inflation

Easing UK inflation keeps BoE on track for rate cuts later in 2024

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Easing UK inflation keeps BoE on track for rate cuts later in 2024

British inflation slowed in February, with consumer prices rising by 3.4% in annual terms after a 4.0% increase in January. This was the weakest rate of inflation since September 2021. Core inflation, which excludes energy, food, and tobacco prices, also slowed to 4.5% from 5.1% in January. Despite the moderation, Britain still has the highest rate of headline inflation among the Group of Seven advanced economies, with consumer prices having increased by more than 21% since the end of 2020. The Bank of England (BoE) has indicated that underlying inflation pressures remain too persistent for it to cut interest rates now, although it has signaled that lower borrowing costs are likely later this year. Finance Minister Jeremy Hunt mentioned that the fall in inflation could help the government with its goal of abolishing social security taxes, provided it does not lead to increased borrowing or cuts in funding for public services.

Euro-Dollar weakens ahead of Fed, Lagarde cites lower inflation

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Euro-Dollar weakens ahead of Fed, Lagarde cites lower inflation

The EURUSD pair declined to the lower 1.0800s after European Central Bank (ECB) speakers, including President Christine Lagarde and Bank of Ireland Governor Gabriel Makhlouf, cited lower inflation. Lagarde mentioned a decrease in wage inflation and stated that the ECB is closely monitoring this before deciding on future policy moves. Lower inflation could lead to the ECB cutting interest rates, negatively affecting the Euro and the EURUSD pair. Lagarde noted that average wage growth for 2024 fell from 4.4% to 4.2% between the ECB’s January and March meetings. She mentioned the need for more evidence of receding inflation but suggested that rate hikes could be dialed back in June if data aligns with current expectations. The ECB is divided into two camps regarding the timing of interest rate decisions. ECB Vice President Luis de Guindos, preferring to wait until the June meeting, highlighted that services inflation remains too high. The Federal Reserve is expected to complete its March policy meeting without changing interest rates but may revise its quarterly forecasts and statement, potentially affecting the US Dollar valuation. Speculation exists that the Fed might adjust its economic forecasts in the Summary of Economic Projections (SEP) and the “dot plot,” possibly revising down the forecasted rate cuts in 2024 due to persistent inflationary pressures.

The Fed, the whole Fed and nothing but the Fed

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The Fed, the whole Fed and nothing but the Fed

– The USD Index (DXY) reached three-week highs past the 104.00 mark on Tuesday, despite a decline in US yields.
– The Federal Reserve’s interest rate decision and the FOMC Economic Projections, along with Chair Jerome Powell’s press conference, are scheduled for Wednesday.
– The EURUSD pair fell to multi-week lows near the 1.0830 region, testing the critical 200-day SMA.
– ECB’s Christiane Lagarde is set to speak on Wednesday, and the European Commission will release its flash Consumer Confidence gauge.
– The GBPUSD pair moved beyond 1.2700 towards the end of the NA session on Tuesday after reversing an earlier pullback to the 1.2670 zone.
– The UK will report the Inflation Rate on March 20.
– The USDJPY pair approached the 151.00 mark, near 2024 highs, due to increased selling pressure on the yen following the BoJ rate hike.
– The AUDUSD pair approached the 0.6500 support level for the fourth consecutive session, influenced by a stronger USD and the RBA’s dovish stance. The RBA’s Consumer Inflation Expectations are due on March 20.
– WTI oil prices surpassed .00 per barrel, reaching four-month highs, driven by geopolitical factors and anticipated stronger demand.
– Gold prices saw modest losses around the ,150 per troy ounce zone, affected by the stronger Dollar and lower US yields.
– Silver prices dropped for the second consecutive session after reaching highs near .50 per ounce on Friday.

Another pivotal week

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Another pivotal week

– This week is pivotal for investors and traders trying to gauge the Federal Reserve’s next move in terms of its monetary policy.
– Adjustments have been made in the Fed rate cut expectations by looking at the US equity markets or fixed income markets.
– Wall Street giants have scaled back their rate cut bets for this year while being more optimistic for 2025.
– Controlling inflation and navigating the economy post-COVID-19 crisis have been challenging tasks for the Fed.
– Recent data on producer prices and consumer prices raised concerns among investors and traders about inflation plateauing and becoming stickier than anticipated.
– The Fed Chairman indicated that the nature of inflation and its measurement have been permanently impacted by COVID, suggesting a reevaluation of the 2% inflation target.
– Consumer prices increased by 0.4% for the month and by 3.2% from a year ago, while producer prices jumped by 0.6% on the month, double the Dow Jones estimate.
– The Fed is expected to keep the rate at its current level of 5.50% in the upcoming monetary policy announcement.
– The sticky nature of inflation reduces the incentive for the Fed to take aggressive measures to lower interest rates.
– Goldman Sachs expects the Fed to cut rates three times this year, down from an earlier expectation of four times.
– The possibility of Donald Trump returning to office could influence the Fed’s rate cut decisions, as he favors lower interest rates.
– US stock indices have experienced volatility, partly due to sell-offs among some major stocks.
– Gold recorded its first negative week in over three weeks, with its current record high being about shy of ,200. The immediate support level for gold stands at 37, with the next support level at 87, and resistance at 95.

Rich Americans keep high-end RV company rolling along

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Rich Americans keep high-end RV company rolling along

Most US recreational vehicles are produced in Elkhart, Indiana, while the Bowlus, a luxury travel trailer, is made in Oxnard, California. The Bowlus is designed to be towed by a Porsche sports car and features a 1930s design with a minimalist interior. Its top-end model costs 0,000. Demand for the Bowlus increased during the COVID-19 pandemic, and the company is now expanding by offering a lower-priced version and selling through dealerships. Bowlus trailers are handcrafted by 35 workers and the company plans to produce 100 trailers this year. The Bowlus was originally designed by a Los Angeles aerospace engineer during the Great Depression and uses a monocoque structural system, making it light but strong. Other companies are also developing luxury and battery-powered trailers, such as Aero Build and Pebble, with prices ranging from 9,000 to 9,900.

WTI steady at $80.60, below YTD peak

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WTI steady at $80.60, below YTD peak

– West Texas Intermediate (WTI) crude oil prices are fluctuating just above the mid-.00s in Asian trading on a Friday.
– Prices are close to the highest level since November 6, as observed the previous day.
– The US Producer Price Index (PPI) was higher than expected, suggesting the Federal Reserve might maintain high interest rates to combat inflation, potentially reducing economic activity and fuel demand.
– Concerns about a slowdown in China also negatively impact crude oil prices.
– Factors supporting oil prices include a significant drop in US inventories, drone strikes on Russian refineries, and increased energy demand forecasts.
– The US Energy Information Administration reported a decrease of about 1.5 million barrels in US crude stockpiles for the week ending March 8.
– A drone attack attributed to Ukraine caused a fire at Rosneft’s largest refinery in Russia.
– The International Energy Agency has raised its 2024 oil demand growth forecast for the fourth time since November due to supply disruptions from Houthi attacks in the Red Sea.
– OPEC+ members have agreed to extend production cuts of 2.2 million barrels per day through the second quarter, supporting higher crude oil prices.
– Crude oil is on track for strong weekly gains, with market focus shifting to the upcoming FOMC monetary policy meeting.

Tourism to keep head up high in 2024

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Tourism to keep head up high in 2024

– Cyprus’ tourism head, Costas Koumis, is optimistic about the tourism sector’s performance in 2024, aiming for arrivals close to the 3.97 million record of 2019.
– Despite geopolitical unrest and other challenges, the goal is to maintain tourist arrivals at similar levels to the previous year, with a possible deviation of 30,000 to 50,000.
– In 2023, Cyprus saw 3.85 million tourist arrivals, marking the third-best historical performance with a 20% annual increase, despite losing the Russian and Ukrainian markets.
– The tourism sector’s contribution to Cyprus’ GDP in 2023 was estimated at 12.8%, with tourism revenue reaching €2.99 billion, a 22.6% nominal increase from 2022.
– The average per capita expenditure in 2023 increased by 2.1% to €778, and daily expenditure rose by 11.6% to €90.
– The average length of stay for holidaymakers in Cyprus decreased to 8.6 days in 2023 from 9.4 days in 2022.
– Sea arrivals in 2023 were around 322,000, with expectations of a decrease in 2024 due to the conflict in Israel.
– Challenges for 2024 include conflicts in the Middle East, economic downturns in Germany and the UK, and an aviation sector crisis.
– Air connectivity remains the same with 55 airlines, but available seats are expected to decrease from the initial estimate.
– Tourism from Poland, Scandinavian countries, Romania, and Serbia is expected to increase, while UK and German markets remain stable.
– The government and ministry are committed to enhancing Cyprus’ tourism product, with €11.24 million allocated for 16 subsidy schemes in 2024, including €8.1 million from the EU-funded Recovery and Resilience Plan.

Energy minister promises support for consumers

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Energy minister promises support for consumers

Energy Minister George Papanastasiou invoked the name of late United States President John F. Kennedy in a speech for World Consumer Rights Day, highlighting Kennedy’s view of consumers as central to the economy. Papanastasiou discussed the economic challenges exacerbated by global crises like the Covid-19 pandemic and the energy crisis, leading to economic instability and high inflation. He emphasized the government’s focus on introducing cheap energy, promoting renewable energy sources, and energy conservation, including the launch of the “Photovoltaics for All” scheme. Additionally, he mentioned the planned “e-basket” scheme for price transparency and a bill to allow the government to set maximum retail prices on certain products, alongside a policy of zero VAT on essential products to alleviate financial pressures on consumers.

Japan union group announces biggest wage hikes in 33 years, presaging shift at central bank

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Japan union group announces biggest wage hikes in 33 years, presaging shift at central bank

Japan’s largest companies have agreed to a 5.28% wage increase for 2024, the largest in 33 years, according to the country’s largest union group. This development is seen as a sign that the Bank of Japan may soon end its decade-long stimulus program, especially considering the bank’s eight years of negative interest rate policy. The wage increase exceeds expectations and comes amid annual wage negotiations, which are crucial for the Bank of Japan’s policy decisions. Policymakers hope the wage hikes will boost household spending and support sustainable economic growth. Workers had initially requested a 5.85% increase. The wage hikes are expected to result in positive real wages by April-June 2024. Rengo, the trade union group representing about 7 million workers, aimed for more than 3% increases in base pay. Rising income inequality, inflation, and labor shortages were cited as reasons for the significant wage increase, with part-time workers expected to see a 6% increase this fiscal year. The government hopes these wage hikes will benefit smaller and medium-sized firms, which make up 99.7% of all enterprises. However, wage increases for smaller companies are expected to be lower. Among smaller delivery companies, only 57% plan to raise wages in the upcoming fiscal year. Despite wage increases, real wages have fallen for 22 consecutive months due to inflation not keeping pace. Toyota Motor announced its largest pay increase in 25 years, indicating a strong stance in labor negotiations. The central bank may end negative interest rates as early as its next meeting on March 18-19, influenced by the wage increases and chronic labor shortages in Japan. Prime Minister Fumio Kishida encourages companies to raise wages to combat deflation and improve Japan’s wage growth compared to other OECD countries. The annual pay negotiations, known as “shunto” or “spring labor offensive,” are a key aspect of Japanese business culture, emphasizing collaborative labor-management relations.

Bank of England set to play for time before first rate cut

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Bank of England set to play for time before first rate cut

The Bank of England is expected to maintain uncertainty about when it will start reducing interest rates, awaiting clearer evidence that inflation pressures are diminishing. Despite other central banks moving towards cutting borrowing costs post-COVID pandemic and inflation projected to decrease to the 2% target soon, the BoE has labeled its high rates as “under review.” Governor Andrew Bailey expressed a cautiously optimistic outlook, noting inflation expectations appear controlled and concerns over a price-wage spiral are lessening. However, Bailey indicated no rush to lower the Bank Rate from its 16-year peak of 5.25%, citing labor market data uncertainties and geopolitical risks. In February, the decision to keep the Bank Rate steady was supported by six rate-setters, with two advocating for an increase and one for a reduction. Analysts anticipate a similar 6-2-1 vote split in the next decision, potentially influenced by upcoming inflation data. The BoE forecasts inflation to slow to 2% in the second quarter following a decrease in regulated energy costs but expects a rise to almost 3% later in 2024. Inflation reached a high of 11.1% in October 2022. The central bank remains concerned about the risk posed by fast-growing wages, with Britain’s minimum wage set to increase by nearly 10% and employers offering pay settlements of about 5% since the start of 2024. Former BoE deputy governor Charlie Bean highlighted that Britain’s pay growth is roughly double the level consistent with 2% inflation. The BoE is seen as moving more slowly towards rate cuts compared to other central banks, with the British economy showing signs of recovery from a short recession. Finance minister Jeremy Hunt announced tax cuts to moderately boost consumers. The European Central Bank and the US Federal Reserve are contemplating rate cuts, potentially placing the BoE behind. Economists at HSBC predict inflation could drop to as low as 1.2% in May and June before rising later in the year, challenging the BoE’s communication on maintaining its current stance. A Reuters poll shows economists mostly expect rate cuts to begin in the third quarter, with 40% anticipating a move in the second quarter. Investors do not fully expect a quarter-point cut until August. The BoE’s March monetary policy decision will be announced without a press conference, as no new economic forecasts are due to be published.