European stocks are rising today and US futures are also higher after the Federal Reserve shifted to a slower pace of interest rate rises.
The quarter-point increase in the federal funds rate to a range of between 4.5 per cent and 4.75 per cent, the highest level since September 2007, marked a return to a more orthodox approach to rate rises.
However, in a statement, the Fed maintained that “ongoing increases in the target range will be appropriate” in order to ensure it is restraining activity enough to bring price pressures under control.
In his press conference after the decision, Fed chair Jay Powell said while there had been some “encouraging” signs that price pressure were easing it would be “very premature to declare victory.”
Despite Powell’s comments, markets rallied sharply during and after the press conference on signs of a more dovish approach from the Fed chair. The benchmark S&P 500 and tech-heavy Nasdaq rose to their highest levels since August and September 2022, respectively.
The two-year Treasury yield, which moves with interest rate expectations, fell to its lowest level in two weeks. The dollar was also lower.
Money markets are now expecting the fed funds rate to peak at just below 5 per cent in the second quarter and the US central bank to begin cutting interest rates by the end of the year.
Commentary: There is a wide gap between the markets’ rate expectations and the Fed’s policy guidance, says Robert Armstrong, which is a challenge to the Fed’s credibility. (Premium subscribers can sign up to Rob’s Unhedged newsletter for daily market updates)
Five more stories in the news
1. Facebook shares soar Mark Zuckerberg announced 2023 would be the “year of efficiency” after unveiling full-year results that beat expectations. The chief executive of Meta, which owns Facebook, Instagram and WhatsApp, said more jobs would be cut this year as part of a cost-cutting drive. Investors liked what they heard and sent the shares nearly 20 per cent higher in after-market trading.
2. Gautam Adani defends ‘robust’ business The Indian billionaire broke his silence earlier today and defended his industrial empire which has seen $100bn wiped off its value since short seller Hindenburg Research accused the conglomerate of using offshore entities in tax havens to inflate the share prices of its listed companies. The comments come after Adani Group last night cancelled a $2.4bn share sale.
3. Banks set to recoup little from Archegos Banks that lost billions from the meltdown of Archegos Capital Management will get back as little as 5 cents on the dollar from its restructuring, with brokers such as Goldman Sachs funding the payouts using cash left in the family office’s trading accounts. Global banks, including Credit Suisse and Morgan Stanley, are expecting to recoup between 5 per cent and 20 per cent of their losses, according to people familiar with the matter.
4. Washington optimistic about western security pact The White House has expressed optimism that the US, UK and Australia will clear the main obstacle to their landmark Aukus security deal. US national security adviser Jake Sullivan said yesterday there had been progress in easing some technology export rules, creating a “pathway” for allies to build nuclear-powered submarines for Australia.
5. FBI search Biden’s Delaware holiday home After a three-and-a-half hour search agents said “no documents with classified markings were found” at the property in Rehoboth, Delaware. The search is the latest development in a legal and political morass that has cast a long shadow over the White House as Biden gets ready to announce his bid for re-election in 2024.
The day ahead
Monetary policy The Bank of England and European Central Bank are expected to maintain a more aggressive policy approach than the Fed to stamping out inflation in the British and eurozone economies. Both banks are today expected to raise their policy rates by half a percentage point. Our live blog will be following the decisions.
Earnings Tech results are set to dominate a busy day for company results. Apple, Google-owner Alphabet and Amazon all report earnings for the final quarter of last year. Pharmaceutical companies Eli Lilly, Merck and Bristol Myers Squibb also report. From the consumer sector Hershey, Estée Lauder and Starbucks release earnings and Rupert Murdoch’s News Corp also reports.
Economic data New jobless claims, a proxy for lay-offs, are expected to rise for the week ending January 28 after falling to a historically low level of 186,000 the week before. Separately, economists forecast that factory orders increased by 2.2 per cent in December after declining by 1.8 per cent in November.
Pope in Africa Pope Francis continues his trip to the continent, calling for peace and an end to “economic colonialism” at his first stop, the Democratic Republic of Congo. He will next visit South Sudan.
What else we’re reading
How the US fell out of love with flying The aviation chaos that grounded thousands of flights during the US holiday season was the final straw for many travellers frustrated with problems across the industry. Are these disruptions a short-term consequence of the pandemic, or the culmination of long-term under-investment and shortcomings in regulatory scrutiny?
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New York property tycoon to give offices ‘back to the bank’ Scott Rechler, chief executive of property developer RXR, has concluded that in the era of remote working and rising interest rates it has become unprofitable to keep some of the New York properties his company owns. His views reflect a growing consensus that the world’s largest office market is heading for a calamitous period.
Does Ukraine need western fighter jets? As soon as Ukraine extracted pledges of modern battle tanks from western allies, its military and political leaders turned their attention towards fighter jets. Until now, leading Nato powers have balked at providing fighter jets but in some capitals, those assessments are shifting.
On the ground: The battle for Bakhmut is nearing a tipping point, reports Christopher Miller in Kyiv.
‘Capture, who’s looking after the children?’ An FT drama starring Jodie Whittaker (Dr Who), Paul Ready (Motherland) and Shaniqua Okwok (It’s a Sin), looks at online harm, regulation and responsibility. The search for their missing son leads a mother and father to a tech company, and a digital gatekeeper who seems to have all the answers.
Instagram founders launch Twitter rival Kevin Systrom and Mike Krieger, who founded Instagram and then sold it to Facebook for $1bn in 2012, have launched a new “text-based” news app called Artifact. They have declined to accept outside investment and have spent “single-digit millions” to build the platform which they believe can avoid so-called “filter bubbles” that have plagued existing social media platforms.
Take a break from the news
FT Globetrotter is going down under! Stay tuned for the upcoming launch of FT Globetrotter’s guide to Melbourne. Whether you are a Melburnian or go there often for business or pleasure, we want to hear from you. Share your top tip on where to go to eat and drink, exercise, find great coffee, watch sport or enjoy the nearby great outdoors.
Source: Economy - ft.com
