FT reports that Eurozone inflation still remains well above the European Central Bank’s 2% target at 5.3%, prompting discussions about another rate hike. However, doubts loom as signs of an impending economic downturn, like weaker business confidence and falling German industrial production, emerge. The ECB has already raised its benchmark deposit rate significantly, from -0.5% to 3.75%, tackling a substantial inflation surge.
Bank of England
The Guardian reports that businesses are scaling back hiring and reducing output due to rising borrowing costs, potentially influencing future interest rate decisions by the Bank of England. Bank of England Governor Andrew Bailey’s recent comments on the expected inflation decline raise questions about the necessity of further rate hikes.
CNBC reports: JP Morgan CEO Jamie Dimon warns investors against assuming a prolonged economic boom amid multiple risks. He emphasises that the economy’s positive performance isn’t guaranteed to last for years, given the substantial global uncertainties. Dimon highlights monetary policy and the Ukraine War as significant factors that could deter a potential economic boom.
ANSA states: revised EU forecast predicts Italian GDP to grow by 0.9% in 2023 (down from 1.2%) and 0.8% in 2024 (down from 1.1%). European Commissioner Paolo Gentiloni suggests that tighter monetary policy may have stronger negative effects on economic activity but could also accelerate the recovery of real incomes through faster inflation drop. Reports from the Business Times hedge funds have significantly reduced their net long positions in the euro, down by nearly 90% in a month.
Global oil inventories
OGJ: The US Energy Information Administration (EIA) foresees a reduction in global oil inventories by the year end. The development is expected to exert upward pressure on oil prices. In its September issue, Short-Term Energy Outlook (STEO), EIA predicts a 200,000 b/d decrease in global oil inventories in the fourth quarter of 2023. EIA’s forecast also predicts that the Brent crude oil spot price will average $93/bbl in the fourth quarter of 2023.
Monetary policy committee
The Guardian: Bank of England monetary policy committee meets next week, and the pressure will be intense on its nine members to act again or risk further pay increases, sending inflation higher next year. Governor Andrew Bailey has signalled the end of the hiking cycle, hoping that pay would tick down to show that the current measures are effective and that additional actions are unnecessary for the situation. Yael Selfin, Chief Economist at KPMG, notes a weakening labour market amidst the slowing economy due to interest rate rises. While most economists expect a quarter-point increase next week, she argues there may be little to support further hikes.
Inflation and market sentiment
CNBC: Government shutdown looms: congress must reach funding agreement by September 30 to avoid disruption. In other news, August saw the US Consumer Price Index rise by 0.6%, marking the highest monthly gain in 2023, with a year-on-year inflation increase of 3.7%. Rising prices, particularly in energy and various goods, fueled this uptick. Meanwhile, market sentiment suggests the Fed may hold off on a rate hike at the upcoming meeting. Beyond that, futures pricing remains uncertain, with a 40% probability of a final increase in November, according to CME Group data.
Morningstar: Gold prices edged higher on Wednesday, maintaining a steady trading range as investors analyzed the recent U.S. inflation data. August saw U.S. consumer prices rise by 0.6%, the most significant monthly increase in 14 months. When excluding energy and food prices, core inflation saw a more modest 0.3% rise, as indicated by the consumer price index.
WSJ: U.S. core inflation, a key indicator for economists and central bankers tracking the underlying inflation trend, saw a 0.3% rise in August compared to July, resulting in a 4.3% increase from its year-ago level. While this remains notably high and slightly firmer than economists anticipated, it represents progress from the Federal Reserve’s perspective, according to JPMorgan Chase economists. This marks a decline from the multidecade high of 5.4% recorded in February last year. This reduction in inflation is a key factor in the upcoming policy meeting, where it appears highly likely that interest rates will remain unchanged.
European Central Bank
The Guardian: European Central Bank has raised its deposit rate to 4%, marking the highest level since the euro’s inception in 1999. ECB President Christine Lagarde suggested that rates may have reached their peak but emphasised that borrowing costs will stay elevated as needed to achieve the central bank’s 2% inflation target.
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