Take Two: ECB cuts rates again; US inflation continues to fall

16 Septiembre 2024 (3 min read)

What do you need to know?

The European Central Bank (ECB) delivered its second rate cut this year, taking its benchmark deposit rate down by 25 basis point to 3.5%. However, ECB President Christine Lagarde said the Eurozone’s recovery “is continuing to face some headwinds” and notably, the ECB lowered its 2024 growth forecast to 0.8%, slightly down on its earlier 0.9% estimate. Separately, former ECB President Mario Draghi said an additional €750bn-€800bn of annual investment is needed to boost the bloc’s stagnated economy. In a report on the future of European competitiveness, Draghi warned that without greater investment, Europe risks falling further behind other economic superpowers.

Around the world:

US annual inflation dropped to its lowest level since February 2021, easing for a fifth consecutive month in August to 2.5%, down from 2.9% in July. The data shows further progress is being made in getting price rises back to their 2% target and raised expectations of an interest rate cut when the Federal Reserve (Fed) meets later this week. AXA IM forecasts two rate cuts this year and potentially two in 2025 depending on the outcome of the US presidential election. Core inflation, which excludes energy and food, rose 0.3% on the month from 0.2%, although the annual rate remained unchanged at 3.2%.

Figure in focus:

8.7% - China’s exports grew to 8.7% in August on an annual basis - their fastest pace in 17 months, and up from 7% in July - exceeding forecasts of 6.5%. However, imports rose by just 0.5%, missing market estimates of 2% - a notable fall from the 7.2% growth in July. The drop may indicate weak domestic demand in China – a persistent problem in the world’s second-largest economy. Meanwhile, China’s annual inflation rate increased to 0.6% - its highest since February - up from 0.5% in July but slightly below expectations of 0.7%.

Words of wisdom

Hyperscaler: A term used to describe large technology companies, typically cloud service providers, operating huge global networks of data centres - physical sites that house servers, network and storage infrastructure and other related computer hardware. Last week Amazon, one such hyperscaler, announced plans to invest £8bn ($10.45bn) in the UK over the next five years to build and operate data centres. An ongoing shift to cloud-based computing as well as rapid development of artificial intelligence has created a need for a growing number of data centres – there are thought to be more than 10,000 such data centres globally, half of them in the US.

What’s coming up?

All eyes will be on central banks this week. On Wednesday, the Fed meets to decide on interest rates while on Thursday, the Bank of England convenes to set monetary policy and is followed by the Bank of Japan on Friday. In terms of economic updates, Canada reports its latest inflation numbers on Tuesday, while the UK and Eurozone issue their own respective numbers on Wednesday while Japan reports on Friday.