2024-09-12 18:05

October ECB rate cut bets pared back after press conference ECB cuts rates 25 bps, second cut of the year Risk of ECB moving too slowly - investors Sept 12 (Reuters) - Traders pared back their bets on back-to-back rate cuts from the European Central Bank for the rest of the year on Thursday, as policymakers provided little clarity on how willing they were to double down on monetary easing. Sources also told Reuters shortly after the ECB meeting that ended on Thursday that a further rate cut at the central bank's next meeting in October was unlikely barring a major deterioration in the outlook for growth. The bank earlier cut rates for the second time this cycle, reducing its key deposit rate to 3.50% as expected, but it reiterated that services inflation remains high and it would keep rates sufficiently restrictive for as long as necessary. ECB chief Christine Lagarde said the rate path was not predetermined and that the central bank would decide rates meeting by meeting, with no pre-commitments. Traders pared back bets on another 25 bps cut then to around 20%, from over 30% prior to the meeting. For the whole year, in addition to Thursday's move, they now expect 33 bps of cuts, down from 36 bps earlier on Thursday. "Lagarde did exactly what she wants to do - not rock the boat in markets," said Danske Bank chief analyst Piet Christiansen. "It seems like she's happy with the current market pricing of roughly 25 basis points (cuts) per quarter for now." Euro zone government bond yields shot up as traders curbed their rate cut expectations. Germany's two-year yield , sensitive to those changes, rose nearly 10 bps on the day in its biggest daily jump in nearly a month. The euro , edged higher, last trading up 0.25% at $1.10393, European stocks ended Thursday in positive territory (.STOXX) , opens new tab. DIVERGENCE With traders much more confident in back-to-back rate cuts from the U.S. Federal Reserve starting next Wednesday, focus was on how ECB divergence from its Atlantic peer would impact markets. Traders expect around 100 bps of Fed rate cuts this year starting with a 25 bps move, meaning they also see a jumbo 50 bps cut at one of three meetings. By the end of next year, traders reckon the Fed will have delivered 10 25-basis-point cuts while the ECB will deliver six. With the currency impact the main channel through which Fed moves would impact the ECB's thinking, analysts said the ECB would have to be mindful of euro strength. A stronger currency could bring an unwelcome tightening in financial conditions for the bloc's sluggish economy. One factor that could help raise the stakes for the ECB's October meeting could be an "aggressive" Fed decision next week, said Danske Bank's Christiansen, though markets see around a 20% chance of a 50 bps cut now. Yet despite fewer cuts on the card from the ECB, analysts see little gain ahead for the euro. A Reuters poll recently forecast it would rise to just $1.11 by end-February and $1.12 in a year, not far from a peak it touched in August. Anyone long the euro would be "relying on an essentially pro-growth environment where the rest of the world is outperforming the U.S.," said James Athey, fixed interest fund manager at Marlborough. Some investors said euro zone government bonds, which have underperformed U.S. Treasuries with yields falling less this summer, had more potential to rally. "The safest part (of the bond market) is in Europe," said Mario Baronci, multi-asset fund manager at Fidelity International. "If you look at the U.S. curve the market has discounted about 250 bps of cuts in a couple of years. It's a lot. So, I prefer to be in Europe." And as the ECB revised down its growth expectations for this year and next, citing weaker domestic demand, but still saw inflation reaching its 2% target in the second half of 2025, some investors focused on the risk that the ECB could be too slow to ease policy. Indeed, the bloc's recovery has been sluggish and Germany's economy shrank in the second quarter. "If the ECB is slow to cut rates, the economy is not going to get the boost it needs," said Principal Asset Management's chief global strategist Seema Shah. "From a fundamental perspective, Europe is not as interesting a proposition for investing as other parts of the world," said Shah, whose firm is underweight European equities. Sign up here. https://www.reuters.com/markets/europe/ecb-dents-traders-hopes-october-rate-cut-2024-09-12/

2024-09-12 17:53

WASHINGTON, Sept 12 (Reuters) - The International Monetary Fund said on Thursday it was appropriate for the U.S. Federal Reserve to begin a long-awaited monetary easing cycle at its meeting next week as upside risks to inflation have subsided. IMF spokesperson Julie Kozack told a regular news briefing that the IMF expected the U.S. economy to slow over the rest of the year, and that this would be reflected in its updated World Economic Outlook forecasts in October. She said the IMF expects core U.S. personal consumption expenditures index (PCE) inflation ending 2024 at 2.5% and returning to the Fed's 2% target by mid-2025, and recent data show less upside risk to this path. "That means that we see the imminent start of a loosening cycle, as telegraphed by the Fed, as appropriate," Kozack said. "That said, the upside risks to inflation, while less, have not entirely disappeared and the Fed will have to continue to calibrate the pace and extent of rate cuts with incoming economic data going forward." Fed Chair Jerome Powell in late August endorsed an imminent start to rate cuts, saying that further weakening of the job market would be unwelcome and that inflation was within reach of the Fed's target. Other Fed policymakers have since signaled that they are ready to cut rates at the bank's Sept. 18 policy meeting. While the U.S. economy is slowing, its GDP will still be growing at the end of 2024 at about 2%, compared with the fourth quarter of 2023. She declined to say whether the IMF will reduce its overall U.S. growth forecasts, which call for 2.6% full year growth for 2024 and 1.9% for 2025. Sign up here. https://www.reuters.com/markets/us/imf-says-appropriate-us-fed-start-easing-cycle-economy-slows-2024-09-12/

2024-09-12 17:12

WASHINGTON, Sept 12 (Reuters) - U.S. mortgage rates dropped this week on expectations that the Federal Reserve would start cutting interest rates next Wednesday, but will likely not offer an immediate boost to the housing market as home prices remain elevated. The average rate on the popular 30-year fixed-rate mortgage fell to 6.20%, the lowest since February 2023, from 6.35% last week, mortgage finance agency Freddie Mac said in a statement on Thursday. It averaged 7.18% during the same period a year ago. The average rate on the 15-year fixed-rate mortgage declined to 5.27% from 5.47% last week. That compared to an average of 6.51% a year ago. The U.S. central bank is expected to kick off its easing cycle with a 25 basis points rate cut next week. "But despite the improving mortgage rate environment, prospective buyers remain on the sidelines, as they negotiate a combination of high house prices and persistent supply shortages," said Sam Khater, Freddie Mac's chief economist. Sign up here. https://www.reuters.com/markets/us/us-30-year-fixed-rate-mortgage-falls-620-2024-09-12/

2024-09-12 17:02

Weekly jobless claims increase 2,000 to 230,000 Continuing claims rise 5,000 to 1.850 million Producer prices climb 0.2% in August; up 1.7% year-on-year WASHINGTON, Sept 12 (Reuters) - The number of Americans filing new applications for unemployment benefits increased marginally last week, suggesting that layoffs remained low even as the labor market is slowing. Other data from the Labor Department on Thursday showed producer prices rising slightly more than expected in August amid a rebound in the cost of services. The combination of a fairly stable labor market and still-high inflation further diminished the chances of the Federal Reserve cutting interest rates by 50 basis points next Wednesday, when the U.S. central bank is expected to start its long-awaited easing cycle. The reports followed data this month showing the unemployment rate retreated in August from a near three-year high touched in July and underlying inflation indicating some stickiness last month. Financial markets have slashed the odds of a half-point rate reduction to less than 15%. "Producer prices are not too hot and the employment markets are not deteriorating too much either, so there is probably no need for Fed officials to surprise the markets with a bigger- than-expected 50 basis points rate cut next week," said Christopher Rupkey, chief economist at FWDBONDS. Initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 230,000 for the week ended Sept. 7. Economists polled by Reuters had forecast 230,000 claims for the latest week. Last week's data included the Labor Day holiday. Claims tend to be volatile around public holidays. They have, however, been little changed since dropping from an 11-month high of 250,000 in late July. Unadjusted claims decreased 12,968 to 177,663 last week, led by substantial declines in California, Georgia, Michigan, Ohio and New York. No state reported increases in claims above 1,000. The slowdown in the labor market is being driven by businesses scaling back on hiring as higher borrowing costs curb demand throughout the economy. Government data last week showed nonfarm payrolls increasing by less than expected in August but the unemployment rate falling to 4.2% from 4.3% in July. Financial markets saw a roughly 13% probability of a 50 basis points rate cut at the Fed's Sept. 17-18 policy meeting, CME Group's FedWatch Tool showed. The odds of a 25 basis point rate reduction are at about 87%. The central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for a year, having raised it by 525 basis points in 2022 and 2023. Stocks on Wall Street were mixed. The dollar fell against the euro. The European Central Bank cut interest rates on Thursday, but offered few clues on its next move. U.S. Treasury yields were little changed. SERVICES PRICES REBOUND The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 5,000 to a seasonally adjusted 1.850 million during the week ending Aug. 31, the claims report showed. The so-called continuing claims could decrease in the coming weeks after schools in Minnesota reopened for the new school year in September. Non-teaching staff in the state are allowed to file for unemployment benefits during the summer school holidays, to which economists attributed the surge in continuing claims in July to levels last seen in late 2021. The drop in continuing claims through much of August is consistent with the decline in the unemployment rate last month. With the labor market cooling, the threat of inflation heating up is minimal. A separate report from the Labor Department showed the producer price index for final demand rose 0.2% in August. Data for July was revised lower to show the PPI being unchanged instead of edging up 0.1% as previously reported. Economists had forecast the PPI gaining 0.1% last month. In the 12 months through August, the PPI increased 1.7%. That was the smallest rise in six months and followed a 2.1% advance in July. A 0.4% increase in services accounted for the rise in the PPI in August. Services, which dropped 0.3% in July, were last month boosted by a 4.8% surge in the prices of hotel and motel rooms. The cost of doctor consultations was unchanged, but hospital outpatient care increased 0.2%. Hospital inpatient care costs were unchanged. Prices for airline fares fell 0.8%. Portfolio management fees were unchanged. Trade services, which measure changes in margins received by wholesalers and retailers, rose 0.6%, showing that businesses still have pricing power even as consumers are pushing back against higher prices. Portfolio management fees, hotel and motel accommodation and airline fares are among components that go into the calculation of the personal consumption expenditures (PCE) price indexes, the inflation measures tracked by the Fed for its 2% target. Wholesale goods prices were unchanged in August after rising 0.6% in July. Energy prices dropped 0.9%. Food prices gained 0.1%. Core goods prices climbed 0.2% after a similar advance in July. The narrower measure of PPI, which strips out food, energy and trade, rose 0.3%, matching July's gain. The so-called core PPI increased 3.3% year-on-year after climbing 3.2% in July. Based on the CPI and PPI data, economists' estimates for the PCE price index, excluding the volatile food and energy components, ranged from an increase of 0.14% to 0.18% in August. Core PCE inflation rose 0.2% in July. Core inflation is forecast to have advanced 2.7% year-on-year in August after rising 2.6% in July. The anticipated rise in annual core inflation would be the result of last year's low readings dropping out of the calculation. "The six-month annualized run rate, however, which is something Fed officials have referenced in the past, would cool to 2.3% from 2.6% in July, while the three-month annualized run rate would remain below 2%," said Michael Hanson, an economist at J.P. Morgan. Sign up here. https://www.reuters.com/markets/us/us-weekly-jobless-claims-rise-moderately-2024-09-12/

2024-09-12 16:14

FRANKFURT, Sept 12 (Reuters) - European Central Bank policymakers see an interest rate cut in October as unlikely, barring a major deterioration in the outlook for growth, three sources told Reuters. The ECB cut borrowing costs again on Thursday and President Christine Lagarde said a "declining path" for rates was "pretty obvious" but "not predetermined" in terms of pace and destination. Sources speaking to Reuters on condition of anonymity said a move on Oct 17 could not be ruled out but it was not likely because policymakers would not have much new information by then and would rather wait for a new round of projections in December. One source added that it would take major negative surprises on the growth front for the ECB to lower borrowing costs again at the next meeting. The ECB declined to comment. Thursday's meeting was unusually short and consensual, wrapping up at 0900 GMT rather than one hour or more later as is normally the case, the sources said. Lagarde said at her news conference earlier on Wednesday that the decision to cut rates was unanimous. Sign up here. https://www.reuters.com/markets/rates-bonds/ecb-policymakers-see-october-cut-unlikely-2024-09-12/

2024-09-12 15:59

JOHANNESBURG, Sept 12 (Reuters) - South Africa's rand inched higher against a weaker dollar on Thursday, with the next big local drivers - inflation data and an interest rate decision - due next week. At 1521 GMT the rand traded at 17.86 against the dollar , about 0.3% stronger than Wednesday's closing level. The U.S. currency was down about 0.2% against a basket of peers . August consumer inflation figures (ZACPIY=ECI) , opens new tab on Sept. 18 will be closely watched, after July's 4.6% reading neared the South African Reserve Bank's targeted level, 4.5%. Economists polled by Reuters predict the central bank will announce a 25 basis point rate cut (ZAREPO=ECI) , opens new tab on Sept. 19, as slowing inflation opens the door to the first easing step in more than four years. Kavir Surujhlal, junior sales trader at IG Group, said the rand could be volatile over the coming weeks as markets digest the impact of the SARB rate cut. Initially the rand could weaken, while further out the positive knock-on effects from the rate cut could boost the local currency, Surujhlal said. The rand reacted little on Thursday to July mining numbers (ZAMNG=ECI) , opens new tab that showed another year-on-year output decline. "With no significant data expected tomorrow, we anticipate a relatively quiet day if conditions remain unchanged," said Wichard Cilliers, head of market risk at TreasuryONE. On the Johannesburg Stock Exchange, the blue-chip Top-40 index (.JTOPI) , opens new tab closed up more than 1.1%. South Africa's benchmark 2030 government bond was little moved, the yield at 9%. Sign up here. https://www.reuters.com/markets/currencies/south-african-rand-edges-higher-big-local-drivers-due-next-week-2024-09-12/