Why the BOE May Cut Rates Soon

Why the BOE May Cut Rates Soon By Hardika Singh

The Bank of England hasn't taken the rate-cutting plunge yet, but seems poised to do so. It may follow the path beaten by the European Central Bank this month: Cut rates a bit, but don't commit to more. Meanwhile, a proxy for layoffs came in better than economists had expected. And the Supreme Court left intact a tax on accumulated foreign profits that Congress created in 2017. Read on for this news and more.

Top News Bank of England Lays Groundwork for 'Hawkish Cut'

There are indications that the BOE may cut rates soon , perhaps as early as August. This is likely why sterling dropped against the dollar after the minutes from the BOE's rate-setting meeting were out, according to my colleague Jon Sindreu.

The bank said the decision to keep rates on hold was "finely balanced" for some committee members, who see much of the services inflation happening in regulated or volatile products that don't reflect a hot economy. Likewise, officials noted that tight monetary policy is hurting the economy and the labor market.

Glynn's Take: Recession Fears Keeping RBA's Bullock Awake at Night By James Glynn

Ask any good central banker what keeps them awake at night, and you'll be able to judge with far greater certainty where interest rates will go over the medium term. For Michele Bullock, the Reserve Bank of Australia's governor, the response would of course be sustained high inflation, but she'd quickly add a deep-seated fear of a recession too. Read more .

U.S. Economy Weekly Jobless Claims Come in Higher Than Expected

Initial jobless claims, a proxy for layoffs, slid by 5,000 to 238,000 for the week ended June 15 compared to the prior week's revised level of 243,000, the Labor Department said Thursday. The weekly number was higher than the 235,000 economists polled by The Wall Street Journal had expected.

Financial Regulation Supreme Court Upholds 2017 Tax on Foreign Investments

The Supreme Court rejected a challenge from conservative activists to a one-time tax on certain foreign investments, a ruling that broadly preserved Congress's taxing authority but left other difficult issues for another time.

Forward Guidance Friday (all times ET)

9:45 a.m.: Flash Manufacturing PMI

9:45 a.m.: Flash Services PMI

10 a.m.: Leading indicators

10 a.m.: Existing home sales

Monday

2 p.m.: Federal Reserve Bank of San Francisco President Mary Daly delivers remarks

Research Hawkish Emerging Markets Face Recession Risk

Central banks in many emerging markets see less room to lower interest rates than some of their developed-world counterparts, as inflation remains high around the globe. "We have seen deceleration of many of these economies, much more meaningful than what we have seen in the U.S.," says Andres Balcazar, head of global bonds at Pictet Asset Management. He cited Mexico and Brazil as examples, as their central banks have shown a disposition to remain hawkish for as long as needed to drive inflation down towards target. "They'll err on the side of caution, potentially at the risk of causing a small recession," Balcazar says. - Paulo Trevisani

Basis Points Fresh data on the U.S. housing sector show activity is still constrained by higher interest rates . The average rate on a standard 30-year fixed mortgage fell for a third straight week to 6.87%, according to a survey of lenders released Thursday by the mortgage-finance giant Freddie Mac. It remained above year-ago levels. - Hardika Singh Japan's consumer inflation picked up in May , adding to market expectations for interest rate increases from the Bank of Japan. Overall consumer prices in May rose 2.8% compared with the same period a year earlier, due mainly to higher electricity bills, compared with the 2.5% increase in April, government data showed Friday. - Megumi Fujikawa Consumer-price inflation in the eurozone is set to fall to the European Central Bank's target in the second half of next year, and policymakers should lower their key interest rate to 2.5% by the third quarter of 2025, the International Monetary Fund said Thursday. - Paul Hannon Across southern Europe, an unprecedented tourism boom driven largely by American tourists is turbocharging growth in places that had become bywords for economic stagnation, creating hundreds of thousands of jobs and filling the coffers of governments recently shaken by sovereign debt fears. But some economists think it could end badly. - Tom Fairless French businesses reported a decline in new orders during June in response to uncertainty about the outcome of surprise legislative elections, acting as a drag on the eurozone's economic recovery. - Paul Hannon and Ed Frankl U.K. retail sales rose 2.9% on month in May , flipping the 1.8% fall in April, according to the Office for National Statistics. That was better than the 1.5% expected in a consensus of economists polled by The Wall Street Journal. - Ed Frankl U.K. consumer confidence improved slightly in June on an improved assessment of the economy as inflation eases and ahead of national elections, a monthly survey said. Research group GfK's consumer-confidence barometer climbed to minus 14 in June, the highest since November 2021, from minus 17 in May, it said Friday. - Ed Frankl Saudi Arabia has been in a dash for cash : The country faces increasingly hard fiscal choices, with growing bills for planned futuristic megaprojects and an economic overhaul-and narrowing ways to pay for them. - Eliot Brown Special Report: Private Equity's Retail Push

In this special report , we examine private-equity's push to tap into wealthy individuals as high interest rates challenge industry returns.

Executive Insights

Here is our weekly roundup of stories from across WSJ Pro that we think you'll find useful.

Delta, Macy's and "fallen angels" are slashing debt and fortifying balance sheets to recoup their investment-grade ranking , a halo they lost in 2020.

A healthy-food startup backed by NBA stars Chris Paul and Kevin Love is mired in legal accusations brought by another investor and the company's executives.

Can farmland in the tropics be turned back into the carbon-packed forests they once were? Microsoft and other investors are betting on it .

Tech billionaires want to build a brand new city outside San Francisco. First, they have to convince local voters .

About Us

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Hardika Singh in New York. Send your tips, suggestions and feedback to [[e-mail]].

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

06-21-24 0715ET