Tag: Breaking News: Economy

‘Chaotic era’ for Asian currencies: Bank of America is not bullish on any of them

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A Japanese 1,000 yen banknote sits on a pile of South Korean won banknotes for an arranged photograph at a Woori Bank Co. branch in Seoul, South Korea.

SeongJoon Cho | Bloomberg via Getty Images

Bank of America is bearish on a slew of Asian currencies and neutral at best on others, as the investment bank says it is the start of a “chaotic era.”

“We are not bullish on any currency in Asia,” Bank of America said in a recent report, with many currencies impacted by a delayed Federal Reserve easing cycle and sustained strength in the U.S. dollar.

The investment bank singled out the Chinese yuan, South Korean won, Taiwan dollar, Thai baht and Vietnamese dong under its bearish category.

Among their “neutral” list of currencies are the Hong Kong dollar, the Indonesian rupiah, the India rupee, the Malaysian ringgit, the Philippine peso and the Singapore dollar.

Chinese yuan

BofA forecasts the Chinese yuan to trade at 7.35 against the dollar this quarter and weaken to 7.45 in the third and fourth quarters.

The bank expects yuan depreciation pressures to sustain into the second half of the year, due to: the delayed Fed easing, China’s disinflationary behavior aggravating yield gap with the U.S. and a weak financial account as a result of a deterioration in foreign direct investment.

Chinese onshore yuan since the start of the year

Hotter-than-expected U.S. inflation in March pushed back market expectations of a rate cut to September, and lowered the outlook this year to two reductions from three.

The onshore CNY is currently trading at 7.24 per U.S. dollar.

South Korean won

The outlook for the Korean won “significantly turned” after the Fed pushed back on the timing of the rate cuts and Middle East geopolitical risks became a major headwind, said BofA.

“Year-to-date, we have seen impressive inflows into Korean equities, but these inflows are beginning to reverse as global equities are turning from the two aforementioned risk,” BofA’s economists wrote.

The South Korean won recently slipped to an 18-month low of 1,389.5 against the dollar. The Bank of Korea chief called the won volatility “excessive” and said the central bank would intervene if needed.

The won was last trading at 1,347.3 against the U.S. dollar. BofA’s economists said the won is currently overvalued compared with fair value of 1,417.

Taiwan dollar

BofA also remains negative on the Taiwan dollar given strong equity outflows and life insurance companies’ additional unwinding of non-deliverable forward hedges. An NDF is a currency derivatives contract that establishes a settlement between the prevailing spot rate and a contracted rate.

The Taiwan dollar is currently trading at 32.6 per U.S. dollar.

Vietnamese dong and Thai baht

The Vietnamese dong is trading at 25,450 per dollar, weakening almost 5% so far this year.

Compounding the impact of delayed Fed cuts are Vietnam’s political instability following the second presidential resignation in two years as well as difficulty in its property sector, said BofA. Those headwinds fuel domestic demand for the U.S. dollar and gold, the bank said.

“We revise our forecasts in anticipation of further modest VND depreciation pressure to 25,600 by end-2Q and ultimately USD/VND at 25,700 by year-end,” the note said.

The Thai baht similarly remains vulnerable to geopolitical tensions via higher oil prices and freight costs, BofA said. It revised its forecast for the currency to 37 against the greenback by the end of the year.

The investment bank did not mention the Japanese yen, which has hovered around 34-year lows against the U.S. dollar. The currency has struggled, slipping past 150, since the Bank of Japan raised rates in March.

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April 23, 2024
People are back in the office in a big way, says SL Green Realty CEO Marc Holliday

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SL Green Realty chairman and CEO Marc Holliday joins ‘Squawk Box’ to discuss the state of the commercial real estate market, impact of employees returning to office, office space demand, impact of elevated interest rates, and more.

06:51

Fri, Apr 19 20248:59 AM EDT

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April 19, 2024
The Fed doesn’t have an argument to cut rates this year, says Ares Head of Credit Kipp DeVeer

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Kipp DeVeer, head of Ares Credit Group, joins ‘Closing Bell Overtime’ to talk working with banks, commercial real estate exposure, his take on Fed rate cuts and more.

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April 17, 2024
Consumer spending has slowed but is hanging in there, says BofA CEO Brian Moynihan

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Closing Bell

Brian Moynihan, Bank of America CEO, joins ‘Closing Bell’ to discuss company earnings, the state of the consumer and company outlook.

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4 hours ago

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April 16, 2024
Jamie Dimon warns that inflation, wars and Fed policy pose major threats ahead

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JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, U.S., December 6, 2023.

Evelyn Hockstein | Reuters

JPMorgan Chase CEO Jamie Dimon warned Friday that multiple challenges, primarily inflation and war, threaten an otherwise positive economic backdrop.

“Many economic indicators continue to be favorable,” the head of the largest U.S. bank by assets said in announcing first-quarter earnings results. “However, looking ahead, we remain alert to a number of significant uncertain forces.”

An “unsettling” global landscape, including “terrible wars and violence,” is one such factor introducing uncertainty into both JPMorgan’s business and the broader economy, Dimon said.

Additionally, he noted “persistent inflationary pressures, which may likely continue.”

Dimon also noted the Federal Reserve’s efforts to draw down the assets it is holding on its $7.5 trillion balance sheet.

“We have never truly experienced the full effect of quantitative tightening on this scale,” Dimon said.

The latter comment references the nickname given to a process the Fed is employing to reduce the level of Treasurys and mortgage-backed securities it is holding.

The central bank is allowing up to $95 billion in proceeds from maturing bonds to roll off each month rather than reinvesting them, resulting in a $1.5 trillion contraction in holdings since June 2022. The program is part of the Fed’s efforts to tighten financial conditions in hopes of alleviating inflationary pressures.

Though the Fed is expected to slow down the pace of quantitative tightening in the next few months, the balance sheet will continue to contract.

Taken together, Dimon said the three issues pose substantial unknowns ahead.

“We do not know how these factors will play out, but we must prepare the Firm for a wide range of potential environments to ensure that we can consistently be there for clients,” he said.

Dimon’s comments come amid renewed worries over inflation. Though the pace of price increases has come well off the boil from its June 2022 peak, data so far in 2024 has shown inflation consistently higher than expectations and well above the Fed’s 2% annual goal.

As a result, markets have had to dramatically shift their expectations for interest rate reductions. Whereas markets at the beginning of the year had been looking for up to seven cuts, or 1.75 percentage points, the expectation now is for only one or two that would total at most half a percentage point.

Higher rates are generally considered positive for banks as long as they don’t lead to a recession. JPMorgan on Friday reported an 8% boost in revenue in the first quarter, attributable to stronger interest income and higher loan balances. However, the bank warned net interest income for this year could be slightly below what Wall Street is expecting and shares were off nearly 2% in premarket trading.

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April 12, 2024
Bank of England to scrap outdated inflation forecasting model in major overhaul after Fed boss’ review

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The exterior of the Bank of England in the City of London, United Kingdom.

Mike Kemp | In Pictures | Getty Images

LONDON — The Bank of England on Friday announced a “once in a generation” overhaul of its inflation forecasting following a long-awaited review by former Federal Reserve Chair Ben Bernanke.

The review — initiated after criticism of the central bank’s policymaking amid spiraling inflation — sets out 12 recommendations which BOE Governor Andrew Bailey said the bank was committed to implementing.

Bailey told CNBC it had been “invaluable” to compare and contrast the U.S. policy perspective with its own.

“This is a once in a generation opportunity to update our forecasting, and ensure it is fit for our more uncertain world,” Bailey said.

Bernanke’s recommendations are organized into three key areas: improving the bank’s forecasting infrastructure, supporting decision-making within the Monetary Policy Committee (MPC) and better communicating economic risks to the public.

The provisions include scrapping the bank’s long-held “fan chart” forecasting system and introducing a revamped forecast framework.

The fan chart — which shows a range of possible future data points — has long been used by the bank to present the probability distribution that forms the basis of its inflation forecasts. The model has faced heavy criticism over recent years for failing to accurately keep track of inflationary pressures, and the review concluded that fan charts had “outlived their usefulness” and “should be eliminated.”

Bernanke stopped short of recommending Fed-style “dot plot” forecasting, which was introduced in the U.S. after the global financial crisis to allow each member to chart their course of policy stance, inflation, real GDP and employment. But he suggested a new model which better reflects the differing views of committee members and how inflation expectations can become “de-anchored.”

He also noted that the BOE currently relies more heavily on a central forecast than do other central banks, and said that its analysis should be supplemented with a wider range of alternative scenarios that “help the public better understand the reasons for the policy choice.” Such scenarios may include the effects of different policy choices, or unexpected global shocks.

The suggestion came as part of a wider set of recommendations on how the bank can improve its communications with the public, simplify its policy statement and reduce repetitiveness. The review also said that the bank should move ahead with the current modernization of the software it uses to manage and manipulate data as a “high priority.”

A policymaking overhaul

The Bernanke review was launched last summer to assess the bank’s struggles to accurately project the huge global spike in inflation after Russia’s invasion of Ukraine.

The bank was widely criticized for being too slow to hike interest rates, meaning it subsequently had to raise its main bank rate to a 15-year high of 5.25%.

With inflation now falling faster than the MPC had anticipated, some economists have contended that the bank is committing the same mistake in the opposite direction, by cutting rates too slowly.

Bernanke added that his role chairing the Fed during the global financial crisis highlighted the critical role of monetary policy on the real economy, but added that the review made “no judgment” of the BOE’s recent decision-making.

“The effects of the financial sector on the economy go beyond interest rates. Credibility is important. Risk-taking is important,” he told CNBC.

He also said that the difficulties in forecasting were not unique to the BOE, but added that he hoped the bank would draw appropriate lessons from the experience.

The review recommended that the bank take a phased approach to implementing the new measures, starting with improving its forecasting infrastructure. It should then “cautiously” move on to adopting changes to its policymaking and communications, it said.

Incoming BOE Deputy Governor Clare Lombardelli has been charged with leading the implementation of these recommendations when she takes her seat in July. The bank said it will provide an update on the proposed changes by the end of the year.

— CNBC’s Elliott Smith contributed to this article.

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April 12, 2024
Fed wants more confidence that inflation is moving toward 2% target, meeting minutes indicate

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Federal Reserve officials at their March meeting expressed concern that inflation wasn’t moving lower quickly enough, though they still expected to cut interest rates at some point this year.

At a meeting in which the Federal Open Market Committee again voted to hold short-term borrowing rates steady, policymakers also showed misgivings that inflation, while easing, wasn’t doing so in a convincing enough fashion. The Fed currently targets its benchmark rate between 5.25%-5.5%

As such, FOMC members voted to keep language in the post-meeting statement that they wouldn’t be cutting rates until they “gained greater confidence” that inflation was on a steady path back to the central bank’s 2% annual target.

“Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent,” the minutes stated.

In what apparently was a lengthy discussion about inflation at the meeting, officials cited geopolitical turmoil and rising energy prices as risks to pushing inflation higher. They also cited the potential that looser policy could add to price pressures.

On the downside, they cited a more balanced labor market, enhanced technology along with economic weakness in China and a deteriorating commercial real estate market.

They also discussed higher-than-expected inflation readings in January and February. Chair Jerome Powell said that it’s possible the two months readings were caused by seasonal issues, though he added it’s hard to tell at this point. There were members at the meeting who disagreed.

“Some participants noted that the recent increases in inflation had been relatively broad based and therefore should not be discounted as merely statistical aberrations,” the minutes stated.

That part of the discussion was partly relevant considering the release came the same day that the Fed received more bad news on inflation.

CPI validates their concern

The consumer price index, a popular inflation gauge though not the one the Fed most closely focuses on, showed a 12-month rate of 3.5% in March. That was both above market expectations and represented an increase of 0.3 percentage point from February, giving rise to the idea that hot readings to start the year may not have been an aberration.

Following the CPI release, traders in the fed funds futures market recalibrated their expectations. Market pricing now implies the first rate cut to come in September, for a total of just two this year. Previous to the release, the odds were in favor of the first reduction coming in June, with three total, in line with the “dot plot” projections released after the March meeting.

The discussion at the meeting indicated that “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected,” the minutes stated. “In support of this view, they noted that the disinflation process was continuing along a path that was generally expected to be somewhat uneven.”

In other action at the meeting, officials discussed the possibility of ending the balance sheet reduction. The Fed has shaved about $1.5 trillion off its holdings of Treasurys and mortgage-backed securities by allowing up to $95 billion in proceeds from maturing bonds to roll off each month rather than reinvesting them.

There were no decisions made or indications about how the easing of what has become known as “quantitative tightening” will happen, though the minutes said the roll-off would be cut by “roughly half” from its current pace and the process should start “fairly soon.” Most market economists expect the process to begin in the next month or two.

The minutes noted that members believe a “cautious” approach should be taken.

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April 10, 2024
Free trade flaws fueled Trump’s rise in 2016 — and the problems remain, top economist says

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Former U.S. President Donald Trump speaks after attending a wake for New York City Police Department (NYPD) officer Jonathan Diller, who was shot and killed while making a routine traffic stop on March 25 in the Far Rockaway section of Queens, in Massapequa Park, New York, U.S., March 28, 2024.

Shannon Stapleton | Reuters

Decades of trade deficits and a strong dollar created too many “losers” in the U.S. economy who turned to Donald Trump’s protectionist policies, according to Richard Koo, chief economist at the Nomura Research Institute — and those conditions remain.

Trump’s “America First” economic policies led his administration to institute a slew of trade tariffs on China, Mexico, the European Union and others, including slapping 25% duties on imported steel and aluminum.

As the Republican nominee for the 2024 presidential election, Trump has proposed a baseline 10% tariff on all U.S. imports and a minimum levy of 60% on imported Chinese products.

These policies have drawn widespread criticism from economists, who argue that tariffs are counterproductive, as they make imported goods more expensive for the average American.

Speaking to CNBC’s Steve Sedgwick on the sidelines of the Ambrosetti Forum on Friday, Koo said protectionism was a “horrible thing,” but that Trump’s approach “does have some economic logic.”

“When we studied economics and free trade, in particular, we were taught…that free trade always creates both winners and losers in the same economy, but the gain that winners get is always greater than the loss of the losers, so the society as a whole always gains. So that’s why the free trade is good,” he noted.

Koo nevertheless argued that this rests on the assumption that trade flows are balanced or in surplus, while the U.S. has been running huge deficits for the last forty years, which have expanded the number of “losers.”

“By 2016, the number of people who consider themselves losers of free trade, were large enough to elect Trump president, and so we have to really go back and say to ourselves: what did we do wrong to allow this many people in United States to view themselves as losers of free trade?” he said.

For Koo, the key problem was the exchange rate, as the strength of the U.S. dollar incentivized foreign imports and hurt U.S. companies exporting around the world.

“We kind of let the exchange rate be decided by so-called market forces, speculators, my clients, Wall Street types, but the foreign exchange rate has to be set in a way that the number of losers does not grow to a point where the free trade itself is lost,” Koo said.

He pointed to a similar pivotal moment in 1985, when President Ronald Reagan faced the same issue of a strong dollar and rising protectionism. At the time, Reagan responded by facilitating the Plaza Accord with France, West Germany, Japan and the United Kingdom to depreciate the U.S. dollar against the respective currencies of these countries through intervention in the foreign exchange market.

“That’s the kind of thing we should have been more conscious of doing. Instead of allowing [the] dollar to go wherever the market takes [it], and then these people who are not as fortunate as we are in the financial markets, end up suffering and end up voting for Mr. Trump,” Koo added.

He argued that economists need to move beyond the idea that the trade deficit is simply down to “too much investment” and “too few savings” in the U.S., as this means deficit can only be reduced by remaining in recession until domestic demand weakens so much that U.S. companies can export more goods, which would not be possible in a democracy.

Koo again pointed to past dealings with Japan, suggesting that if the argument held that overseas companies are just filling in where U.S. companies cannot satisfy domestic demand, then the American companies fighting Japanese firms in the 1970s and 70s should have recorded huge profits due to excess demand.

“But that did not actually happen. It’s the opposite that happened. So many of them went bankrupt, so many losers of free trade were left in the streets, because it was not savings and investment issue, it was the exchange rate issue,” he said.

“The dollar should have been much weaker, and Reagan understood that that’s why he took that action.”

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April 5, 2024
Turkey’s inflation climbs to 68.5% despite continued rate hikes

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A money changer holds Turkish lira and U.S. dollar banknotes at a currency exchange office in Ankara, Turkey December 16, 2021.

Cagla Gurdogan | Reuters

Turkey’s annual inflation rose to 68.5% for the month of March, an increase on February’s 67.1% inflation read, according to the Turkish Statistical Institute’s report released Wednesday.

The monthly rise in consumer prices came out at 3.16%, led by education, communication, and hotels, restaurants and cafes, which saw month-on-month rises of 13%, 5.6%, and 3.9%, respectively.

On an annual basis, education again saw the highest cost inflation at 104% year-on-year, followed by hotels, restaurants and cafes at 95% and health at 80%.

Turkey has launched a concerted effort to tackle soaring inflation with interest rate hikes, most recently raising the country’s key rate from 45% to 50% in late March.

Much of the inflation in recent months stems from a significant increase to the minimum wage that Turkey’s government mandated for 2024. The minimum wage for the year rose to 17,002 Turkish lira (around $530) per month in January, a 100% hike from the same period a year prior.

Economists expect further rate hikes from the central bank will be necessary.

While the March inflation count represents “the smallest monthly increase in three months and suggests that the impact of the large minimum wage hike in January may now have largely passed, it is still far from consistent with the single-digit inflation that policymakers are trying to achieve,” Nicholas Farr, an Emerging Europe economist at London-based Capital Economics, wrote in an analyst note Wednesday.

“The latest inflation figures do little to change our view that further monetary tightening lies in store and that a more concerted effort to tighten fiscal policy will be needed too,” he said.

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April 3, 2024
Immigration is boosting the U.S. economy and has been ‘really underestimated,’ says JPMorgan research head

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U.S. commuters.

Caroline Purser | The Image Bank | Getty Images

The recent surge in immigration into the U.S. is helping to bolster the economy despite a raft of global challenges, according to Joyce Chang, chair of global research at JPMorgan.

The U.S. Federal Reserve on Wednesday raised its U.S. GDP growth projection to 2.1% for 2024, up from 1.4% in its December outlook, as the economy continues to display resilience despite high interest rates as the central bank seeks to manage inflation levels.

Meanwhile, the labor market has stayed relatively hot despite tighter monetary conditions, with unemployment remaining below 4% in February and the economy adding 275,000 jobs.

The Fed also raised its projections for its preferred measure of inflation: core personal consumption expenditure. It now expects the core PCE to come in at 2.6%, up from 2.4%, after January and February inflation prints dampened hopes that price increases were fully under control.

The core consumer price index, which excludes volatile food and energy prices, rose 0.4% in February on the month and was up 3.8% on the year, slightly higher than forecast.

“We are still seeing the phenomena around the globe that services inflation is still well above where it was before the pandemic, so we’re looking at 3% for core CPI, but I think one thing that was really underestimated in the U.S. was the immigration story,” Chang told CNBC’s “Squawk Box Europe” on Thursday.

“The U.S. population is almost 6 million higher than it was two years ago or so, and so that has accounted for a lot of the increase in consumption, when you see the very low unemployment numbers as well.”

She noted that upward pressure on wages and housing costs, along with a resurgence in energy prices so far this year, suggest that the Fed is “not out of the woods yet” when it comes to inflation.

A recent Congressional Budget Office report estimated that net immigration to the U.S. was 3.3 million in 2023 and is projected to remain at that level in 2024, before dropping to 2.6 million in 2025 and 1.8 million in 2026.

Immigration, and particularly border crossings, is among the hottest topics in the run-up to the November presidential election. Chang suggested that other events could exacerbate the issue, particularly the unfolding situation in Haiti.

However, she argued that in terms of net impact on the economy, immigration is “a good thing.”

“From everything that we have seen, the revenues that are generated exceed the expenses. Now it is a political issue, not just here in the U.S. but you look at Europe, it’s also probably the No. 1 issue right now, but we do think that when you look at the unemployment numbers, the strength of consumption, the immigration was a big part of that,” Chang said.

Other factors that have enabled the U.S. economy to outperform its peers include its high fiscal deficit and its energy independence, Chang added. Europe has struggled in recent years to eradicate its reliance on Russia for energy supply.

Meanwhile, the Congressional Budget Office projects that the U.S. federal budget deficit totaled $1.4 trillion in 2023, or 5.3% of GDP, which will swell to 6.1% of GDP in 2024 and 2025.

“I think that also in an election year you’re going to see a lot of spending before Sept. 30 as well, so there aren’t really many signs that those numbers [will subside]. I think that’s one reason why I do think that higher for longer will be here to stay,” Chang added. Sept. 30 is the end of the U.S. government’s fiscal year.

With this in mind, JPMorgan sees only a “shallow” loosening cycle from the Federal Reserve, with inflationary pressures set to persist against the backdrop of high government spending and immigration.

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March 22, 2024
JPMorgan research boss explains how immigration is changing the U.S. economic outlook

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Joyce Chang, chair of global research at JPMorgan, explains why the Wall Street giant is raising its U.S. economic growth forecasts, and discusses how immigration is affecting the outlook.

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March 21, 2024
The Fed hasn’t touched interest rates since July, but they’re still moving. What that looks like for credit cards, mortgages and savings accounts

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Hinterhaus Productions | Digitalvision | Getty Images

Savings accounts

Higher rates mean that consumers have to pay more to service their debt, but it also means that banks pay higher rewards to savers. It’s one of the silver linings to the current rate environment, said Ted Rossman, chief credit card analyst at Bankrate.

“There’s also been remarkable stability at the top of this market,” Rossman said. “The highest savings rate right now is 5.35%.”

That top rate is considerably higher than the national average for savings rates overall, which has been just below 0.6% for the past two months. But even that overall average is more than double its level of 0.23% 12 months ago.

Rossman added that plenty of high-yield savings accounts, mostly available online, are still paying close to or even above 5%. These kinds of accounts keep money easily accessible while earning solid returns and are great options for emergency savings.

Certificates of deposit

Interest rates on savings accounts are higher than they’ve been in decades, but there has been recent softening in returns on certificates of deposit, data from the U.S. Federal Deposit Insurance Corp. shows.

The average yield on a 12-month certificate in March 2024 was 1.81%, down slightly from its high in December and January, according to the FDIC.

Despite the dip, CDs are good savings vehicles that avoid risk but still provide a return if you’re willing to tie up your money for a set period of time, Rossman said. The current environment will likely remain good for savers until the Federal Reserve initiates its rate cuts.

“There’s been remarkable stability at the top of this market, even though we expect cuts are coming,” he said. “These shorter-term rates don’t tend to move until the Fed moves.”

Until then, savers should take full advantage.

Credit cards

The flip side to the positive environment for savers is the expensive credit card market: Consumers carrying balances on their cards face historically high rates. The average credit card rate has been well above 20% for the past 12 months and will continue to stay there for some time, Rossman said.

“Sometimes rates bounce around a little bit if offers come on and off the market,” Rossman said, but “we’ve plateaued since that last rate hike as of late July.”

The key for consumers to remember is that credit card debt is expensive, and that will still be true even after the rate cutting starts, he said.

“The Fed is not going to come to your rescue on credit card rates,” Rossman said. “Even if rates fell a couple of points in a couple of years, they’d still be high.”

His best advice for consumers is to prioritize paying off credit card debt, if possible with the help of a balance transfer card, which lets consumers carry balances from one credit card to another for a low fee and an extended period of no or low interest.

The Fed is not going to come to your rescue on credit card rates.

Ted Rossman

Senior industry analyst, Bankrate

Rossman added the offers from balance transfer cards continue to be very favorable with low fees and generous repayment windows.

“The balance transfer market has been remarkably stable and strong,” he said. “It speaks to a strong job market and the strong economy. People are paying these bills back,” despite the fact that more consumers, on average, are carrying more expensive debt.

Mortgage rates

While savings and credit card rates are very sensitive to maneuvers from the Federal Reserve, the area that might see the most movement is housing.

“Unlike some of these other products, mortgage rates tend to move in advance of the Fed because they tend to track 10-year Treasurys,” Rossman said. “It’s more about investor expectations for the Fed and for economic growth.”

That’s reflected in the data. Mortgage rates peaked in October 2023 at about 8%, followed by a steady decline. And after a brief jump in February, they seem to be settling back to where they were at the beginning of 2024, when a 30-year fixed rate mortgage was about 6.6%.

“We think there’s a good chance that the average 30-year fixed rate mortgage could be around 6% by the end of the year,” Rossman said, which would be a much needed reprieve for a highly competitive housing market that is still undersupplied.

High mortgage rates have kept many sellers — who are locked into lower rates from years’ past — from putting their homes on the market. Lower rates could get them to list, Rossman said.

“The closer we get to 6% and then eventually into 5% territory, that gets some people off the fence and they list their home and then inventory improves,” he said. “Then that gives some some relief on the price side for would-be buyers.”

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March 20, 2024
Bank of England set to hold rates, but falling inflation brings cuts into view

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The Bank of England in the City of London, after figures showed Britain’s economy slipped into a recession at the end of 2023.

Yui Mok | Pa Images | Getty Images

LONDON — The Bank of England is widely expected to keep interest rates unchanged at 5.25% on Thursday, but economists are divided on when the first cut will come.

Headline inflation slid by more than expected to an annual 3.4% in February, hitting its lowest level since September 2021, data showed Wednesday. The central bank expects the consumer price index to return to its 2% target in the second quarter, as the household energy price cap is once again lowered in April.

The larger-than-expected fall in both the headline and core figures was welcome news for policymakers ahead of this week’s interest rate decision, though the Monetary Policy Committee has so far been reluctant to offer strong guidance on the timing of its first reduction.

The U.K. economy slid into a technical recession in the final quarter of 2023 and has endured two years of stagnation, following a huge gas supply shock in the wake of Russia’s invasion of Ukraine. Berenberg Senior Economist Kallum Pickering said that the Bank will likely hope to loosen policy soon in order to support a burgeoning economic recovery.

Pickering suggested that, in light of the inflation data of Wednesday, the MPC may “give a nod to current market expectations for a first cut in June,” which it can then cement in the updated economic projections of May.

“A further dovish tweak at the March meeting would be in line with the trend in recent meetings of policymakers gradually losing their hawkish bias and turning instead towards the question of when to cut rates,” he added.

At the February meeting, two of the nine MPC decision-makers still voted to hike the main Bank rate by another 25 basis points to 5.5%, while another voted to cut by 25 basis points. Pickering suggested both hawks may opt to hold rates this week, or that one more member may favor a cut, and noted that “the early moves of dissenters have often signalled upcoming turning points” in the Bank’s rate cycles.

Berenberg expects headline annual inflation to fall to 2% in the spring and remain close to that level for the remainder of the year. It is anticipating five 25 basis point cuts from the Bank to take its main rate to 4% by the end of the year, before a further 50 basis points of cuts to 3.5% in early 2025. This would still mean interest rates would exceed inflation through at least the next two years.

“The risks to our call are tilted towards fewer cuts in 2025 – especially if the economic recovery builds a head of steam and policymakers begin to worry that strong growth could reignite wage pressures in already tight labour markets,” Pickering added.

Heading the right way, but not ‘home and dry’

A key focus for the MPC has been the U.K.’s tight labor market, which it feared risked entrenching inflationary risks in the economy.

January data published last week showed a weaker picture across all labor market metrics, with wage growth slowing, unemployment rising and vacancy numbers slipping for the 20th consecutive month.

Victoria Clarke, U.K. chief economist at Santander CIB, said that, after last week’s softer labor market figures, the inflation reading of Wednesday was a further indication that embedded risks have reduced and that inflation is on a path towards a sustainable return to target.

“Nevertheless, services inflation is largely tracking the BoE forecast since February, and remains elevated. As such, we do not expect the BoE to conclude it is ‘home and dry’, especially with April being a critical point for U.K. inflation, with the near 10% National Living Wage rise and many firms already having announced, and some implemented, their living wage-linked pay increases,” Clarke said by email.

“The BoE needs data on how broad an uplift this delivers to pay-setting, and hard information on how much is passed through to price-setting over the months that follow.”

Santander judges that the Bank could decide it has seen enough data to cut rates in June, but Clarke argued that an August trim would be “more prudent” given the “month-to-month noise” in labor market figures.

This sentiment was echoed by Moody’s Analytics on Wednesday, with Senior Economist David Muir also suggesting that the MPC will need more evidence to be satisfied that inflationary pressures are contained.

“In particular, services inflation, and wage growth, need to moderate further. We expect this necessary easing to unfold through the first half of the year, allowing a cut in interest rates to be announced in August. That said, uncertainty is high around the timing and the extent of rate cuts this year,” Muir added.

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March 20, 2024
CHIPS, IRA & Infrastructure Acts driving interest in domestic investment: BNP Paribas’ Fillion

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Hosted by Brian Sullivan, “Last Call” is a fast-paced, entertaining business show that explores the intersection of money, culture and policy. Tune in Monday through Friday at 7 p.m. ET on CNBC.

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March 14, 2024
HSBC is ‘very positive’ about the future of China’s economy, CFO says

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The Hong Kong observation wheel and the HSBC building in Victoria Harbour in Hong Kong.

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HSBC is “very positive” about the mid- to long-term outlook for the Chinese economy despite current headwinds, the British bank’s chief financial officer told CNBC.

Growth in China has been weighed down over the past year by a slump in the country’s traditional economic pillars of real estate, infrastructure and exports. This prompted Beijing to ramp up its efforts to bolster manufacturing and domestic tech in a bid to modernize its economy and remain globally competitive.

Speaking to CNBC’s Karen Tso on Wednesday, HSBC CFO Georges Elhedery said the lender — which is headquartered in London but does a lot of its business in Hong Kong and across the Asia-Pacific — was confident that the world’s second-largest economy would overcome its short-term headwinds.

“We’re looking at major economic transition, which is taking place, which gives us very strong grounds to be very positive about the medium- and long-term outlook,” Elhedery said.

He suggested that China’s economic maturity has reached such a stage that now is the “right time to transition into what more mature economies are.”

Elhedery characterized this maturity as being more heavily reliant on consumers, the services industry and high-value and sustainability-driven products, such as electric vehicles and batteries, aspirations he said were evidenced by the Chinese government’s recent massive push toward these sectors.

“That transition will mean that China will avoid falling in this middle income trap and be able to continue the growth pattern,” he added.

“Some of the Western economies have gone through those transitions in the past, [and] China is going through a transition today. That gives us a lot of positive outlook for the medium- to long-term for China.”

The more immediate economic challenges may last “a few quarters to a couple of years,” Elhedery said, but expressed confidence that China will be in a better position for the long run, as the country puts itself on a “materially better forward-looking track.”

HSBC missed its full-year 2023 pretax profit forecasts on the back of a $3 billion write-down on its 19% stake in China’s Bank of Communications, while the lender cut its overall exposure to Chinese commercial real estate by $4.6 billion year on year.

Yet, Elhedery on Thursday insisted that most of the challenges related to the ailing Chinese property market were “behind us,” even as he said the sector is not “out of the woods” so far.

“We think the trough of that sector is behind us. We think in our case, our exposure and our ECL (expected credit losses) covers the bulk of the charges behind us, but that still means there will be lingering effects as the sector continues to adjust, and we may continue to see some impact but not to the tune that we’ve seen last year on our credit charges,” he said.

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March 14, 2024
Wells Fargo’s Mike Mayo on why Citi is his top bank stock pick

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Mike Mayo, Wells Fargo Securities head of U.S. large-cap bank research, joins ‘Squawk Box’ to discuss the latest market trends, why Citi is his top bank stock pick, and more.

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March 8, 2024
Steven Mnuchin on NYCB investment: Great opportunity to turn this into an attractive regional bank

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Former U.S. Treasury Secretary and Liberty Strategic Capital founder and managing partner Steven Mnuchin joins ‘Squawk on the Street’ to discuss the firm’s investment in New York Community Bancorp as part of a $1 billion capital injection into the struggling regional bank, the bank’s loan portfolio, whether this will be a long-term investment for Mnuchin, and more.

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March 7, 2024
Turkish annual inflation soars to 67% in February

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The Maslak financial and business center in the Sariyer district of Istanbul.

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Turkish annual consumer price inflation soared to 67.07% in February, the Turkish Statistical Institute said Monday, coming in above expectations.

Analysts polled by Reuters had anticipated annual inflation would climb to 65.7% last month.

The combined sector of hotels, cafes and restaurants saw the greatest annual price inflation increase at 94.78%, followed by education at 91.84%, while the rate for health stood at 81.25% and transportation at 77.98%, according to the statistical institute.

Food and non-alcoholic beverage consumer prices jumped 71.12% in February year-on-year and recorded a surprisingly large monthly rise of 8.25%.

The monthly rate of change for the country’s inflation from January to February was 4.53%.

The strong figures are fueling concerns that Turkey’s central bank, which had indicated last month that its painful eight-month long rate hiking cycle was over, may have to return to tightening.

“The stronger-than-expected rise in Turkish inflation to 67.1% y/y in February adds to our concerns given that it comes on the back of a large increase in inflation in January and the strength of household spending growth in Q4,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a research note on Monday.

“Core price pressures continue to run hot and if this continues, the possibility of a restart to the central bank’s tightening cycle will only increase in the coming months,” he said.

Some analysts predicted an eventual fall in inflation down to around 35% by the end of this year. According to Capital Economics, the latest figures “highlight that inflation pressures in the economy remain very strong and suggest that the disinflation process has taken a setback at the start of this year.”

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March 4, 2024
Britain to lead 2024 European real estate boom as international buyers eye opportunities, research says

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Aerial view of the roof gardens at Gasholder Park in Kings Cross, London.

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The U.K. looks poised to lead a European real estate resurgence this year as international investors return capital to the region’s strained property market.

An anticipated fall in interest rates and modest economic revival will spur inflows from overseas investors looking to capitalize on “increasingly attractive pricing levels,” new research from international property firm Savills suggests.

U.S., Israeli, Japanese and Taiwanese investors are set to lead that charge, spearheading a 20% rebound in real estate investment activity in 2024 as they pump cash into Britain, Germany, Spain and the Netherlands, according to the research.

“Certainly, it looks like we’ve gone beyond the worst and we’re having a little bit of creep on the recovery,” Rasheed Hassan, Savills’ head of global cross border investment, told CNBC.

“The U.K. is one of the most heavily discounted markets,” he added, noting that it moved “hard and fast” but that its fundamentals — namely a deep market, easy accessibility and limited domestic competition — remain in tact.

European real estate revival

Britain ranked as the top European destination for cross-border investment in CBRE’s 2024 European Investor Intentions Survey, with investors pointing to its discounted rates and high return potential. It was followed by Germany, Poland, Spain and the Netherlands. London was dubbed the most attractive city followed by Paris, Madrid, Amsterdam and Berlin, the survey found.

“London is one of those few cities which consistently demonstrates its resilience in the face of challenging economic headwinds and remains a major focal point for global capital,” Chris Brett, managing director of CBRE’s European capital markets division, said.

The U.K. is now forecast to attract one-third — or around $13 billion — of 2024 outbound investment from the U.S. alone, according to estimates from Knight Frank. Germany, Spain and the Netherlands are set to be the next biggest beneficiaries of U.S. cash.

Busà Photography | Moment | Getty Images

It follows a tough year for real estate in 2023, as higher interest rates pushed up borrowing costs and weighed on investor sentiment.

Global cross-border real estate investment totalled 196.3 billion euros ($212.9 billion) over the year, down 40% on the five-year average, according to Real Capital Analytics data cited by Savills. The downtick was most pronounced in Europe, the Middle East and Africa (EMEA), where inflows were 59% lower. That compares to the 56% drop seen in the Americas and the 12% dip recorded in Asia Pacific.

A total of 65.2 billion euros ($70.6 billion) was invested in continental Europe in 2023, the majority of which originated from intra-European cross-border buyers, primarily in France and Spain. Less than half (40%) came from outside of the continent — the lowest share since 2010.

However, that trend is expected to shift as international institutions and individual investors return to the market as the European Central Bank and the Bank of England show signs of cutting rates.

“We anticipate Europe will likely reclaim its leading position as the foremost destination for cross-border investments in the next 12 to 18 months,” Savills said in its note.

Beds and sheds

Beds and sheds — or residential and warehouse properties — are expected to be the biggest winners from the overseas cash injection in 2024.

This year for the first time, logistics and residential properties surpassed offices as the preferred asset class for overseas buyers, according to CBRE’s survey. More than one-third (34%) of investors expressed a preference for logistics and 28% for residential, compared to 17% who preferred offices.

It comes after office transactions fell 71% against the five-year average in 2023, according to RCA data, amid concerns of a wider commercial property downturn.

Still, Savills’ Hassan said options remain for “opportunistic investors” looking to take advantage of heavy discounts in the office and retail space.

“Surprisingly, we’re hearing statements [from investors] around we’d like to invest in offices right now. Looking ahead, I think there will be less negativity around offices,” he said.

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February 29, 2024
Key Fed inflation measure rose 0.4% in January as expected, up 2.8% from a year ago

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Inflation rose in line with expectations in January, according to an important gauge the Federal Reserve uses as it deliberates cutting interest rates.

The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected according to the Dow Jones consensus estimates. The monthly gain was just 0.1% in December and 2.9% from the year prior.

Headline PCE, including the volatile food and energy categories, increased 0.3% monthly and 2.4% on a 12-month basis, also as forecast, according to the numbers released Thursday by the Commerce Department’s Bureau of Economic Analysis. The respective December numbers were 0.1% and 2.6%.

The moves came amid an unexpected jump in personal income, which rose 1%, well above the forecast for 0.3%. Spending decreased 0.1% versus the estimate for a 0.2% gain.

January’s price rises reflected an ongoing shift to services over goods as the economy normalizes from the Covid pandemic disruptions.

Services prices increased 0.6% on the month while goods fell 0.2%; on a 12-month basis, services rose 3.9% and goods were down 0.5%. Within those categories, food prices accelerated 0.5%, offset by a 1.4% slide in energy. On a year-over-year basis, food was up 1.4% while energy fell 4.9%.

Both the headline and core measures remain ahead of the Fed’s goal for 2% annual inflation, even though the core reading on an annual basis was the lowest since February 2021. While the Fed officially uses the headline measure, policymakers tend to pay more attention to core as a better indication of where long-term trends are heading.

CHICAGO, ILLINOIS – FEBRUARY 13: Customers shop at a grocery store on February 13, 2024 in Chicago, Illinois. Grocery prices are up 0.4% from December and 1.2% over the last year, the slowest annual increase since June 2021. (Photo by Scott Olson/Getty Images)

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“Overall, [the report] is meeting the expectations, and some of the worst fears in the market weren’t met,” said Stephen Gallagher, chief U.S. economist at Societe Generale. “The key is we’re not seeing the broad nature of increases that we had been more fearful of.”

Wall Street reacted little to the news, with stock market futures up slightly and Treasury yields slightly lower. Futures markets where traders bet on the direction of interest rates also indicated little movement, with pricing tilted toward the Fed’s first rate cut coming in June.

Atlanta Fed President Raphael Bostic said the recent data shows the road back to the central bank’s 2% inflation goal will be “bumpy.”

“They’ve come in higher than people hoped, but if you look over the long arc, the line is still going down,” he told an audience at a banking conference in Atlanta. “That’s an important thing to keep in mind.”

Like Bostic, Chicago Fed President Austan Goolsbee, also speaking Thursday, said he expects rate cuts later this year but didn’t specify when. Bostic said he expects the first cut in the summertime.

Thursday’s BEA report also showed that consumers are continuing to dip into savings as prices stay elevated. The personal savings rate was 3.8% on the month, slightly higher than December but off a full percentage point from where it was as recently as June 2023.

In other economic news, a Labor Department report showed that companies are still reluctant to lay off workers.

Initial jobless claims totaled 215,000 for the week ended Feb. 24, up 13,000 from the previous period and more than the 210,000 Dow Jones estimate but still largely in keeping with recent trends. However, continuing claims, which run a week behind, rose to just above 1.9 million, a gain of 45,000 and higher than the FactSet estimate for 1.88 million.

The reports come as central bank officials mull the future of monetary policy following 11 interest rate increases totaling 5.25 percentage points. Running from March 2022 to July 2023, the hikes came as the Fed battled inflation that peaked at a more than 40-year high in mid-2022.

Officials have said in recent days that they expect to begin reversing the increases at some point this year. However, the timing and extent of the policy easing is uncertain as recent data has indicated that inflation could be more stubborn than expected.

“Hot January inflation data adds to uncertainty and pushes back rate cut expectations,” said David Alcaly, lead macroeconomic strategist at Lazard Asset Management. “But odds remain that this is a speed bump and that, while there may be additional short-term swings in market narrative, it will ultimately matter more how deep any rate cutting cycle goes over time than when it begins.”

January’s consumer price index data raised fears of persistently high inflation, though many economists saw the rise as impacted by seasonal factors and shelter increases unlikely to persist.

While the CPI is used as an input to the PCE, Fed officials focus more on the latter as it adjusts for substitutions consumers make for goods and services as prices fall. Where the CPI is viewed as a simpler price measure, the PCE is viewed as more representative of what people are actually buying.

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February 29, 2024