Interest Rates

European banks priced for profit dip, not crisis

14 Mar 2023

Lenders’ shares have plunged since Silicon Valley Bank failed, but only to January’s levels. Senior bankers like Lloyds CEO Charlie Nunn see no evidence of a US-style deposit rush in Britain. For investors, the fear is that interest rates don’t rise as far, crimping returns.

Banking turmoil could help euro doves cry victory

14 Mar 2023

With inflation running hot, the European Central Bank looked set to raise rates by 50 basis points on March 16. The collapse of two US banks flipped the script. As investors fear financial instability, the ECB might go easier and rely on previous hikes to curb consumer prices.

US jobs data can spare Fed rate ratchet

10 Mar 2023

A larger-than-expected gain of 311,000 jobs might stoke inflation-fighters’ fears, but slowing wage growth and returning workers show a labor market in the sweet spot. That gives policymakers weighing further hikes in borrowing costs the opportunity to take a patient approach.

Why the dollar keeps winning in the global economy

28 Feb 2023

The greenback’s share of foreign exchange reserves is at 59%, a two-decade low. Challengers to its role as the world’s means of exchange abound. Yet the globalised financial system bolsters its lynchpin status. Absent major shifts in capital flows, the U.S. currency will thrive.

ECB’s inflation-fighting hose may have a blockage

20 Feb 2023

The central bank has hiked rates by 3 percentage points since July, pushing up corporate borrowing costs and squeezing demand for credit. Yet firms and households have longer-term debt than in the past. That means tighter monetary policy will take a while to cool the economy.

Robinhood’s Wall Street bets aren’t yet working

9 Feb 2023

As retail stock trading and crypto have withered, so have the online brokerage’s main sources of income. So it has slashed costs, and staff, and is aggressively launching new products. But for now, it’s rising interest rates – not happy customers – that are holding Robinhood up.

Euro zone can afford to keep fiscal taps running

31 Jan 2023

The bloc’s governments pumped up spending by 3.75% of GDP over the past two years to cushion the blow of Covid-19 and higher energy prices. Now they are closing the spigots. That’s a mistake. Manageable debt costs leave room to support growth – and help the ECB fight inflation.

Capital Calls: McDonald’s, Spotify

31 Jan 2023

Concise views on global finance: The burger chain’s comparable sales growth despite rising prices proves there’s pricing power at the bottom of the market; shares in the $21 bln music-streaming service leapt after founder Daniel Ek unveiled rapid subscriber growth.

Davos, Inc. finds reasons to be less gloomy

20 Jan 2023

Business leaders gathering in the Swiss mountain resort have plenty to fret about. Still, with China reopening, Europe keeping the lights on and interest rate pressure easing, the overriding emotion is one of relief. Less clear is whether the mood extends beyond the alpine elite.

Bank of Japan has learnt danger of half-measures

18 Jan 2023

The central bank’s decision to stay put on interest rates saw the yen soften and hurt 10-year bond yields. Last month’s surprise tweak to bond trading bands failed to impress traders. Inaction may be painful and expensive, but muddled economic signals make it understandable.

European stocks will defy bonds’ revival

16 Jan 2023

In the past decade, Western equities delivered far better returns than bonds. An ongoing central bank crusade to fight inflation points to a fixed income comeback in 2023. Yet cheap valuations and ECB rates hesitancy will help European stocks steal a march on local bonds.

European inflation control is a double-edged sword

6 Jan 2023

Prices in Spain or France have risen less than in other big euro zone economies. One reason is lower dependence on Russian energy, but government price controls also helped smooth the shock. The risk is that suppressed inflation will catch up after the crisis subsides.

Macron’s fiscal torpor will weaken France

29 Dec 2022

The French president is running the only big European economy whose public debt, now at 112% of GDP, is still rising. High government spending helped during the crises but is now pushing up bond yields, stifling growth. Budget neglect will also erode Paris’s influence in the EU.

Bond-buying scars will open European can of worms

16 Dec 2022

The ECB faces large losses if it keeps hiking interest rates, because of higher payments to banks on 3.9 trln euros of reserves amassed through asset purchases. National central banks will pick up the tab. And governments will bicker on how to share the pain.

ECB, BoE will fight to regain anti-inflation mojo

15 Dec 2022

The European Central Bank and the Bank of England hiked rates by 50 basis points, less than recent jumbo increases. Recession fears, and the central banks’ initial hesitancy, are making investors sceptical of a sustained tightening. Sticky inflation will prove them wrong.

ECB will have to stay laggard in bond-buying exit

13 Dec 2022

The central bank will explain how it will cut its 5 trln euro bond pile on Thursday. Frankfurt’s stimulus reduction plans are behind the Fed and the BoE. It should not rush to catch up. Markets are calm but rising rates and a surge in issuance raise the risk of a tantrum.

Betting against the Bank of Japan

13 Dec 2022

Investors are closely watching for signs that Tokyo might finally start winding down its ultra-low interest rates as inflation rises. In this Exchange episode, Pete Sweeney chats with Sayuri Shirai, former BOJ policy board member, about whether and how Japan might adjust.

Inflation confusion increases odds of ECB mistake

30 Nov 2022

Euro zone prices rose a less-than-expected 10% in November, yet remained stubbornly high after stripping out fuel. That leaves central bankers in a pickle. To burnish their hawkish credentials with a sceptical market, they may keep tightening policy even as the economy falters.

Capital Calls: Fuzzy Fedspeak, Dr. Martens

24 Nov 2022

Concise views on global finance: The U.S. central bank has left traders guessing the meaning of the word “various”; shares in the recently listed British bootmaker fell 20% after sales missed expectations, and a warning that its investment needs will hurt profitability.

Hybrid working is wild card in office slump

21 Nov 2022

Workspace landlords like British Land and France’s Gecina are facing a storm. Higher interest rates are cutting property values, just as a weak economy pushes up vacancy rates. And, with UK workers spending half their week at home, employers have plenty of scope to cull space.