Bank of England policymaker says markets pricing in too many rate cuts
Financial markets are getting ahead of themselves and pricing in too many interest rate cuts from the Bank of England, according to a policymaker.
Dr Catherine Mann, one of the nine members of Threadneedle Street’s monetary policy committee (MPC), voted to keep interest rates unchanged at 5.25% at the last meeting, having previously voted for rate hikes. It was the first time since September 2021 that no one on the MPC voted for a rate rise. Eight members backed no change, and one member, Swati Dhingra, voted for a cut of 0.25 percentage points.
She had long argued for further rises, along with fellow rate setter Jonathan Haskel, and traders have interpreted the shift as a signal that there could be interest rate cuts soon.
Markets are pricing in three quarter-point reductions by the end of the year, and are expecting the first cut by June.
Mann told Bloomberg TV:
I think they are pricing in too many cuts, that would be my personal view. In some sense, I don’t have to cut because the market already is, in terms of the implications of the market curve and mortgage rates, for example.
Those are the rates that are faced by borrowers. Bank Rate is not the rates that borrowers face.
She said it’s hard to argue that the Bank of England will cut sooner than the US Federal Reserve or the European Central Bank. She noted that wage dynamics in the UK are stronger than in the US and eurozone.
Last week, the Bank’s governor Andrew Bailey said interest rate cuts will be “in play” at forthcoming policy meetings as inflation has slowed sharply over the past year.
In a signal that Threadneedle Street is preparing the ground for a cut in borrowing costs within months, Andrew Bailey told the Financial Times: “All our meetings are in play. We take a fresh decision every time.”
Key events
Closing summary
A senior Bank of England policymaker has warned that financial markets are expecting too many interest rate cuts this year and that the UK central bank is unlikely to move before the US Federal Reserve.
Catherine Mann, an external member of the Bank’s rate-setting monetary policy committee (MPC), said there were risks that UK inflation could persist at higher levels than in the US or the eurozone.
City traders are pricing in three quarter-point interest rate cuts this year, with a possible first downward shift from as early as May or June. Money markets give a 20% chance of a cut in May, before the Fed or the European Central Bank.
The Co-operative Bank has unveiled plans to cut 400 jobs as part of the lender’s largest cost-cutting and restructuring programme since it was bailed out by hedge funds in 2017.
The job cuts aim to reduce the size of its 3,000-strong workforce by about 12% Redundancies will affect staff across the business, including at its 50 branches.
A spokesperson said the decision was unrelated to ongoing takeover talks with Coventry Building Society, which is considering buying the Co-operative Bank from its hedge fund owners and has been locked in talks over a potential deal since November.
Grocery price inflation in Great Britain has slowed to 4.5%, its lowest level since February 2022, but one in four households are still struggling financially, retail researchers have found.
However, the figures also suggest a change in sentiment with upmarket retailers Waitrose and Ocado the only grocers to win new shoppers in the past three months, according to the latest monthly figures from the analysts Kantar, as growth in more expensive branded groceries outstripped supermarket own-label.
Adam Neumann, the ousted co-founder of WeWork, has tabled a bid worth more than $500m (£395m) in an attempt to regain control of the long troubled shared office space rental company that he launched in 2010.
Flow, Neumann’s property company, said on Monday that it had submitted a potential bid for WeWork with a “coalition of half a dozen financing partners”. The Wall Street Journal, which first reported Neumann’s offer, said it was tabled at more than $500m.
That’s it for today, folks. Thank you for reading. We’ll be back tomorrow. Take care! – JK
Bellway optimistic as sales rate improves
Bellway, one of the UK’s biggest housebuilders, has reported a near-60% slump in full-year profits, but its sales rate has improved in recent weeks and its boss said the market was “on the road to recovery”.
The company’s profit before tax fell 58.8 to £483m in the year to 31 July, as the number of homes completed was down 2.3% to 10,945. Bellway took a near-£50m charge for safety repair works to older buildings.
However, its rate of sales to private buyers rose 21% in the six weeks since the start of February compared with a year earlier, improving to 0.67 homes reserved per site each week. Bellway’s share price rose 2% on the news.
Chief executive Jason Honeyman said the market was beginning to improve because of a combination of rising wages, falling inflation and more competitive mortgage rates. He told the Financial Times:
The housing market seems a lot brighter. It is on the road to recovery. It is happening a little quicker than we thought.
Here is our full story on the Co-op Bank layoffs:
The Co-operative Bank has unveiled plans to cut 400 jobs as part of the lender’s largest cost-cutting and restructuring programme since it was bailed out by hedge funds in 2017.
The job cuts aim to reduce the size of its 3,000-strong workforce by about 12% Redundancies will affect staff across the business, including at its 50 branches.
A spokesperson said the decision was unrelated to ongoing takeover talks with Coventry Building Society, which is considering buying the Co-operative Bank from its hedge fund owners and has been locked in talks over a potential deal since November.
It comes just weeks after the Co-operative Bank reported that annual profits had nearly halved to £71.4m for 2023, due primarily to one-off costs. That includes £29m to cover the costs of a redress scheme meant to compensate mortgage customers affected by changes to its standard variable mortgage rate back in 2011 and 2012.
US durable goods orders rebound
Orders for long-lasting goods manufactured in the US rose more than expected last month, suggesting while investment on equipment improved at the start of this year.
Orders for durable goods – items ranging from toasters to aircraft meant to last three years or more – rose 1.4% last month boosted by transportation equipment and machinery orders, the Commerce Department’s Census Bureau said today. Economists polled by Reuters had forecast a 1.1% rise.
However, data for January was revised lower to show orders slumping 6.9% instead of 6.2% as previously reported.
Manufacturing has been held back by higher interest rates, which have curbed demand for goods. But the outlook for the sector, which accounts for about a tenth of the US economy, is steadily improving amid expectations that the Federal Reserve will start cutting interest rates soon.
Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.7% in February after falling 0.4% in the prior month.
Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, has this chart:
Norway’s sovereign wealth fund warns FCA plans could undermine investor confidence
Norway’s $1.6 trillion sovereign wealth fund has warned that the UK’s Financial Conduct Authority’s plan to simplify rules around public listings – aimed at boosting numbers following a decline – could undermine investor confidence in the market.
Carine Smith Ihenacho, chief governance and compliance officer of Norges Bank Investment Management, and Elisa Cencig, the fund’s head of policy engagement, wrote in a letter to the regulator last Friday:
We are concerned that the FCA’s efforts to boost listings by lowering corporate governance requirements will undermine the UK’s reputation as a market with robust investor protection, and might ultimately not be successful in driving companies’ IPO locations.
The UK’s finance regulator outlined plans in December to replace the standard and premium listings rules with one set of “streamlined eligibility and ongoing requirements,” after first announcing proposals in May.
They are intended to kickstart interest in London’s stock markets, where the number of flotations fell by 49% last year from 2022, according to the consultancy EY. It was the quietest year on record since 2010 when EY first started collating the data. The 23 issuers in 2023 raised £953.7m in total, down 40% from the £1.6bn raised in 2022.
Companies are attracted to a market by the possibility of getting a higher valuation, Ihenacho and Cencig said in the letter. They argued that it is unlikely that corporate governance requirements are a “key factor”, while reducing them will drive up costs for investors.
As a global investor, we are concerned about reforms to weaken investor protection driven by the aim to attract primary listings. As acknowledged by the FCA, there are many factors driving a company’s decision to list in a given market, including valuation and research coverage, the presence of a large pool of investors with deep expertise in certain sectors, and liquidity.
We are unconvinced that corporate governance requirements are the key factor in determining where a company lists. Consideration of the likelihood of achieving a higher valuation likely plays a relatively larger role. Furthermore, the proposals will affect costs for investors, by requiring more stringent monitoring and due diligence, and hinder stewardship efforts.
In particular, we note that a more permissive approach to unequal voting rights runs counter to the FCA’s intention to encourage investor stewardship and the higher expectations on institutional investors to protect minority interests.
Regarding dual class shares, we continue to believe that “one share, one vote” is the best regime to secure the fair treatment of all shareholders.
The FCA should reconsider before removing key investor protections such as a mandatory time-based sunset clause for dual class share structures and shareholder votes on related party transactions and significant transactions, they said.
The fund also raised concerns about scrapping eligibility requirements for companies, while backing its decision to maintain the current regime for controlling shareholders and an overall approach to annual disclosures and reporting requirements for UK governance, climate, and diversity.
Here’s our main story:
A senior Bank of England policymaker has warned that financial markets are expecting too many interest rate cuts this year and that the UK central bank is unlikely to move before the US Federal Reserve.
Catherine Mann, an external member of the Bank’s rate-setting monetary policy committee (MPC), said there were risks that UK inflation could persist at higher levels than in the US or the eurozone.
City traders are pricing in three quarter-point interest rate cuts this year, with a possible first downward shift from as early as May or June. Money markets give a 20% chance of a cut in May, before the Fed or the European Central Bank.
However, dampening expectations for large interest rate cuts this year, Mann told Bloomberg TV on Tuesday: “They’re pricing in too many cuts – that would be my personal view – and so in some sense, I don’t have to cut because the market already is.”
“Wage dynamics in the UK are stronger and more persistent than the wage dynamics in either the US or the euro area,” she said.
“Underlying services dynamics are also stickier more persistent than either the US or the euro area. So on that basis, it’s hard to argue that the BoE would be ahead of the other two regions, particularly the US.”
Mann last week voted with most of the MPC to hold interest rates at the current level of 5.25%, switching from her previous stance as one of the nine-member panel’s toughest advocates for a further rise in borrowing costs.
The Bank’s policymakers said they were seeing “encouraging signs” of falling inflation after keeping interest rates on hold for a fifth time at the highest level since the 2008 financial crisis.
BlackRock boss Larry Fink warns of global retirement crisis
The US and the rest of world face a “retirement crisis” as national safety nets buckle under the strain of ageing populations, with medical breakthroughs like the new weight loss drugs set to extend people’s lives further, BlackRock boss Larry Fink has warned.
In his annual letter to shareholders, Fink called for greater use of capital markets to help people save for retirement. BlackRock is the world’s largest money manager with $10 trillion in assets, more than half of which are for retirement.
Comparing the retirement crisis to the 2008/9 financial crisis, he said:
Maybe once a decade, the US faces a problem so big and urgent that government and corporate leaders stop business as usual. They step out of their silos and sit around the same table to find a solution.
Fink said the Social Security programme in the US (the idea originates from pre-World War I Germany) and the other “old-age insurance” programmes of the 20th century worked well when demographics were different. More than half the people who worked and paid into the system in the US never lived to retire and be paid from the system.
Today, these demographics have completely unravelled, and this unravelling is obviously a wonderful thing. We should want more people to live more years. But we can’t overlook the massive impact on the country’s retirement system.
Obesity, for example, can take more than 10 years off someone’s life expectancy, which is why some researchers think that new pharmaceuticals like Ozempic and Wegovy can be life-extending drugs, not just weight-loss drugs. In fact, a recent study shows that semaglutide, the generic name for Ozempic, can give people with cardiovascular disease an extra two years of life where they don’t suffer a major condition like a heart attack.
These drugs are breakthroughs. But they underscore a frustrating irony: As a society, we focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years.
Investing in financial markets is key, he argued:
People are living longer lives. They’ll need more money. The capital markets can provide it — so long as governments and companies help people invest.
In previous letters, Fink addressed other urgent issues such as the climate crisis. Two years ago, he said pushing climate policies was about profits, not being “woke”.
In the 2024 letter, he described the energy transition and the need to invest in infrastructure as today’s second big challenge.
Decarbonisation and energy security are the two macroeconomic trends driving the demand for more energy infrastructure. Sometimes they’re competing trends. Other times, they’re complementary, like when the same advanced battery that decarbonizes your grid can also reduce your dependence on foreign power.
In fact, in my nearly 50 years in finance, I’ve never seen more demand for energy infrastructure.
Here’s our full story on the former WeWork boss trying to buy back the bankrupt firm:
Adam Neumann, the ousted co-founder of WeWork, has tabled a bid worth more than $500m (£395m) in an attempt to regain control of the long troubled shared office space rental company that he launched in 2010.
Flow, Neumann’s property company, said on Monday that it had submitted a potential bid for WeWork with a “coalition of half a dozen financing partners”. The Wall Street Journal, which first reported Neumann’s offer, said it was tabled at more than $500m.
“WeWork is an extraordinary company and it’s no surprise we receive expressions of interest from third parties on a regular basis,” WeWork said in a statement shared with Reuters.
“Our board and our advisers review those approaches in the ordinary course, to ensure we always act in the best long-term interests of the company,” it added.
Vessel that collided with Baltimore bridge chartered by Maersk
The container vessel The Dali that collided with a bridge in Baltimore was chartered by the Danish shipping company Maersk, it said.
The ship carried Maersk customers’ cargo but none of the company’s crew or personnel were onboard, it added.
The shipping company said:
We are horrified by what has happened in Baltimore, and our thoughts are with all of those affected.
We are closely following the investigations conducted by authorities and Synergy, and we will do our utmost to keep our customers informed.
The Maersk share price fell more than 3% earlier and is now down 2%.
The vessel was set to depart Baltimore early today and arrive at Colombo on 22 April, Reuters reported, citing a schedule on Maersk’s website.
The vessel is owned by Singapore’s Grace Ocean Private Limited, and managed by Synergy Marine Group.
Revolution Bars says it could put itself up for sale
Revolution Bars said it could put itself up for sale, and is talking to investors about raising cash.
Its share price plummeted 48% today after the statement, and press reports that it could shut about 20 bars, equivalent to a quarter of its outlets, with the loss of hundreds of jobs.
The company did not comment on the mooted closures, but said:
Following a period of external challenges which have impacted the company’s business and trading performance, the board is actively exploring all the strategic options available to it to improve the future prospects of the group.
These include a restructuring plan for certain parts of the group, a sale of all or part of the group and any other avenue to maximise returns for stakeholders. The company also confirms it is currently engaged with key shareholders and other investors including Luke Johnson in respect of a fundraising.
Sky News reported that the London-listed company, which owns Peach Pubs and the Revolución de Cuba chain, is drawing up plans to close 20 of its worst-peforming bars, and has sounded out investors about a potential fundraising of £10m. This is more than the company’s market value of £3.45m.
One of its investors is Johnson, the entrepreneur and former chairman of Pizza Express, Patisserie Valerie, the Royal Society of Arts and Channel 4. He currently chairs and part-owns Gail’s bakery. He is a former owner of The Ivy, Le Caprice and J Sheekey restaurants.
