Bloomberg
“Carney Hikes Rate in What May Be Final Pre-Brexit Push.”
The Bank of England raised its benchmark interest rate to the highest level since 2009 in what may be its final blow against inflation before the U.K. leaves the European Union.
Governor Mark Carney played down concerns that Brexit may be disorderly and said mounting price pressures warranted Thursday’s quarter-point increase to 0.75 percent. At the same time, he gave no indication that policy makers see a need to accelerate the path of rate hikes. The pound slid.
BOE policy makers are trying to strike a balance between taming inflation as the economy runs out of slack, and protecting against the risk that the nation’s Brexit talks will end in a hard rupture that hits growth. Carney himself noted that the negotiations are entering a “critical period” and that the BOE is prepared for all scenarios.
“It’s very unlikely that the conditions over the next six to eight months will warrant another move in monetary policy,” said Dean Turner, U.K. economist at UBS Wealth Management. “If anything, the news flow on Brexit could get more feisty in the short term so this probably is it for the time being.”
The BOE’s reading of market rates now signals that another 25-basis-point increase isn’t likely until the first quarter of 2020, compared the third quarter of 2019 seen in the previous round of forecasts. The pound slid as much as 0.9 percent and was down 0.5 percent at $1.3063 as of 2:55 p.m. London time.
The BOE decision came a day after the U.S. Federal Reserve reiterated that it will slowly raising borrowing costs, and a week after the European Central Bank kept to its plan to end its bond-buying program this year. The Czech central bank raised interest rates on Thursday for the fifth time in a year. At the same time, the Bank of Japan has strengthened its commitment to an ultra-loose policy.
Reuters
“China urges U.S. to ‘calm down’ in trade dispute, says its tactics will not work.”
China on Thursday urged the United States to “calm down” and return to reason after the Trump administration sought to ratchet up pressure for trade concessions by proposing a higher 25-percent tariff on $200 billion worth of Chinese imports.U.S. Trade Representative Robert Lighthizer said on Wednesday that President Donald Trump directed the increase from a previously proposed 10 percent duty because China has refused to meet U.S. demands and has imposed retaliatory tariffs on U.S. goods.
Trump’s threats of higher tariffs weighed on China’s financial markets. But Wang Yi, the Chinese government’s top diplomat, said U.S. efforts to pressure China would be in vain, urging its trade policymakers to “calm down”. “We hope that those directly involved in the United States’ trade policies can calm down, carefully listen to the voices of U.S. consumers…and hear the collective call of the international community,” Wang, a member of the country’s state council, or cabinet, said in Singapore.
Worsening trade tension between the two countries would not affect China’s stance on the denuclearization of the Korean peninsula, Wang said. “We deal with diplomatic matters on the basis of principle, not by engaging in trade.” The Chinese yuan also ticked lower against the dollar, extending its year-to-date decline to more than 4.5 percent.
There have been no formal talks between Washington and Beijing for weeks over Trump’s demands that China make fundamental changes to its policies on intellectual property protection, technology transfers and subsidies for high technology industries.
BBC News
“Zimbabwe election: Army patrols ‘ghost town’ Harare.”
Businesses have shut in Zimbabwe’s capital, Harare, as the nation awaits the results from the heavily disputed presidential election. Armed soldiers and police are on patrol, ordering people to «behave».
Three people were killed in the city on Wednesday in clashes between the security forces and supporters of opposition leader Nelson Chamisa. He says Monday’s elections were being rigged to give President Emmerson Mnangagwa victory.
The elections were the first since long-time ruler Robert Mugabe was ousted in November. The polls were intended to set Zimbabwe on a new path following Mr Mugabe’s repressive rule. However, Mr Chamisa’s MDC Alliance has accused the military of using excessive force to quell Wednesday’s protests.
Mr Mnangagwa said the government was in talks with Mr Chamisa to defuse the crisis and proposed an independent investigation to bring those who were behind the violence to justice. «This land is home to all of us, and we will sink or swim together,» Mr Mnangagwa said in a series of tweets.
No violence was reported on Thursday. A truckload of armed policemen and soldiers were driving around the city shouting, «Behave yourself, people of Zimbabwe.»
Bloomberg
“Fed Describes Economy as ‘Strong’ for the First Time Since 2006.”
So long, modest, moderate and solid. Strength is making a comeback.
The Federal Reserve described economic activity as “strong” in Wednesday’s statement, the first time it’s done so since it called it “quite strong” in May 2006 — in the late stages of the last economic expansion, shortly before the housing market drove the economy into meltdown. Morgan Stanley highlighted the change in a research note.
“The Fed upgrading its language supports our late cycle view,” Hans Redeker and Gek Teng Khoo wrote in the bank’s FX Morning note. That will lead to “monetary authorities taking the liquidity punch bowl away, turning excess liquidity into a shortage, eventually driving cost of capital higher.”
The central bank left interest rates unchanged Wednesday following the conclusion of a two-day meeting in Washington, though it stuck with a plan to gradually lift borrowing costs as growth looks good and joblessness has stayed low.
Market participants and economists fully expect officials to raise rates for a third time this year at their September meeting, with a fourth move in December also on the cards. Policy makers forecast four 2018 rate hikes in projections they updated in June.
While the 2007-to-2009 recession grew from housing market and banking excesses, Fed Chair Jerome Powell told Congress in July that “nothing really is flashing red” in financial markets right now.
The U.S. economy grew at a 4.1 percent rate in the second quarter, its fastest pace since 2014, though economists polled by Bloomberg expect that to moderate in the second half. Inflation is close to the Fed’s 2 percent goal and unemployment of 4 percent in June is below the 4.5 percent level that officials judge to be its long-run sustainable level.