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Global stocks rise as US retail sales climb more than expected and ECB cuts interest rates
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Wall Street took its cue from the FTSE 100 (^FTSE) and European stocks on Thursday, heading higher as the European Central Bank (ECB) cut interest rates for its third time this year as widely expected.
It also came as new data showed a larger-than-expected rise in monthly retail sales, which climbed 0.4% in September, compared with an estimate of 0.3%, according to economists. Retail sales excluding automobiles rose 0.5% compared to the 0.1% forecast.
Separately, data showed the number of Americans filing new applications for unemployment benefits was 241,000 for the week ended 12 October, compared with an estimate of 260,000.
It came as policymakers were under pressure to cut amid a weakening growth outlook, and after eurozone inflation fell below the 2% target in September.
The euro also dipped to its lowest level in two and a half months during the session, trading back around $1.0850.
Announcing the decision, the ECB said: "The decision to lower the deposit facility rate — the rate through which the Governing Council steers the monetary policy stance — is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.
"The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity. Meanwhile, financing conditions remain restrictive."
The ECB began cutting rates from the record high of 4% in June and has reduced borrowing costs in back-to-back meetings.
London’s benchmark index was 0.7% up at the close
Germany's DAX (^GDAXI) was 0.8% higher and the CAC (^FCHI) in Paris headed 1.3% into the green
The pan-European STOXX 600 (^STOXX) was up 0.8%
Wall Street opened higher after the jobs data and retail data
The pound was treading water the US dollar (GBPUSD=X) at 1.2990, retreating from being in the green in the afternoon
Gold prices climbed to a new all-time high with bullion hitting $2,688.82 per ounce for the first time
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Well that's all from us today, thanks for following along. Be sure to join us again tomorrow when we'll be back for more.
We will be diving into the Retail Price Index data due out tomorrow morning, as well as what's moving markets and happening elsewhere across the global economy.
Denmark cuts interest rates
Following in the footsteps of the ECB, Denmark has cut interest rates by a quarter point.
The Danish central bank reduced rate to 2.85% from 3.1pc in a widely anticipated move.
It said:
The interest rate reduction is a consequence of the reduction by the European Central Bank of its main monetary policy rate, the deposit facility rate, by 0.25 percentage point. Thereby, the monetary policy spread vis-á-vis the euro area will remain unchanged.
ECB’s rate cut piles pressure on the euro
With money markets now expecting three more rate cuts by March 2025, the euro is likely to face prolonged downward pressure, predicts the CEO of one of deVeres.
He said:
“This is the first time in 13 years that the ECB has delivered consecutive rate cuts, marking a pivotal moment for both the eurozone economy and global investors.
“Lower interest rates make a currency less appealing to investors as they reduce returns on assets denominated in that currency.
“As the ECB continues to signal further rate cuts, this trend is expected to intensify. The euro is likely to weaken as investors seek higher returns elsewhere, potentially leading to capital outflows from the eurozone.
“The ECB’s actions indicate a clear shift in focus, from managing inflation to stimulating growth.
“With continued rate cuts on the horizon, the euro is set to remain under pressure for the foreseeable future, making this a critical time for investors to assess their portfolios.”
The best stocks to buy in the UK, according to Barclays
While sentiment towards the UK market has improved over the past year, Barclays (BARC.L) strategists say the stocks still look under-owned and cheap, highlighting a number of companies that are likely to benefit from a positive economic backdrop in the UK.
Labour's landslide victory in July's general election, as well as an improving economic picture, have buoyed UK markets this year.
The FTSE 100 (^FTSE), in which the UK's biggest companies are listed, is up 7.9% year-to-date. The broader FTSE All-Share (^FTAS) index, which encompasses the FTSE 100, FTSE 250 (^FTMC) and FTSE SmallCap (^FTSC) indices, is up 7.8%.
However, Barclays European equity strategy team said in a note published Wednesday, that "some of the goodwill the country was enjoying after the election has dissipated on gloomy government messaging around the fiscal/growth situation".
Key points from Lagarde's press conference
EZB-Pr?sidentin Christine Lagarde bei der Pressekonferenz der Europ?ischen Zentralbank in der EZB in Frankfurt. Die Europ?ische Zentralbank senkt die Zinsen im Euroraum weiter um 0,25 Prozentpunkte auf 3,5 Prozent. Frankfurt, 12.09.2024 Hessen Deutschland *** ECB President Christine Lagarde at the press conference of the European Central Bank at the ECB in Frankfurt The European Central Bank cuts interest rates in the eurozone by a further 0.25 percentage points to 3.5 percent Frankfurt, 12 09 2024 Hesse Germany Copyright: xChristophxHardtx (IMAGO/Christoph Hardt, Imago) ECB president Christine Lagarde is speaking at the Bank of Slovenia, in Ljubljana. Here are some of the key points from the presser:
Lagarde confirmed that the ECB was not pre-committing to a particular rate path, despite economic activity being somewhat weaker than expected
Regarding the conflict in the Middle East, she said: "We are looking at the economic consequences, and we are looking in particular at the impact that this conflict could have on trade. That part of the world is very much open to trade and the passing of ships of all sorts. We are also very attentive to the price of oil that can be impacted.”
She said manufacturing continues to contract, while the services sector ticked up in August, but has been more sluggish since. Business are expanding investments slowly, while housing investment continued to fall. Exports have weakened, especially for goods
Eurozone labour market remains resilient, with unemployment still low.
She also warned that a second Donald Trump’s presidency would be a risk to the eurozone economy. Any hardening of the barriers, the tariffs, the additional obstacles on that possibility to trade with the rest of the world is obviously a downside.”
US retail sales rise more than expected
Hallandale Beach, USA. 15th Aug, 2024. Consumer spending rises because the economy is improving and casting aside recession fear. Walmart on August 15, 2024, in Hallandale Beach, Florida. Credit: Sipa US/Alamy Live News (Sipa US, Sipa US) Before we summarise Christine Lagarde's press conference, across the pond in the US, new data has shown a larger-than-expected rise in monthly retail sales.
Retail sales rose 0.4% in September on a monthly basis, compared with an estimate of 0.3%, according to economists.
Retail sales excluding automobiles rose 0.5% compared to the 0.1% forecast.
Separately, data showed the number of Americans filing new applications for unemployment benefits was 241,000 for the week ended 12 October, compared with an estimate of 260,000.
In premarket trading, US indices were pushing higher before the opening bell.
More ECB commentary
Mark Wall, Deutsche Bank’s chief European economist, said:
“As expected, the ECB cut the deposit rate by 25bps to 3.25%. The statement pins this on a disinflationary process that is well on track, and recent downside surprises to activity indicators.
"The cut is still significant in the sense that the ECB has accelerated the easing cycle with the back-to-back cut. At the same time, the ECB continues to avoid guidance and is not committing to a particular path for policy.
"This is sensible given the uncertainties that lie ahead. But chances are that today’s decision represents a pivot point into a faster normalisation of monetary policy.”
Meanwhile, Kyle Chapman, FX Markets analyst at Ballinger Group comments:
“The ECB has absorbed the soft intermeeting data and adjusted its inflation outlook accordingly. Ultimately, policymakers are not getting the rising real wage, higher consumption story that they assumed would keep price pressures sticky. Instead, consumers remain hesitant to spend, slack is beginning to emerge in the labour market, wage gains are fading away, and the headline rate is well on its way to 2%.
“The no-guidance approach has once again left markets in the dark as to what the future holds, and so again it will be down to the data and individual speeches to get a steer on how aggressively they will continue easing.
"However, what we have learned is that a 50bp move in December is on the cards if the activity data continues to surprise to the downside in October and November - policymakers have shown a strong willingness to respond to weak growth data and to put a floor under the eurozone economy.”
ECB presser: Watch live and follow along
Coming up next: watch live as President Christine Lagexplains the latest monetary policy decisions.
Coming up in 5 minutes: watch live as President Christine @Lagarde explains the latest monetary policy decisions.
Watch the ECB press conference https://t.co/CGft1Sh6uv pic.twitter.com/hndnsLHP4U— European Central Bank (@ecb) October 17, 2024
ECB: Inflation is expected to rise in the coming months
The ECB said it has cut interest rates because “incoming data show we are well on track to reach our inflation goal.”
However it added:
"Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace.
"At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation."
It added:
“In particular, its interest rate decisions will be based on its 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 Governing Council is not pre-committing to a particular rate path.”
ECB reduces borrowing costs in back-to-back meetings
Announcing the decision, the ECB said:
The decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.
"The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity. Meanwhile, financing conditions remain restrictive."
The ECB began cutting rates from the record high of 4% in June and has now reduced borrowing costs in back-to-back meetings.
BREAKING: European Central Bank cuts interest rates
The European Central Bank (ECB) has cut interest rates, by 25 bps, for its third time this year.
The move lowers the rate that the ECB pays on banks' deposits to 3.25%, and is the first back-to-back interest rate cut in 13 years.
Money markets are now also nearly fully pricing in three further reductions through next March.
It comes as policymakers are under pressure to reduce rates amid a weakening growth outlook, and after eurozone inflation fell by more than initially thought last month.
Previously ECB President Christine Lagarde had swayed markets after saying that the latest data readings “strengthen our confidence that inflation will return to target in a timely manner.”
Lagarde’s press conference at 1:45pm BST will be closely scrutinised for fresh policy cues.
We cut our key interest rates by 0.25 percentage points.
We did this because incoming data show we are well on track to reach our inflation goal.
Read today’s monetary policy decisions https://t.co/aUqG9kd0zO pic.twitter.com/qsOuo3O1Yp— European Central Bank (@ecb) October 17, 2024
Britain’s new-build demand falls
File photo dated 13/01/20 of new houses being constructed on the Chilmington development in Ashford, Kent. Paul McLennan said the Government had invested in housing but highlighted cuts to the Scottish capital budget, whilst responding to figures from the housebuilding trade body Homes for Scotland, which said the construction of more than 1,800 affordable homes had been stalled by budget cuts. Issue date: Monday July 15, 2024. (Gareth Fuller, PA Images) New market analysis by easyMoney has revealed that homebuyer appetite for new-build properties dropped by -1.1% in the past quarter, as market demand continues to be restricted by high interest rates.
The latest figures for Q3 2024 shows that: -
Buyer demand takes quarterly dip
18.8% of new-build homes listed for sale across Britain’s major cities had already found a buyer, sold subject to contract (SSTC).
This marks a -1.1% demand reduction since Q2 2024, and an annual decline of -1.2%.
Britain’s strongest new-build demand hotspot for Q3 2024 is once again Southampton with 43.2% of all listings being SSTC.
This is followed by Bournemouth (43.1%), Portsmouth (26.1%), Plymouth (26%), and Bristol (23.7%), demonstrating a dominance of coastal locations across the south.
The city in which demand has seen the strongest quarterly increase is Portsmouth where Q3 2024 saw an impressive demand increase of +11.8%
In total, 11 cities have recorded positive quarterly growth, with Portsmouth being followed by Bournemouth (+6.9%), Leicester (+6.1%), Swansea (+5.7%), Edinburgh (+3.7%), Glasgow (+3.2%), Bristol (+3.1%), Aberdeen (+2.7%), Cardiff (+1.7%), Newcastle (+0.9%), and Plymouth (+0.1%).
Meanwhile, the strongest annual demand increase has been recorded in Newport, Wales (+17%), followed by Aberdeen (+5.3%) and Manchester (+2.7%).
New-build stock keeps falling
As new-build demand struggles to maintain upward momentum, stock levels are also trending downwards, recording both quarterly and annual declines.
Across Britain, new-build stock fell by -0.2% in Q3 2024 which means new-builds currently account for 6.3% of all residential listings, compared to 6.5% in Q2.
This national picture of new-build stock decline is accentuated by the city-level analysis. Just nine of the 20 cities studied have seen a quarterly increase in stock, and after Aberdeen’s promising rise of +2.8%, no others have managed growth of much more than half a percent.
Stock in Manchester is up +0.6%, and the same is true for Swansea (+0.6%), Glasgow (+0.6%), and Cardiff (0.6%). In Bristol, Newport, Birmingham, and Edinburgh demand is up +0.1%.
Meanwhile, nowhere has seen stock dwindle more than Plymouth where it’s down -0.5% on the quarter, followed by Leicester (-0.4%), Sheffield (-0.4%), and Bournemouth (-0.4%).
Nestlé says demand has weakened
Consumer goods giant Nestlé has said that demand has weakened in recent month, after its sale fell during the first nine months of this year.
It cut its outlook this year, now expecting organic sales to rise by 2%, down from at least 3% expected before.
Total sales in 2024 have dropped to 67.1bn Swiss francs, down from 68.8bn in the first three quarters of 2023.
It comes as the company has hiked the prices of its products by 1.6%, including bottled water, coffee, pet food and ice cream.
Laurent Freixe, Nestlé's chief executive, said:
“We delivered organic sales growth, driven by positive real internal growth. Consumer demand has weakened in recent months, and we expect the demand environment to remain soft.
"Given this outlook and our further actions to reduce customer inventories in the fourth quarter, we have updated our full-year guidance, with organic sales growth expected to be around 2%, in line with the first nine months."
Market movers at midday...
Here's what's happening in equity markets today...
Pest control services group Rentokil Initial surged as it held on to full-year guidance following a profit warning last month, reporting a steady third quarter with revenues unchanged year-on-year at ￡1.38bn.
Gambling and gaming group Entain rallied as it boosted its full-year outlook after third-quarter numbers came in ahead of expectations.
St James's Place gained as it said funds under management reached a record ￡184.4bn in the three quarters to September end, up from ￡158.6bn a year earlier, boosted by an improving macroeconomic environment. It was also an improvement on the second quarter, when FUM reached ￡181.9bn.
Chemring was in the black as it said its performance remained in line with analyst expectations, supported by a robust order intake of ￡638m and an order book of ￡1.1bn as of 30 September.
Outside the FTSE 350, N Brown rocketed after agreeing to be taken private by a company owned by Joshua Alliance - whose family has been involved with the group since the 1960s - in a ￡191m deal.
On the downside, miners fell in tandem with copper prices, with Antofagasta, Rio Tinto and Glencore all down.
Paper and packaging group Mondi tumbled as it said that underlying core profit fell in the third quarter in "muted" trade, mainly due to more planned maintenance shuts.
Investment management firm Man Group was also weaker as it said assets under management fell to $174.9bn as at 30 September, from $178.2bn as at 30 June.
Best UK mortgage deals of the week
London, England, UK. 30th Sep, 2024. People are seen walking past an estate agency in central London. UK house prices are growing at their fastest annual rate for nearly two years as borrowing costs continue to fall on expectations that the Bank of England will keep cutting interest rates,? Nationwide building society? announced. Prices grew by 3.2% in September compared with the same month last year, well above the 2.4% annual growth recorded in August, and the fastest pace since the 4.4% recorded in November 2022. (Credit Image: ? Tayfun Salci/ZUMA Press Wire) EDITORIAL USAGE (ZUMA Press, ZUMA Press, Inc.) Under 4%-deals hitting the market were expected to spark another mortgage war among big lenders but mortgage brokers warn that more rises are on the way.
The average rate on a two-year fixed deal came in at 5.09%, unchanged from than last week, while average rates for a five-year deal came in at 4.98%, higher than the previous 4.74%, according to figures from Uswitch.
The Bank of England has kept interest rates at 5% but investors predict two cuts will happen before the end of the year, with the first expected to take place in November.
Inflation has also dropped below 2% in September, coming in at 1.7%, in good news for mortgage holders.
Alice Haine, personal finance expert at Bestinvest, said: ““While the latest inflation data appears positive for consumers, almost three years of rapid prices rises have left their mark on household budgets and many are still trying to balance the books as their finances slowly recover from the high borrowing and living costs seen at the height of the cost-of-living squeeze.
"They will now be looking to the BoE for action on rates, as a second quarter-point reduction in November would help to ease borrowing costs further for those with mortgages and debts."
Gold hits fresh high despite strengthening dollar
Gold prices hit a new all-time high in early Thursday trading. Despite the strengthening US dollar, the precious metal continues to see strong demand, driven by a drop in 10-year Treasury yields, as well as the prospect of interest rate cuts by major central banks, global economic uncertainty, and geopolitical risks.
The unpredictable outcome of the US presidential election is also a factor.
Ricardo Evangelista, senior analyst at ActivTrades, said:
"The main driver of today’s gains is likely the sharp decline in Treasury yields, with the 10-year note falling by more than half a percentage point. Speculation around a potential second Donald Trump presidency, with a focus on its protectionist policies and the possible impact on trade and economic growth, has fuelled demand for the safety of U.S. bonds.”
“This dynamic has put downward pressure on yields, lowering the opportunity cost of holding non-yielding assets like gold.”
Deliveroo orders rise faster than rival Just Eat
Just Eat and Deliveroo food delivery couriers e-bikes congregate at Liverpool Street Station, before lunchtime rush (Chris Batson) Deliveroo shares gained more than 2% on Thursday after it increased orders at a faster pace than rival Just Eat.
The firm said orders in the UK and Ireland were up 2% in the third quarter compared to last year, while Just Eat said orders in the two countries fell 1% over the same period.
Its gross transaction value was up 6% overall and up 7% in the UK and Ireland.
Deliveroo chief executive Will Shu said:
“UKI growth remains healthy, with improving order trends and overall we are pleased with the underlying growth in international, driven by the UAE and Italy.
“There are many exciting opportunities ahead for the on-demand delivery industry.”
Where was inflation lowest and highest?
The lowest annual rates were registered in Ireland (0.0%), Lithuania (0.4%), Slovenia and Italy (both 0.7%).
The highest annual rates were recorded in Romania (4.8%), Belgium (4.3%) and Poland (4.2%).
Compared with August 2024, annual inflation fell in twenty Member States, remained stable in two and rose in five.
Euro area annual #inflation at 1.7% in September 2024 https://t.co/AQUkJldzpM pic.twitter.com/IgRo4T6wQh
— EU_Eurostat (@EU_Eurostat) October 17, 2024
Eurozone inflation comes in lower than expected
Inflation across the eurozone fell by more than initially thought last month, raising the prospects for a cut from the ECB today.
Consumer prices across the euro area rose by 1.7% in the year to September, statistics body Eurostat reports, down from 2.2% in August.
Eurostat reports that energy prices fell by 6.1% year-on-year, while services prices rose by 3.9%, food, alcohol & tobacco by 2.4% and goods by 0.4%.
Eurozone inflation had initially been estimated at 1.8% in September, in its flash reading at the start of this month.
Markets priced for ECB to cut at both meetings this year
Ahead of today’s ECB decision, here's some commentary from Dave Chappell, senior fund manager, fixed income at Columbia Threadneedle Investments.
He is predicting rate cuts at both of the central bank’s remaining meetings this year.
He said:
“Our view after the last ECB meeting was that the indicated pause at October could evolve to a rate cut if data warranted and the Fed delivered a 50bp reduction when commencing its rate normalisation process. Both these occurred, and ECB messaging shifted to signal back-to-back cuts.
"We believe the committee will lean towards a further rate cut in December too, unless there is a surprise to the upside in forthcoming growth or price data. However, the outlook from that point is less clear, particularly as the US may well be under a new administration.
"The markets are priced for the ECB to cut at both meetings this year, which seems fair to our rates specialists. The curve should remain under steepening pressure as issuance remains heavy. The issue which investors are struggling with this year is the huge volatility in data.
"In the UK, the Bank of England will most likely cut on the 7th of November. Whether or not it follows up again in December will be driven by employment and inflation over the coming weeks, and of course what the Budget looks like at the end of this month.”
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