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<ul class="summary-list"><li>The European Union just made its first cut to interest rates in five years.</li><li>The European Central Bank lowered its main interest rate from 4% to 3.75%.</li></ul>The European Union has become the latest global economy to cut its benchmark interest rate.The <a target="_blank" href="https://www.ecb.europa.eu/press/pr/date/2024/html/ecb.mp240606~2148ecdb3c.en.html">European Central Bank</a> announced on Thursday that it would lower its main interest rate from 4% to 3.75%, marking its first reduction since 2019. Canada cut its key policy rate from 5% to 4.75% on Wednesday.Neil Birrell, the chief investment officer at Premier Miton Investors, said in a research note to clients:"In one of the most flagged central bank interest rate decisions for some time, the ECB followed Canada into the rate cutting cycle. However, the path for further cuts is unlikely to be as predictable or smooth.""Eurozone inflation is proving more resilient than hoped, as it is in the US and UK, which has to influence the ECB, although they will be keen to keep providing stimulus to the economy, it needs it. As has been the case all the way through the cycle, they have a tight rope to walk," he said.Economies worldwide have <a target="_blank" href="https://www.businessinsider.com/when-will-fed-cut-interest-rates-powell-fomc-inflation-relief-2024-4">raised interest rates</a> significantly over the past two years after inflation surged because of the COVID-19 pandemic.For example, US inflation surged to a 40-year high of more than 9% in the summer of 2022. The US central bank has responded by <a target="_blank" href="https://www.businessinsider.com/federal-reserve-hikes-interest-rates-inflation-higher-costs-loans-mortgages-2022-3">hiking interest rates</a> from nearly zero in early 2022 to more than 5% and has yet to make its first cut.Central banks raise interest rates to cool inflation, as higher rates make it more attractive to save instead of spend or invest, and deter companies from hiring by raising the interest payments on their debts. The result is usually less overall demand in the economy, which helps to relieve upward pressure on prices.But consumers and businesses in Europe, the US, and elsewhere have faced a <a target="_blank" href="https://markets.businessinsider.com/news/stocks/big-short-michael-burry-jpmorgan-consumer-inflation-rates-banking-crisis-2023-4">painful combination</a> of historic inflation and sharp rate increases. They're now paying significantly higher prices for food, fuel, housing, and other essentials, and also higher monthly payments on their cars, mortgages, credit cards, and other debts.The cost-of-living crisis has heaped pressure on central banks to cut rates, but stubborn inflation has made it a tough decision for the likes of the ECB's president, Christine Lagarde.Indeed, annualized inflation in the EU ticked up from 2.4% in April to 2.6% in May — above the ECB's 2% target. At the same time, the EU is only expected to <a target="_blank" href="https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/spring-2024-economic-forecast-gradual-expansion-amid-high-geopolitical-risks_en">increase its gross domestic product</a> by 1% this year, fueling calls to stimulate growth by lowering rates."Since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly," the ECB said in its press release."Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons," it continued.The central bank did, however, note that "domestic price pressures remain strong" and "inflation is likely to stay above target well into next year," signaling that markets shouldn't expect a flurry of cuts in the months ahead.

Europe's central bank cuts interest rates for first time in 5 years

<ul class="summary-list"><li>There are now more central banks cutting rates than those hiking rates, per a Deutsche Bank analysis.</li><li>However, there may not be a big easing cycle unless the US enters a recession.</li></ul>Central banks around the world have been hiking interest rates relentlessly in the last 18 months to tame inflation — but some are now cutting them.For the first time since January 2021, there are more central banks cutting rates than those hiking them, according to a report released by Deutsche Bank research strategist Jim Reid. Business Insider viewed the report, which was released on Tuesday.The trend started last month, with 10 central banks cutting rates — outnumbering those that hiked rates in the same time period, according to Reid's analysis of 81 central banks around the world.The trend continued this month with five central banks — including include those in <a target="_blank" href="https://www.wsj.com/articles/brazils-central-bank-cuts-key-rate-signals-more-cuts-to-come-cf55a1d3">Brazil</a> and <a target="_blank" href="https://www.reuters.com/markets/rates-bonds/peru-cuts-interest-rate-again-prices-ease-recession-lingers-2023-11-09/">Peru</a> — cutting rates so far.While major central banks like the US Federal Reserve and the <a target="_blank" href="https://www.reuters.com/markets/rates-bonds/ecb-hold-rates-may-discuss-quicker-bond-portfolio-run-off-2023-10-25/">European Central Bank </a>are keeping rates steady right now, there are bets that they, too, will start to <a target="_blank" href="https://www.reuters.com/markets/europe/morgan-stanley-sees-first-ecb-rate-cut-june-2024-2023-11-13/">hike rates</a> in the months ahead.<a target="_blank" href="https://www.businessinsider.com/stock-market-outlook-2024-recession-fed-interest-rate-cuts-ubs-2023-11">Swiss bank UBS,</a> for one, said last week it's expecting the Fed to slash rates as the US economy enters a recession around the second or third quarter of next year.A global trend in interest rate cuts would bring relief to debtors as it would make the cost of borrowing for anything from mortgages to credit cards lower.However, the Fed may not be slashing interest rates, Reid added in his note."I would say that unless the US sees a recession, it will be tough to see a big imminent global easing cycle," Reid wrote, per MarketWatch. This is because inflation is still around target levels across major economies, he added.The Fed has <a target="_blank" rel="noopener" href="https://www.federalreserve.gov/monetarypolicy/openmarket.htm">raised interest rates</a> 11 times since March 2022 to cool soaring inflation that rose <a target="_blank" href="https://www.businessinsider.com/inflation-when-back-to-normal-cpi-federal-reserve-economic-outlook-2023-11">3.2% in October</a> from a year ago. That's still above the Fed's 2% inflation target."The interesting thing at the moment is that cuts are priced in on a soft-landing scenario," Reid wrote. "So, I think they might be right for the wrong reasons, and eventually you'll see more cuts than are priced in due to a harder landing than is priced. Interesting times ahead."

There are now more central banks cutting interest rates than those hiking them: Deutsche Bank analysis

<ul class="summary-list"><li>The price of gold hit all-time highs this week.</li><li>Falling interest rates and rising geopolitical tensions boost gold's appeal as a safe haven asset.</li></ul>The price of <a target="_blank" class="" href="https://markets.businessinsider.com/commodities/gold-price">gold</a> has soared this year.The precious metal hit a record high of $2,772 per troy ounce this week and has risen in six of the past seven weeks.With year-to-date gains of about 33%, gold returns have outpaced the broader stock market, including the tech-heavy <a target="_blank" class="" href="https://markets.businessinsider.com/index/nasdaq_100">Nasdaq 100</a>, by about 10 percentage points.And since the bull market in stocks began in October 2022, gold has outpaced equity gains, returning 67% compared to the <a target="_blank" class="" href="https://markets.businessinsider.com/index/s&amp;p_500">S&amp;P 500's</a> return of about 63%, according to data from YCharts.Those superior returns make the metal one of the world's hottest investments.The largest gold ETF, the SPDR Gold Shares, has $78 billion in assets under management and has seen about $5 billion of inflows in the past six months, according to data from ETF.com.Physical gold is also having a moment. Costco has consistently sold out of gold bars when they become available on their website and Wells Fargo estimates that <a target="_blank" class="" href="https://www.businessinsider.com/costco-gold-bars-silver-coins-monthly-sales-wells-fargo-bullion-2024-4">Costco sells up to $200 million in gold bars</a> and silver coins to its members each month.It's been a perfect storm for the yellow metal, and the outlook suggests more gains ahead. Here's what's going on.<h3 id="5edb3548-699e-4d4d-ba18-d306c30fcf12">Demand from central banks</h3>Global central banks have been on a gold-buying spree over the past few years.According to the World Gold Council, central banks purchased a record 483 tons of gold in the first half of the year. Central banks from Turkey, India, and China topped the list of the biggest buyers.Part of the surge in demand is from countries that want to diversify their holdings away from the US dollar. "We believe that the tripling in central bank purchases since mid-2022 on fears about US financial sanctions and US sovereign debt is structural and will continue," <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/gold-price-outlook-buy-continued-rally-next-year-2025-goldman-2024-9">Goldman Sachs said</a> in a note last month.This dynamic has been on display since Russia invaded Ukraine in 2022, as America sought to inflict maximum economic damage on Russia via sanctions. But it's harder to implement sanctions against a country that is less reliant on the dollar, and one way to be less reliant on the dollar is to buy gold.It is a dynamic that the US should be closely monitoring, according to economist Mohamed El-Erian.El-Erian wrote <a target="_blank" class="" href="https://www.ft.com/content/b5fb1e6b-bb8d-4ab5-9c92-f1f6fc40a54b?utm_source=substack&amp;utm_medium=emailhttps://www.ft.com/content/b5fb1e6b-bb8d-4ab5-9c92-f1f6fc40a54b?utm_source=substack&amp;utm_medium=email">in an op-ed for the FT</a> this week that the persistent rise in gold "captures an increasingly persistent behavioural trend among China and 'middle power' countries.""There is also interest in exploring possible alternatives to the dollar-based payments system that has been at the core of the international architecture for some 80 years."Russia has had some success with this, as it's managed to navigate its economy away from a full-fledged downturn after the US imposed wide-ranging sanctions in 2022.Russia's ability to steer its de-dollarized economy away from a crisis could give other countries confidence to lessen their dependence on the dollar, which ultimately benefits gold."What is at stake here is not just the erosion of the dollar's dominant role but also a gradual change in the operation of the global system," El-Erian said. "As it develops deeper roots, this risks materially fragmenting the global system and eroding the international influence of the dollar and the US financial system.<h3 id="8959c97e-7efe-42f8-a1a3-3fa362c5ac51">Geopolitical tensions</h3>Gold is <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/gold-safe-haven-treasurys-us-national-debt-bofa-fiscal-expansion-2024-10">considered a safe haven asset</a> due to its long-standing history as a stable store of value.So when geopolitical tensions rise, investors tend to flock to the shiny metal, and right now, there is no shortage of reasons to be worried.From Russia's war against Ukraine to the escalating clashes in the Middle East to China's long-running threat against Taiwan's independence, geopolitical tensions are rising, not falling.What's more, soaring US debt means that Treasurys—another historical safe haven asset—might not be so risk-free anymore."Gold looks to be the last 'safe haven' asset standing, incentivising traders including central banks to increase exposure," <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/gold-safe-haven-treasurys-us-national-debt-bofa-fiscal-expansion-2024-10">Bank of America said</a> in a note this month. <h3 id="29ec9208-7951-47bd-89c8-75f2d6320ca9">The Trump trade</h3>The <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/donald-trump-trade-rally-betting-markets-kamala-harris-bitcoin-djt-2024-10">Trump trade has picked up steam recently</a> as the former president's odds of winning the election have risen, and gold has been a big beneficiary.That's because a potential Trump presidency is expected to be accompanied by a soaring government deficit and a fast-growing pile of debt, which would further drive concerns about a rebound in inflation and the sustainability of the US dollar."If you're worried about fiscal profligacy, financial repression, and attacks on Fed independence, gold would be an attractive asset," economist Davix Oxley of Capital Economics said on Friday.Even if Trump doesn't win the election, the deficit is likely to grow, setting gold up well for more gains, according to Interactive Brokers chief strategist Steve Sosnick."It's not as though either candidate is preaching fiscal discipline, and the Fed seems willing to keep cutting even if inflation remains a bit above target. So there is a thought that gold could be a viable alternative if rates rise and the economy remains sound. And if the economy isn't sound it could still be a good store of value," Sosnick told Business Insider."<h3 id="dadb04c2-defd-4fe4-a269-2b48d277b4de">Interest rates</h3>According to data from the World Gold Council, falling interest rates have historically benefited gold prices, with the commodity rising as much as 10% in the six months after the Federal Reserve's first rate cut.With the Fed expected to cut interest rates multiple times over the next year, lower rates should serve as a tailwind for gold prices.While interest rates<a target="_blank" class="" href="https://www.businessinsider.com/mortgage-rate-increase-since-federal-reserve-cut-interest-rates-housing-2024-10"> actually jumped since the Fed's first rate cut</a> last month, with the 10-year Treasury yield hitting its highest level since July this week, gold prices have continued to rise.That's a sign that gold investors are more focused on the global interest-rate path, which is pointing lower as global central banks look poised to loosen monetary policy.The People's Bank of China cut rates by 25 basis points this week, while the Bank of Canada cut by 50 basis points. The European Central lowered rates by 25 basis points last week, and economists say they see the Bank of England <a target="_blank" class="" href="https://www.cnbc.com/2024/10/22/why-economists-see-the-uk-cutting-interest-rates-more-substantially.html">set to deliver bigger rate cuts</a> than previously expected by markets.

How gold became one of the world's hottest investments

<ul class="summary-list"><li>There are five reasons why European stocks may soon start to outperform US equities, according to JPMorgan.</li><li>That includes the fact that the Eurozone is the cheapest compared to any time pre-COVID and that China's economic outlook is improving.</li></ul>The tides are turning for the US stock market's dominance over its European counterpart. According to JPMorgan, European equities may soon outperform their American peers."We are now closing the US over Eurozone [overweight]," analysts led by Mislav Matejka wrote in a note on Monday.While they aren't ready to go fully overweight European stocks over US — but rather, pulling back from their US preference — they provide five reasons why the Eurozone is set to close the gap that's formed.First, the Eurozone MSCI index looks quite cheap. After outstripping US gains by over 30% in the year before May 2023, the index has since been underperforming the MSCI US index, measured in US dollars. Its relative performance is down 14% since May last year.<div type="image" title="MSCI Eurozone vs MSCI US" height="846" width="1594" msid="108596183" hostid="261" sizebytes="53514"></div>On a forward earnings basis, the Eurozone is trading at a 13.3 times, versus 21 times for US stocks. That makes the Eurozone the cheapest compared to any time pre-COVID, analysts wrote.<div type="image" title="Eurozone sector neutral P/E relative to US" height="954" width="1478" msid="108596185" hostid="261" sizebytes="61814"></div>Second, the bull run in US stocks may be <a href="https://www.businessinsider.com/stock-market-crash-bubble-sp500-outlook-recession-risks-2008-rosenberg-2024-3">close to hitting a wall</a>. While trading growth over value has paid off in the current tech-heavy market, "it is trading stretched and is at risk of a reversal, given the [momentum] concentration," analysts said. Even though European stocks are also susceptible to a hiccup because of increasingly hyped-up trades, the firm says fallout would be much worse in the US stock market.Third, the Citigroup Economic Surprises Indices shows that European economic activity momentum has begun moving above that of the US. The last time that happened, the Eurozone outperformed the US.<div type="image" title="Eurozone activity momentum is moving up" height="1024" width="1480" msid="108596187" hostid="261" sizebytes="74500"></div>Then there's the European Central Bank which may ease monetary policy more aggressively than the Fed. While ECB officials are narrowing in on <a href="https://www.bloomberg.com/news/articles/2024-03-16/ecb-s-rehn-sees-prerequisites-for-several-rate-cuts-this-year">rate cuts in June</a>, the path of rates in the US is more hazy after a string of hotter-than-expected economic data. Some experts have even forecasted <a href="https://www.businessinsider.com/fed-rate-cut-forecast-us-economy-outlook-inflation-torsten-slok-2024-3?mrfhud=true">no rate cuts</a> at all this year.Lastly, JPMorgan sees an improving economic picture in China, which is a green flag for export-heavy European markets. The Eurozone is more leveraged to China than the US, analysts wrote, which explains the Eurozone's weaker performance as China's economy has been walloped by a series of financial problems.Still, there are factors that could shake up a Eurozone rebound, analysts noted. The US economy is in a precarious position, with risks of either tipping into a downturn or bubbling up as <a href="https://www.businessinsider.com/inflation-cpi-consumer-price-index-food-gas-housing-prices-february-2024-3">inflation remains stickier</a> than expected. Either outcome would lead to a broader market drawdown. There's also a possibility of US politics creating turmoil for the Eurozone, given the uncertainty around a <a href="https://www.businessinsider.com/china-economy-trade-war-export-manufacturing-property-crisis-biden-trump-2024-3">potential trade war</a> which would subdue international markets.

Why European stocks may soon start to outperform US equities, according to JPMorgan

<ul><li>US stocks trade mixed on Monday ahead of a jam-packed week filled with central bank meetings and economic data.</li><li>The Federal Reserve, Bank of England, and European Central Bank are all set to meet this week.</li><li>Investors will get a fresh set of inflation data on Tuesday with the November CPI report.</li></ul>US stocks traded mixed on Monday as investors get ready for a jam-packed week of economic data and central bank meetings.Investors will get a fresh set of inflation data on Tuesday with the release of the November consumer price index. That will be followed up by the producer price index on Wednesday. The data should help inform the Federal Reserve as policymakers continue to weigh what to do with interest rates, though expectations are that they will keep rates unchanged.The Fed is set to meet on Tuesday and Wednesday of this week, with the central bank making an interest rate decision on Wednesday, to be followed by a briefing from Chairman Jerome Powell.Meanwhile, the Bank of England and the European Central Bank are also set to meet later this week, and both are also widely expected to keep interest rates unchanged. Here's where US indexes stood shortly after the 9:30 a.m. opening bell on Monday: <ul><li><a href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets">S&amp;P 500</a>: 4,598.12, down 0.14%</li></ul><ul><li><a href="https://markets.businessinsider.com/index/dow_jones?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets">Dow Jones Industrial Average</a>: 36,330.84, up 0.23% (82.97 points)</li></ul><ul><li><a href="https://markets.businessinsider.com/index/nasdaq_composite?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets">Nasdaq Composite</a>: 14,342.50, down 0.43%</li></ul>Here's what else is going on today: <ul><li><a href="https://www.businessinsider.com/russia-economy-oil-export-revenue-price-cap-war-dark-fleet-2023-12">Russia made $11.3 billion in net oil revenues in October</a> — more than any month in the year before the Ukraine war.</li><li><a href="https://markets.businessinsider.com/news/stocks/stock-housing-market-outlook-gundlach-doubleline-house-prices-recesion-debt-2023-12">Jeffrey Gundlach said bonds look better than stocks heading into 2024</a>, and that home prices could fall as mortgage rates decline. </li><li><a href="https://www.businessinsider.com/dedollarization-dollar-dominance-currencies-javier-milei-argentina-economic-shock-recession-2023-12">Argentina's newly elected president Javier Milei warned his country to prepare for a painful fiscal shock</a> as he seeks to rein in sky-high inflation and avoid another recession.</li></ul>In commodities, bonds, and crypto: <ul><li><a href="https://markets.businessinsider.com/commodities/oil-price">West Texas Intermediate</a> crude oil dipped 0.13% to $71.14 a barrel. <a href="https://markets.businessinsider.com/commodities/oil-price">Brent crude</a>, the international benchmark, fell 0.09% to $75.77 a barrel. </li><li><a href="https://markets.businessinsider.com/commodities/gold-price">Gold</a> fell 0.38% to $2,006.90 per ounce. </li><li>The 10-year Treasury yield rose 3 basis points to 4.26%.</li><li><a href="https://markets.businessinsider.com/currencies/btc-usd">Bitcoin</a> declined by 4.44% to $41,845. </li></ul>

US stocks trade mixed as investors gear up for jam-packed week of central bank meetings and economic data

<ul class="summary-list"><li>Christine Lagarde's son lost 60% of his investments through crypto, she said on Friday.</li><li>The ECB chief has been a long-standing critic of crypto assets.</li></ul>Christine Lagarde's long-standing scrutiny of crypto has recently hit close to home, after the European Central Bank chief disclosed that her son lost around <a href="https://www.reuters.com/technology/ecb-chief-lagarde-admits-her-son-lost-crypto-cash-2023-11-24/?campaign_id=4&amp;emc=edit_dk_20231127&amp;instance_id=108682&amp;nl=dealbook&amp;regi_id=173748099&amp;segment_id=151061&amp;te=1&amp;user_id=dcf815b3a022cdd80b6675667f276576" target="_blank" rel="noopener">60% of his investments</a> on digital assets."He ignored me royally, which is his privilege," Lagarde said Friday, speaking at a town hall in Frankfurt. "And he lost almost all the money that he had invested."She did not specify which of her two sons, who are both in their mid-thirties, she was referring to.The loss reinforces the words of caution the central bank chief has previously voiced about what can happen when investing in crypto. "I'm concerned about those people who think it's going to be a reward, who have no understanding of the risks, who will lose it all, and who will be terribly disappointed, which is why I believe that should be regulated," Lagarde said in <a href="https://www.cnbc.com/2022/05/23/ecb-chief-christine-lagarde-crypto-is-worth-nothing.html" target="_blank" rel="noopener">an interview</a> last year.Lagarde has been particularly wary of crypto's use as a money laundering tool, potentially financing criminal and terrorist activities. Last week, Binance founder Changpeng Zhao <a href="https://www.businessinsider.com/zhao-changpeng-binance-billionaire-crypto-mcdonalds-fast-food-wealth-lifestyle-2022-10#but-zhaos-journey-at-binance-has-been-far-from-smooth-sailing-the-company-has-been-embroiled-in-several-controversies-6">pleaded guilty</a> to anti-money laundering charges brought by the US Department of Justice, agreeing to step down as the CEO of the world's largest crypto exchange. In the European Union, the issue has become prominent given newly updated crypto regulation. The framework places banks as the leading crypto-service providers, allowing crypto activity to circumvent the ECB's purview, a central bank official <a href="https://www.reuters.com/business/finance/eu-loophole-lets-banks-dodge-ecbs-crypto-supervision-needs-fixing-enria-2023-11-14/" target="_blank" rel="noopener">warned this month</a>.Meanwhile, the ECB is laying the foundations for <a href="https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr231018~111a014ae7.en.html" target="_blank" rel="noopener">a digital euro</a>, Reuters said, as numerous countries around the world embark on digitalization of their currencies to keep pace with crypto.

European Central Bank chief says her son 'ignored me royally' and lost nearly everything he invested in crypto

<ul class="summary-list"><li>Turmoil from the yen carry trade unwind could continue anew, according to SocGen.</li><li>Analysts pointed to Japan's central bank, which looks ready to keep raising interest rates.</li><li>A further unwinding of the yen carry trade could dent enthusiasm for US tech shares, SocGen said. </li></ul><ul class="summary-list"><li>Turmoil from the yen carry trade unwind could continue anew, according to SocGen.</li><li>Analysts pointed to Japan's central bank, which looks ready to keep raising interest rates.</li><li>A further unwinding of the yen carry trade could dent enthusiasm for US tech shares, SocGen said. </li></ul><ul class="summary-list"><li>Turmoil from the yen carry trade unwind could continue anew, according to SocGen.</li><li>Analysts pointed to Japan's central bank, which looks ready to keep raising interest rates.</li><li>A further unwinding of the yen carry trade could dent enthusiasm for US tech shares, SocGen said. </li></ul><ul class="summary-list"><li>Turmoil from the yen carry trade unwind could continue anew, according to SocGen.</li><li>Analysts pointed to Japan's central bank, which looks ready to keep raising interest rates.</li><li>A further unwinding of the yen carry trade could dent enthusiasm for US tech shares, SocGen said. </li></ul><ul class="summary-list"><li>Turmoil from the yen carry trade unwind could continue anew, according to SocGen.</li><li>Analysts pointed to Japan's central bank, which looks ready to keep raising interest rates.</li></ul>The stock market's chaotic <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/stock-market-crash-yen-carry-trade-unwind-fed-japan-rates-2024-8">yen carry trade unwind</a> that fueled the worst sell-off in two years in August may not be over, according to Societe Generale.The European bank pointed to the likelihood that Japan's central bank would continue to raise interest rates, a development that <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/stock-market-selloff-today-jobs-report-recession-unemployment-tech-earnings-2024-8">rocked markets in early August</a>.Investors panicked after the Japanese central bank issued a surprise rate hike in late July. The move sparked an unwind of the yen carry-trade, a popular strategy in which investors borrowed money at ultra-low rates in Japan to deploy in other assets, like US stocks.The effects of that sell-off have subsided, with the major US indexes more than recovering their losses over the past month. But more turbulence could lay ahead as rates in Japan look poised to "normalize" after decades of deflation, according to SocGen global strategist Albert Edwards.Japan's economy is also flashing promising signs that another rate increase is in order. Wage growth in Japan just surpassed wage growth in the US for the first time in over two decades, Edwards noted.<div type="image" title="Japanese wage growth compared to US wage growth" height="668" width="1328" msid="113038359" hostid="261" sizebytes="48660"></div>"We have always exhorted our readers to watch Japan closely as it has consistently been a forerunner of major market moves," Edwards said in a note to clients on Tuesday. "Any normalisation of Japanese interest rates would have a major market impact — not just in the short term (by unwinding the yen carry trade) but also in the longer term as higher Japanese interest rates would curtail the exporting of investment flows," he later added.Some investors have already seized on that possibility, with a significant number of investors closing their short positions in the yen over the past few months. Net open interest rose in August, according to SocGen data, which indicates that most investors are no longer shorting the Japanese currency.<div type="image" title="Graph showing net open interest in the Japanese yen" height="653" width="1424" msid="113038360" hostid="261" sizebytes="31846"></div>The US economic outlook, meanwhile, looks rocky, Edwards said, which could hurt US stocks. He pointed to softness in the US labor market over the past year and declining earnings optimism in the tech sector, which has accounted for the bulk of S&amp;P 500 returns in recent years. "Might the yen carry trade still have legs? We'll need to keep a close eye on the other side of the yen carry trade, where a tech price decline can also unwind the trade. We're watching falling US tech EPS optimism closely," Edwards added.Edwards has been calling for a <a target="_blank" class="" href="https://www.businessinsider.com/stock-market-crash-recession-sp500-gdp-inflation-unemployment-societe-generale-2024-6">recession and a stock market crash in the US for months</a>, even as many economists say that the economy generally remains on solid footing. <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/stock-market-today-sp500-nasdaq-gdp-inflation-economy-rates-outlook-2024-7">GDP blew past expectations</a> for the second quarter while inflation continued to cool. Hiring, meanwhile, remains positive, with the <a target="_blank" class="" href="https://www.businessinsider.com/unemployment-rate-job-growth-july-labor-market-economic-data-2024-7">unemployment rate</a> rising, but remaining close to multi-decade lows in July.

The stock market chaos sparked by the yen last month could resume as rates rise in Japan, SocGen says

<ul class="summary-list"><li>The <keyword id="12061141" type="UNKNOWN" weightage="60" keywordseo="european-central-bank" source="Orion">European Central Bank</keyword> raised <keyword id="6371181" type="UNKNOWN" weightage="60" keywordseo="interest-rates" source="Orion">interest rates</keyword> — by 50 basis points — for the first time since 2011 on Thursday.</li><li>The central bank is trying to tame red-hot inflation even as an <keyword id="11917806" type="UNKNOWN" weightage="60" keywordseo="energy" source="Orion">energy</keyword> crunch drives an economic slowdown.</li></ul>The European Central Bank raised interest rates for the first time in 11 years on Thursday, as it begins the tricky task of trying to bring down inflation without derailing an increasingly fragile eurozone economy.The <keyword id="12059591" type="UNKNOWN" weightage="60" keywordseo="ecb" source="Orion">ECB</keyword>'s governing council raised interest rates by 50 basis points, or 0.5 percentage points — more than the 25 basis point hike it telegraphed at its June meeting. That took the central bank's main deposit rate to 0%, from a record low of -0.5%.The ECB is grappling with a treacherous economic and political environment. Inflation in the eurozone — the group of 19 countries that use the euro as currency — soared to a <a href="https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Inflation_in_the_euro_area">record high of 8.6%</a> in June.However, the economy is also weakening fast as <keyword id="11894337" type="UNKNOWN" weightage="60" keywordseo="russia" source="Orion">Russia</keyword> <a href="https://markets.businessinsider.com/news/commodities/russia-restarts-natural-gas-flows-nord-stream-prices-economy-recession-2022-7">limits natural gas flows</a> to the continent and energy prices soar. Goldman Sachs expects Germany and Italy to soon tip into <keyword id="12460783" type="UNKNOWN" weightage="60" keywordseo="recession" source="Orion">recession</keyword>.To add to the pressure on the central bank, Italy's Prime Minister Mario Draghi resigned on Thursday, plunging the country back into political chaos just hours before the ECB announced its decision. Italy's government has huge debts worth around 150% of the country's gross domestic product. Stopping its borrowing costs from spiraling out of control is a key concern for the ECB.With borrowing costs in mind, the ECB said Thursday it will introduce a "transmission protection instrument" that can be used to buy government bonds "to counter unwarranted, disorderly market dynamics."The ECB's rate hike signals an end to the era of ultra-loose monetary policy that has marked the last decade in the Eurozone. It said more rate rises are on the way."The governing council judged that it is appropriate to take a larger first step on its policy rate normalization path than signaled at its previous meeting," the ECB said in a statement. "At the Governing Council's upcoming meetings, further normalization of interest rates will be appropriate."Andrew Kenningham, chief Europe economist at Capital Economics, said: "We think this will be the first of a series of hikes by which the ECB will raise the deposit rate to around 2% next year.""We also think the bank will ultimately have to use its new asset purchase programme to avert another eurozone crisis," he added. The <a href="https://markets.businessinsider.com/currencies/eur-usd">euro</a> shot higher after the decision, and was last up 0.8% against the dollar at $1.026.Italian government bond yields, which jumped when Draghi resigned earlier in the day, were little changed after the decision. They were up around 21 basis points to 3.579%. Yields move inversely to prices.

The European Central Bank just hiked interest rates for the first time in 11 years, amid political and economic crisis

<ul class="summary-list"><li>Central banks around the world are more interested in the euro, a new survey found.</li><li>A net 14% of plan to boost their euro holdings in the next two years, the highest level of demand among currencies.</li></ul>While China is aggressively pushing the yuan to erode the dollar's dominance, global central banks are actually clamoring for the euro as a reserve asset in the next few years.That's according to a survey by the Official Monetary and Financial Institutions Forum, which found that a net 14% of central banks plan to increase their euro holdings in the next two years, marking the highest level of demand among currencies.That marks a big change compared to 2021 and 2022, when there was no net gain in demand for the euro."It seems that rising interest rates in Europe are making fixed income assets there more attractive," the OMFIF report said.Meanwhile, a net 10% expect to increase yuan holdings in the next two years, and a net 6% plan to boost their dollar reserves.But the outlook looks different over the longer term.Led by Latin American and European central banks, a net 6% of central banks plan to reduce their dollar holdings over the next 10 years.OMFIF predicted that dollar reserves will decline from 58% worldwide to 54% in the decade, though it will remain the dominant reserve currency.Also in the next 10 years, a net 9% of central banks indicated plans to increase euro reserve assets, suggesting that the currency may play a key role in future diversification, OMFIF noted.And more than 30% of central banks on a net basis expect to boost exposure to the yuan in that time span, with OMFIF estimating that its share of global reserves will expand from 3% to 6% by 2033. "Close to 40% of central banks plan to increase their holdings of renminbi over the next 10 years – higher demand than for any other currency," the report said. "Respondents stated diversification and China's growing role in the global economy as the main motivation to invest in the renminbi. The rise of the renminbi in reserves is probable, but it will be gradual."

Central banks favor the euro in the short term and the yuan long term as they push to de-dollarize reserves

<ul class="summary-list"><li>Credit Suisse asked the Swiss National Bank for a show of support, the Financial Times reported.</li><li>Chairman Axel Lehmann also said the bank had no need for financial help from the state.</li></ul><a href="https://markets.businessinsider.com/stocks/csgkf-stock">Credit Suisse</a> has turned to the Swiss National Bank for a show of support on Wednesday, <a href="https://www.ft.com/content/0324c5a6-cecd-4fb3-85b3-7cdc99a33e4e" target="_blank" rel="noopener">sources told the Financial Times</a>, as the bank's stock crashed and fears of a default spiked.The lender also sought public support from Swiss financial regulator Finma, but so far neither institution has decided to do so, the FT said.The European Central Bank is also asking European lenders to disclose their level of exposure to Credit Suisse, the FT added. Shares tumbled more than 25% on Wednesday as investors grew especially wary of Credit Suisse's deteriorating health after top shareholder <a href="https://markets.businessinsider.com/news/stocks/stock-market-today-dow-spx-credit-suisse-plunge-rattles-calm-2023-3">Saudi National Bank</a> said it would not inject any more money into the lender. Meanwhile, <a href="https://markets.businessinsider.com/news/stocks/credit-suisse-cds-spreads-bond-insurance-stock-price-banking-contagion-2023-3">credit default swaps</a> tied to the bank soared, indicating mounting fear that the bank won't be able to meet its debt obligations.Credit Suisse has been hit by losses and shrinking deposits in recent months, and analysts said intervention from the Swiss National Bank is looking more likely. The bank has undergone growing scrutiny from investors, as it sustained a <a href="https://markets.businessinsider.com/news/stocks/credit-suisse-svb-bank-financial-crisis-stock-price-cds-saudi-2023-3">litany of scandals</a>.Chairman <a href="https://www.bnnbloomberg.ca/credit-suisse-chair-says-state-assistance-not-a-topic-for-bank-1.1895696" target="_blank" rel="noopener">Axel Lehmann</a> tried to calm nerves Wednesday, saying financial backing from the government "<a href="https://www.bnnbloomberg.ca/credit-suisse-chair-says-state-assistance-not-a-topic-for-bank-1.1895696" target="_blank" rel="noopener">isn't a topic</a>," adding that comparisons between Credit Suisse and Silicon Valley Bank's collapse were inaccurate. "We have strong capital ratios, a strong balance sheet," he said, and referred to the bank's recent restructuring in the fall.With <a href="https://www.nbcnews.com/business/business-news/troubles-credit-suisse-prompt-broader-market-selloff-rcna75037" target="_blank" rel="noopener">$574 billion</a> in assets, Credit Suisse has more than double the assets Silicon Valley Bank had just before collapsing. But in backstopping deposits at the once-obscure California bank, federal regulators deemed it systemically important.

Credit Suisse asks central bank for a show of support, but Swiss National Bank stays quiet

<ul class="summary-list"><li>Global <keyword id="11893878" type="UNKNOWN" weightage="60" keywordseo="stocks" source="Orion">stocks</keyword> fell Thursday, with US futures showing a pullback from the prior day's rally ahead.</li><li>Focus is on the <keyword id="12059591" type="UNKNOWN" weightage="60" keywordseo="ecb" source="Orion">ECB</keyword>, which is set to hike interest rates for the first time in over a decade at its meeting later today.</li></ul>Global stocks slipped on Thursday, with the focus on Europe as the region's central bank readies its first interest-rate hike in over a decade and as investors' hopes for upbeat US corporate <keyword id="6357061" type="UNKNOWN" weightage="60" keywordseo="earnings" source="Orion">earnings</keyword> ebbed.Meanwhile, network data showed Nord Stream 1 <a href="https://markets.businessinsider.com/news/commodities/russia-restarts-natural-gas-flows-nord-stream-prices-economy-recession-2022-7">flows of natural gas from Russia to Europe had resumed</a> after a 10-day shutdown for maintenance, temporarily easing fears of an imminent energy crisis on the continent. In the US, stocks were poised to lose grip of the <a href="https://markets.businessinsider.com/news/stocks/stock-market-news-today-nasdaq-netflix-earnings-tesla-sp500-corporate-2022-7">prior day's tech-led rally,</a> after reports of a Microsoft hiring freeze and <keyword id="11900744" type="UNKNOWN" weightage="60" keywordseo="tesla" source="Orion">Tesla</keyword>'s mixed earnings results dampened optimism.<a href="https://markets.businessinsider.com/futures/s&amp;p-500-futures">S&amp;P 500 futures</a> were down 0.17% shortly after 6 a.m. ET, while <a href="https://markets.businessinsider.com/futures/dow-futures">Dow Jones futures</a> were 0.25% lower and <a href="https://markets.businessinsider.com/futures/nasdaq-100-futures">Nasdaq 100 futures</a> were broadly flat.Google joined Microsoft in saying it would <a href="https://affiliate.insider.com?u=https%3A%2F%2Fwww.theinformation.com%2Farticles%2Fgoogle-announces-hiring-pause">hit pause on hiring</a> Wednesday, a sign of building cost pressures on big companies. "More job cuts continue to be announced, signaling cost pressures will remain the key highlight of the Q2 earnings season," strategists at Saxo Bank said. Tesla beat Wall Street targets with second-quarter earnings of $1.95 a share, compared with expectations for $1.81, thanks to higher prices for its cars and the <a href="https://www.businessinsider.com/tesla-bitcoin-converted-to-fiat-crypto-crash-elon-musk-2022-7">sale of 75% of its bitcoin holdings</a>. But its gross margin slipped.That and mixed after-hours earnings reports from United Airlines and others sapped some of the hopes for corporate health that had helped ease investors' concerns about the risk of recession. AT&amp;T, Philip Morris, Mattel and American Airlines are on the earnings docket on Thursday.With no new clues on the US economy likely with the Federal Reserve in a quiet period, attention was firmly on Europe.The <a href="https://www.reuters.com/world/europe/italian-pm-draghi-meets-president-expected-resign-2022-07-21/">resignation of Italian Prime Minister Mario Draghi</a> on Thursday morning heightened political uncertainty in the region. CMC <keyword id="11893875" type="UNKNOWN" weightage="100" keywordseo="markets" source="Orion">Markets</keyword> strategists said the move will come as a "huge blow" to the <keyword id="12061141" type="UNKNOWN" weightage="60" keywordseo="european-central-bank" source="Orion">European Central Bank</keyword>, which is due to release a monetary policy update later in the day.The ECB is expected to raise interest rates by 25 basis points for its first hike in 11 years. But markets are pricing in a more than one-in-three chance for a 50 basis point hike after reports that policymakers are considering a bigger move, ING analysts said."Unusually for a major central bank decision, there's serious doubt about what's going to happen," Deutsche Bank strategist Jim Reid said. The <a href="https://markets.businessinsider.com/currencies/eur-usd">euro</a> was trading about 0.1% higher at $1.0188 ahead of the ECB meeting, after rebounding earlier thanks to the restoration of natural <keyword id="11955852" type="UNKNOWN" weightage="60" keywordseo="gas" source="Orion">gas</keyword> flows through Nord Stream 1. In Europe, the pan-continental <a href="https://markets.businessinsider.com/index/stoxx_europe_600">Stoxx 600</a> was broadly flat in choppy trading. Milan's <a href="https://markets.businessinsider.com/index/ftse_mib">FTSE MIB</a> was 1.72% lower on fears for a snap election. In London, the <a href="https://markets.businessinsider.com/index/ftse_100">FTSE 100</a> fell 0.46% as the race for next UK prime minister was cut to the final two candidates.Asian stocks were also mostly downbeat, with the <a href="https://markets.businessinsider.com/index/shanghai_composite">Shanghai Composite</a> down 0.99% and Hong Kong's <a href="https://markets.businessinsider.com/index/hang_seng">Hang Seng</a> closing 1.51% lower. But Tokyo's <a href="https://markets.businessinsider.com/index/nikkei_225">Nikkei 225</a> was up 0.44% after the Bank of Japan left its dovish monetary policy unchanged.Here are how other key assets performed:<ul><li><a href="https://markets.businessinsider.com/commodities/oil-price">Brent crude</a> oil fell 4.12% to $102.52 a barrel, while <a href="https://markets.businessinsider.com/commodities/oil-price?type=wti">WTI crude</a> was down 4.23 % to $96.65 thanks to weakening gasoline demand.</li><li>The <a href="https://markets.businessinsider.com/index/us-dollar-index">US dollar index</a> was slightly higher, up 0.07% at 107.15.</li><li><a href="https://markets.businessinsider.com/currencies/btc-usd">Bitcoin</a> was 1.3% lower at $23,000 after Tesla sold the majority of its holdings.</li><li>Benchmark <a href="https://www.investing.com/commodities/ice-dutch-ttf-gas-c1-futures">Dutch natural gas futures</a> fell 5% in early trading to around 148 euros per megawatt hour ($151) after the Nord Stream news.</li></ul>

Global stocks fall as focus turns to ECB's upcoming rate hike, as US earnings optimism takes a knock

<ul class="summary-list"><li>Global stocks rose on Wednesday after Netflix posted better-than-expected earnings and global <keyword id="11917806" type="UNKNOWN" weightage="60" keywordseo="energy" source="Orion">energy</keyword> fears cooled.</li><li>Investors were in a more upbeat mood after the <keyword id="11898248" type="UNKNOWN" weightage="60" keywordseo="sp-500" source="Orion">S&amp;P 500</keyword> shot up almost 3% on Tuesday as earnings season ramped up.</li></ul>Global stocks rose on Wednesday after Netflix earnings came in better than expected and as fears about a global energy crisis cooled.<a href="https://markets.businessinsider.com/futures/s&amp;p-500-futures">S&amp;P 500 futures</a> were up 0.16% shortly after 5 a.m. ET, while <a href="https://markets.businessinsider.com/futures/dow-futures">Dow Jones futures</a> were 0.12% higher and <a href="https://markets.businessinsider.com/futures/nasdaq-100-futures">Nasdaq 100 futures</a> had risen 0.26%.Europe's <a href="https://markets.businessinsider.com/index/stoxx_europe_600">Stoxx 600</a> index ticked 0.35% higher as investors awaited the latest interest rate decision from the <keyword id="12061141" type="UNKNOWN" weightage="60" keywordseo="european-central-bank" source="Orion">European Central Bank</keyword>, which is due Thursday.The ECB said last month that it intends to <a href="https://markets.businessinsider.com/news/currencies/european-central-bank-interest-rates-inflation-monetary-policy-hikes-lagarde-2022-6">hike rates by 25 basis points</a>. However, the governing council is now also considering a 50-basis point hike, according to media reports, as it tries to tamp down the strongest <keyword id="11894140" type="UNKNOWN" weightage="60" keywordseo="inflation" source="Orion">inflation</keyword> since the eurozone was founded in the late 1990s.Asian stocks rallied overnight, with Tokyo's <a href="https://markets.businessinsider.com/index/nikkei_225">Nikkei 225</a> charging 2.67% higher and China's <a href="https://markets.businessinsider.com/index/csi-300">CSI 300</a> climbing 0.34%.Global stocks have suffered a brutal sell-off in 2022 as central banks have hiked interest rates — making borrowing more expensive — as they grapple with a near-worldwide surge in inflation.But the mood has improved somewhat in recent days as investors have started to see more positives in the global economy after months of gloom. The S&amp;P 500 jumped 2.76% Tuesday.<a href="https://markets.businessinsider.com/stocks/nflx-stock">Netflix</a> cheered investors on Tuesday when it revealed it had lost far fewer subscribers than expected in the second quarter of the year, <a href="https://www.businessinsider.com/netflix-earnings-losing-subscribers-second-straight-quarter-2022-7?r=US&amp;IR=T">shedding 970,000</a> compared to expectations of around 2 million. Shares in the streaming company were up around 7% in premarket trading.A recent slide in energy prices has also raised hopes that inflation could soon be on its way down. That's despite the fact the falls have been driven by expectations that economies, and therefore demand for raw materials, are set to slow sharply.<a href="https://www.reuters.com/business/energy/exclusive-russia-seen-restarting-gas-exports-nord-stream-1-schedule-2022-07-19/">Reports</a> that Russia will restart the flow of natural gas to Europe this week through the Nord Stream 1 pipeline, which is currently closed for maintenance, have also eased fears of a brutal energy crunch on the continent.However, price pressures showed little sign of abating in the UK, where inflation came in at a a fresh 40-year high of 9.4% in June, according to data released on Wednesday."Despite Tuesday's more positive trading session, we don't expect a sustained improvement in market sentiment until investors get greater clarity on the outlook for the economy, central bank policy, and political risks," said Mark Haefele, wealth management chief investment officer at UBS. "Uncertainty in all of these areas remains elevated, in our view."Here are how other key assets performed:<ul><li><a href="https://markets.businessinsider.com/commodities/oil-price">Brent crude</a> oil was down 1.25% to $106.01 a barrel, while <a href="https://markets.businessinsider.com/commodities/oil-price?type=wti">WTI crude</a> was down 1.05% to $103.13.</li><li>The yield on the key <a href="https://markets.businessinsider.com/rates/u-s--rates-10-years">10-year US Treasury</a> note fell 3.8 basis points to 2.984%. Yields move inversely to prices.</li><li>The <a href="https://markets.businessinsider.com/index/us-dollar-index">US dollar index</a> was down 0.12% at 106.55.</li><li><a href="https://markets.businessinsider.com/currencies/btc-usd">Bitcoin</a> was 1% higher at $23,520.</li></ul>

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