US Federal Reserve Chair Powell indicates interest rate cuts ahead

The US Federal Reserve (Fed) Chair Jerome Powell on Friday gave a strong signal that the central bank would soon lower interest rates in response to easing inflation and weakening job market.

“The time has come for policy to adjust,” the US central bank chief said in his much-awaited keynote speech at the Fed’s annual retreat in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

During the past two years, the Fed raised interest rates 11 times to combat inflation. The rate hikes increased the cost of borrowing for businesses and consumers. The federal funds rate now stands in a range of 5.25% to 5.5%, its highest level in 23 years. 

Powell’s latest statement has set the stage for the first interest rate cut since 2020, with economists and markets expecting a quarter percentage point reduction at the Fed’s September 17-18 meeting. However, should the August jobs report be weaker than anticipated, experts believe it could heighten the likelihood of a larger rate cut of 0.5 percentage points.

 

Oil prices rise following Israeli strikes on Lebanon

Oil prices climbed today after Israel launched a series of preemptive strikes against Hezbollah targets in southern Lebanon, escalating tensions in the Middle East.

This military confrontation could disrupt regional oil supplies and potentially lead to additional Western sanctions on Iran.

Brent crude futures climbed 79 cents, or 1%, to $79.81 a barrel by 0910 GMT, while U.S. crude futures were at $75.63 a barrel, up 80 cents, or 1.07%, as per Reuters.

 

China to press on with supportive monetary policy to ensure economic recovery

The world’s second-largest economy, China, is making headway in resolving a series of financial risks and will persist with its supportive monetary policy to secure an economic recovery, People’s Bank of China (PBOC) Governor Pan Gongsheng said in an interview with the national broadcaster China Central Television (CCTV) that aired on Saturday.

As reported by the South China Morning Post over the weekend, the head of China’s central bank informed CCTV that the number of local government financing platforms and the level of outstanding debt have been steadily declining.

Local government financing platforms are entities that borrow funds on behalf of provinces and cities, primarily to finance infrastructure projects such as roads and ports.

According to Gongsheng, the maturing debt of “most” financing platforms had either been extended, restructured or replaced, and noted that financing costs for local government debt had decreased “significantly.”

Gongsheng also observed that the number of high-risk small and medium-sized banks had “nearly halved from the peak.”

The central bank's objectives include steering a "reasonable" increase in credit growth, achieving a gradual decline in financing costs for companies and households, and preserving the "basic" stability of the yuan exchange rate.

Gongsheng further added that the government will encourage financial institutions to strengthen assistance in critical areas and for weaker links, cater to “reasonable” consumer financing demands in a more focused manner, and explore measures to improve the coordination of macro policies.

“In the next step, we will strengthen countercyclical and cross-cyclical adjustments and focus on supporting stable expectations, boosting confidence, and supporting the consolidation and strengthening of the economic recovery,” remarked Gongsheng.

Local government debt pressure is merely one of the many challenges confronting China’s economy. The country is also grappling with a prolonged real estate slump, with sluggish credit demand reflected in key data on money supply and bank lending from last month.

 

Saudi Arabia attracts 184 foreign companies to set up regional HQs in H1 2024

In the first half of 2024, Saudi Arabia attracted 184 foreign companies to relocate their regional headquarters (HQs) to the Kingdom, according to the Ministry of Investment of Saudi Arabia (MISA).

Saudi Arabia’s relentless efforts to enhance its investment environment and appeal to global firms have yielded these impressive results.

During the second quarter, 57 companies were granted licenses to set up their regional headquarters in Saudi Arabia. This represents an 84% increase compared to the same period in 2023. Adding the 127 licenses issued in the first quarter, the total number of licenses granted in the first half of 2024 reached 184.

The ministry also processed 4,709 applications for an 'Investor Visit' visa, which permits international investors to visit the Kingdom and explore investment opportunities. Additionally, MISA addressed 38 challenges faced by investors, including legislative and procedural issues.

Moreover, MISA reported a 49.6% increase in overall investment licenses, reaching 2,728 in the first half of 2024, in contrast to around 1,824 during the same period last year.

The leading sectors propelling investment encompass construction, manufacturing, professional services, education, information and communications technology, hospitality, and retail trade. Notably, mining and quarrying experienced the highest growth rate in license issuance, with a 209.1% year-on-year increase, followed by wholesale and retail trade, and other services.

 

India’s growth rate likely dips to 6.9% in last quarter amid lower government spending

India's economic growth likely moderated in the April-June quarter, marking its slowest pace in a year, as government spending decreased during the national election period, which concluded in June, as per a Reuters poll.

The world’s fifth largest economy, India, had consistently grown above 7% in previous quarters, driven by substantial capital expenditure by the government under Prime Minister Narendra Modi. This spending was part of an effort to secure a third term in the recent election. However, holding back on public spending ahead of the parliamentary elections has impacted growth. While Bharatiya Janata Party (BJP) under Modi’s leadership successfully retained power, it lost its outright majority in the lower house.

The Reuters poll, conducted between August 19 and 26 among 52 economists, forecasts that the country's gross domestic product (GDP) grew by an annual 6.9% in the April-June quarter, down from 7.8% in the previous quarter. The forecasts ranged from 6.0% to 8.1%.

Despite the likely decline in the growth rate, if the median forecast holds true, India will still retain its position as the world's fastest-growing major economy. The government is expected to announce the official GDP data for the April-June quarter on Friday.