Europe's central bank to hold off on another rate cut until it knows how bad the tariff blow will be
The ECB has already cut rates eight times since June of last year and President Christine Lagarde said after the last policy meeting June 5 that the central bank is 'getting to the end of a monetary policy cycle." The monetary authority for the 20 countries that use the euro currency has been lowering rates to support growth after raising them in 2022-2023 to snuff out inflation caused by Russia's invasion of Ukraine and the rebound after the pandemic.
With the bench mark rate now at 2%, down from a record high of 4%, analyst think there could be one more rate cut coming, but only in September.
The reason, say analysts: The ECB's policymakers simply don't know the outcome of talks between the EU's executive commission and the Trump administration. Trump first set a 20% tariff for EU goods, then threatened 50% after expressing displeasure at the pace of talks, then sent the EU a letter informing officials of a potential 30% tariff. EU officials earlier held out hope of winning at least the 10% baseline that applies to almost all trade partners, and analysts think that the actual rate may be lower than Trump's tariff threats. The talks are up against an Aug. 1 deadline, but earlier deadlines have slipped as the sides kept talking.
The decision to hold rates unchanged will be 'uncontroversial' among members of the bank's rate-setting council, said analysts at UniCredit's Investment Institute.
'In light of recent events, the risk of an adverse tariff scenario has increased since the June ECB meeting. The 30% tariff on EU goods threatened by the US is much higher than generally expected,' the UniCredit analysts wrote. "However, the response of financial markets to US President Donald Trump's letter to the EU has been muted, and this seems to reflect expectations that the landing point for tariffs on EU goods will be materially below 30%.
With signs of economic activity holding up reasonably well, 'the ECB can afford to wait and see what the outcome of trade negotiations will be.'
The ECB's rate cuts have helped support economic activity by lowering the cost of credit for consumers and businesses to purchase goods. Higher rates have the opposite effect and are used to cool of inflation by reducing demand for goods.
Growth in the eurozone was relatively strong at 0.6% in the first quarter - though that was partly due to rushed shipments of goods trying to beat the tariffs. Inflation has fallen from double digits in late 2022 to 2% in June, in line with the ECB's target. A stronger euro, which lowers the price of imports, and softer global prices for oil have helped keep inflation moderate.
The stronger euro, up 13% this year at $1.17, has attracted attention as a potential damper on growth and ECB Vice President Luis de Guindos said any rapid moves over $1.20 could be 'much more complicated.' But the ECB typically does not target the exchange rate, and the euro's rise is considered to be less the result of Europe 's strength and more the result of a weaker dollar weighed down by investor uncertainty about the future path of inflation, growth and government debt in the US.
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Reuters
13 minutes ago
- Reuters
China proposes new global AI cooperation organisation
SHANGHAI, July 26 (Reuters) - China said on Saturday it wanted to create an organisation to foster global cooperation on artificial intelligence, positioning itself as an alternative to the U.S. as the two vie for influence over the transformative technology. China wants to help coordinate global efforts to regulate fast-evolving AI technology and share the country's advances, Premier Li Qiang told the annual World Artificial Intelligence Conference in Shanghai. President Donald Trump's administration on Wednesday released an AI blueprint aiming to vastly expand U.S. AI exports to allies in a bid to maintain the American edge over China in the critical technology. Li did not name the United States but appeared to refer to Washington's efforts to stymie China's advances in AI, warning that the technology risked becoming the "exclusive game" of a few countries and companies. China wants AI to be openly shared and for all countries and companies to have equal rights to use it, Li said, adding that Beijing was willing to share its development experience and products with other countries, particularly the "Global South". The Global South refers to developing, emerging or lower-income countries, mostly in the southern hemisphere. How to regulate AI's growing risks was another concern, Li said, adding that bottlenecks included an insufficient supply of AI chips and restrictions on talent exchange. "Overall global AI governance is still fragmented. Countries have great differences particularly in terms of areas such as regulatory concepts, institutional rules," he said. "We should strengthen coordination to form a global AI governance framework that has broad consensus as soon as possible." The three-day Shanghai conference brings together industry leaders and policymakers at a time of escalating technological competition between China and the United States - the world's two largest economies - with AI emerging as a key battleground. Washington has imposed export restrictions on advanced technology to China, including the most high-end AI chips made by companies such as Nvidia (NVDA.O), opens new tab and chipmaking equipment, citing concerns that the technology could enhance China's military capabilities. Despite these restrictions, China has continued making AI breakthroughs that have drawn close scrutiny from U.S. officials. China's Vice Foreign Minister Ma Zhaoxu told a roundtable of representatives from over 30 countries, including Russia, South Africa, Qatar, South Korea and Germany, that China wanted the organisation to promote pragmatic cooperation in AI and was considering putting its headquarters in Shanghai. The foreign ministry released online an action plan for global AI governance, inviting governments, international organisations, enterprises and research institutions to work together and promote international exchanges including through a cross-border open source community. The government-sponsored AI conference typically attracts major industry players, government officials, researchers and investors. Saturday's speakers included Anne Bouverot, the French president's special envoy for AI, computer scientist Geoffrey Hinton, known as "the Godfather of AI", and former Google CEO Eric Schmidt. Tesla (TSLA.O), opens new tab CEO Elon Musk, who has in past years regularly appeared at the opening ceremony in person or by video, did not speak this year. Besides forums, the conference features exhibitions where companies demonstrate their latest innovations. This year, more than 800 companies are participating, showcasing more than 3,000 high-tech products, 40 large language models, 50 AI-powered devices and 60 intelligent robots, according to organisers. The exhibition features predominantly Chinese companies, including tech giants Huawei and Alibaba ( opens new tab and startups such as humanoid robot maker Unitree. Western participants include Tesla, Alphabet (GOOGL.O), opens new tab and Amazon (AMZN.O), opens new tab.
The National
41 minutes ago
- The National
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The Independent
42 minutes ago
- The Independent
Why Starmer has more to worry about than his inability to play golf when he meets Trump at Turnberry
Keir Starmer has confided that he has never played golf before, which may prove to be a problem when he holds a bilateral with Donald Trump at the US president's Turnberry course in Scotland on Monday. The location partially explains the nervous energy around the prime minister when he discusses this last-minute arranged meeting as Trump spends a few days relaxing at his own Scottish courses. 'Golf is not something you can pick up in a weekend,' a source close to the PM said, envisaging the two holding their bilateral around 18 holes on the championship course. But a potential crash course in golf is the least of Sir Keir's concerns as he prepares for yet another crucial bilatera l with a US president he has struck up a politically unlikely friendship with. Top of the agenda will be the steel industry followed by Ukraine and Gaza - all issues where Sir Keir and Trump still seem far apart. Men of steel If sorting out the trade deal was the equivalent of a green on a golf course, Starmer would be on his third attempt with the putter trying to sink a ball which initially rolled invitingly near to the flag. Already we have effectively had two signing ceremonies for a trade agreement to tackle Trump's 'freedom day' tariffs. The first occasion in May when it was described as 'the big and beautiful deal' seemed to have resolved almost everything. Then nothing happened until the two men appeared together in Canada last month with a signed deal which the president almost immediately fumbled on to the floor. But even after that there was one crucial issue left over - steel. Trump put tariffs of 25 per cent on steel and then increased them to 50 per cent for the rest of the world, with a threat that the UK would go from 25 to 50 per cent if it did not sort the issue out. 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His ability to boost the president's ego has become the blueprint for international leaders to deal with the second Trump term. Without US leadership there is a danger that the war will just go on and thousands of people trapped in Gaza will simply starve to death. In many ways Starmer will be speaking for the so-called E3 group of UK, France and Germany on the issue after the emergency phone call with Macron and German chancellor Friedrich Merz on Friday. Not forgetting Ukraine The Middle East may not even be Starmer's biggest international priority in these talks. He is desperate for a solution to the Ukraine problem and recently with Macron and Merz has been pushing ahead with the 'coalition of the willing' to provide a safeguard for Ukraine after a peace deal. He and Macron announced new details and plans for the coalition of the willing after the French president's recent state visit. But they are moving ahead without the one thing they need - a promise by the US to back them up militarily if things go wrong. Trump has resisted this idea, much preferring to get a share of Ukraine's mineral resources. He has shown no interest at all in Starmer's plan. But the British prime minister needs to somehow to get him on side on Monday. The State Visit While this is a private trip for Trump to look at his personal business interests (play golf on his own courses), it is a precursor to a much bigger visit in September. The invitation for a state visit came from the King and was delivered by his prime minister but details of the political side of the historic trip will be discussed. There may be an awkward moment regarding why Macron got to address a joint sitting of the Houses of Parliament and Trump will not. The excuse that it is the day after Parliament rises does not hold water because MPs and peers came back to hear the late Pope Benedict address them in 2010 in identical circumstances. There will be no shortage of rightwing British Trump friends visiting him over the next few days, including Nigel Farage and fellow Brexit bad boy Andy Wigmore, who will point out that others were treated better. How Starmer can win over Trump It is understood that the prime minister came up with a solution to deal with the diplomatic problem of having to play golf, at a recent social event in Westminster. 'We toss a coin. If the president wins we play golf, if I win we play football,' the PM is understood to have suggested. Given how much Trump enjoyed himself with Chelsea players after presenting the World Club Cup to them, that may be a solution. But it is going to take more than a coin flip for Sir Keir to persuade the president on these other issues. The one thing that matters though is that Trump values relationships and trusts people who are straight with him and give him their trust. Back at the G7 in Canada Trump made it clear that the UK will do well with him because he likes Starmer. He said: 'The UK is very well protected. You know why? Because I like them. The prime minister has done a really good job. He has done what other people have been talking about for six years and he has done it.' Starmer is going to need all the charm that he seems to have reserved for his international duties to get what he wants on Monday. But recent history suggests that it could all be within his grasp.
