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| Markets brace for Bank of England decision after US rate hike – business live | Markets brace for Bank of England decision after US rate hike – business live |
| (35 minutes later) | |
| Newsflash: UK retail sales rose last month, but the broader picture is still downbeat. | |
| Retail sales volumes (the amount of stuff people bought) rose by 0.8% in February, compared to forecasts of just 0.4%. | |
| But after sharp falls earlier this winter, retail sales volumes are down 0.4% over the last quarter. | |
| On an annual basis, retail sales were up 1.5% - again, much weaker than last year, as households are stretched by the cost of living squeeze. | |
| This might make the Bank of England reluctant to raise borrowing costs.... | |
| The report also shows that consumers continued to spend more online. Internet shopping made up 17.2% of all retail spending, up from 15.6% a year ago. That helps explain why various high street chains have been struggling, or gone bust, in recent months. | |
| Rhian Murphy, ONS senior statistician, says: | |
| “Retail sales did grow in February, with increases seen in food, non-store and fuel, but this followed two months of decline in these sectors. | |
| “However, the underlying three-month picture is one of falling sales, mainly due to strong declines across all main sectors in December. | |
| “Store prices continue to rise across all store types, but at a lower rate than the previous month due to a slowdown in price growth, though clothing and household goods stores continued to see stronger price rises. | |
| Just in: The eurozone’s recent economic surge seems to be levelling off. | Just in: The eurozone’s recent economic surge seems to be levelling off. |
| Data firm Markit has reported that growth across eurozone service sector firms and manufacturers has slowed to its slowest since January 2017. | Data firm Markit has reported that growth across eurozone service sector firms and manufacturers has slowed to its slowest since January 2017. |
| Companies reported that growth had slowed after a very strong performance last year, with new order and exports both rising at a slower rate. | Companies reported that growth had slowed after a very strong performance last year, with new order and exports both rising at a slower rate. |
| Markit’s ‘composite output PMI’, which tracks activity across the eurozone’s private sector, dropped to 55.3 in March from 57.1 last month. | Markit’s ‘composite output PMI’, which tracks activity across the eurozone’s private sector, dropped to 55.3 in March from 57.1 last month. |
| At a country level, output growth slowed to a seven-month low in France and an eight-month low in Germany. | At a country level, output growth slowed to a seven-month low in France and an eight-month low in Germany. |
| It’s not a reason to panic -- the PMIs had been remarkably strong last year, so this is a return to more normal growth levels. | It’s not a reason to panic -- the PMIs had been remarkably strong last year, so this is a return to more normal growth levels. |
| Chris Williamson, chief business economist at IHS Markit, says recent bad weather is one factor, plus ‘growing pains’ as European supply chains struggle to keep pace with recent growth. | Chris Williamson, chief business economist at IHS Markit, says recent bad weather is one factor, plus ‘growing pains’ as European supply chains struggle to keep pace with recent growth. |
| But political issues - such as Brexit, and trade tariffs - are another factor. | But political issues - such as Brexit, and trade tariffs - are another factor. |
| Williamson says: | Williamson says: |
| The fact that export order book growth has more than halved since the end of last year suggests the stronger euro is taking an increasing toll on export performance. Survey responses also highlighted how political uncertainty also appears to have intensified, dampening demand. | The fact that export order book growth has more than halved since the end of last year suggests the stronger euro is taking an increasing toll on export performance. Survey responses also highlighted how political uncertainty also appears to have intensified, dampening demand. |
| The data therefore suggest that eurozone growth peaked around the turn of the year and the region is settling into a slower, but still robust pace of expansion. | The data therefore suggest that eurozone growth peaked around the turn of the year and the region is settling into a slower, but still robust pace of expansion. |
| European stock markets have dropped this morning, as investors fret about the risks of a trade war. | European stock markets have dropped this morning, as investors fret about the risks of a trade war. |
| The FTSE 100 is down 13 points, or 0.2%, at 7021 after falling through 7,000 points at the start of trading. Germany’s DAX has lost 0.4%. | The FTSE 100 is down 13 points, or 0.2%, at 7021 after falling through 7,000 points at the start of trading. Germany’s DAX has lost 0.4%. |
| Exporters are suffering from the strength of the pound and the euro against the US dollar today. | Exporters are suffering from the strength of the pound and the euro against the US dollar today. |
| The markets are also being pulled down by signs that Wall Street will fall, especially if Donald Trump does to hit China with new sanctions. | The markets are also being pulled down by signs that Wall Street will fall, especially if Donald Trump does to hit China with new sanctions. |
| Connor Campbell of SpreadEx says: | Connor Campbell of SpreadEx says: |
| The state of the Dow futures, alongside the re-emergence of trade war chatter ahead of Trump’s China tariff announcement later this Thursday, left the European indices in a sorry state after the bell. | The state of the Dow futures, alongside the re-emergence of trade war chatter ahead of Trump’s China tariff announcement later this Thursday, left the European indices in a sorry state after the bell. |
| Alan Clarke of Scotia Bank is confident the Bank of England will leave rates on hold today: | Alan Clarke of Scotia Bank is confident the Bank of England will leave rates on hold today: |
| We expect policy to be left unchanged at this meeting. | We expect policy to be left unchanged at this meeting. |
| The focus of attention will be on whether there are any clues that support the case for a rate hike at the May MPC meeting. | The focus of attention will be on whether there are any clues that support the case for a rate hike at the May MPC meeting. |
| Given fairly mixed data since February, we would not be too surprised if the vote was 9-0 for unchanged rates and that should not be seen as an obstruction to a hike in May. | Given fairly mixed data since February, we would not be too surprised if the vote was 9-0 for unchanged rates and that should not be seen as an obstruction to a hike in May. |
| But analysts at Mitsubishi UFG warn that a shock hike can’t be ruled out.... | But analysts at Mitsubishi UFG warn that a shock hike can’t be ruled out.... |
| MUFG: "Outside chance that the BoE could deliver a rate hike as soon as today" pic.twitter.com/3Nie292crV | MUFG: "Outside chance that the BoE could deliver a rate hike as soon as today" pic.twitter.com/3Nie292crV |
| The US dollar has fallen against other major currencies overnight, as traders digested Jerome Powell’s debut press conference since becoming Fed chief. | The US dollar has fallen against other major currencies overnight, as traders digested Jerome Powell’s debut press conference since becoming Fed chief. |
| I thought Powell handled the occasion pretty well (rattling through the questions within 45 minutes, not the full hour available). He was upbeat about the US economy, avoided any bear traps, and reassured listeners that the Fed would take the ‘middle ground’ as it seeks to normalise monetary policy without slowing growth. | I thought Powell handled the occasion pretty well (rattling through the questions within 45 minutes, not the full hour available). He was upbeat about the US economy, avoided any bear traps, and reassured listeners that the Fed would take the ‘middle ground’ as it seeks to normalise monetary policy without slowing growth. |
| So why has the dollar fallen? | So why has the dollar fallen? |
| Firstly, the Fed stuck to its forecast of three rate hikes in 2018, rather than slipping in a fourth. Investors can take that as a dovish signal (although the Fed is now forecasting an extra hike in 2019). | Firstly, the Fed stuck to its forecast of three rate hikes in 2018, rather than slipping in a fourth. Investors can take that as a dovish signal (although the Fed is now forecasting an extra hike in 2019). |
| Secondly, Powell revealed that business leaders have told Fed officials they’re worried about a trade war breaking out. That’s a timely warning, as president Trump is expected to announce new tariffs and investment restrictions on China later today. | Secondly, Powell revealed that business leaders have told Fed officials they’re worried about a trade war breaking out. That’s a timely warning, as president Trump is expected to announce new tariffs and investment restrictions on China later today. |
| That’s enough to drive the pound up to a six-week high against the dollar, at $1.417. | That’s enough to drive the pound up to a six-week high against the dollar, at $1.417. |
| China’s central bank has responded to last night’s move in US interest rates, by hiking its own borrowing costs. | China’s central bank has responded to last night’s move in US interest rates, by hiking its own borrowing costs. |
| The People’s Bank of China increased the cost of short-term loans to commercial lenders, hours after the Fed announced it was tightening policy in America. | The People’s Bank of China increased the cost of short-term loans to commercial lenders, hours after the Fed announced it was tightening policy in America. |
| Bloomberg has the details: | Bloomberg has the details: |
| The People’s Bank of China raised the interest rates it charges on 7-day reverse-repurchase agreements by five basis points, the central bank said in a statement. The move is “in line with market expectations and a normal reaction to the Fed’s rate hike”, the PBOC said in a statement on the website. | The People’s Bank of China raised the interest rates it charges on 7-day reverse-repurchase agreements by five basis points, the central bank said in a statement. The move is “in line with market expectations and a normal reaction to the Fed’s rate hike”, the PBOC said in a statement on the website. |
| China’s CB, PBoC raises borrowing costs after Fed hikes, (interest rates it charges on 7-day reserve repo by 5bp), chart @business https://t.co/tOJlglx4yn pic.twitter.com/kSus99plX4 | China’s CB, PBoC raises borrowing costs after Fed hikes, (interest rates it charges on 7-day reserve repo by 5bp), chart @business https://t.co/tOJlglx4yn pic.twitter.com/kSus99plX4 |
| #China’s central bank conducts 10 billion yuan 7-day reverse-repo, with rate going up to 2.55%. It follows US Fed’s move to raise rates. It comes only days after China’s newly appointed PBOC governor Yi Gang said its rate hike decision will largely based on domestic situations. pic.twitter.com/KlG1iOiF3V | #China’s central bank conducts 10 billion yuan 7-day reverse-repo, with rate going up to 2.55%. It follows US Fed’s move to raise rates. It comes only days after China’s newly appointed PBOC governor Yi Gang said its rate hike decision will largely based on domestic situations. pic.twitter.com/KlG1iOiF3V |
| The Bank of England could send the pound shooting higher at lunchtime, if it hints at a rate hike in the next few months (or even raises rates today, of course). | The Bank of England could send the pound shooting higher at lunchtime, if it hints at a rate hike in the next few months (or even raises rates today, of course). |
| Konstantinos Anthis, head of research at ADS Securities, explains: | Konstantinos Anthis, head of research at ADS Securities, explains: |
| The focus today will be on the Bank of England rate decision which will have a significant effect on the medium-term outlook of the British pound. The UK currency has seen good demand over the past few days being supported by expectations for a positive labour market report - which indeed printed in a bullish fashion yesterday - but also hopes for a hawkish tone from the BoE today. The key drivers for this upbeat bias? Inflation rebounded higher last month, we noted good wage growth in yesterday’s employment report and there has even been progress in the Brexit negotiations. | The focus today will be on the Bank of England rate decision which will have a significant effect on the medium-term outlook of the British pound. The UK currency has seen good demand over the past few days being supported by expectations for a positive labour market report - which indeed printed in a bullish fashion yesterday - but also hopes for a hawkish tone from the BoE today. The key drivers for this upbeat bias? Inflation rebounded higher last month, we noted good wage growth in yesterday’s employment report and there has even been progress in the Brexit negotiations. |
| All these factors paint a positive outlook for the pound and shape expectations for a bullish BoE message which will underpin investors’ hopes for a rate hike soon. There’s some speculation that the BoE might even go ahead and raise rates today but we believe that this is too optimistic - our base scenario suggests an interest rate increase in the summer, either in May or June. Today though a positive message and a consistent bullish bias from the British central bank will keep the pound in demand: we’re looking to the pound/ dollar to extend gains towards 1.42 and euro/ pound to break below the 0.87 mark. | All these factors paint a positive outlook for the pound and shape expectations for a bullish BoE message which will underpin investors’ hopes for a rate hike soon. There’s some speculation that the BoE might even go ahead and raise rates today but we believe that this is too optimistic - our base scenario suggests an interest rate increase in the summer, either in May or June. Today though a positive message and a consistent bullish bias from the British central bank will keep the pound in demand: we’re looking to the pound/ dollar to extend gains towards 1.42 and euro/ pound to break below the 0.87 mark. |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| It’s the Bank of England’s turn under the spotlight today, as policymakers on the Monetary Policy Committee will set UK interest rates at noon today , | It’s the Bank of England’s turn under the spotlight today, as policymakers on the Monetary Policy Committee will set UK interest rates at noon today , |
| We’re not expecting a rate hike today, just four months after the first one in a decade. But the MPC could decide to steer the markets towards a move in May, as it tries to balance inflation pressures against Brexit uncertainty. | We’re not expecting a rate hike today, just four months after the first one in a decade. But the MPC could decide to steer the markets towards a move in May, as it tries to balance inflation pressures against Brexit uncertainty. |
| The MPC have some interesting economic data to digest, which may encourage policymakers to reach for the ‘rate hike’ button soon. | The MPC have some interesting economic data to digest, which may encourage policymakers to reach for the ‘rate hike’ button soon. |
| Tuesday’s drop in inflation to 2.7% took some pressure off the Bank, although prices are still rising faster than its 2% target. | Tuesday’s drop in inflation to 2.7% took some pressure off the Bank, although prices are still rising faster than its 2% target. |
| That was followed by yesterday’s strong labour market report, showing that wages are rising at their fastest pace since 2015, and catching up with inflation. Policymakers may conclude that this strengthens the case for a rate hike soon, rather than risk waiting too long. | That was followed by yesterday’s strong labour market report, showing that wages are rising at their fastest pace since 2015, and catching up with inflation. Policymakers may conclude that this strengthens the case for a rate hike soon, rather than risk waiting too long. |
| This chart, from Berenberg bank, suggests the labour market is recovering from the Brexit shock of 2016, which drove real wages down. | This chart, from Berenberg bank, suggests the labour market is recovering from the Brexit shock of 2016, which drove real wages down. |
| Kallum Pickering of Berenberg explains: | Kallum Pickering of Berenberg explains: |
| Thanks to the drop in headline inflation to 2.7% in February (3.0% in January), and the uptick in nominal weekly earnings to 2.8% in January (up from 1.9% in May 2017), the real wage squeeze is probably over. | Thanks to the drop in headline inflation to 2.7% in February (3.0% in January), and the uptick in nominal weekly earnings to 2.8% in January (up from 1.9% in May 2017), the real wage squeeze is probably over. |
| Tight labour markets should push nominal wage growth higher over the medium term as inflation gradually trends towards a rate of about 2-2.5%. Real weekly earnings growth can rise towards 1.0% by the end of the 2018. | Tight labour markets should push nominal wage growth higher over the medium term as inflation gradually trends towards a rate of about 2-2.5%. Real weekly earnings growth can rise towards 1.0% by the end of the 2018. |
| Helped by continued jobs growth, this should allow real consumption to grow at close to 1.5% over the medium term. | Helped by continued jobs growth, this should allow real consumption to grow at close to 1.5% over the medium term. |
| The minutes of the meeting, released at noon, will give an insight into the MPC’s thinking. | The minutes of the meeting, released at noon, will give an insight into the MPC’s thinking. |
| Last night, the US Federal Reserve raised its benchmark rate to 1.75%, and lifted its growth forecast. It also predicted two more rate hikes this year, and three in 2019, as the process of normalising monetary policy continues under new Fed chair Jerome Powell. | Last night, the US Federal Reserve raised its benchmark rate to 1.75%, and lifted its growth forecast. It also predicted two more rate hikes this year, and three in 2019, as the process of normalising monetary policy continues under new Fed chair Jerome Powell. |
| Powell sounded upbeat about the US economy, but also warned that fears of a trade war are building. | Powell sounded upbeat about the US economy, but also warned that fears of a trade war are building. |
| We also get a new healthcheck on eurozone service sector firms and factories, fresh UK retail sales figures, and the weekly US jobless claims numbers. | We also get a new healthcheck on eurozone service sector firms and factories, fresh UK retail sales figures, and the weekly US jobless claims numbers. |
| Here’s the agenda | Here’s the agenda |
| 9am GMT: Eurozone ‘flash’ PMI surveys showing how companies are faring this month | 9am GMT: Eurozone ‘flash’ PMI surveys showing how companies are faring this month |
| 9.30am GMT: UK retail sales figures for February | 9.30am GMT: UK retail sales figures for February |
| Noon GMT: Bank of England decision on interest rates | Noon GMT: Bank of England decision on interest rates |
| 12.30pm GMT: US initial jobless claims for last week | 12.30pm GMT: US initial jobless claims for last week |