Take Two: Fed signals September rate cut, BoE eases and Japan hikes
- 05 August 2024 (3 min read)
What do you need to know?
The Federal Reserve (Fed) indicated it could cut interest rates in September after deciding to hold at a range of 5.25%-5.50% last week. Fed Chair Jerome Powell said if inflation continues to fall, a rate cut could be on the table at the September meeting - AXA IM expects 25-basis-point (bp) cuts in September and December. Late in the week, US markets fell driven partly by concerns over disappointing economic data and whether the Fed has been too slow to move. Elsewhere, the Bank of England lowered rates by 25bp to 5.0%, while the Bank of Japan (BoJ) raised its key interest rate for the second time in 17 years, to “around 0.25%” from the previous range of 0%-0.1%.
Around the world
The Eurozone economy expanded slightly more than expected in the second quarter (Q2) while inflation also ticked higher last month, flash estimates showed. Eurozone GDP grew 0.3% on a quarterly basis in Q2, matching Q1’s pace – most analysts had expected 0.2% growth. Meanwhile the bloc’s annual inflation rate was 2.6% in July compared to 2.5% in June, driven by goods and a sharp jump in energy price inflation. Core inflation, excluding energy, food, alcohol and tobacco, remained unchanged at 2.9%. The higher-than-expected inflation data will likely cast doubt on whether the European Central Bank will cut interest rates at its September meeting.
Figure in focus: 30%
Europe’s renewable energy revolution continues to gather pace, with wind and solar leading the charge, according to a new report. The analysis from climate think tank Ember found that in the European Union (EU), during the first six months of the year, fossil fuel generation fell to an all-time low, while wind and solar rose to fresh highs. Overall, the study concluded that wind and solar enjoyed a 30% share of EU electricity generation in the first half of 2024, while fossil generation dropped by 17% over the same period. In all, wind and solar surpassed fossil generation in 13 EU member states.
Words of wisdom
Olympic Effect: The 2024 Olympic Games could bring a net economic injection of as much as €11.1bn to host city Paris and its surrounding region, according to the International Olympic Committee based on a French university study. Known as the Olympic Effect, hosting the games could bring a range of economic benefits from tourism to employment, investment in infrastructure and even a positive impact on exports. However, other studies have suggested that the cost of hosting the games can outweigh the benefits, leaving host countries with large debts and ongoing maintenance costs.
What’s coming up?
On Monday, several final Purchasing Managers’ Index readings covering July are issued, including those for Japan, China, the Eurozone, US and UK. Policymakers at the Reserve Bank of Australia meet on Tuesday to set interest rates, while the Reserve Bank of India convenes on Thursday when the BoJ also publishes its latest economic outlook in its Summary of Opinions. On Friday China posts its latest inflation numbers and Canada updates markets with its employment data.
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