It seems like an absolute certainty that interest rates will be lowered this summer, and hopefully in time to celebrate Midsummer Day next month.
That’s the clear signal from yesterday’s speech by Ben Broadbent, the outgoing deputy governor of the Bank of England, who said that if the economy develops as expected, then rates will be cut this summer. Some of us would say, ‘It’s about time too!’
Broadbent’s intervention is timely and significant because he has never before been defeated by his colleagues on the Bank’s Monetary Policy Committee (MPC).
It is timely because the next MPC meeting (June 20) will also be the last one before he resigns after 13 years.
And it’s significant because Broadbent was explicit about what MPC members will look for when evaluating the data.
Rate debate: Tomorrow’s inflation numbers for April are expected to show a big drop to 2.1% in April from 3.2% in March, the lowest since September 2021.
While the direct effect of the pandemic and the Ukraine war on inflation has diminished, he said, what matters now is how long the impact of inflation will last.
And the data looks positively positive, suggesting that second-round effects are fading quickly.
Tomorrow’s inflation figures for April are expected to show a big drop to 2.1 percent in April from 3.2 percent in March, the lowest since September 2021.
Some experts predict it could fall below the Bank’s 2 percent target and average 2.2 percent by 2024, before falling to 1.5 percent next year.
Food prices are falling rapidly. So are energy prices. Interest rates have been at 5.25 percent since August, after 14 rate increases.
Higher rates have more than done their job, crucifying millions of homeowners with huge mortgages, forcing millions to rein in their spending, and leaving small businesses with mounting loans.
Wage growth is stagnating and the money supply is contracting. Now is the time to cut them to 5 percent in June, followed by another cut later in the summer.
Broadbent has been part of the MPC’s groupthink, which led to the Bank taking too long to raise rates because members believed inflation was temporary. You can retire at the top and vote for a cut.
golden copper
Everything that shines shines brighter than ever. Gold, silver and copper prices are soaring to record levels, but for different reasons.
It rose another 1 percent to nearly $2,450 an ounce, fueled by fears of heightened tension in the Middle East following the death of Iran’s president in a helicopter crash, while Saudi Arabia’s crown prince canceled a visit to Japan due to the poor health of King Salman, his father.
There is simply no stopping the thirst for gold, fueled by hopes that the US Federal Reserve will make a couple of interest rate cuts this year, but also because it is seen as a safe haven.
Once again, China is the big buyer: the People’s Bank of China bought another 60,000 troy ounces to add to its reserve in April, the 18th month of gold purchases.
Copper is also hitting new highs, rising 4 percent to $11,104.50 a metric ton on the London Metal Exchange. It’s already up 28 percent this year.
While the price of gold is often driven by fear, copper’s rise reflects a more optimistic industrial outlook around the world, particularly in China.
Copper is in such demand because as the energy transition moves toward electrification, more will be needed in everything that moves, from cars to heating.
Like lithium and cobalt for batteries, copper is the new darling of commodity markets.
Don’t throw away those old pipes!
Blow to AIM
Keywords Studios bosses can’t be blamed for accepting a generous £2bn offer for their video games services group.
AIM-listed Swedish private equity fund EQT’s keyword bid is 70 percent higher than last Friday’s bid.
This is a premium, although the shares are well below the peak of 3,300 pence reached during the lockdown tech bubble.
It is yet another blow to the London Stock Exchange’s junior market, which is witnessing an exodus of companies, either through acquisitions or because they are choosing to delist because the market is too expensive and bureaucratic.
When will British investors wake up and see the jewels in front of their screens?
And when will AIM address its issues?
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