Introduction: Fed President Daly says it’s time to consider cutting interest rates
Good morning and welcome to our continuing coverage of business, financial markets and the global economy.
It’s time for the U.S. central bank to consider cutting interest rates, a leading policymaker said.
San Francisco Federal Reserve Bank President Mary Daly called for a “cautious” approach to setting borrowing costs, arguing that the economy is “not in an emergency” and pointing to recent signs that inflation is easing.
Daly told the Financial Times that recent economic data gave him “increased confidence” that inflation was under control.
She said,
Since the first quarter of this year, inflation has been gradually increasing towards 2%. Although we’re not there yet, this gives us more confidence that we are moving towards price stability.
Earlier this month, stocks tumbled on concerns that the Fed was too slow to start cutting interest rates. The central bank left the federal funds rate unchanged at 5.25% to 5.5% at the end of July and is scheduled to next meet in September.
Last week, U.S. inflation fell to a three-year low of 2.9%, while a 1% rise in retail sales in July also provided relief to investors.
Daly’s comments came ahead of a key meeting of central bank governors in Jackson Hole, Wyoming, later this week, where investors are hoping for hints about how quickly the Fed can lower borrowing costs to achieve a “soft landing” and avoid a recession.
This afternoon we will hear from another Fed policy maker, Governor Christopher Waller.
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Updated 03.25 EDT
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Gold nears all-time high
Gold prices are trading near all-time highs this morning.
Gold hit a record high of $2,509.65 per ounce last Friday afternoon and is down slightly this morning but still above the $2,500 mark at $2,503 per ounce.
Rising geopolitical tensions are driving up gold prices, explains Susanna Streeter, head of financials and markets at Hargreaves Lansdown.
A weaker dollar is helping to boost demand for commodities, while the uncertain outcome of the ongoing conflict is also boosting appetite for safe-haven assets.
The Russian invasion of Ukraine continues with uncertain repercussions, and violence continues to erupt in Gaza and Israel while ceasefire negotiations in the Middle East are approaching a critical moment.
The US dollar weakened again as gold prices surged above the psychological $2,500 per troy ounce mark to record highs, sending demand for the precious metal surging to near a 14-year high in July. https://t.co/e37OC7aEhc
— Arjun Paul (@ArjunP_Official) August 19, 2024
Gold prices have risen in recent days as traders become more confident that U.S. authorities will soon start cutting interest rates.
This would make assets such as gold, which do not generate interest, more attractive and weaken the dollar.
“The valuation of the stock is a major driver of growth,” said Kyle Rodda, senior financial markets analyst at Capital.com.
The rise in gold prices has been driven in part by a weaker US dollar, but gold fundamentals remain very strong due to expectations of US interest rate cuts, robust central bank demand and rising geopolitical risks in the Middle East.
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Defense stocks fall after reports Germany will not approve new aid request from Ukraine
Shares in European defense companies fell in early trading after reports that Germany would not agree to further military aid to Ukraine.
BAE Systems was the biggest faller in the FTSE 100 index, falling 2.8% in London.
German arms manufacturer Rheinmetall slid 3.5 percent, while sensor specialist Hensoldt, which has supplied several advanced radars to Ukraine, fell 6.4 percent.
Shares in Thales, the French aerospace and defense company that is supplying two air defense systems to Ukraine, fell 1.6 percent.
Shares in Italian aerospace and defence group Leonardo fell 1.7%.
The sell-off came on the heels of reports that the German government will halt new military aid to Ukraine as part of the ruling coalition’s plans to cut spending. The Frankfurter Allgemeine Zeitung (FAZ) newspaper reported on Saturday that the German finance ministry does not plan to approve additional aid to Ukraine as part of this year’s budget cuts.
However, the German Foreign Ministry has reportedly denied claims that it will not provide aid to Kiev next year. Instead, the German Finance Ministry made it clear that bilateral aid to Ukraine will be gradually redirected towards international programs, including providing aid from frozen Russian assets.
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Updated 03.42 EDT
UK interest rate cuts stimulate housing demand
The Bank of England cut the Bank Rate at the beginning of August, already putting it ahead of the Federal Reserve in cutting interest rates.
According to property portal Rightmove, the interest rate cuts are already giving a boost to the UK property industry.
Rightmove said the number of potential buyers enquiring with estate agents about homes for sale has risen 19% year-on-year since August 1 – the day banks cut interest rates.
Rightmove has now increased its 2024 forecast, predicting a 1% rise in asking prices this year, after previously forecasting a 1% fall.
However, asking prices fell by 1.5% or £5,708 in August to an average of £367,785.
The housing market was seasonally strong in August, with the average offering price down 1.5% since July 2024 but up 0.8% compared to last year.
Buyers, tempted by base rate cuts that have gradually reduced interest rates, have come out of their holidays to contact estate agents… pic.twitter.com/dqaA7v7Wx4
— Emma Fildes (@emmafildes) August 19, 2024
Tim Bannister, from Rightmove, said:
“The first cut in bank rates since 2020 has seen a welcome boost in buyer activity towards the end of the summer.
Although mortgage rates have not yet fallen significantly since the rate cut, the long-awaited first rate cut has finally come to fruition and mortgage rates are trending downward, which is a positive situation for home buyers. As the summer vacation season draws to a close, conditions are ripe for a more active autumn market.
“Homebuyer reaction to what we hope will be the first of several interest rate cuts over the next year or two, along with other favorable data and trends, has led us to raise our price forecast for this year. We now expect new sales prices to increase 1% for all of 2024. This is a relatively small revision from our earlier forecast of a 1% annual price decline, as we were not initially forecasting anything more dramatic than a slight decline in prices this year.”
More information here:
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In financial markets, the US Dollar fell to its lowest level in seven months this morning.
The dollar index (.DXY) fell to its lowest level since early January as traders digested comments from Mary Daly that the Fed should consider cutting interest rates.
Japan’s yen rose 1.7% against the dollar, while the Nikkei average fell 1.7% today.
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Energy price caps likely to rise again in 2025
Energy price caps relating to customers across the UK (excluding Northern Ireland) are adjusted every three months.
Cornwall Insight also predicts that a “further modest” increase is expected in January 2025, on top of the predicted increase from October to December 2024.
But they add….
…Recent tensions in the Russia-Ukraine war could push prices even higher at the start of the new year.
Cornwall noted that wholesale gas and electricity prices hit 30-month lows in February before recovering in recent months.
They say.
Rising wholesale market prices, particularly since early August, are the main driver of the expected increase in bills.
Although prices have stabilized somewhat compared to the past two years, the market has not yet fully recovered from the effects of the energy crisis and Russia’s invasion of Ukraine. As a result, the market remains highly sensitive to global events that could disrupt supply. The UK’s reliance on imported energy makes it highly vulnerable to these global fluctuations. As a result, energy bills for both homes and businesses are expected to remain well above pre-crisis levels.
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Energy price cap expected to rise by 9%
Energy customers across the UK have been warned that bill caps will be increased this autumn, meaning millions of dollars in increased bills over the winter.
Consultancy Cornwall Insight has published its final price cap forecast for October to December 2024. It predicts that the average household will see the price cap rise by 9% to £1,714 per year.
This represents an increase of around £150 per year from the current level of £1,568 per year between July and September.
Regulator Ofgem is due to announce October’s cap on Friday (23 August).
This cap is a maximum limit on how much energy companies can charge per unit of energy, so there is no limit to how much consumers can actually be charged.
General gas and electricity prices to increase by 9% from October 1st Cornwall Insight Just in time for winter, a winter fuel allowance was due to be paid to all pensioners a month ago, but the finance minister cancelled payments to 10 million pensioners. The official price cap was announced on Friday.
— Paul Lewis (@paullewismoney) August 19, 2024Share
Updated 03.10 EDT
Goldman Sachs lowers chance of US recession from 25% to 20%
What goes up must come down.
Just two weeks after raising the probability of a US recession, Goldman Sachs has cut interest rates again.
The Wall Street bank lowered the chance that the U.S. will fall into a recession within the next 12 months to 20% from 25%, after weekly jobless claims were encouragingly low and U.S. retail sales rose in July.
Jan Hatzius, chief U.S. economist at Goldman Sachs, said in a note published last weekend:
“We have lowered the probability from 25% to 20% primarily because the July and early August data released since August 2 show no signs of a recession.”
Goldman Sachs downgraded recession chances. 🇺🇸
“After the July jobs report, we raised our 12-month probability of a U.S. recession from 15% to 25%. However, we have now lowered it back to 20% as data such as retail sales and jobless claims show no signs of a recession.” pic.twitter.com/fQcBcJZ4Ju
— Carl Quintanilla (@carlquintanilla) August 17, 2024
Goldman raised its probability of a U.S. recession to 25% from 15% in early August, following a slowdown in job creation in July.
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Introduction: Fed President Daly says it’s time to consider cutting interest rates
Good morning and welcome to our continuing coverage of business, financial markets and the global economy.
It’s time for the U.S. central bank to consider cutting interest rates, a leading policymaker said.
San Francisco Federal Reserve Bank President Mary Daly called for a “cautious” approach to setting borrowing costs, arguing that the economy is “not in an emergency” and pointing to recent signs that inflation is easing.
Daly told the Financial Times that recent economic data gave him “increased confidence” that inflation was under control.
She said,
Since the first quarter of this year, inflation has been gradually increasing towards 2%. Although we’re not there yet, this gives us more confidence that we are moving towards price stability.
Earlier this month, stocks tumbled on concerns that the Fed was too slow to start cutting interest rates. The central bank left the federal funds rate unchanged at 5.25% to 5.5% at the end of July and is scheduled to next meet in September.
Last week, U.S. inflation fell to a three-year low of 2.9%, while a 1% rise in retail sales in July also provided relief to investors.
Daly’s comments came ahead of a key meeting of central bank governors in Jackson Hole, Wyoming, later this week, where investors are hoping for hints about how quickly the Fed can lower borrowing costs to achieve a “soft landing” and avoid a recession.
This afternoon we will hear from another Fed policy maker, Governor Christopher Waller.
agenda
Share
Updated 03.25 EDT