(Kitco News) – The growing threat of inflation prompted the European Central Bank to surprise markets by raising interest rates across the board by 50 basis points, providing the euro with new momentum against the U.S. dollar and, in turn, pushing gold prices back above $1,700 an ounce.
Along with rising price pressures, ECB President Christine Lagarde also noted growing economic risks; however, she added that the central bank does not expect to see the European economy fall into a recession.
“The latest data indicate a slowdown in growth, clouding the outlook for the second half of 2022 and beyond. At the same time, this slowdown is being cushioned by a number of supportive factors,” Lagarde said in her opening remarks. “Economic activity continues to benefit from the reopening of the economy, a strong labour market and fiscal policy support. Consumption is being supported by the savings that households built up during the pandemic and by a strong labour market.”
Although the European economy faces growing downside risks, the ECB sees inflation as the biggest threat on the horizon.
“The risks to the inflation outlook continue to be on the upside and have intensified, particularly in the short term. The risks to the medium-term inflation outlook include a durable worsening of the production capacity of our economy, persistently high energy and food prices, inflation expectations rising above our target and higher than anticipated wage rises,” Lagarde said.
Although the ECB expects to continue to raise interest rates through the rest of the year, markets saw little guidance on the steepness of the tightening path.
Lagarde said that the central bank would not provide any forward guidance on rate hikes and added that she didn’t know where the neutral rate would be.
“At our upcoming meetings, further normalisation of interest rates will be appropriate. Our future policy rate path will continue to be data-dependent and will help us deliver on our 2% inflation target over the medium term,” she said.
Along with raising interest rates, the ECB also approved a new policy tool, the Transmission Protection Instrument (TPI).
While the TPI has been launched to reduce fragmentation risks in the eurozone, markets have not received a lot of information on how it will be implemented.
“The TPI will ensure that our monetary policy stance is transmitted smoothly across all euro area countries. The singleness of our monetary policy is a precondition for the ECB to be able to deliver on its price stability mandate,” Lagarde said.
According to some market analysts, the ECB’s aggressive move should help improve sentiment in the gold market as U.S. dollar gains could be capped.
The U.S. dollar has been on an unstoppable rally, recently hitting a 20-year high and touching parity with the euro. Analysts have said that the U.S. dollar’s run is partly because of the significant monetary policy gap between the Federal Reserve and the ECB.
This is the first time the ECB has raised interest rates in over a decade. Meanwhile, the Federal Reserve has raised interest rates three times this year, taking the Fed Funds rate to a target between 1.50% and 1.75%.
The Federal Reserve is expected to raise interest rates another 75 basis points later this month.
Looking ahead, some analysts see limited scope for the euro as the interest rate gap remains particularly wide.
Currency analysts at TD Securities said that they see the euro hitting resistance between 1.03 and 1.04 against the U.S. dollar in the near-term.
“No matter how you slice and dice it, the eurozone is in a very difficult spot. The global CB community has adopted the front-loading mentality, but many, like the ECB, are facing a Ricardian equivalence dilemma – more policy aggression now is just borrowing tightening from the future. We still contend that EUR is buy the rumor/sell the fact, because there is little the ECB can do to avoid an energy crisis and an implosion of the current account,” the analysts said in a note.
With limited gains expected for the euro, some analysts have said that gold prices could continue to struggle.
“When all is said and done, we believe the U.S. economy will prove to be more resilient than the rest of the world and so we look for continued dollar gains,” said currency analysts at Brown Brothers Harriman.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
