Every week we bring you the world’s biggest business, currency, and travel stories. This week: the Reserve Bank of India has a new Governor, Deutsche Bank CEO slams the ECB, Hong Kong’s stock market tries to reduce volatility, British exports are up, but capital is leaving investment funds, EU defies expectations with growth, US budget deficit is growing, Alberta is $10 billion in the red, prices fall in Japan, and the Fed could raise rates causing the GBP to fall against the USD.
Urjit Patel has been announced as Raghuram Rajan’s replacement as the governor of the Reserve Bank of India. Rajan was highly respected by the markets and the abrupt end of his tenure created some uncertainty (especially due to the political overtones surrounding his exit). Patel will be seen as a reliable replacement. The former deputy governor has a strong track record, and was responsible for designing an inflation targeting strategy which has kept prices on a tight leash. His appointment should increase confidence in the rupee, as finding a suitable replacement for Rajan was an urgent priority.
The Negatives of Negative Rates
The CEO of Deutsche Bank, John Cryan, has slammed the European Central Bank for its negative interest rates policy. The policy, which is designed to increase liquidity, encourage lending, and stimulate the still sputtering eurozone economy, means that banks are charged 0.4% interest for deposits with the ECB. Cryan believes that rather than strengthen the eurozone economy and the european banking system, it is increasing risk.
Hong Kong Stability
‘Circuit breakers’ were installed at the Hong Kong stock exchange, designed to stop volatile trading. Unlike similar measures taken on the mainland in Shanghai and Shenzhen which shut down the entire market, Hong Kong’s new measures will target specific stocks.
British Exports Grow
According to the Confederation of British Industry, British exports have hit a two year high thanks to the sharp fall of the GBP following the Brexit vote. The lower value of the pound however is raising the cost of manufacturers that rely on imported equipment, material, or parts. UK investment funds have also been affected by the lower value of the sterling. Withdrawals from the funds hit a three year high last month totalling GBP 4.7 billion.
Eurozone Economy Grows
Despite expectations that the EU economy would experience immediate negative consequences as a result of Brexit, figures show that the economy, infact, picked up speed in August.
US Budget Deficit
Lower than expected corporate tax revenues has resulted in America’s budget deficit rising for the first time since 2009. On September 31st the overall deficit will reach $590 billion year on year – 33% higher than in 2015. Despite this short term increase, projections suggest that the deficit will shrink over the next decade.
Alberta in the red
Alberta’s deficit has climbed to nearly $11 billion thanks to the collapse of oil prices, and the $500 million cost of the wildfires.
Yellen about rates
Janet Yellen, US Federal Reserve Chair, made the case for raising interest rates this week at the Jackson Hole Economic Symposium. Some are predicting that interest rates could be raised as early as next month. Yellen did not announce a timeline for increasing rates but did say that, “In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”
GBP to USD Low
Yellen’s comments drove intraday trading between the GBP and USD down to just 1.3141.
Prices in Japan have shrunk for the 5th consecutive month, which could encourage the Bank of Japan to take serious action. Interest rates are already low and further action could devalue the JPY even further.
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