even the price of dairy, poultry and fishery products, which we, on aggregate, call animal protein sources of food, are becoming increasingly sensitive to rising temperatures (see exhibits 5-12). Most perishable crops are short-cycle crops (e.g. vegetables, where a new crop can be harvested every 2-3 months). These crops have traditionally been more sensitive to heatwaves than others, and this sensitivity is rising. We find the average correlation between temperature and price for the perishables to have risen from 20% (average of 10 years) to 60% (average over the last year), marking a 3-fold increase (see exhibit 13). Correlation between surface temperature and prices of various food items Durable crops are long-cycle crops (e.g. cereal, which are harvested every 6-12 months). Together with the animal protein sources, they have traditionally been less sensitive to temperatures, but sensitivity is growing, with the correlation rising from 10% (average of 10 years) to 45% (average over the last year), marking a 5-fold increase. The rains versus temperature debate This, then, brings us to another important question. If the sensitivity of food production and inflation to temperatures has risen over time, what role do rains and reservoirs play? To answer this carefully, we get a little more technical than just running correlations. We bring out our trusted food inflation OLS model, which can help us parse the role of temperatures on food inflation better, while including other variables that also impact food inflation. First, we re-run our old food inflation model for the 2007-2024 period (see regression 1 in exhibit 14). It includes: Reservoir levels – this variable picks up the y-o-y change in reservoir levels every June. The government’s minimum support prices for agriculture – this is based on agricultural input prices and a fixed mark up. Supply-side food price management steps – we find that nimble steps by the current government to buy-sell from government granaries, import-export, and quickly transport food items across the country have helped lower food inflation over the last decade. Clamping down on hoarders has helped too. We capture all of these supply-side management steps with a dummy which switches on in the last 10 years. Pandemic dummy – while farming activity was not directly hurt by the pandemic-related lockdowns (which were more applicable to urban areas), food trade and distribution were impacted. We capture this with a dummy that switches on in the pandemic years 2020-22. Each of these variables is economically and statistically significant in explaining food inflation trends. The model has a strong R-squared of 82%. Next, we include temperature in our model (see regression 2 in exhibit 14). And it doesn’t sit too comfortably with the other variables. The temperature variable is clearly statistically significant, but the reservoir variable turns insignificant. This could mean that temperature is crowding out the significance of reservoirs. Perhaps the temperature variable contains all the information which the rainfall variable holds, and more. Because, the fit of the model improves. R-squared increases from 82% to 88%. Finally, we keep the temperature variable in the model but remove the reservoir variable (see regression 3 in exhibit 14). And this drastically improves our model. Each of the explanatory variables is economically and statistically significant. And the model’s R-squared is at an elevated 88%. What’s really changed? Temperatures are far superior than rainfall in explaining and forecasting food inflation. In fact, once temperatures are included, there is no value in analysing rains and reservoir levels. Indeed, over time, the coefficient of reservoir in our regression model has been falling, indicating than its importance has dwindled (see exhibit 15). There could be a couple of reasons for this. One,with irrigation facilities improving over time, the low rains problem has been partly circumvented, especially in certain areas like north-western India (which is also known as the food bowl of the country). Two, with reservoirs and temperatures having a 50% correlation, our sense is that a lot of the meaningful information contained in the reservoir variable gets picked up by temperatures. Three, there is a non-linear relationship between temperatures and food inflation. As we saw above, with temperatures having crossed certain thresholds, the sensitivity of non-perishable food inflation to higher temperatures has grown even faster than for perishables (5x vs 3x over the last decade, though in level terms, the correlation is higher for perishables). Normalising temperatures: Outlook for inflation and RBI action The heatwave in March to May 2024 were characterised by temperatures which were, on average, 1.5-2 degrees Celsius higher than the previous year. Since then, temperatures have normalised. The El Niño weather phenomenon from last year has made way for La Niña, associated with cooler temperatures and stronger precipitation. Temperatures have fallen c0.5 degrees Celsius over the last month (compared to the Mar-Jun period). Applying our model coefficient, if this persists, food inflation could fall by 2ppt over the next few months, lowering headline inflation by 1ppt. Headline inflation has averaged just below 5% so far in 2024. With normalising temperatures and falling food prices, it could fall to c4% by end-2024 (see exhibit 17). In fact, by March-2025, headline, core, and food inflation, are all likely to converge towards the 4% target. Indeed, with temperatures cooling after a severe heatwave earlier this year, we expect the RBI to start easing rates in 4Q2024. We expect two 25bp repo rate cuts, taking the policy repo rate to 6% by March 2025. While this is good news at a time when temperatures are normalising, it is worth keeping it in the back of our minds that over the medium term, rising temperatures could become a big problem for inflation management. The impact of weak rains can be managed by better irrigation facilities, but there is no magic wand to manage the impact of rising temperatures. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/2024-08/

2024-09-30 07:30

Key takeaways China’s new package of economic stimulus helped drive European stock markets higher last week. A quick glance at the returns of major credit markets this year, shows Asian high yield as a standout performer. But tactically, some caution is warranted following the blistering run and macro and geopolitical risks. Yields on 10-year French bonds rose above their Spanish equivalents last week for the first time since 2007. Chart of the week – China’s policy push Chinese policymakers have unveiled a raft of new measures aimed at reviving the stock market, together with an easing of monetary policy and more efforts to stabilise the property sector. The move is a co-ordinated policy push to boost economic confidence and asset markets. For markets, new measures include facilities to give eligible financial institutions liquidity to buy stocks, support share buybacks, and help major shareholders raise holdings. A national stabilisation fund is also under consideration. The securities regulator also issued guidelines to promote M&A and restructuring to help boost the value of listed firms. On monetary policy, the 7-day reverse repo rate was cut by -0.20% to 1.5%, and the reserve requirement ratio for large banks was lowered, boosting liquidity. For the property sector, supportive measures include lower rates for existing mortgages, a lower downpayment ratio for second homes, and more funding for the property destocking scheme. The moves follow the previous week’s US rate cut, which eased pressure on the yuan and gave China’s central bank room to cut rates as it seeks to reflate the economy. The near-term effect on stocks is clearly positive – with China’s Shanghai Composite index rising nearly 13% last week, and EM markets enjoying a broad pick-up in sentiment (see chart). Chinese leaders have also vowed to intensify fiscal support, and further improve the focus and effectiveness of policy measures. This is welcome, given that a sustainable recovery in Chinese stocks is likely to hinge on clear signs of macro reflation and a corporate earnings recovery. Market Spotlight ‘Hyper-sensitive’ markets Investment markets are ‘hyper-sensitive’ to macro news. But with inflation in retreat, and faster labour market cooling now the top risk for investors, the source of hyper-sensitivity has shifted. It’s the jobs data that move markets now. A new report by researchers at the Bank for International Settlements documents this idea well. The authors find that market hyper-sensitivity has become more acute in recent years because of an increasingly data dependent US Fed, which has focused on the next few months rather than longer run policy anchors. This has fostered a ‘data point dependency’ in investment markets. This summer’s bouts of volatility caused by surprises in non-farm payroll data and core CPI inflation were good examples. It showed how short-term data can be noisy, and why it’s not healthy when the data cycle controls market trends. It means the surprisingly-low stock market volatility seen earlier this year is unlikely to return. Hyper-sensitive markets, the risk of faster growth cooling, election uncertainty, geopolitical tensions, plus an interest rate market already expecting the Fed funds rate to be 3% by next summer, all point to a more volatile environment in Q4. The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 11.00am UK time 27 September 2024. Lens on… China policy boosts European stocks China’s new package of economic stimulus helped drive European stock markets higher last week. European firms have relatively high exposure to China, so new policy support and robust signalling of more measures to come have been welcomed. It’s particularly good news for countries like Germany, which continues to labour under an industrial downturn. Market gains have come amid a broadening out of performance across sectors in Q3. The bloc’s relatively modest exposure to the technology sector compared to the US has played in its favour. And despite some weakness in recent macro and company news, investors have remained risk-on. Expectations of a soft landing have been particularly helpful to left behind, rate-sensitive sectors, with real estate, healthcare, and utilities in top spot during the quarter. European stocks currently trade on a 5% discount to their long run average 12-month forward price-earnings ratio of 13x. Earnings have lagged but are expected to rise to 10.2% in 2025. That could present selective value opportunities, but earnings could also be sensitive to a more pronounced global slowdown – so some caution is warranted. Asian high yield’s blistering run A quick glance at the returns of major credit markets this year shows Asian high yield as a standout performer. Spreads – as measured by the benchmark JP Morgan Asia Credit Index (JACI) – have collapsed, continuing the strong recovery from late 2022’s yield spike as a number of China’s beleaguered property developers defaulted. Last week’s China stimulus package is good news for the asset class. Not only does it boost cyclically sensitive names in the region but also helps provide a floor for China’s property names – the most volatile part of the universe. And with this sector now a much smaller component of the overall index, default rates should continue to moderate. Exposure to non-China names is also increasing, including in growth superstars such as India and ASEAN economies. The trend of increasing country and sector diversification implies significantly less volatility over time. Spreads remain high versus their 10-year historical range, implying room for further gains. But tactically, some caution is warranted following the blistering run and macro and geopolitical risks. Eurozone’s blurred lines Yields on 10-year French bonds rose above their Spanish equivalents last week for the first time since 2007. The yield gap between the two has tightened in recent months, after trading as wide as 0.45% earlier in 2024. Eurozone peripheral country bonds, including Spain’s, have been in particular demand since the ECB began cutting rates in June. Investors have been attracted by their relatively high yields, as well as positive signs of fiscal consolidation and improving debt ratios. Italy, Portugal, and Greece have also captured attention. By comparison, there has been growing unease over France’s deteriorating public finances and political uncertainty, which has put pressure on its bond spreads. Recent market pricing offers evidence of a blurring of lines between the eurozone’s traditional core bond markets (Germany and France) and its riskier periphery. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. Source: HSBC Asset Management. Macrobond, Bloomberg, Datastream. Data as at 11.00am UK time 27 September 2024. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 11.00am UK time 27 September 2024. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way. Market review Risk assets rallied on details of a comprehensive stimulus package to support the Chinese economy, with China’s Politburo pledging further fiscal action to come. Core government bonds softened with Treasuries underperforming Bunds ahead of key US employment data. Global equities were broadly positive, led by a rally across emerging markets. China’s Shanghai Composite and Hong Kong’s Hang Seng indices surged, with Chinese stocks enjoying their strongest week since 2008. Korea’s Kospi and India’s Sensex posted modest gains. In developed markets, the Euro Stoxx 600 touched new highs, outperforming the S&P 500, with China-exposed luxury goods stocks recording notable gains. Japan’s Nikkei 225 also performed well, supported by a weaker yen. In commodities, oil prices retreated on rising supply worries. Copper and gold were both on course to close the week higher. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/2024-09-30/

2024-09-30 07:30

Insect protein plays an important role in future food security, providing rich nutritional content and little environmental impact given their high feed conversion efficiency. We think the insect protein market will grow with the increasing risk of food insecurity driven by extreme weather events. Did you know? Source: Food and Agriculture Organization of the United Nations 1. The menu: An exclusive edible insect excursion Welcoming drinks Insects could be the key to resolving malnutrition and future food insecurity problems exacerbated by climate change. They’re widely available and offer ample macronutrients and micronutrients. In addition, insect farming requires fewer natural resources, while generating less waste and emissions compared to conventional livestock farming. We think consuming insects as a major protein source, instead of livestock, could help mitigate the environmental impact of the agricultural sector. It also allows the global food system to adapt to changes brought about by climate change. Main course Governments are aware of the risks and opportunities that increasing the consumption of insects in diets could bring. Poland is proposing an ‘anti-bug’ law that requires a warning label on food products containing insects, while Italy now requires strict labelling of the use of insect flour in traditional food products such as pasta and pizza. Some places are more receptive: Singapore and the EU, for example, have approved certain insects for human consumption. However, the acceptance of edible insects varies across regions and cultures. Dessert The increase in occurrence of extreme weather events will lead to a shrinking supply of animal-based protein. Insect protein can be an alternative. However, the ‘yuck factor’ remains a concern. Researchers have found that when the natural form of insects is hidden in familiar foods, consumers are less resistant to consuming them. For example, cupcakes made with cricket flour tend to be more acceptable than a cricket lollipop. Percentage of recorded edible insect species per group globally Note: True bugs: a hemiptera is an order of insects commonly called 'true bugs', comprising over 80,000 species within groups such as cicadas, aphids & planthoppers. Source: Food and Agriculture Organization of the United Nations 2. Sustainability in eating insects Eating insects might be an ideal solution for some of the food insecurity problems we face. For example, extreme weather worsens the severity of swarming locusts and exacerbates food insecurity in Africa. Swarming locusts used to be eaten by humans and animals during locust outbreaks when crops were destroyed. However, due to extensive use of insecticides, the consumption of locusts is not recommended nowadays. In many developed countries, the safe harvesting of locusts for humans and animals could serve as a more sustainable management method compared to the use of insecticides. Big edible insect buffet, but tiny livestock ‘amuse bouche’ Animal-based protein is becoming more expensive, largely driven by years of drought conditions and inflation in the cost of feed and fuel. Compared to animal-based protein, insect protein is more efficient and reliable for human consumption, with around 80% of insects being edible vs c50% for livestock. In addition, insects’ energy conversion rate from feed to edible weight is significantly higher than livestock, their abundance is high while their reproduction cycle is shorter than vertebrates. As a result, the supply of insect protein is more scalable. Nutrition of insects Insects provide all the essential amino acids for human nutrition. Yet, some insects have high sodium content and high saturated fat. The sodium content of an adult cricket is more than double that of beef or pork. Thus, if insects are to replace conventional livestock to prevent diseases related to over-nutrition in the community, we need to be aware of any downsides. Edible insects and livestock – nutritional value Source: European Journal of Clinal Nutrition Edible insects and livestock – vitamin and mineral content Source: European Journal of Clinal Nutrition Saviour of food insecurity? Apart from insects’ high nutritional value, the circularity and resilience of the insect food system make edible insects a means to fight food insecurity. Insects can transform food waste into nutritious biomass, while insect frass can be used as a fertiliser. Farming insects has little dependency on other external factors and the insect food system, making the insect food system highly sustainable. 3. Challenges incorporating edible insects into meals Farming insects is complicated Insect farming can lead to negative impacts on the environment if it’s performed inadequately. Some insects aren’t suited to be farmed in a captive and enclosed environment. The living condition of insects should be optimal for their species, otherwise, it might cause fighting and induce stress. Also, farming non-native insect species might harm domestic biodiversity. Regulators should look into species-specific measures to ensure insects’ welfare is protected. Testing the tolerance level It would require the elimination of the ‘yuck factor’ towards eating insects to successfully promote them as a common protein source. Many would see insects as a symbol of rot and pestilence. In order to gain broader public acceptance of insect consumption, researchers have been trying out different strategies. For example, edible insects have been served in school meals in four primary schools in Wales as researchers explore young people’s attitudes to alternative proteins. Also, consumers are found to be more willing to try insects when their natural shape is hidden and they’re incorporated into foods they’re familiar with, such as grounded insects being blended into baked goods or protein shakes. There is growing variety and supply of insect- infused food in the market to cater to different dietary preferences and understand consumer acceptance. The flavour profile of edible insects Source: Institute of Culinary Education Countries are paying more attention to edible insects Governments are starting to recognise the importance of insect protein in future diets. Regulators are stepping in to oversee the novel food industry and build consumer trust. The Singapore Food Agency, for example, has given approval for 16 species of insects (including crickets, silkworms and grasshoppers) for human consumption from 2H 2023. In the EU, four applications for insects for human consumption have been approved, with eight more applications pending authorisation. However, there’re still concerns over the safety of directly eating edible insects or eating livestock that are fed by insects. Insects can host microorganisms and some can do harm to humans. Regular updates on regulatory frameworks and controls over production and marketing can drive the expansion of the edible insect market by building consumer confidence. 4. Conclusion Despite all the environmental benefits of eating insects, it would require a change in consumer psychology for insects to become one of the major protein sources. Concerns mostly revolve around the ‘yuck factor’ of eating insects and food safety. These are just some factors that need to be resolved to promote insects as a mainstream protein. However, we think the growing severity of the climate crisis and food insecurity will push countries to reconsider the food system and pay closer attention to the development of insect protein. We believe insect protein will play a more important role in our diets in the near future. https://www.hsbc.com.my/wealth/insights/esg/why-esg-matters/2024-06-14/

2024-09-30 07:30

Key takeaways Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-trends/2024-09/

2024-09-30 07:30

Key takeaways US recession fears have eased on solid earnings growth along with more constructive labour market data, supporting a quick rebound in US equities. A Fed rate cut is widely expected in September. While we remain bullish on US equities, we also favour UK, Japanese, Indian and South Korean equities to achieve diversification amid slowing growth and rising market uncertainties. Investors returned to the tech sector, especially after the fall in its valuations, but we see opportunities both within and beyond the sector, such as communications, financials and healthcare. We upgrade US industrials due to re-onshoring and the support from both US presidential candidates. Consumer discretionary is facing margin pressures amid US economic growth and global activity slowing down, so we downgrade the sector to neutral across regions. Fed Chair Powell set the stage for the first rate cut in September at the Jackson Hole summit, with markets now pricing in 1% worth of rate cuts by end-2024, higher than our projection of 0.75%. As cash returns will be diminishing, bonds are important for income generation and diversification. We focus on locking in current bond yields near multi-year highs and prefer investment grade bonds (5-7 years) to government bonds for better yield pick-up. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/2024-09/

2024-09-30 07:30

Key takeaways UK GDP growth stagnated and the outlook is less benign. The rise in services inflation in August should be temporary but, alongside wage growth, is still elevated. The risk of persistent domestic price pressures becoming entrenched kept the BoE on edge at their September meeting. Slowing growth and price momentum UK GDP growth stagnated in July for the second consecutive month. The broad sector breakdown showed a near mirror image of the growth rates seen in June: the services sector up 0.1% m-o-m, construction +0.4% m-o-m, and industrial production -0.8% m-o-m. Notwithstanding the continued expansion signalled by S&P’s Purchasing Managers Index, a lack of underlying momentum in the economy means we expect activity growth to slow in the second half of 2024. Consumer and business confidence appears to be deteriorating, GfK consumer confidence flatlined in August and then fell to a 6-month low in September. We revise down our 2024 GDP growth to 1.1% but see a pick-up from the middle of 2025 and into 2026. Elsewhere, the headline CPI inflation rate rose in August to 2.2% y-o-y from 2.0% in July. That was largely driven by an expected acceleration in services price inflation to 5.6% y-o-y which should unwind in September (see UK inflation briefing (Aug), 18 September 2024). More positively, underlying services inflation – which excludes volatile and indexed components – was unchanged on the month. The latest labour market data continued to evidence the challenge in assessing the health of the jobs market. However, a pick-up in employment, a fall in the redundancy rate, and a still low participation – albeit slightly improved – rate all point to a resilient jobs market. Private sector wage growth moderated to 4.9% in the 3 months to July (see Mixed signals, 10 September 2024). That said, with both underlying services inflation and wage growth still elevated the risk of price pressures becoming more persistent remains. Concerns of entrenched price pressures kept the BoE on edge Although economic data released over the last month have been broadly in line with expectations, the risk that domestic price pressures become entrenched kept eight of the nine strong committee a little cautious. As such, and after a cut in policy rate in August, Bank Rate was left unchanged in September. We expect a cut in November and then a quicker pace of cuts next year. We don’t expect the absence of a further rate cut in September to weigh on optimism in the UK housing market. The RICS house price balance surged to +1 in August, its highest since November 2022, and with more expected rate cuts and housebuilding reforms the sector may have turned a corner. https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/2024-09/