Aurelia Butler

WASHINGTON (Reuters) – Since it began its current round of interest-rate hikes this year, the U.S. Federal Reserve has aimed to let investors know ahead of time not just where rates are heading generally but exactly how big a move to expect each time. And despite some snags, including what analysts say was a last-minute but successfully telegraphed change of plans before the June meeting, Fed Chair Jerome Powell isn’t likely to abandon those efforts. The Fed and other central banks have long used that signaling – known as forward guidance in their parlance – to set expectations about where policy is headed to help create the financial conditions conducive to their goal. Coming out of the 2007-2009 financial crisis, for instance, the Fed set very long-term guidance that ensured rates would not rise for years.The past year’s run-in with the highest inflation in a generation has forced changes to that – in particular, shortening the horizon over which they can pledge certain actions. “It’s a very difficult environment to try to give forward guidance 60, 90 days in advance,” Powell said at a press conference after May’s meeting. “There are just so many things that can happen in the economy and around the world. So, you know, we’re leaving ourselves room to look at the data and make a decision as we get there.”Indeed, other central banks are encountering similar challenges and are responding in new ways. The European Central Bank last week raised rates more than it had promised at its prior meeting and did not provide guidance for the size of next month’s increase. The Bank of Canada delivered a surprise full percentage point interest-rate increase earlier this month without breathing a word in advance. But as the head of the world’s most important central bank now undertaking its sharpest bout of policy tightening in decades, Powell has a particular stake in making sure markets don’t under- or over-estimate what is coming, analysts say. On Tuesday, U.S. central bankers start a two-day meeting at which they are expected to ratify a 0.75 percentage point increase, the bigger of two possible increments that Powell weeks ago said would be under consideration.And despite uncertainty over what data on inflation and employment in the next two months will show, analysts broadly expect Powell to put some parameters around September’s rate hike decision as well. “Monetary policy works through market expectations, and if they go haywire, you end up tightening more than you want,” said Piper Sandler economist Roberto Perli. “I think it’s a tough game to play, but I think it’s reasonable for them to play.”Former Fed governor and now Fed-watcher Larry Meyers says that on Wednesday Powell may avoid a specific promise on the size of the next hike, but may take “any opportunity to leave the impression it will be 50 or 75” basis points and “not to give the markets an incentive to build in 100.” He’ll also be looking for Powell to lay the groundwork for an eventual pause in rate hikes by discussing what inflation “thresholds” could trigger a slower pace of tightening. SHOCKED THE MARKETS The Fed began increasing its policy rate in March, lifting it a quarter of a percentage point and noting that “ongoing increases in the target range will be appropriate,” a phrase most analysts expect it will repeat this week.Powell had indicated the size of the March move a couple weeks ahead of time, and likewise signaled, and then delivered, a half-point hike in May.The pattern changed in June, when the Fed delivered a 75-basis-point hike, despite having for weeks signaled a smaller hike.But even then, markets were prepped for it, thanks to a Wall Street Journal article less than 48 hours ahead of the decision that flagged the possibility of a bigger increase, given data days earlier showing inflation and inflation expectations rising faster than anticipated. The story was widely interpreted as a message from the Fed, which has generally gotten high marks under Powell for its communications effectiveness. GRAPHIC: What Wall Street thinks of the Fed’s messaging (https://graphics.reuters.com/USA-FED/POWELL/lbpgnwkodvq/chart.png) To Karim Basta, chief economist at III Capital Management, the last minute switch was “suboptimal” and could have been avoided if Powell hadn’t given such specific guidance in the first place. “It shocked the markets, it certainly shocked me, and again it’s really unnecessary,” he said, adding he would prefer for Powell to stick to giving a range of rate hike possibilities – or not say anything at all. This week’s rate hike will lift the Fed’s policy rate to what policymakers say is a “neutral” level, and further increases in borrowing costs are expected to bite into economic growth and eventually inflation as well. SGH Macro Advisors’ Tim Duy is among economists who say the central bank’s delay in reacting to rising inflation last year forced policymakers this year to push rates up far more quickly than otherwise. “They fell so far behind the data it became impossible for them to follow through with the communications the way they typically would or they would like to,” Duy said. And it may not get easier, especially when they decide it is time to slow rate hikes to a more usual quarter-point increment.Markets may react by immediately pricing in rate cuts, Duy said, easing financial conditions and nudging up demand before the Fed may feel inflation is heading convincingly down. “The idea they will pivot to a measured pace of rate hikes is going to be confused with a pivot toward cutting – that’s the communications challenge,” Duy said. More

BEIJING (Reuters) – China and Indonesia will enhance the scale of bilateral trade and further expand cooperation in areas including agriculture and food security, the Chinese foreign ministry said after a meeting of the countries’ leaders. The ministry statement followed meetings by President Xi Jinping and Premier Li Keqiang with Indonesian President Joko Widodo in Beijing on Tuesday. More

The ECB, which supervises the biggest banks in the 19-country euro zone, has for years argued that climate change is a top risk and has pushed lenders to acknowledge and reduce their exposures, but with little success so far.”No meaningful reduction in emission intensity in the loan portfolios of euro area banks has taken place in recent years,” the report said. Among banks, “exposures to climate-related losses also remain concentrated …, with more than 20% of potential losses residing in the holdings of 5% of euro area banks.”Climate shocks will have an abrupt impact on market prices, initially hitting portfolios of investment funds, pension funds and insurance companies, according to the report. This sudden repricing will then lead to defaults and losses for lenders.”In a disorderly transition scenario, marked by an immediate and substantial increase in carbon prices, respective market losses of insurers and investment funds could potentially amount to 3% and 25% (of) stress-tested assets in the near term,” the report said.These market dynamics could then amplify each other, because a climate risk could quickly reduce the value of assets and lead to fire sales. Financial institutions would dispose of a large number of exposed assets at distressed prices, leading to a downward spiral in valuations.Beyond the corporate sector, households also appeared to be vulnerable, with almost half of outstanding home loans having been to made to borrowers who have high ratios of energy costs to income, the report added.An orderly green transition, however, would reduce corporate defaults by up to a fifth in 2050, the report estimates.While there are no regulatory instruments in place for such risks, systemic risk buffers or concentration thresholds to reduce exposure to carbon-intensive sectors could reduce dangers, the report adds. More

Walmart issued its second profit warning in 10 weeks after the market closed yesterday, saying inflation was weighing on price-sensitive consumers.“The increasing levels of food and fuel inflation are affecting how customers spend,” said Walmart’s chief executive Doug McMillon in a statement. He said Walmart was having to cut prices to move inventory, especially clothing. Walmart’s warning sent its shares down almost 10 per cent to $118.97 in after-hours trading, cutting about $35bn from its stock market capitalisation. That prompted a sell-off in shares of rivals including Target, Costco and Home Depot, while those of Amazon fell more than 4 per cent.In May, Walmart shares suffered their biggest one-day drop since 1987 when it cut guidance for the coming quarters for the first time. Its shares have fallen 8.7 per cent since the start of the year, compared with a 17 per cent decline for the S&P 500.Investors have grown increasingly concerned that retailers will have to discount unsold products as rising prices and a shift in spending from goods to services hits sales.Amazon said yesterday it would pass on rising prices in Europe to customers and increase the cost of its popular Prime membership scheme, several months after doing the same for US customers. The company attributed the move to “increased inflation and operating costs”. Walmart, which is due to report earnings for the April to June period in three weeks, said operating income would fall 13 to 14 per cent for the quarter as it discounted merchandise to clear excess inventory. For the full year, the company said operating income would fall between 11 and 13 per cent. As with other US multinationals, Walmart is also suffering from the strength of the dollar which led to a “headwind” of $1bn in the second quarter and, based on current exchange rates, would add $1.8bn of extra costs in the second half of the year, it said.Thanks for reading FirstFT Americas. Here’s the rest of today’s news — GordonFive more stories in the news1. Ex-Goldman banker accused of passing inside tips to squash partner US authorities accused New York-based Brijesh Goel of passing sensitive market information to his squash partner, in one of a series of insider trading cases announced by federal prosecutors yesterday.2. Taiwan fears fallout from planned Nancy Pelosi visit The pushback from the White House against House Speaker Nancy Pelosi’s planned visit to Taiwan has sparked anxiety in Taipei that the controversy will further compromise its security. People familiar with the situation in Taipei said the US administration’s public opposition to the trip threatened to embolden Beijing.3. Russia cuts gas deliveries to Europe via Nord Stream 1 Moscow’s state-owned energy group Gazprom will slash gas flows through its largest pipeline to Germany to a fifth of capacity from tomorrow, threatening to leave the continent short of critical supplies ahead of winter. 4. Italy’s access to share of EU Covid fund in question European governments and investors are nervously examining what the collapse of Mario Draghi’s government will mean for Italy’s ability to hit ambitious reform milestones and unlock tranches of the EU’s €800bn Covid-19 recovery fund — of which Rome is the largest recipient.5. Conservative leader TV debate stokes acrimony Rishi Sunak and Liz Truss have exchanged blows over the UK economy in a crucial televised Tory leadership debate that ended in a bloody stalemate but took the contest to new levels of acrimony. A snap poll of 1,000 voters found that Sunak only narrowly edged the contest by 39 to 38 per cent. While an Opinium survey showed that Tory voters thought Truss did better by 47 to 38 per cent as the two compete to succeed Boris Johnson as prime minister. The winner will be announced on September 5.The day aheadUS interest rate meeting The Federal Reserve begins a two-day monetary policy meeting with markets expecting the central bank to increase the fed funds rate by 75 basis points for the second consecutive month to a range of 2.25 per cent to 2.5 per cent.Stock market outlook The warning from Walmart and the Fed meeting are unsettling investors. Futures for Wall Street’s S&P 500 pointed 0.3 per cent lower following an indecisive session on Monday as corporate earnings season got into full swing.Company earnings Microsoft and Google’s parent company Alphabet kick off earnings season for the big tech companies today. Beyond the tech sector, McDonald’s, Coca-Cola, Kimberly-Clark and grocery chain Albertsons will report before the opening bell. Industrial groups General Electric and General Motors also report. Economic data Home prices in the Case-Shiller index’s 20-city composite are expected to have climbed 20.6 per cent year on year in May, according to a Refinitiv poll of economists. The Conference Board is expected to report consumer confidence fell to a reading of 97.1 in July from 98.7 in June, according to analysts polled by Refinitiv.Donald Trump returns to DC The former US president is set to speak this evening at a two-day summit hosted by the America First Policy Institute in Washington. This will take place a day after former vice-president Mike Pence delivered his so-called freedom agenda in a speech at the Heritage Foundation. Both politicians are testing the waters for a presidential run in 2024.Indo-Pacific military chiefs conference Attendees in Sydney today and tomorrow include US military chief Mark Milley and Admiral John Aquilino, head of US Indo-Pacific command, who are expected to discuss Taiwan and what lessons from the Ukraine conflict might apply to the island.EU energy ministers meet An extraordinary meeting of the bloc’s energy ministers takes place in Brussels with the aim of creating a package of measures to secure fuel supplies. FT premium subscribers can read more in our Europe Express newsletterWhat else we’re readingCost cuts loom on Wall Street Investment bankers should brace themselves — Wall Street banks are getting ready to tighten their belts. After a boom in dealmaking and Spac-linked IPOs, conditions have changed radically this year and now finance executives accept that radical cost-cutting will be inevitable, writes US corporate finance and deals editor James Fontanella-Khan.Tech bros prosper in New York Meanwhile, New York City’s tech sector is thriving. But while Silicon Valley desires hardcore engineers, businesses in NYC have exploited the application of technology across sectors such as prop-tech, fintech and ad-tech and remain a small part of the city’s labour force, unlike San Francisco.Is the dollar about to take a turn? The US dollar has risen more than 10 per cent against other major currencies since the start of the year. But if the economy weakens and inflation rises, the Federal Reserve is likely to pull the brakes and the greenback will reverse, writes Professor Barry Eichengreen.Argentines turn to black market dollars as crisis worsens Confidence in the Argentine economy is evaporating as the government struggles with political infighting, an ever-increasing pile of domestic debt and inflation hurtling towards 90 per cent. The rapid deterioration in sentiment and the government’s increasing difficulty in funding itself are raising fears of a full-blown economic crisis.HSBC’s past may not help its future Sharp minds are trying to divine the future of the bank by working out how its returns, regulation and capital base would change if it was broken up, as demanded by shareholder Ping An Insurance. But it is politics, not metrics, that decide how China acts, writes author Michael Sheridan — and history is not on HSBC’s side.ObituaryLord David Trimble, a key architect of the Good Friday Agreement that brought peace to Northern Ireland almost a quarter of a century ago, has died after a short illness. The joint winner of the 1998 Nobel Peace Prize was 77.

Lord David Trimble shared the Nobel Peace Prize in 1998 © Gerry Penny/EPA-EFE/Shutterstock More

MANILA (Reuters) – The Philippine central bank chief on Tuesday ruled out another off-cycle move on monetary policy tightening, while signalling a rate hike of less than 75 basis points at its Aug. 18 meeting in a continuing bid to curb red-hot inflation.”One thing I can say is you can surprise people only once, so there will be no more off-cycle (policy move),” Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said.”My guess is you can rule out zero or 75 basis points,” he said, speaking at a forum on President Ferdinand Marcos Jr’s policy agenda and responding to a question on the magnitude of the BSP’s next policy action.His remarks come ahead of Wednesday’s U.S. Federal Reserve policy decision, with markets pricing in a near 90% chance it will hike by 75 bps. The BSP’s reverse repurchase facility rate is currently at 3.25% following three successive hikes totalling 125 bps between May and July, including a surprise 75 bps on July 14 that was approved outside the regular schedule for policy reviews.Medalla said future policy moves will remain data-driven, and reiterated that the economy was able to absorb rate increases.Philippine inflation, which averaged 4.4% in the first half of the year and topped the full-year 2%-4% target band, is widely expected to remain elevated in the coming months, driven by high prices of fuel and food.Marcos, outlining on Monday his economic agenda that will focus on fiscal management, infrastructure upgrades and agricultural productivity, vowed to ensure affordable prices and adequate domestic supply of key agricultural products, including rice, amid a looming global food crisis.Finance Secretarty Benjamin Diokno, speaking at the same forum, said the government did not need to borrow as much as it did during earlier crises, such as at the height of the pandemic. More

Investing.com — Walmart issues a profit warning as inflation hits discretionary spending, Coinbase receives further SEC scrutiny, while crude oil rises after Russia reduced the flow of gas into Germany via the Nord Stream 1 pipeline. Stocks are seen trading lower ahead of this week’s start of the Big Tech earnings deluge. Here’s what you need to know in financial markets on Tuesday, July 26.1. Walmart issues profit warningWalmart (NYSE:WMT) provided the latest indication of the impact of soaring inflation on U.S. shopping habits, as the retail giant slashed its full-year profit forecast late Monday.The company, which often acts as a bellwether for the retail sector, said its full-year profit would decline 11% to 13%, compared to the 1% fall it previously forecast, citing surging prices for food and fuel prompting customers to cut back on discretionary purchases.This week sees a number of consumer-goods giants reporting, including the likes of Coca-Cola (NYSE:KO), McDonald’s (NYSE:MCD) and Procter & Gamble (NYSE:PG), and Walmart’s results are likely to cause concern for investors.Additionally, the weaker outlook will provide Fed policymakers with a fresh data point to consider as they start the latest two-day policy-setting meeting later in the session, seeking to determine where the economy will be headed over the coming months.2. Coinbase comes under scrutiny Coinbase Global (NASDAQ:COIN) isn’t having a good 2022. The crypto trading platform has seen its stock price fall over 70% so far this year as digital currencies lost their popularity. A few weeks ago influential investment bank Goldman Sachs downgraded its stance on the company’s stock to ‘sell’, saying it “will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up.”And now the U.S. Securities and Exchange Commission is taking a close look at the company.Bloomberg reported Monday that the U.S. securities regulator is investigating whether Coinbase improperly let Americans trade digital assets that should have been registered as securities.Coinbase denies any irregularities, but this investigation comes on top of a former product manager at the company being charged after an investigation into an alleged insider trading scheme, revealed last week.3. Stocks set to open lower; Walmart’s warning weighsU.S. stock markets are set to open lower Tuesday, with the retail sector expected to be hit hard by Walmart’s profit warning [see above] ahead of the start of the Federal Reserve’s two-day policy-setting meeting.By 06:00 AM ET (1000 GMT), Dow Jones futures were down 125 points, or 0.4%, while S&P 500 futures were down 0.2%, and Nasdaq 100 futures were also down 0.2%. The Federal Reserve commences its latest meeting later Tuesday, but it won’t be until Wednesday that the decision of the policymakers is made public.Ahead of this the earnings season hits its full stride. The likes of Coca-Cola, McDonald’s, and General Motors (NYSE:GM) are set to report earnings before the bell, with investors looking to see if Walmart’s disappointing outlook is matched.Tech giants Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) report after the close, and their numbers are likely to influence Wednesday’s trading.The economic data slate includes the Case-Shiller Home Price Index, June new home sales, the CB consumer confidence index for July as well as monthly Redbook index.4. Russia cuts gas supplies to EuropeThe relief in western Europe last week following the restoration of gas through the Nord Stream 1 pipeline after a scheduled outage hasn’t lasted very long.Russian energy giant Gazprom announced late Monday that gas flows to Germany through this major pipeline would fall to 33 million cubic meters per day from Wednesday. That’s half of the flows seen at the end of last week, which are already only 40% of normal capacity.European Union countries are set to hold an emergency meeting later Tuesday to discuss a proposal to curb their gas demand as they try to reduce their dependence on Russian energy, especially given the likelihood of a total cut-off as Moscow uses its energy supply as a political weapon as winter draws nearer.Germany’s Economics Minister Robert Habeck warned on Monday that the country, which relies heavily on Russian gas, faces a serious energy situation.5. Oil gains; API supply data dueCrude oil prices rose Tuesday for the second day in a row on concerns over Europe’s energy supplies after Russia reduced the amount of gas flowing into Germany through the Nord Stream 1 pipeline [see above].Yet, despite these gains, oil prices are over 10% lower this month on the expectation that interest rate hikes, by the Federal Reserve, in particular, will reduce economic activity and thus impact fuel demand growth.U.S. crude supply data from the American Petroleum Institute, due later in the day, could provide an indication of reduced U.S. demand, even in the middle of the driving season.By 06:00 AM ET, U.S. crude futures were up 2% at $98.64 a barrel, while Brent crude was up 2% at $102.16 a barrel. Both benchmarks gained approximately 2% last session. More