Time to wrap up…. here are today’s main stories:

Q: French president Emmanual Macron has proposed extending the ECB’s mandate to cover economic growth and climate protection. What’s your view?

Christine Lagarde does not sound keen on this Élysée Palace wheeze.

Lagarde explains that the ECB has a clear mandate already – delivering price stability. That gives ‘solid guideposts and boundaries’ for monetary policy strategy.

The ECB doesn’t see the need, or have the capacity or competence, to change that.

She adds that providing price stability can encourage investment in green technologies and infrastructure.

Q: What is your view about the ECB publishing dot plots (as the Federal Reserve uses to show where policymakers expect interest rates to be in future).

Lagarde says the dot-plot mechanism is “an interesting concept”, but says no more.

And wishing the assembled reporters a “good summer”, that’s the end of the press conference.

Q: How divided is the ECB’s governing council about the path ahead, and aas today’s decision unanimous?

Christine Lagarde reveals that the decision was not unanimous, and that one member of the governing council opposed it.

She explains:

Was it a unanimous decision? Yes, but for one governor.

She doesn’t disclose who, but later says it shouldn’t be hard for reporters to identify “him”.

Lagarde adds that everyone on the governing council was united that the path was data dependent, and decisions would be taken meeting by meeting. There was “absolutely no dissent on that”, she says.

Christine Lagarde then explains that there are ‘bumps on the road’ on the journey to get inflation down to the ECB’s 2% target.

Some are predictable (such as base effects, where an inflation change a year ago affects the rate today), but others can come as a surprise.

Lagarde says:

The next few months will continue to be bumpy, we know that.

Q: Has the ECB entered into a ‘dialling back’ phase, or could today’s cut be ‘one and done’?

Christine Lagarde says she “won’t volunteer” that the ECB is moving into a dialling back phase today.

Decisions are being made based on the ECB’s confidence about the path for inflation, but it needs to see data, and analysis of that data, to confirm the eurozone is on that path, she explains:

As Lagarde puts it, with a wave of her hand (like an umpire signalling a four):

I cannot confirm that it is the dialling process that is underway. There is a strong likelihood, but it will be data-dependent.

Onto questions!

Q: Can you explain why you have cut interest rates while also raising your inflation forecasts – did you precommit to a cut today too early?

Lagarde tries to fend off this bouncer, by explaining that the ECB’s governing council started today’s meeting by paying tribute to those who died on the beaches of Normandy 80 years ago today.

Those sacrifices on D-day allowed Europe to build what we have build since, Lagarde (a former French finance minister) explains.

That’s why there can be “very harmonious and congenial decisions” among 20 nationals representing their national central banks.

Then, we decided to cut, she declares. And it did that, because the ECB’s “confidence in the path ahead” has been increasing in the past months.

She reminds reporters that the ECB tightened policy rapidly between July 2022 and September 2023. Then it entered a holding phase, until today.

In each of those two phases, inflation halved, she explains.

Lagarde explains that the ECB is data-dependent, and will make decisions meeting by meeting.

Q: The market expects 65 basis points of cuts this year – is the market right? [that would imply nearly two more cuts on top of today’s 25 basis points reduction]

Markets do what they have to do, she replies. And the ECB will do what it has to do, too.

The risks facing economic growth are balanced in the near term, but remain tilted to the downtide in the medium term, Lagarde cautions.

If there is a weaker world economy, or an escalation in trade tensions between major economies, would weigh on the eurozone economy, she warns.

Russia’s war against Ukraine, and the conflict in the Middle East, are both threats to growth, she adds.

But growth could be higher, if inflation falls faster than expected.

ECB president Christine Lagarde is holding a press conference in Frannkfurt now, to discuss today’s interest rates decision.

Lagarde begins by confirming that the ECB’s governing council lowered its three key interest rates by a quarter of one percentage point.

She’s now reading out the statement released 30 minutes ago (you can read it here).

Here’s the key section:

Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady.

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. Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons.

Monetary policy has kept financing conditions restrictive. By dampening demand and keeping inflation expectations well anchored, this has made a major contribution to bringing inflation back down.

At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year.

She then adds that the ECB has revised up its inflation forecasts for 2024 and 2025, as covered earlier.

The European Central Bank has eased the pressure on borrowers across the eurozone after cutting its main interest rate for the first time in almost five years.

The ECB reduced its deposit rate to 3.75% from a record high of 4%, putting it ahead of the US Federal Reserve and the Bank of England, which have yet to cut interest rates.

Financial markets eagerly anticipated the first eurozone cut since September 2019, which will also affect the ECB’s main refinancing operations rate, which fell from 4.5% to 4.25%.

City analysts had forecast the cut in borrowing costs at the ECB’s June meeting after signals that that the central bank was ready to offer more support to eurozone economies after a period of economic stagnation following the Russian invasion of Ukraine. More here.

The ECB has “put money where its mouth” is by delivering a first rate cut in this cycle, says Yael Selfin, chief economist at KPMG:

“As was widely expected, the ECB has become one of the first major central banks to cut interest rates this year.

Despite some improvement in sentiment, sluggish economic activity since the start of 2023, coupled with broadly balanced inflationary pressures, was enough to convince the Governing Council to ease monetary policy.

Lindsay James, investment strategist at Quilter Investors, says today’s rate cut will provide relief to consumers and businesses on the continent:

“The starting gun has been fired and the European Central Bank is the first out of the major three banks to start cutting rates. This is a significant move given it is the first rate cut from the ECB in five years, and ends what has been one of the most aggressive and swift rate hiking cycles in modern times.

“Importantly, this is not likely to be a single cut and done for a while, with signals suggesting a further cut or two are on the horizon this year as inflation has subsided. The ECB has stolen a march on the Bank of England and Federal Reserve – who are both potentially still a few months away from cutting – and will breathe life into an economy that desperately needs some form of stimulus.

But….Mark Wall, chief European economist at Deutsche Bank, says the ECB isn’t in a rush to ease policy further:

“As expected, the ECB cut rates 25bp. But the statement arguably gave less guidance than might have been expected on what comes next.

In that sense, the immediate tone is a “hawkish cut”. This is not a central bank in a rush to ease policy.”

The European Central Bank has also raised its forecasts for inflation this year and next, although this didn’t deter policymakers from cutting interest rates today.

The ECB’s staff now forecast headline inflation will average 2.5% in 2024, and then drop to 2.2% in 2025.

Three months ago, inflation had been forecast to average 2.3% in 2024, before dropping to the ECB’s 2% target in 2025.

Policymakers still expect inflation to drop to 1.9% in 2026.

The ECB has also raised its forecast for core inflation in 2024 and 2025.

Today’s rate cut was widely expected – and investors are looking for hints as to when The European Central Bank might lower rate cuts further.

On that point, the ECB’s governing council says it is not “pre-committing” to a particular path of interest rates.

Instead, future decisions will depend on the outlook for inflation.

In May, inflation rose to 2.6% from 2.4% in April, away from the ECB’s 2% target, but lower than a year ago when it was over 6%.

The ECB says:

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.

In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

The ECB has slashed its three key interest rates by a quarter of one percentage point today, in its first rate cuts since before the Covid-19 pandemic.

In a statement just released, the ECB explains:

The Governing Council today decided to lower the three key ECB interest rates by 25 basis points.

Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady.

This makes the ECB the first of the Big Three central banks to cut interest rates in the current cycle, and follows cuts by Canada yesterday, Sweden in May and Switzerland in March.

This takes the ECB’s deposit rate down to 3.75%, from the record high of 4% where it has been pegged since last September. The deposit rate was last cut in 2019, before the ECB began raising interest rates in 2022 and 2023 to fight inflation.

The ECB has also lowered the interest rate on the main refinancing operations, which is the rate banks pay when they borrow money from the ECB for one week, from 4.5% to 4.25.

Its third key interest rate, the marginal lending facility, has been lowered from 4.75% to 4.5%.

This means the ECB has cut interest rates ahead of the US Federal Reserve, which is keeping US interest rates at a 23-year high, and the Bank of England, whose Bank rate is a 16-year high.

The European Central Bank has cut interest rates across the eurozone, for the first time in nearly five years.

Microsoft, OpenAI and Nvidia face increased antitrust scrutiny of their roles in the artificial intelligence industry after a report that US regulators have reached an agreement on investigating the companies.

The New York Times reported that the US justice department and the Federal Trade Commission (FTC) have reached an agreement on investigations into the main protagonists in the AI market. The deal is expected to be completed in the coming days, according to the report.

The justice department will lead on investigating whether Nvidia, the leading maker of chips that train and operate AI systems, has broken antitrust laws that oversee fair competition in business and aim to prevent monopolies, said the NYT on Wednesday.

The risk of blackouts in Great Britain will be lower this winter thanks to more gas-fired power and a new power cable linking the UK to Denmark, according to National Grid’s electricity system operator (ESO).

Kayte O’Neill, the ESO’s chief operating officer, said the group’s initial assessment of the winter ahead suggests that the country will have “sufficient margins” of electricity supplies relative to demand.

O’Neill says:

“Factors such as increased interconnector capacity, new gas generation, growth in battery storage capacity and increased generation connected to the distribution networks are contributing to higher margins than last winter.”

National Grid launched the Viking Link power cable earlier this year after it first began importing electricity from Denmark in December. The FTSE 100 company is expected to spin off the ESO later this summer to become an independent public body.

ESO’s early view of the winter ahead includes a supply margin of 5.6 GW, or 9.4%, compared with a margin of 4.4 GW, or 7.4%, which they predicted ahead of last winter.

In its review of the last winter it said that actual margins were “broadly within the expected range” but did not provide a figure.

UK companies are planning to raise wages at a slower pace this year – which will cheer the Bank of England (BoE), but depress workers.

The BoE’s latest ‘Decision Maker Panel’ (DMP) survey, just released, shows that companies expect wage growth to be 4.5% in the year ahead.

Annual wage growth was 6.0% in the three months to May, so this shows that firms expect their wage growth to decline by 1.5 percentage points over the next 12 months.

The BoE has cited wage growth as a key factor determining how soon it can cut UK interest rates.

The DMP polls chief financial officers from small, medium and large UK businesses.

It also found that:

• Businesses expect their output price inflation to decline over the next year. Year-ahead own-price inflation was expected to be 3.9% in the three months to May, down from 4.0% in the three months to April.

• Firms reported annual employment growth of 1.5% in the three months to May, lower than the 1.7% reported in the three months to April.

• Firms reported that the average interest rate that they were paying on their borrowing (both bank and market based) was 6.6% in May, 0.4 percentage points lower than reported in April.

Back in the eurozone, retail sales have weakened, suggesting that consumer spending remains subdued despite recent falls in inflation.

Retail sales volumes (how much people bought in the shops) fell by 0.5% across the eurozone in April compared with March, and was 0.6% lower in the European Union.

That largely reverses a 0.7% rise in retail sales across the eurozone in March.

On an annual basis, sales volumes were flat compared with April 2023, and 0.1% lower in the EU.

Newsflash: Britain’s construction sector grew at the fastest pace in two years last month.

Data firm S&P Global has reported that growth in the UK construction sector gained momentum during May, with activity and new business increasing at sharper rates than in April.

Building firms reported rising workloads, which spurred them into buying more materials and taking on more staff.

This has pushed S&P’s construction PMI, which tracks activity across the sector, up to 54.7 from 53.0 in April. That shows the fastest increase in activity since May 2022.

The sharpest increase in activity was seen in the commercial construction category, while civil engineering grew at a slightly softer pace. Housebuilding only rose slightlly, though. This is the first time since May 2022 that all three monitored categories saw an increase in activity.

Andrew Harker, economics director at S&P Global Market Intelligence, says the construction sector appears to be building good momentum.

Harker adds:

Particularly pleasing was the broad-based nature of the rise in activity as work on housing projects increased for the first time in more than a year-and-a-half.

“Firms are gearing up for further growth in the months ahead, posting renewed expansions in both employment and purchasing activity as workloads increase.

Moreover, the supply-chain environment continued to improve in May. Companies were able to secure inputs much more quickly than in April and at prices that were only slightly higher than in the previous month on average. These factors should help constructors in their efforts to ramp up operations in line with greater new order inflows.”

European stock markets are rallying this morning, as traders anticipate a cut to eurozone interest rates at lunchtime.

Germany’s DAX index has gained 0.8% in early trading, while France’s CAC is 0.3% higher, and both Spain’s IBEX and Italy’s FTSE MIB are up 0.15%.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, says:

There’s renewed optimism that the ECB will cut interest rates in its decision later today, which is adding additional enthusiasm into equities.

The lingering question, however, is what the interest rate roadmap looks like after June. Even if a cut arrives today, markets will be more interested in understanding expectations for the rest of the year.

The British Chambers of Commerce (BCC) has upgraded its expectations of UK economic growth for this year and 2025 – but the new forecasts can hardly be called ‘gangbusters’.

The BCC says the economy has made a stronger start to this year than expected. So growth for 2024 and 2025 has been revised upwards to 0.8% and 1.0% respectively.

However, 2026’s growth forecast is unchanged, at 1.0%, with the BCC warning that “a poor outlook for exports” is dragging on growth, while high interest rates continue to limit investment.

Vicky Pryce, who chairs the BCC economic advisory council, said:

“The BCC’s latest forecast shows there is life in the UK economy but if it is to gain momentum then it must be nurtured.

“With interest rates expected to be cut at a modest pace and pay outstripping inflation, businesses will be holding onto much of their money – even as confidence rises after the mini-recession.

“As we enter the final weeks of the general election campaign, businesses will be watching for politicians to show they have sustainable long term economic plans.

“These must play to the UK’s strengths and give companies confidence.”

The UK’s statistics watchdog has opened an investigation into remarks made by Rishi Sunak about the economy “going gangbusters” amid concerns that politicians could misuse economic data in the run-up to the election.

Sir Robert Chote, chair of the UK Statistics Authority, will examine whether the prime minister repeated comments that were “taken out of context” and exaggerated the Conservative party’s economic record.

The phrase “going gangbusters” was used by an official at the Office for National Statistics (ONS) during a briefing about the economy with journalists before becoming the basis of a Daily Mail front page story last month. A week later Sunak, in an interview on the Radio 4 Today programme, repeated the term.

More here….

Back in the eurozone, German factories have suffered another drop in orders.

German industrial orders dropped by 0.2% in April, missing expectations of a rise of 0.6%. That’s the fourth monthly drop in a row.

It indicates that manufacturing in Europe’s largest economy hasn’t made a strong start to 2024; perhaps a cut to interest rates might help…

The decline was due to a drop in large-scale orders in April.

That included a 15.4% decline in demand for ‘other transport equipment’ such as aircraft, ships, trains.

There was aso a 5.1% drop in the manufacture of computer, electronic and optical products, while electrical equipment orders fell 4.1%, and the manufacture of machinery and equipment dropped by 1.5%.

In a third AI development this morning, the Federal Trade Commission is investigating whether Microsoft deliberately structured a takeover deal to avoid a government antitrust review.

The transaction in question involved AI startup Inflection. In March, Microsoft announced an unusual licening deal in which it paid $650m to use Inflections models and hired most of its staff, including its co-founders.

The FTC is concerned that this allowed Microsoft to swerve a rule that acquisitions valued at more than $119m must be reported to to federal antitrust-enforcement agencies, who could choose to investigate the impact on competition.

The WSJ says:

The FTC is now drilling down on Microsoft’s deal with Inflection, seeking information about how and why they negotiated their partnership, according to a person familiar with the matter and records viewed by The Wall Street Journal.

Civil subpoenas the commission sent recently to Microsoft and Inflection seek documents going back about two years. The agency is trying to determine whether Microsoft crafted a deal that would give it control of Inflection but also dodge FTC review of the transaction, the person said.

If the agency finds that Microsoft should have reported and sought government review of its deal with Inflection, the FTC could bring an enforcement action against Microsoft. Officials could ask a court to fine Microsoft and suspend the transaction while the FTC conducts a full-scale investigation of the deal’s impact on competition.

More here: FTC Opens Antitrust Probe of Microsoft AI Deal

UK authorities are also interested in the deal. In April, the Competitions and Markets Authority announced an investigation into Microsoft’s “hiring of certain former employees of Inflection AI” and “its entry into associated arrangements with Inflection AI”….

Elsewhere this morning, the top US antitrust enforcer has pledged to look “with urgency” at the artificial intelligence sector.

Jonathan Kanter has told the Financial Times about his concerns that power over the transformative technology is being concentrated among a few deep-pocketed players.

Kantar cited “monopoly choke points and the competitive landscape” in AI, such as thecomputing power and the data used to train large language models, to cloud service providers, engineering talent and access to essential hardware such as graphics processing unit chips (where Nvidia has such power).

The FT explains:

Regulators are concerned that the nascent AI sector is “at the high-water mark of competition, not the floor” and must act “with urgency” to ensure that already dominant tech companies do not control the market, Kanter said.

Sometimes the most meaningful intervention is when the intervention is in real time,” he added. “The beauty of that is you can be less invasive.”

Some of the biggest players in the artificial intelligence field are facing the prospect of an antitrust investigation.

US regulators have cleared the way for antitrust inquiries into Nvidia, Microsoft and OpenAI, according to reports this morning, as they intensify their scrutiny of AI.

The New York Times reports that the US Justice Department and the Federal Trade Commission have reached a deal to split responsibility for investigating the three major players in AI.

Once completed, probably in the coming days, the deal will mean the DoJ will take the lead investigating Nvidia, whose chips are driving the AI revolution, and whose market capitalisation hit $3trn last night.

This leaves the FTC with the task of examining OpenAI, maker of the ChatGPT chatbot, which has received billions of dollars of investment and support from Microsoft, which owns 49% of its shares.

Nvidia, OpenAI and Microsoft are in the spotligh due to concerns over their dominance of the AI space, and worries that. artificial intelligence will cost millions of jobs, and that safety oversight within the industry is weak.

The move shows that the AI industry faces growing regulatory scrutiny.

Back in January, the FTC launched an inquiry on Thursday into investments and partnerships made by some of the biggest companies in the generative artificial intelligence space.

Just last week, US antitrust chief Jonathan Kanter told a conference that there are structures and trends in AI that should give us pause’”.

Kanter, the assistant attorney general for the antitrust division at the Department of Justice, explained:

AI relies on massive amounts of data and computing power, which can give already-dominant firms a substantial advantage.

Powerful network effects may enable dominant firms to control these new markets, and existing power in the digital economy may create a powerful incentive to control emerging innovations that will not only impact our economy, but the health and well-being of our society and free expression.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The European Central Bank is poised to join a select group today, by lowering borrowing costs across the eurozone.

Following heavy hints in recent weeks, economists widely agree that the ECB will vote to lower its key interest rates at a governing council meeting in Frankfurt today.

A cut makes sense, as inflation across the eurozone has cooled this year – to 2.6% in May. It would start to unwind a tightening cycle that began in summer 2022, and which has pushed the ECB’s deposit rate to a record high.

The decision comes at 1.15pm UK time; the money markets this morning show that a rate cut is a 92% probability, with just 8% chance of no change.

If that’s accurate, the ECB would join Sweden and Switzerland, who lowered their interest rates in recent months, and Canada, which yesterday became the first G7 country to cut rates in this cycle.

It would mean, unusually, the ECB easing policy before the US Federal Reserve.

Economists and traders are also looking for hints as to how quickly the ECB might continue to ease policy in the coming months.

Inflation actually rose in May, up from 2.4% in April, which has created some uncertainty over whether underlying price pressures have been subdued.

Henk Potts, market strategist at Barclays Private Bank, commented:

“After nine months of keeping rates on hold, we expect the European Central Bank to embark on a rate-cutting cycle at its meeting on Thursday, 6 June. A quarter-point reduction across its policy rates, the first cut since 2019, is anticipated.

Our view is that the Governing Council’s rationale will likely be driven by a stronger-than-expected recovery in activity and increased confidence that inflation will return to the targeted level. Beyond the June meeting, we forecast that we could see quarter-point cuts in September and December. In addition, we expect to see 75 basis points of cuts next year, with the deposit rate finishing 2025 at 2.5%.”

Analysts at Deutsche Bank told clients that the question is, “what comes after June?”, adding:

The cut will set the new direction for policy but with economic momentum outperforming expectations and domestic inflation proving sticky in 2024, the ECB can afford to take things slowly and let the data set the parameters of the easing cycle.

The agenda

• 9.30am BST: UK construction PMI report for May

• 9.30am BST: UK economic activity and business insights data

• 1.15pm BST: European Central Bank interest rate decision

• 1.30pm BST: US weekly jobless claims

• 1.30pm BST: US trade balance for April

• 1.45pm BTS: European Central Bank press conference