2024-03-21 15:15

SNB delivers surprise quarter point rate cut Bond and equities rally; ECB rate cut bets rise European central banks may need to wait on the Fed - investors LONDON, March 21 (Reuters) - Markets are racing ahead to bet on big central banks lowering borrowing costs after Switzerland on Thursday delivered a surprise rate cut, but analysts cautioned that policymakers elsewhere won't find it as easy to call time on the inflation fight. The Swiss National Bank (SNB) lowered its key rate to 1.5% from 1.75%, with traders responding by pushing government borrowing costs across Europe lower as the continent's Stoxx 600 (.STOXX) , opens new tab share index hit a fresh record. Caution remained as to whether the U.S. Federal Reserve would rush rate cuts given that inflation in the world's biggest economy is running hot. Still, investors viewed the Swiss decision as a landmark and traders laid down strong bets for June cuts by the European Central Bank (ECB) and the Bank of England (BoE). Some analysts said these rate-setters could even risk a bout of inflationary currency weakness in a strong-dollar environment by moving before the Fed. "I doubt anyone would think Switzerland is the sun around which everyone else gravitates, but the fact they have crossed this threshold has to matter," said Chris Jeffrey, head of macro strategy at Legal & General Investment Management. Money markets moved to price a 90% chance of an ECB rate cut by June from less than an 80% chance late on Wednesday. BoE expectations moved to a roughly 70% chance of a June cut, from less than 60% on Wednesda . Jeffrey tipped both the ECB and the BoE, to lower borrowing costs in June, with the Fed perhaps waiting longer. The BoE held rates at a 16-year high of 5.25% on Thursday but said the economy was heading in the right direction for cuts. UNIQUE SNB? Unlike in the UK and the euro zone, the headline inflation rate in Switzerland, at 1.2% in February, is within the SNB's 0-2% target range. Nikolay Markov, senior economist at Pictet Asset Management and a former SNB staffer, said Switzerland was unique among major central banks in having started to worry about inflation falling too far as its currency had strengthened. "They were worried that the deflationary impact from a strong Swiss franc will persist, and that was the key trigger for them to start the easing cycle earlier than any other developed market central bank," he said. The Swiss franc, which rose over 6% against the euro last year , fell to nine-month low against the currency on Thursday and dropped over 0.5% against the dollar as the SNB widened the rate gap between Switzerland and its peers. Elsewhere, after the BoE meeting the yield on the interest rate-sensitive British two year gilt was 12 bps lower on the day at 4.23% as the price of the debt rose, heading for its best daily performance in almost a month. Germany's equivalent bond yield fell 6 bps to just over 2.9% . Bonds tend to get a boost from lower rates, which flatter the real income return from the fixed interest-paying securities. TOO EXCITED? Salman Ahmed, global head of macro and strategic asset allocation, Fidelity International, cautioned the Fed could wait longer to start easing borrowing costs and that the ECB and the BoE risked currency weakness and more inflation by going first. The Fed on Wednesday, after hotter than expected U.S. inflation data for February, stuck with its projections for three 25 bps rate cuts in 2024 but also substantially raised its economic growth forecasts. "We have a Fed which wants to cut, it wants the opportunity to start the cutting cycle but the data is not giving them that entry point," Ahmed said. "It is the potential FX moves that obviously worry (the ECB)," he said, adding that the inflationary pressures from a weak pound would create even more of a challenge for the BoE. UK inflation decelerated to 3.4% in February, but was still above the BoE's 2% target. Some investors said they were keen to own UK and European government debt, as whatever the timing of the first cut in Europe, rates were likely to fall. Joost van Leenders, senior investment strategist at Van Lanschot Kempen in Holland, said his firm was "adding a bit to our euro zone bond exposure and moving towards a position where we benefit from falling yields. " He said he expected the BoE to cut rates as early as May. The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. https://www.reuters.com/markets/rates-bonds/markets-ready-more-switzerland-starts-clock-rate-cuts-2024-03-21/

2024-03-21 14:03

WASHINGTON, March 21 (Reuters) - U.S. existing home sales increased to a one-year high in February as supply improved, a trend that together with retreating mortgage rates could support activity during the spring selling season. Home sales jumped 9.5% last month to a seasonally adjusted annual rate of 4.38 million units, the highest level since February 2023, the National Association of Realtors said on Thursday. The monthly increase in sales was also the largest since February 2023. Economists polled by Reuters had forecast home resales would fall to a rate of 3.94 million units. Home resales are counted at the closing of a contract. The sales in February likely reflected contracts signed in the prior two months. The rebound occurred despite a plunge in pending home sales in January. Housing inventory surged 5.9% to 1.07 million units last month. It was up 10.3% from one year ago. "Additional housing supply is helping to satisfy market demand," said Lawrence Yun, the NAR's chief economist. Supply is likely to improve further. The government reported on Tuesday that single-family homebuilding increased to nearly a two-year high in February while overall housing completions soared to a level last seen in January 2007. The average rate on the popular 30-year fixed-rate mortgage has retreated in recent weeks after flirting with the 7% level in late February, according to data from mortgage finance agency Freddie Mac. The Federal Reserve on Wednesday left its policy rate unchanged in the 5.25%-5.50% range, but policymakers indicated they still expected to trim it by three-quarters of a percentage point by the end of the year. Last month, existing home sales rose in the densely populated South, the Midwest, which is considered the most affordable region, and the West. They were unchanged in the Northeast. Home resales, which account for a large portion of U.S. housing sales, fell 3.3% on a year-on-year basis in February. Despite the increase in supply, housing inventory is still well below the nearly 2 million units before the COVID-19 pandemic. Multiple offers remain in many areas, especially in the Northeast, and most of the houses sold last month were above the listing prices, Yun said. At February's sales pace, it would take 2.9 months to exhaust the current inventory of existing homes, up from 2.6 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand. Many homeowners have mortgages with rates below 4%, discouraging them from selling their houses, contributing to the supply crunch and higher home prices. The median existing home price increased 5.7% from a year earlier to $384,500 in February. Home prices increased in all four regions. Properties typically stayed on the market for 38 days in February, up from 34 days a year ago. First-time buyers accounted for 26% of sales, compared to 27% a year ago. That share is well below the 40% that economists and realtors say is needed for a robust housing market. All-cash sales made up 33% of transactions, up from 28% a year ago. Distressed sales, including foreclosures, represented 3% of transactions, virtually unchanged from last year. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/us/us-existing-home-sales-rise-one-year-high-february-2024-03-21/

2024-03-21 13:58

LONDON, March 21 (Reuters) - The Swiss National Bank kicked off rate cuts on Thursday, the week's second momentous central bank decision after the non-conformist Bank of Japan delivered its first rate hike in 17 years. The U.S. Federal Reserve on Wednesday stuck to its projections of 75 basis points (bps) of rate cuts this year, and the Bank of England on Thursday said the economy was moving in the right direction for it to start rate cuts. Here's how big central banks stand. EARLY CUTTER 1/ SWITZERLAND The Swiss National Bank cut rates by 25 bps to 1.50% on Thursday, a surprise move that pushed the franc to eight-month lows against the euro while Swiss government bonds rallied. It was the SNB's first rate cut in nine years, and comes after inflation dipped to 1.2% in February, the ninth month in succession that price rises have been within the SNB's 0-2% target range. COULD BE NEXT 2/ SWEDEN Sweden's central bank, which left its key rate steady at 4% in February, said it might be able to bring forward the timing of a first rate cut if inflation continues to slow. The Riksbank makes its next rate decision on March 27. Economists see the first round of easing in May or June. 3/ EURO ZONE The ECB kept borrowing costs at record highs earlier this month, but took a small step towards lowering them, saying inflation was easing faster than it had anticipated a few months ago. Markets price around 90 bps of cuts this year, with roughly an 80% probability of the first cut coming in June, an outlook some ECB policymakers appear aligned with. But market rate cut bets could shift based on what may happen in the United States. By cutting before the Fed, the ECB risks euro weakness that may re-stoke inflation. 4/ UNITED STATES The Fed, on Wednesday, held rates steady at 5.25% to 5.5% where they have been since July 2023. More notably than the decision itself, chair Jerome Powell said recent high inflation readings had not changed the underlying story of slowly easing price pressures as the Fed maintained its forecasts for three 25 bps rate cuts this year. Markets are broadly aligned with this, pricing roughly 75 bps of U.S. rate cuts in 2024 versus 150 bps at the start of the year. A first move is seen as most likely in June. IN THE MIDDLE 5/ CANADA The Bank of Canada's next rate decision is due on April 10 with the central bank widely expected to keep its key overnight rate steady at a multi-decade high. The BoC kept rates at 5% in early March, and said underlying inflation meant it was too early to consider a cut. Markets see them cutting by around 60 bps this year with June the most likely start. 6/ BRITAIN The BOE kept rates unchanged at a 16-year high of 5.25% on Thursday, but governor Andrew Bailey said the economy was "moving in the right direction" for a cut. Two policy makers dropped their vote a rate hike. Market pricing shows traders think a 25 bps rate cut by June is slightly more likely than not, they are fully pricing in two such rate cuts in the three meetings to September. LATER STILL 7/ AUSTRALIA The Reserve Bank of Australia held rates steady on Tuesday at a 12-year high of 4.35% but softened its stance by dropping a warning about further hikes that had appeared in previous monetary policy statements. Markets suggest the first cut could come in August or September. 8/ NEW ZEALAND Reserve Bank of New Zealand deputy governor Christian Hawkes told Reuters this month that interest rates, at a 15-year high of 5.5%, need to stay restrictive for some time. But the mood could shift before the RBNZ's next rate decision in April. Finance minister Nicola Willis warned last week that economic growth in coming years will be "significantly slower" than previously expected. 9/ NORWAY Norway's central bank left rates unchanged at 4.50% on Thursday, as expected, and signalled it plans a single cut this year, less than anticipated by most economists. Markets anticipate easing in September as most likely and another by year end. FOREVER THE OUTLIER 10/ JAPAN The Bank of Japan continues to plough its own furrow. It has ended eight years of negative rates, bringing rates up to a range of 0-0.1%, and abandoning yield curve control -- where it purchased vast amounts of Japanese government bonds to cap borrowing costs. With inflation exceeding the BoJ's target for over a year, a shift had been expected in March or April. Still, the moves were a mark of confidence from the BoJ that Japan has finally emerged from the grip of deflation. The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. https://www.reuters.com/markets/rates-bonds/switzerland-surprises-with-rate-cut-whos-next-2024-03-21/

2024-03-21 13:51

WASHINGTON, March 21 (Reuters) - U.S. business activity held steady in March, but prices increased across the board, suggesting that inflation could remain elevated after picking up at the start of the year. S&P Global said on Thursday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, dipped to 52.2 this month from 52.5 in February. A reading above 50 indicates expansion in the private sector. The modest slowdown reflected a further cooling in services sector activity. Manufacturing climbed to a 21-month high. The survey suggested that the economy ended the first quarter on solid ground, though the pace of growth probably slowed from the October-December quarter's 3.2% annualized rate. The United States continues to outperform its global peers, despite 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022 to quell inflation. The U.S. central bank on Wednesday left its policy rate unchanged at the current 5.25%-5.50% range, but policymakers indicated they still expected to reduce it by three-quarters of a percentage point by the end of this year. The S&P Global survey's measure of new orders received by private businesses slipped to 52.1 from 52.3 in February. Its measure of prices paid for inputs increased to a six-month high of 58.9 from 55.5 in February. The output prices gauge rose to 56.8, the highest reading since April 2023, from 54.1 in February. Much of the price increases were in services. With goods disinflation likely drawing to an end, the increase in services prices will need to slow considerably to keep overall inflation on a downward trajectory. This month's increase in both input and output prices hinted at further rises in inflation in the coming months. Consumer prices have risen strongly in the first two months of 2024. "Costs have increased on the back of further wage growth and rising fuel prices, pushing overall selling price inflation for goods and services up to its highest for nearly a year," said Chris Williamson, chief business economist at S&P Global Market Intelligence. "The steep jump in prices from the recent low seen in January hints at unwelcome upward pressure on consumer prices in the coming months." Manufacturing expanded further, with the survey's flash manufacturing PMI edging up to 52.5 this month, the highest reading since June 2022, from 52.2 in February. Growth in new orders slowed, but employment increased and supply chains improved further. Input prices rose. S&P Global said "anecdotal evidence suggested that inventories had been built to a level sufficient to support current workloads." The survey's flash services sector PMI slipped to 51.7 in March from 52.3 in the prior month. The prices paid and input prices sub-components both rose, while employment was unchanged. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/us/us-business-activity-stable-march-inflation-picks-up-2024-03-21/

2024-03-21 13:18

WASHINGTON, March 21 (Reuters) - The U.S. current account deficit narrowed in the fourth quarter to the lowest level in nearly three years amid an increase in secondary income, government data showed on Thursday. The Commerce Department's Bureau of Economic Analysis said that the current account deficit, which measures the flow of goods, services and investments into and out of the country, contracted $1.6 billion, or 0.8%, to $194.8 billion last quarter. That was the lowest level since the first quarter of 2021. Economists polled by Reuters had forecast the current account deficit at $209.0 billion. The current account gap represented 2.8% of gross domestic product, little changed from the third quarter. The deficit peaked at 6.3% of GDP in the fourth quarter of 2005. The United States is now a net exporter of crude oil and fuel. Though the deficit remains large, it has no impact on the dollar given its status as the reserve currency. The current account deficit shrank $152.8 billion, or 15.7%, to $818.8 billion in 2023. It was 3.0% of GDP, down from 3.8% in 2022. The drop mostly reflected a smaller goods deficit. In the fourth quarter, secondary income increased $5.0 billion to $49.6 billion, boosted by general government transfers, mostly fines and penalties. That offset a widening in the goods trade deficit. Exports of goods decreased $1.4 billion to $514.4 billion. Imports of goods increased $4.4 billion to $779.4 billion. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/us/us-current-account-deficit-narrows-fourth-quarter-2024-03-21/

2024-03-21 13:11

Bank of England keeps interest rates at 5.25% MPC's Haskel, Mann stop voting for higher interest rates Investors maintain bets on BoE rate cuts this year LONDON, March 21 (Reuters) - Britain's economy is moving towards the point where the Bank of England can start cutting interest rates, Governor Andrew Bailey said on Thursday as two of his colleagues dropped their calls for a rate hike in the face of easing inflation. Sterling fell, shares jumped and government bond prices rose after the two policymakers, who previously voted for higher rates, changed position and joined in an 8-1 decision by rate-setters to keep borrowing costs at their 16-year high of 5.25%. It was the first time since September 2021 that none of the Monetary Policy Committee's (MPC) members had voted for a hike, reflecting how inflation has fallen from a peak of over 11% in 2022 to 3.4% in the 12 months to February. Bailey said there had been "further encouraging signs that inflation is coming down," but he also said the BoE needed more certainty that price pressures were fully under control. "We're not yet at the point where we can cut interest rates, but things are moving in the right direction." Asked by broadcasters later whether investors were right to price two or three rate cuts over 2024, Bailey said it was "reasonable for markets to be taking that view" but he stressed he was not endorsing the precise timing or size of cuts. Most economists polled by Reuters had expected only one MPC member to continue voting for an increase in Bank Rate. But both Jonathan Haskel and Catherine Mann joined the no-change majority. Swati Dhingra again cast the lone vote for a cut. Investors responded to the announcement by adding to bets on a rate cut as soon as June before paring those positions back down to roughly 70% by 1430 GMT, similar to earlier on Thursday. Markets expect three quarter-point BoE rate cuts over 2024. In another sign of its changing stance, the BoE said monetary policy could remain restrictive even if rates were cut. "The drop in hawkish dissents shows the direction of travel on the MPC, and signals that the time for a rate cut is drawing nearer," Allan Monks, an economist with JPMorgan said. "It tilts the risks around our call for an August cut towards an earlier move." The BoE decision follows the U.S. Federal Reserve's announcement on Wednesday that it remained on track for three interest rate cuts this year, prompting stock market rallies. The European Central Bank has tried to cool talk about a run of rate cuts for the euro zone. Earlier on Thursday, the Swiss National Bank cut its main interest rate, becoming the first major central bank to relax monetary policy after the surge in inflation globally. In Britain on Wednesday, data showed consumer price growth fell to its lowest in almost two-and-a-half years. But the BoE said indicators of the persistence of inflation remained elevated. It also said Britain's labour market was still relatively tight although it acknowledged signs that high borrowing costs were weighing on the economy. "The Bank of England will need to see a lot more moderation in wages and services prices before it starts cutting rates," Marion Amiot, senior European economist at S&P Global Ratings, said, adding the firm expected a first cut only in August. INFLATION UNDER 2% SOON The BoE said inflation - whose surge led to a historic living standards squeeze and remained the highest in the Group of Seven in February - would drop below its 2% target in the second quarter due to the impact of finance minister Jeremy Hunt's decision this month to freeze fuel duty once again. Overall, the measures in Hunt's March 6 budget statement were likely to increase economic output by about 0.25% over the coming years but would push up inflation by less, it said. The BoE has forecast that inflation will creep up again later this year and most analysts and investors have predicted the BoE will cut rates in the third quarter, probably in August. The central bank wants to see wage growth slowing further before making its move. Britain's minimum wage will rise by nearly 10% next month, and retailers that often pay staff only slightly more have raised salaries ahead of that increase. Employers overall have offered pay settlements of about 5% since the start of 2024. Average wage growth is about 6%, higher than about 4% in the United States and the euro zone. As well as employers, mortgage-holders and consumers, the ruling Conservative Party is also keen to see rates come down as it struggles to rein in the opposition Labour Party's strong lead in opinion polls with an election expected later this year. Jeremy Hunt took the unusual step of commenting on what Wednesday's inflation data might mean for the BoE, saying: "As inflation gets closer to its target that opens the door for the Bank of England to consider bringing down interest rates." The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. https://www.reuters.com/markets/rates-bonds/bank-england-sees-economy-moving-right-direction-rate-cuts-2024-03-21/