???? Online Banking up, Branches down (a lot!) also: Slowing US... might we see Goldilocks? || [?? Interest Rates]

• US large-cap S&P 500 closed 0.09% DOWN ???
• Tech-heavy Nasdaq Composite closed 0.13% UP ▲?
• Pan European STOXX Europe 600 closed 0.89% UP ▲?
• HK's Hang Seng Index closed 0.75% UP ▲?
• Japan's Nikkei 225 closed 0.92% UP ▲?

?? IN THE MARKETS

• Slower hiking everywhere?; "New stage" zero-Covid?

?? FOCUS

• Online Banking up, Branches down (a lot!)
• Slowing US... might we see Goldilocks?

?? MoneyFitt EXPLAINS

• ?? Interest rates

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?? IN THE MARKETS

European stocks hit six-month highs after the head of the US central bank, Federal Reserve Chairman Jay Powell, repeated basically what he said at the start of the month about smaller interest rate ?? hikes, despite adding that the Fed had “more ground to cover” in fighting inflation and not to read too much into the lower-than-expected October inflation data. ECB President Christine Lagarde said she doesn't believe peak inflation is behind us, but markets are hoping for similarly slowing hikes of Euro rates too. And the Governor of the Bank of Korea Governor joined in the fun and said he too was ready to adjust the pace of monetary policy tightening (where "tightening" = higher interest rates.)

Meanwhile, China's zero-Covid enforcer, Vice-premier Sun Chunlan, said the fight against the virus has entered a “new stage” which market punters read as meaning a more flexible and less rigid approach from authorities, and a climbdown from strict zero-Covid (which she didn't say.) Traders pointed to the recently eased lockdowns in parts of Guangzhou despite high case numbers and contrasted it with the 2-month lockdown in Shanghai this spring. Elsewhere, the FT reports that officials are allowing home isolation for close contacts of those with Covid-19 rather than centralised quarantine, which had been the rule.

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?? FOCUS

Online Banking up, Branches down (a lot!)

HSBC, once advertised as "The World's Local Bank" is shutting 114, or more than 1-in-4, of its branches across the UK (with a surprisingly low job loss of 100) to cut costs and adapt to more customers doing their everyday banking online. Footfall in branches was described as being at an "all-time low, with no signs of it returning". Banks around the world have closed thousands of branches in recent years, with the pace accelerating through Covid, with 5,200 closures since 2015 in the UK alone, leaving some communities without access to bank branches, disproportionately affecting the elderly, those without internet access and cash-based businesses.

"Without any corporate social responsibility to require banks to stay on our high streets to help the elderly, disabled or vulnerable, then access to cash and banking will be lost forever." - Unite, a UK trade union.        

HSBC said that more than nine in 10 transactions at the bank are now done digitally. Monzo, the pioneering 7-year old UK digital bank, will finally turn a profit in 2023, according to its CEO. This is a huge turnaround since 2020 and 2021 when its auditors, EY, said in its signoff to its annual accounts that there were “material uncertainties” whether Monzo would even stay in business.

HSBC is one of the world's largest banks by assets and market capitalisation (share price times number of shares,) employing a quarter of a million people worldwide. Although originally standing for The Hongkong and Shanghai Banking Corporation and founded in Hong Kong and Shanghai in 1865, it is a UK company with its primary listing in London. But its "real" headquarters is in Hong Kong. It is currently facing pressure from its largest shareholder, Ping An Insurance of China, to split its profitable and faster growing Asian operations from the slower growing businesses in the rest of the world, including the UK (where in 1992 it bought Midland Bank, which was the world's largest bank a hundred years ago.)

Slowing US... might we see Goldilocks?

US manufacturing slowed down for the first time since 2020, and the red-hot labour market was slightly less hot while the Fed's favoured measure of inflation for October echoed the CPI numbers released a couple of weeks ago.

Manufacturing contracted as demand for goods fell with higher prices and fears of a recession weighing on US and overseas consumers. The ISM manufacturing Purchasing Managers' Index, a long-established survey, dropped to 49 in November. A reading below 50, which shows contraction, and was lower than the consensus estimates of 49.7, and down from 50.2 the revious month, ending 29 months above the 50 mark.

Meanwhile, US jobless claims dropped last week, meaning that fewer people lost their jobs, but the number receiving unemployment benefits increased, meaning the unemployed were finding it a little harder to get a job. All in all, though data from only one week, it suggests there may be some cooling of the still pretty red-hot labour market.

Finally, the October personal consumption expenditures (PCE) index data that the Fed most cares about is showing a slowing pace of inflation. The core PCE index rose by 0.2% over the previous month's index, much lower than the 0.5% seen in September and the 0.3% expected. The annual rate of inflation is now down to 5% from 5.1% but it's still way above the Fed’s targeted 2%. Headline PCE, which includes food and energy, rose 0.3% for an annual rate 6%.

Mini-Explainer: PCE and CPI Inflation measure

In the US, the core PCE index is the price of a basket of goods and services excluding food and energy prices.
It's similar to the better-known CPI, the Consumer Price Index, except it includes a wider range of goods and services (including employee benefits) and includes more rural data by using GDP data and manufacturers surveys rather than just urban household surveys. It also has a slightly different methodology.?
One big difference is the substitution bias where the PCE measures what you actually buy instead of measuring a fixed basket. In a way, it reflects reality better, but it also understates actual price increases that consumers face as it won't account for consumers buying a cheaper product because prices in their preferred items have gone through the roof.?s        

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?? MoneyFitt EXPLAINS?

??Interest Rates

• The interest rate is the price of money over a given period of time
• When you deposit your money, you are effectively lending it to the bank, and you earn interest on that money. If you leave the deposit alone, the interest you get will also earn interest, which itself will earn more interest, which is ??magic (also known as "compounding.")
• When you borrow money, whether borrowing from a bank or issuing a company bond to investors, you need to pay it back with interest. And compounding can work its magic the other way, where what you owe gets bigger and bigger.
• Central banks set the level of rates to influence economic activity and control inflation.
• The higher the interest rate, the more expensive it is for businesses to grow, while consumers pay more interest on their loans, spend less and try to save more. With less demand, domestic price and wage pressures are less, BUT the economy will grow more slowly or may even shrink.
• High or rising interest rates can also lead to a stronger currency if other countries' rates are relatively lower, which can translate into lower prices for imports. Unfortunately, that also means lower exports because of less competitive (higher) prices.