FirstFT: Morgan Stanley chief predicts markets will ‘take off’ when Fed begins rate cuts

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Markets will “take off” as the US Federal Reserve turns to interest rate cuts, outgoing Morgan Stanley chief executive James Gorman predicted in a wide-ranging interview with the Financial Times.

Gorman, who hands over to his successor Ted Pick on January 1, also said the banking system had become much safer during his 14-year tenure at the top of one of America’s biggest banks.

Financial markets and parts of Morgan Stanley’s own investment banking business struggled to adjust to the Fed’s aggressive campaign to stamp out inflation. Investors are now digesting mixed messages from central bank officials over when rate cuts will begin.

“The shock of the rate increase recently has put a damper on banking deals [and] capital markets deals. And that is [because] everybody doesn’t really know what their cost of financing is,” Gorman told the FT.  

“The minute the Federal Reserve has concretely signalled that they’ve stopped raising rates, let alone the point at which they first do a rate cut, these markets will take off.” Read the full interview in which Gorman discloses what he plans to do after he hands over the reins.

Here’s what I’m keeping tabs on today and over the weekend:

• War in Ukraine: The Biden administration will issue an executive order to sanction financial institutions helping Russia secure the equipment and other goods it needs to fight Ukraine. Here’s more on the executive order.

• Israel-Hamas war: After days of high-level negotiations the UN security council is expected to vote later on a revised resolution which calls for “creating the conditions” for a ceasefire. Here’s the latest on the war.

• Economic data: The US Federal Reserve’s preferred inflation metric is updated today. The core personal consumption expenditures price index, which strips out volatile food and energy costs, is expected to have risen 0.2 per cent in November, taking the annualised price growth rate down to 3.3 per cent from 3.5 per cent. The University of Michigan will release the final reading of its consumer sentiment index for December and new home sales data for November will also be published.

• Vatican City: Pope Francis will lead Midnight Mass at St Peter’s Basilica on Sunday.

Thank you for reading FirstFT this year. We’re taking a short break but will be back in your inboxes on Tuesday, December 26. Happy holidays!

Five more top stories

1. Joe Biden has called for an investigation into Nippon Steel’s $14.9bn purchase of US Steel on national security grounds, despite Japan’s status as one of Washington’s closest allies. The White House said the proposed acquisition of an “iconic American-owned company” deserved “serious scrutiny”. The United Steelworkers, which represents 850,000 US manufacturing workers, welcomed the decision.

• US-Japan relations: Japan plans to ease weapons exports curbs to allow several dozen domestically produced Patriot air defence missiles to be shipped to the US, a move that will help Washington step up critical supplies to Ukraine.

2. Exclusive: Failed partnership talks with Warburg Pincus have revealed the scale of BlackRock’s private equity ambitions. While discussions began nearly two years ago, the conversation foundered over competing visions, according to people briefed on the talks. BlackRock is still searching for an acquisition to bolster its profile in private funds. Here are more details from the talks.

3. Allen & Overy has created an artificial intelligence contract negotiation tool. The UK-headquartered, magic-circle law firm, in partnership with Microsoft and legal AI start-up Harvey, has developed the ContractMatrix service which threatens to disrupt the traditional practices of the legal profession. The technology is already being used by more than 1,000 A&O lawyers.

4. Shares in China’s biggest online gaming companies recorded substantial losses earlier today after Beijing fired a volley of new measures to curb adult spending on the activity. Goldman Sachs estimates China’s online gaming industry is worth $45bn a year, involving about 650mn players. Here’s more on the proposed changes that sent shockwaves through China’s gaming stocks.

• More China business news: China’s five biggest state-run banks cut deposit rates today as Beijing strengthened efforts to protect lenders’ profitability and provide a buffer against further economic headwinds amid flagging growth.

5. Robert Solow, the US economist who won the 1987 Nobel Prize for economics, has died at the age of 99. Solow won the most prestigious award in economics for his work on growth theory, with the model that bears his name becoming a staple of macroeconomics textbooks. Read more about the life of the former professor of economics at the Massachusetts Institute of Technology.

How well did you keep up with the news this week? Take our quiz.

The Big Read

Joe Biden’s warning to Israel that it was losing global support for its “indiscriminate” bombing of Gaza did not signal a fundamental rupture with the Jewish state. But the US president’s reproach did point to the mounting frustration in Washington as the death toll of Palestinian civilians mounts. The growing disquiet suggests trouble for Biden, too, on both domestic and international fronts.

We’re also reading . . . 

The Financial Times’ award-winning podcast series Hot Money is back. Season two investigates a mysterious murder in a small town that leads to a web of drugs, money laundering and state-sponsored assassinations stretching from Dublin to Dubai. Listen on Apple Podcasts, Spotify or wherever you get your podcasts.

Chart of the day

Investors this year have lost their taste for fine wines. The price of top-end Burgundies and vintage Champagnes have fallen in value, according to Liv-ex, which produces an index that tracks the cost of expensive French wine. In recent years wine has been a standout investment, driven by pent-up demand during the coronavirus pandemic and a hunt for alternative assets as mainstream financial markets tumbled. “It’s been a very challenging year,” said Anthony Maxwell, chief commercial officer at Liv-ex. Read why wine prices have fallen this year.

Take a break from the news

What began as a resolution to see more of the US snowballed into seeing it all. From Alabama to Wyoming, the FT’s Joshua Franklin completed the quest to visit all of America’s 50 states — part of a rising phenomenon of “completist” travel.

Additional contributions from Tee Zhuo and Benjamin Wilhelm