Proactive Investors -
- FTSE 100 up 100 points at 7,625
- ECB raises interest rates by 25 basis points
- Rio Tinto (LON:RIO) rises as iron ore prices jump
US futures extend gains after robust data
The FTSE 100 has brought up its century with plenty going in the market at the moment, with the ECB rate increase, the policy support moves in China plus a raft of US data as well.
Somethng for everyone in the US figures which show inflationary pressures are not going away anywehere fast but that the economy is holding up despite the interest rate rises.
Starting with wholesale prices figures - and producer prices picked up by more-than-expected in August, according to the latest figures from the US Bureau of Labor Statistics.
The producer price index for final demand rose by 1.6% on an annual basis in August, accelerating from a 0.8% increase in July, above the 1.2% according to FXStreet-cited consensus.
On a monthly basis, producer prices rose by 0.7, picking up from a 0.4% rise in July from June, ahead of expectations for the rate to hold steady at 0.4%.
But the jobs market remains robust. New claims for US employment support rose in the most recent week, but came in lower than expectations.
Data from the US Department of Labor, showed initial jobless claims totalled 220,000 in the week ending September 9, up from the previous week's revised level of 217,000 in the previous week.
Meanwhile, consumer spending held up with retail sales in August up by 0.6% month-on-month, picking up from a 0.5% the month before, and ahead of the 0.2% consensus.
Markets seemed to have liked the robust nature of the data and futures have extended gains across the pond.
Euro tanks after ECB signals pause in rate rises
The euro has taken a tumble after the ECB decision, down 0.5% against the dollat $1.0680.
Capital Economics thinks the ECB’s decision to raise interest rates by a further 25bp today probably brings the current tightening cycle to an end.
"But given the strength of underlying inflation, we expect rates to remain at this level for at least a year even though the economy seems to be heading for a recession," the economics bureau added.
ING's Carsten Brzeski said looking ahead "a further weakening of the economy and more traction in a disinflationary trend will make it very hard to find arguments for yet another rate hike before the end of the year."
"The remark in the official communication that “based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target” shows that today’s rate hike looks like the last," he said.
"Today’s hike isn't only a credibility booster, it will also be the last in the current cycle," he reckons.
ECB lifts interest rates to all-time high
The European Central Bank has increased interest rates by 25 basis points to an all-time high in a bid to tame inflation but hinted the monetary policy tightening cycle was close to an end.
Deutsche Bank (ETR:DBKGn) chief european economist, Mark Wall said: "In the end, the ECB decided to hike again. A lingering pause is being signalled, but it’s a low conviction pause. The ECB has retained the option to hike further if necessary. There is no declaration of victory on inflation.”
"The rate increase today reflects the Governing Council's assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission," the ECB said in its policy statement.
It added that, based on its current assessment, it believes interest rates have reached levels that, when maintained for a "sufficiently long duration", will make a "substantial contribution to the timely return of inflation to the target."
Thursday's decision by the ECB Governing Council took the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility to 4.50%, 4.75% and 4.00%, respectively.
It means the Frankfurt-based central bank has hiked its policy rates by a cumulative 450 basis points during the current tightening cycle.
The September ECB staff macroeconomic projections for the euro area now see average inflation at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025.
This represents an upward revision for 2023 and 2024 and a downward revision for 2025 which had predicated average inflation at 5.4%, 3.0%, and 2.2%, respectively.
Rics survey bad, but not horrific says Berenberg
Berenberg economist Kallum Pickering thinks although today’s figures from Rics are bad, they are not horrific, and do not indicate that the peak-to-trough decline will be greater than previously feared.
“We expect house prices to bottom early next year before momentum gradually improves in 2024 and 2025 on the back of a broader economic recovery, further falls in mortgage rates and rising real incomes,” Pickering said.
“However, the recovery in demand and transactions may be more restrained than in previous housing market cycles,” he added.
“The situation is bad now and will likely get worse. But a full-blown housing crisis remains a far-off prospect, in our view,” he said.
Unlike in 2008, the UK banking sector is well capitalised and properly regulated, and household debt levels are manageable.
Any suggestions that the housing market or economy face a genuine crisis are thus far overblown, in Pickering’s opinion.