Eurozone inflation rises unexpectedly to 2.6%
Eurozone prices rose slightly faster than expected in the year to July, in data that could give pause to the European Central Bank (ECB) as it prepares for more rate cuts.
Inflation in the bloc rose to a 2.6% annual rate in the year to July, up from 2.5% in June, according to a flash estimate by Eurostat, the EU’s statistics agency.
That was higher than the 2.4% expected by economists, and above the ECB’s 2% target.
If inflationary pressures were seen to be increasing, it would undermine the rationale for further rate cuts by the ECB. It has sought to support the European economy, which is struggling with its largest member, Germany, likely to be in recession.
Key events
Bank of Japan hikes rates and signals end of stimulus era
The Bank of Japan is very much at the other end of the monetary policy cycle: it today announced an interest rate hike and laid out plans for the ending of massive bond purchases used to stimulate the economy.
The BoJ’s board on Wednesday raised the overnight call rate target – its benchmark rate – to 0.25%, up from 0-0.1%. Its board voted 7-2 in favour of the hike. It will also slow the monthly pace of bond buying to around JPY3tn (£16bn) by the first quarter of 2026.
The bank’s governor, Kazuo Ueda also struck a hawkish tone that suggests that it really could be the end of Japan’s long-running programme to stimulate inflation. Reuters reported: Ueda “did not rule out another hike this year and stressed the bank’s readiness to keep raising borrowing costs to levels deemed neutral to the economy”:
Wednesday’s hike was the largest since a 25 basis point increase in February 2007, which was the last major policy tightening before a long era of massive monetary stimulus aimed at reflating sluggish consumer demand.
Kit Juckes, a strategist at French bank Société Générale, said:
The BoJ message was clear – they don’t want the yen to go on weakening.
The important part was the BoJ governor’s message, which seems to be that we are in a regime shift for monetary policy, with positive implications for the yen in the short and long term. The caveat is that it’s too early to be sure that stronger wage growth will lead to a sustained rise in inflation, and equally premature to be confident that the economy is on the right path.
The surprise rise in inflation makes a September rate cut from the European Central Bank (ECB) a very close call, according to ING, an investment bank.
Peter Vanden Houte, ING’s chief economist for the eurozone, said:
Looking at today’s data, we would definitely need better inflation figures in August and September to remain on course. This is still possible, since in both the PMI survey and the European Commission’s business and consumer survey, it appears that businesses’ pricing power has started to weaken, now also in services.
The latest data has not given the ECB the certainty it needs to confirm that the inflation battle has been won. That said, survey data still suggests that the downward trend in inflation is likely to continue.
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, said:
Despite the headline re-acceleration, there are details that should be pleasing to the ECB. Excluding-energy, the headline consumer price index contracted month-on-month. Services inflation has slowed from 4.1% to 4.0% year-on-year, which a component that the ECB is very much focused on. Food prices continued to slow and goods prices were still in outright contraction.
Analysing all the data there is still a high likelihood that the ECB will be cutting again at its September meeting.
Daniel Kral of Oxford Economics questions if the small dip in Eurozone services inflation will be enough to persuade the European Central Bank to continue cutting interest rates.
He points out that it has stayed sticky at about 4% during all of 2024. That is not a sign that inflationary pressures are cooling in Europe’s economy.
Small uptick in Eurozone inflation in July due to sticky services prices, energy no longer deflationary and food likely bottoming out.
Most concerning for @ecb will be services, the most domestically driven component, stuck at ~4% for nine months with momentum heading wrong way. https://t.co/gDPuqVlSZL pic.twitter.com/msgZSAVBqp
— Daniel Kral (@DanielKral1) July 31, 2024
But Mario Cavaggioni, a portfolio manager at Fedesa, which manages the Ferrero family fortune, says that he thinks that a downward trend in inflationary pressures is still visible in several European countries.
The trend in Eurozone’s countries remains intact: inflation is cooling. Spain/France miss, large part of German increase remains linked to energy/food, something that could reverse in late Q3 (base effects) or will be dampened by weaker HHs demand as unemployment will increase. pic.twitter.com/2dyWc1qxdz
— Mario Cavaggioni (@CavaggioniMario) July 31, 2024
Eurozone services inflation fell slightly in July, to an annual rate of 4.0%, compared with 4.1% in June. That might be just enough to justify the next interest rate cut when the European Central Bank’s rate-setters meet again in September, say economists.
Franziska Palmas, senior Europe economist at Capital Economics, a consultancy, said:
The small fall in services inflation in July is probably just enough for a September rate cut to remain the base case. But with underlying price pressures still high, the decision will be a close call and will depend on data to be released over the next few weeks, including the August inflation print.
While the fall in services inflation means a rate cut in September is still more likely than not, it is not a done deal. And until services inflation falls more significantly the ECB is likely to continue to ease policy only slowly.
Eurozone inflation rises unexpectedly to 2.6%
Eurozone prices rose slightly faster than expected in the year to July, in data that could give pause to the European Central Bank (ECB) as it prepares for more rate cuts.
Inflation in the bloc rose to a 2.6% annual rate in the year to July, up from 2.5% in June, according to a flash estimate by Eurostat, the EU’s statistics agency.
That was higher than the 2.4% expected by economists, and above the ECB’s 2% target.
If inflationary pressures were seen to be increasing, it would undermine the rationale for further rate cuts by the ECB. It has sought to support the European economy, which is struggling with its largest member, Germany, likely to be in recession.
Rio Tinto rejects calls to abandon London listing
Speaking of Rio Tinto, there is some welcome news for the London Stock Exchange this morning: the miner has rejected investor calls to drop its UK listing and concentrate on Australia.
British fund Palliser Capital had called for the FTSE 100 miner to drop a dual listing structure, arguing that it made it harder for the miner to pursue big mergers.
However, Jakob Stausholm, Rio Tinto’s chief executive, said the company’s board had rejected the idea after discussions, in an interview with the Wall Street Journal. He said:
It’s very clear, though, that it does not make economic sense to unify Rio Tinto. Our conclusion is that it would destroy value.
The London Stock Exchange has been contending with the departure of several of its former big-hitters, and a decline in the overall number of companies seeking to raise funds through share listings. Rio Tinto’s rival BHP departed from the FTSE 100 in 2021 after deciding that a single Australian listing would make more sense.
Rio Tinto reported a 14% rise in profits in the first half thanks to increased copper production, even as its larger iron ore business dipped.
Copper price gains boosts FTSE 100 miners
Mining companies are the main gainers on London’s FTSE 100 index this morning (barring HSBC). They have been helped in particular by a 2% increase in copper prices.
Copper has been under pressure in recent weeks because of questions over demand from the giant Chinese economy, but a softer dollar has helped to push up prices of the metal.
Copper miner Antofagasta duly gained 3.4%, Anglo American gained 3.3%, Glencore was up 2.9% and Rio Tinto rose 2% on Wednesday.
The red metal is one of the key materials for the energy transition because it is used in electrical wires used in everything from electricity generators to wind turbines and electric cars.
The share prices of only six companies on the FTSE 100 have dipped on Wednesday morning. One of the top fallers is pharma company GSK, down 2% after cutting its sales forecast for vaccines.
GSK, formerly GlaxoSmithKline, said it expected “low to mid-single digit” percentage growth in vaccine sales, after previously saying it might hit the “high single digit” realms.
Sheena Berry, healthcare analyst at Quilter Cheviot, said that sales of its Shingrix vaccine for shingles was a “standout disappointment”.
However, there was more positive news on GSK’s other divisions, with upgrades to sales guidance.
Berry said:
Looking ahead, GSK is offering double-digit earnings per share growth for 2024. However, the expiration of a key HIV patent in a few years presents a potential headwind. Business development to enhance the pipeline and product offering remains a clear focus, and the ongoing Zantac litigation continues to be an overhang on the company’s prospects.
Samsung is not the only company that has benefited from computer chip hype. British silicon wafer manufacturer IQE is up 9% this morning after saying it will list its Taiwan subsidiary on the country’s stock exchange.
Taiwan is perhaps the most important global centre for chip-making because of the dominance of Taiwan Semiconductor Manufacturing Company (TSMC) in producing the most advanced chips.
IQE is not involved in that business, but its “epi-wafer” products are used in Apple’s iPhones for facial recognition, Reuters reported.
IQE, which was valued at £284m at yesterday’s close, will sell a minority shareholding in the initial public offering, but it intends to retain control of the subsidiary, IQE Taiwan.
HSBC to pay out $4.8bn to shareholders says outgoing boss
Kalyeena Makortoff
HSBC is giving a further $4.8bn to shareholders, providing a final parting gift from the outgoing chief executive, Noel Quinn, after a rise in second-quarter profit.
The London-headquartered bank said it would buy back another $3bn (£2.3bn) worth of shares from investors, who will receive $1.8bn in fresh dividends.
It will mean Quinn will have paid $34.4bn to shareholders during his final 18 months in post, as part of a strategy that helped fend off calls to break up the bank, led by its top shareholder, China’s Ping An Asset Management.
He will hand the reins to the chief financial officer, Georges Elhedery, who was revealed as his successor earlier this month, in September.
The payouts come after HSBC managed to eke out a 1.5% increase in pre-tax profit to $8.9bn in the second quarter, up from $8.7bn a year earlier. The bank, which makes the bulk of its profits in Asia, benefited from growth in its wealth division and increased demand for investment banking services.
You can read the full story here:
Europe’s stock markets have opened higher on Wednesday.
London’s FTSE 100 has been boosted by the mining contingent and HSBC – more on both of those to come shortly.
Here are the opening snaps, via Reuters:
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EUROPE’S STOXX 600 UP 0.6%
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BRITAIN’S FTSE 100 UP 0.9%
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FRANCE’S CAC 40 UP 1.3%; SPAIN’S IBEX FLAT
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EURO STOXX INDEX UP 0.5%; EURO ZONE BLUE CHIPS UP 0.5%
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GERMANY’S DAX UP 0.5%
Young Brits abandon broadcast TV; Samsung expects strong AI chip demand
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Only 48% of British young people watch broadcast television in an average week, the first time that the share has dropped below half, according to new data from regulator Ofcom.
The proportion of those between 16 and 24 years old who tuned into traditional broadcasters has dropped steeply from 76% in 2018, as the use of online video sharing platforms like TikTok and YouTube has surged. Those young people who do watch TV spend 33 minutes a day on it, compared with an average of 1 hour 33 minutes on video-sharing apps and websites – albeit often accessed through the TV.
Children aged between 4 and 15 are also shifting away from broadcast television rapidly. Only 55% watched broadcast TV each week in 2023, compared to 81% in 2018.
The division between different generations’ habits is stark, if not perhaps that surprising: 95% of the over-65s still watch television every week.
Yet overall numbers of viewers of traditional broadcast media have been falling across the generations for several years.
Ian Macrae, Ofcom’s director of market intelligence, said:
Gen Z and Alpha are used to swiping and streaming, not flipping through broadcast TV channels. They crave the flexibility, immediacy and choice that on-demand services offer, spending over three hours a day watching video, but only 20 minutes of live TV. It’s no surprise that the traditional TV is fast becoming a device of choice to watch YouTube.
But while live TV may not have the universal pull it once did, its role in capturing those big moments that bring the nation together remains vital.
The Olympics fortnight is a good time to be making that point. And another sporting event was the biggest of the year so far: the BBC and ITV together averaged 15.1m viewers for the UEFA Euro 2024 men’s final between England and Spain.
Samsung expects strong demand for chips
Who is making the devices used to stream video? One of the most prominent is Samsung. The Korean technology manufacturer has reported a strong rise in profits – although it said that demand for chips for artificial intelligence was a big factor.
Samsung’s profits rose fifteen-fold in the second quarter compared with last year. Operating profit rose to 10.4tn won (£5.8bn) in April-June, up from 670bn won a year earlier, Samsung said.
The company is the world’s largest manufacturer of smartphones, televisions and memory chips. It is the latter that has been behind its recent profit surge – although it is also counting on increased AI features to sell more of its top-end phones.
Share prices of companies with links to artificial intelligence have boomed in recent years as investors try to work out who the big winners will be. Top among those companies have been the chip manufacturers and designers, although some of the enthusiasm appears to have waned in recent weeks. Nvidia, the biggest beneficiary, has fallen by 20% from its peak as something of a bubble has appeared to burst.
Samsung, though, is still positive about AI demand. It said:
In the second half of 2024, AI servers are expected to take up a larger portion of the (memory) market as major cloud service providers and enterprises expand their AI investments.
The agenda
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10am BST: Eurozone inflation rate (July; previous: 2.5%; consensus: 2.4%)
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1:15pm BST: US ADP employment change (July; prev.: 150,000; cons.: 150,000)
