Pound hits one-year high amid US interest rate cut hopes; PwC braces for China ban over Evergrande audit

Introduction: Pound at one-year high against weaker dollar

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The growing prospect of a US interest rate cut next month is buffeting the dollar, sending the pound up to its highest level in over a year.

The dollar lost more ground last night after the minutes of the Federal Reserve’s July meeting were released. They showed that the “vast majority” of policymakers felt it would probably be appropriate to cut rates in September, if economic data continued to come in as expected.

That knocked the dollar index – which tracks the greenback against major rivals including the euro, yen and sterling – to its lowest since last December.

That drove the pound up to $1.31 last night – the highest since July 2023.

The pound against the US dollar over the last year Photograph: LSEG

Hopes of a September rate cut were further boosted yesterday by data showing that 818,000 fewer jobs had been created across America than previously thought.

Those revisions add to concerns that the economy has been slowing.

The financial markets indicate there’s a 66% chance that the Fed begins with a quarter-point cut to borrowing costs in September, and a 34% chance of a bumper half-point cut.

Traders are also pricing in a full percentage point cut in US rates by the end of the year – implying a half-point cut at one of the Fed’s three remaining meetings this year.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:

Because a jumbo rate cut wouldn’t arrive unless there is a deeper economic and financial trouble, the market pricing of the moment is unsustainable for either the US dollar – which has gone too low with the expectation of a 100bp cut, or the stock markets – which have gone too high with the same expectation disregarding the fact that economic trouble is never good for profitability.

Central bankers are gathering in Jackson Hole, Wyoming, today for a closely-watched economic symposium. Federal Reserve chair Jerome Powell speaks tomorrow, and is expected to give some guidance about how the Fed may act in the months ahead.

The agenda

9am BST: Eurozone flash PMI report for August
9.30am BST: UK flash PMI report for August
11am BST: CBI industrial trends report
12.30pm BST: ECB monetary policy committee meeting minutes are published
1.30pm BST: US weekly jobless report

Key events

A global slowdown in hiring has hammered profits at UK recruitment company Hays.

Pre-tax profits, before exceptional items, more than halved in the last financial year, to 30 June, falling to £94.7m from £192.1m.

Fees – paid when Hays fills a vacancy – dropped by 12%, as companies cut back on hiring permanent staff, and temporary workers.

Chief executive Dirk Hahn says:

“We saw increasingly challenging market conditions through FY24 in both Perm and Temp, with low confidence levels and longer-than-normal ‘time-to-hire’, and our profitability was significantly impacted, including our three largest markets of Germany, Australia and the UK.

Against this backdrop, we have focused on enhanced operational rigour, driving consultant productivity and strong cost management, and are determined to build a more resilient Hays.

Hays has cut its costs this year, including a 15% reduction in its headcount.

Looking ahead, it says:

Overall, near-term conditions remain challenging but in line with our expectations. September is the key trading month in our first quarter, and it is too early to assess trends.

Starbucks’ new CEO faces backlash over 1,000-mile commute by private jet

Maya Yang

Over in the US, Starbucks’ incoming CEO, Brian Niccol, is facing environmental criticisms following the company’s offer for him to commute from his home in Newport Beach, California, to its headquarters in Seattle via a private jet instead of relocating.

Following reports of Niccol’s super commute, people were quick to point out the apparent hypocrisy in the use of private jets in the context of the company’s sustainability efforts, including its ban on plastic straws.

One user wrote on X:

“The new Starbucks CEO is ‘supercommuting’ 1,000 miles to Seattle on a private jet to work, so don’t be too harsh on that waitress who gave you a plastic straw when you didn’t want one.”

Another person wrote,

“Absolutely wild that it cost $85 million in cash/stock to pry this guy from Chipotle and then they’ll just let him thrash the environment to commute 1000 miles 3 times a week on a corporate jet instead of having him move to the PNW [Pacific north-west].

FT: PwC braced for six-month ban in China over Evergrande audit

PwC is preparing to face the music in China over its auditing of collapsed property developer Evergrande.

The Financial Times reports that PwC China has told clients it expects Chinese authorities to hit it with a six-month business ban, which could start as early as next month.

This would be the toughest ever action by Chinese regulators against a Big Four firm.

Back in March, China’s securities watchdog fined Evergrande for inflating its revenue by nearly $80bn over two years before it defaulted on its debt.

Evergrande was forced into liquidation in late January after efforts to restructure its foreign debt failed, following pressure from Beijing for property firms to rein in excessive borrowing.

A six-month ban could be very disruptive for PwC’s China arm, the FT says:

PwC China was the country’s largest accounting firm by revenue in 2022, bringing in Rmb7.9bn ($1.1bn), according to government data.

The ban would prevent PwC China from signing off on financial results and initial public offerings and from conducting other regulated activities, multiple clients told the Financial Times. The firm has assured clients that staff will keep working during the suspension and will be able to certify the audit opinions on their 2024 annual reports once the ban is lifted in March.

More here.