UK House Prices Rise for A Fifth Month, Halifax Says

Economic

Summary:

0.4% gain in February leaves home values 1.7% higher on year.But Halifax warns of possible slowdown later in the year.

UK house prices rose for a fifth month in February, confirming a rebound from a slump last year as consumers become more confident that borrowing costs are likely to drop.

Halifax said the average value of a home rose 0.4% from January to £291,699 ($371,710). It left values 1.7% higher than a year earlier. UK House Prices Rise for A Fifth Month, Halifax Says_1

UK House Prices Rise for A Fifth Month, Halifax Says_1

The figures indicate the housing market recovery is taking root after a stagnant 2023. Prospective buyers are being encouraged by easing mortgage costs and a rosier economic outlook.

It comes a day after the UK fiscal watchdog upgraded its housing market outlook on the back of anticipated interest rate cuts from the Bank of England. The Office for Budget Responsibility expects average house prices to fall modestly this year, and at a shallower pace than anticipated four months ago. UK House Prices Rise for A Fifth Month, Halifax Says_2

UK House Prices Rise for A Fifth Month, Halifax Says_2

Prices nationwide are now down 0.6%, or by £1,800, from their peak in mid-2022, Halifax said. London house prices rose 1.5% from a year ago, the first annual growth in a year.

The figures confirm increases also recorded by rival mortgage lender Nationwide Building Society and lending figures from the BOE.

The increase reported by Halifax was nonetheless the weakest reading since September, underlining the headwinds continuing to face the housing market.

“These figures continue to suggest a relatively stable start to 2024 and align with other promising signs of increased housing activity, such as mortgage approvals,” said Kim Kinnaird, director at Halifax Mortgages. “Even with growing wages and inflation falling back, raising a deposit and affording a sizeable mortgage remains challenging, especially for those looking to join the property ladder, so it remains a possibility that there could be a slowdown in the housing market this year.” UK House Prices Rise for A Fifth Month, Halifax Says_3

UK House Prices Rise for A Fifth Month, Halifax Says_3

While mortgage rates have fallen from 15-year highs last summer, they are still well above levels before the BOE began its hiking cycle and have edged up in recent weeks as investors scaled back how far they expect the BOE to cut rates. According to Moneyfacts, the average 2-year fixed residential home loan is around 5.76%, up from 5.55% toward the end of January.

In his Budget on Wednesday, UK Chancellor Jeremy Hunt announced a series of measures meant to increase housing supply. He reduced the capital gains tax on residential sales in a bid to encourage existing home owners to sell. He also scrapped the furnished holiday lettings regime that gave tax breaks to people renting second homes out on a short-term basis.

“This recovery remains fragile, and the government had a prime opportunity during yesterday’s Spring Budget to stabilise this upward trajectory. Regrettably, this was an opportunity missed,” Sam Mitchell, CEO of Purplebricks

Source:Bloomberg

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Ukadike Micheal

Economic

Forex

In February, UK businesses saw a notable decline in expectations for both price and wage pressures, based on a pivotal survey conducted by the Bank of England. The findings have sparked optimism for potential interest rate cuts later this year.

According to the monthly Decision Maker Panel survey of chief financial officers, businesses projected a 4.1% increase in consumer prices over the next year, down from the 4.5% forecast in January and marking the lowest figure since September 2021. Simultaneously, wage growth expectations for the coming year decreased to 4.9%, compared to the 5.1% forecast in January and the lowest recorded since May 2022.

These revelations carry substantial weight, as business price expectations serve as a key indicator for policymakers assessing immediate domestic price pressures. The downward revision in both consumer prices and wage growth forecasts is likely to influence the broader economic landscape.

Delving deeper into the numbers, the survey indicates a tangible shift in business sentiment. The lowered projections reflect a more subdued outlook, suggesting a potential easing of inflationary pressures. This development aligns with the central bank's objectives, raising speculation about the prospect of interest rate cuts in the near future.

Examining the technical implications of these findings on the market, the reduced expectations for consumer price and wage growth could have a cascading effect. As businesses anticipate lower costs and more restrained wage increases, there is potential for increased consumer spending and business investment. This, in turn, might stimulate economic activity and contribute to a more favorable market environment.

While the survey provides valuable insights into short-term economic trends, it is essential to approach these figures with caution. Economic forecasts are subject to various external factors, and the actual trajectory of inflation and wage growth may deviate from initial projections.

The latest Bank of England survey signals a shift in business expectations, with a notable decrease in projected consumer prices and wage growth. The potential implications for the market suggest a favorable outlook, with the prospect of increased consumer spending and business investment. However, as with any economic forecast, uncertainties persist, and careful monitoring of future developments will be crucial to gaining a comprehensive understanding of the evolving economic landscape.

Source: Financial Times

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Warren Takunda

Central Bank

Economic

Stocks

Jeremy Hunt's Spring Budget announcement has proven to be a boon for certain sectors, with a particular emphasis on consumer-focused shares receiving a favorable nod from investors. The National Insurance cut, coupled with rumors of a fuel duty freeze, has already bolstered shares in the retail sector.

Investors are anticipating that the National Insurance reduction will inject more disposable income into the hands of middle-income earners, potentially driving increased footfall both in physical stores and online retail platforms. Notably, major players like Marks and Spencer, Next, and Greggs have maintained their upward trajectory, the latter benefiting from expectations of heightened demand for its value-oriented product lines.

In a bid to prevent a bond market upheaval, Chancellor Hunt adhered to fiscal rules, leading to a drop in the yield on 10-year gilts. However, the market response appears measured, lacking the surprise elements that often characterize budgetary announcements.

The pound experienced a slight dip during the Chancellor's speech, with lingering concerns that the proposed plans might result in a temporary spending surge rather than laying the groundwork for sustained economic growth.

Despite the positive sentiments, the budgetary measures fell short of delivering a significant stimulus to kickstart investment, leaving concerns about underfunding for public services, especially in infrastructure, education, and training. The AI productivity boost for the NHS remains ambiguous in the face of potential obstacles.

Pub chains initially saw gains on the prospect of National Insurance cuts and a freeze on alcohol duty. However, concerns persist within the hospitality sector, where businesses are advocating for a VAT cut. Rising costs have forced pubs and restaurants to increase prices, making the freeze less impactful.

Speculation regarding a vape tax and potential increases in cigarette duties had already impacted tobacco giants, and the confirmed policy led to further declines. The hike in cigarette prices may drive smokers towards more cost-effective alternatives, contributing to the growing vape market, albeit still a small segment.

Housebuilders, facing challenges in the high-interest rate environment, experienced a mix of reactions. Initial enthusiasm surrounded the reduction in capital gains tax from 28% to 24%, but this waned. Investor sentiment is also influenced by potential repercussions from the abolition of holiday lettings relief.

Energy giants, despite the extension of the energy profits level to 2029, remained largely unfazed. The focus shifted to the rise in oil prices, hovering around $83 per barrel, following Saudi Arabia's price adjustments for Asian buyers.

Interest is expected to be robust in the NatWest share sale, marking a significant public offering since the Royal Mail IPO over a decade ago. The move to include retail investors in the share sale is applauded, offering them a stake in NatWest's fortunes after a challenging period.

The overall economic landscape signals a need for increased investment, aligning with the government's ambition to rejuvenate the UK listings market. According to data provided, 83% of shares held by HL clients are in UK listings, with over 1000 UK equities available on their platform. However, there's a call to explore alternatives to a British ISA, such as increasing the overall ISA allowance to prevent unnecessary portfolio concentration and complexity.

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SAXO

Cryptocurrency

The price of bitcoin (XBTUSD) soared to all-time highs of over $69,000 on Tuesday before turning lower as some traders locked in profits. Gains have reached over 50% year-to-date, with much of the surge occurring in recent weeks as trading volume surged for US-listed Bitcoin funds.

Ethereum (XETUSD) outperformed Bitcoin even as the SEC recently pushed back against Ethereum ETFs proposed by BlackRock and Fidelity and markets are awaiting the SEC’s decision on the VanEck Ethereum ETF that has its final decision deadline on May 23rd. Any approval, however, will likely come with rest of the ETF filings as well just like the spot Bitcoin ETFs in order to prevent a first mover advantage.

What is driving the bitcoin rally?

Record inflows in the recently launched Bitcoin ETFs

The first spot Bitcoin ETFs were launched in January this year, and investors are rushing to pile in money into these funds. Bitcoin spot ETFs have attracted everyday investors to buy the digital asset through their brokerage accounts, without having to go to a crypto exchange or to funds that track bitcoin’s price through futures contracts.

BlackRock’s iShares Bitcoin Trust eclipsed $10 billion in assets Thursday, the fastest a new ETF has ever reached that milestone. Fidelity’s fund, now with more than $6 billion in assets, is already the asset manager’s third-largest ETF and has accounted for the bulk of its net ETF inflows this year.

Anticipation ahead of the halving event

The halving, also known as the "halvening," is a scheduled event in Bitcoin's protocol that occurs approximately every four years. During this event, the reward that Bitcoin miners receive for validating transactions and securing the network is halved. This reduction in the reward decreases the rate at which new bitcoins are created, effectively reducing the available supply.

The purpose of the halving is to control inflation and ensure that the total supply of bitcoins remains capped at 21 million, as specified in Bitcoin's code. This scarcity is one of the key factors driving Bitcoin's value.

The next bitcoin halving is expected to occur in April 2024, when the number of blocks hits 740,000. It will see the block reward fall from 6.25 to 3.125 bitcoins. The general consensus is that Bitcoin halving events are positive for the price of Bitcoin, and historically they have been. Bitcoin Fever Is Running High, Again_1

Flush liquidity and general risk-on environment

The Fed’s overnight reverse repurchase agreement facility or RRP — where eligible counterparties can park cash to earn a fixed rate — has been dwindling. This means that money market funds that parked excess cash at the RRP before have been withdrawing it, particularly to buy T-bills. This is adding to market liquidity. The Fed may be at a point to start discussing the tapering of QT, as hinted by Fed member Chris Waller.

Even as policy rates may remain higher-for-longer, the market is flush with liquidity. This could be partly fuelling the recent all-time highs across risk assets including NASDAQ. Bitcoin remains sensitive to liquidity shifts, given it is a high-volatility tech proxy.

FOMO buying

For those undecided about entering the crypto sphere, few things induce more FOMO (fear of missing out) than witnessing Bitcoin's ascent from the sidelines. Knowing others are making money while they're not can push people to take big risks. Indeed, FOMO serves as a potent catalyst for impulsive buying decisions.

The fragmentation game

Bitcoin provides an alternative asset choice for those looking to diversify away from assets controlled by governments. This has been a factor supporting Gold, as many central banks bought gold over the last few years to diversify their USD reserves. Bitcoin could face a similar demand if it is increasingly accepted as the 'digital gold' of the 21st century. However, there are inherent risks to consider. Presently, Bitcoin's volatility makes it an unreliable store of value.

Exit from the crypto winter

The market seems to be healing from the aftermath of the crypto winter, marked by the collapse of firms like TerraLuna, Genesis, BlockFi, and FTX, which tarnished cryptocurrencies' reputation. A recent period of calm suggests stability, while some see it as a necessary cleanup of the crypto ecosystem.

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Alex

Economic

Bank of Japan (BOJ) board member Junko Nakagawa said the economy was making steady progress towards achieving the central bank's 2 per cent inflation target and signalled conviction that conditions for phasing out its massive stimulus were falling into place.

The remarks came as Japan's largest industrial labour group said some member unions had their wage demands met in full from management, heightening prospects of a broad-based pay rise that the BOJ set as a prerequisite for a stimulus exit.

All eyes are on BOJ Governor Kazuo Ueda's scheduled appearance in parliament later on Thursday, where he will likely be grilled for clues on how soon the central bank will end its negative interest rate policy and other stimulus tools.

With inflation exceeding the BOJ's target for well over a year now and prospects for sustained wage gains heightening, many market players expect the central bank to end its negative interest rate policy this month or next.

In a speech to business leaders in the southwest Japan city of Matsue, Nakagawa said the country's intensifying labour shortages were prodding more companies to resume their practice of increasing pay annually.

"We can say that prospects for the economy to achieve a positive cycle of (rising) inflation and wages are in sight," Nakagawa said in the speech.

"There are clear signs of change in how companies set wages. Japan is moving steadily towards sustainably and stably achieving our 2 per cent inflation target," she said.

The remarks follow those of fellow BOJ board member Hajime Takata, who said last week Japan was finally seeing prospects it could durably achieving the bank's 2 per cent inflation target.

Despite recent weak signs in the economy, BOJ policymakers have signalled their intention to move ahead with their plan to dial back stimulus - including Governor Ueda, who offered an upbeat take on Japan's economic outlook last week.

Japan's real wages shrank in January for the 22nd straight month but at the slowest pace in over a year, data showed on Thursday, as price pressures from rising food and raw material costs dissipated.

The growing momentum for a March exit, and a media report that at least one of the BOJ's nine board members is likely to call for removing negative rates this month, pushed up the yen to a one-month high past 149 to the dollar.

"The potential for (a) March pivot is growing," said Hirofumi Suzuki, chief FX strategist at SMBC.

"Nakagawa's comments do not negate this view. As a result, the yen is appreciating, continuing the trend from yesterday. The yen looks strong in the near term."

In an effort to reflate growth and keep inflation sustainably around 2 per cent, the BOJ guides short-term interest rates at -0.1 per cent and sets a 0 per cent target for the 10-year bond yield under a policy dubbed yield curve control (YCC).

It also buys huge amounts of government bonds and keeps in place a framework to buy risky assets such as trust funds investing in stocks and property.

BOJ officials, including Deputy Governor Shinichi Uchida, have signalled that the central bank will overhaul all of the tools when debating an exit from negative rates.

Governor Ueda has said the outcome of this year's annual spring wage negotiations will be key to how soon the BOJ can phase out the monetary easing measures.

Big firms will settle their wage negotiations with unions on March 13, days before the BOJ's policy meeting on March 18-19.

The pay hike agreed so far was the biggest since the UA Zensen, an umbrella group that represents 2,237 unions, was established in 2012, likely adding to the momentum of the ongoing wage negotiations.

While pointing to some positive signs on the wage outlook, Nakagawa said there was a risk that wages fail to rise enough and hurt household sentiment, thereby cooling consumption.

"If we judge that achievement of our price target is in sight ... we will debate and decide whether or not to modify our policy means including yield curve control and risky asset buying," Nakagawa said.

Source: Reuters

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Samantha Luan

Economic

The Bank of Canada is tracking wage growth as one of its key metrics to determine the appropriate timing for interest rate cuts. Early indicators suggest slower gains are ahead.

Wages are still running hot and aren’t yet slowing at levels that could give policymakers confidence inflation is on a sustained path downward. But a period of outsized compensation increases may be over.

Average union wage settlements rising more than 5% are becoming more rare. Wage growth for permanent employees is expected to decelerate to 5.1% in February from 5.3% a month earlier, according to the median estimate in a Bloomberg survey of economists ahead of jobs data to be released Friday.

Across 20 sectors in Statistics Canada’s most recent payroll employment survey, average weekly wages in December were lower than their respective peaks in 15 industries, with only five still recording new highs.

“I expect wages to cool off as the labor market does,” said Brendon Bernard, senior economist at job-listing website Indeed. “It’d be surprising if they don’t start slowing down this year with firms’ expectations coming down, posted wages and salaries gradually edging down over time.”

Salary Growth on Indeed Is Trending Down in Canada

Posted wage growth dropped to 3.8% in January Early Signals Are Showing Cooling Wage Growth In Canada_1

Posted wage growth on Indeed ticked down below 4% early this year. Small and medium-sized firms surveyed by the Canadian Federation of Independent Business expect wages to rise 2.5% in the next year, extending a descent from the mid-2022 peak when the jobless rate was at record low.

Compensation tends to adjust slowly to rising prices due to the duration of contracts. But these signs are pointing to Canada’s softer labor market — which has seen immigration-driven labor force gains outpacing job creation — beginning to influence compensation negotiations and settings, resulting in slower gains.

Bank of Canada policymakers view wage growth as a lagging indicator of labor market activity and believe that past gains largely reflect catch-up with the cost of living. On Wednesday, when the central bank held the policy rate steady for a fifth straight meeting, Governor Tiff Macklem said there are now “some signs that wage pressures may be easing” as the labor market comes into better balance.

“Wages are way past the peak and are trending down. We’re about 60% of the way there, so at that trend, it would probably take a bit more than six months to normalize,” said Simon Gaudreault, CFIB’s chief economist. Price increase plans — an indicator of inflation — also show a similar trend, he said. Early Signals Are Showing Cooling Wage Growth In Canada_2

Early Signals Are Showing Cooling Wage Growth In Canada_2

In collective bargaining across Canada, the average annual increase of major wage settlements fell to 3.9% in November, compared with 5% a month earlier. In Ontario, Canada’s most populous province, the share of private-sector employees who saw average annual wage increases of 5% or more declined to 5.1% last year, from 13.4% a year earlier. The share of public workers who saw similar gains dropped to 0.6%, from 4.9% in 2022.

To be sure, despite signs of slowing wage growth across different metrics, unions and their members are still pushing for higher wage gains. That’s even after inflation eased to 2.9% early this year.

“It hasn’t changed our viewpoint because the reality is that you’re not yet feeling any relief,” said Bea Bruske, president of the Canadian Labor Congress.

“Although a downward trend might have started, the reality is that people are still living paycheck to paycheck. Unless you can deal with that issue, we’re still going to see an increased, heightened focus on making more progress at bargaining tables.”

Source:Bloomberg

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FastBull Featured

Remarks of Officials

Bank of Canada (BOC) Governor Tiff Macklem delivered a speech on March 6 on March monetary policy, the main content of which is as follows.

Since our January decision, there have been no big surprises. Economic growth has remained weak, and inflation has eased further as higher interest rates restrain demand and relieve price pressures. But with inflation still close to 3% and underlying inflationary pressures persisting, the Governing Council assesses that we need to give higher rates more time to continue to curb inflation.

Recent inflation data suggest monetary policy is working largely as expected. However, the upside risks to inflation remain, future progress on inflation is expected to be gradual and uneven. It’s still too early to consider lowering the policy interest rate.

Labor markets have continued to ease gradually, and the supply in the labor market has come into better balance. Job vacancies have returned to more normal levels. Wage growth has been stable gradually, and there are now some signs that wage pressures may be easing.

Consumer price index (CPI) inflation eased to 2.9% in January. This largely reflected lower energy prices and an easing in food price inflation. However, as shelter price inflation remains elevated, underlying price pressures persist.

Looking ahead, we continue to expect inflation will be close to 3% through the middle of the year before easing in the second half. Gasoline prices are expected to continue to add volatility to inflation in the coming months, and shelter price pressures are likely to persist.

The Governing Council doesn't want to keep monetary policy this restrictive for longer than we have to. But nor do we want to jeopardize the progress we've made in bringing inflation down. It's too early to loosen the restrictive policy that has gotten us this far. we want to see a further deceleration in core inflation in the coming months. With the labor market coming into better balance, we are looking for further evidence that wage growth is moderating.