Economy

1. Fed’s Powell tempers hopes for imminent rate cutsFederal Reserve Chair Jerome Powell has poured yet another bucket of cold water on recent hopes that the central bank would soon start to cut interest rates.In a press conference on Wednesday, Powell noted that a reduction as soon as March were not his “base case” despite growing signs of cooling inflation. Instead, Powell and other Fed officials said they want to gain “greater confidence” that price growth is indeed easing before they consider slashing borrowing costs.The official statement from the Fed also said risks from full employment and low inflation were “moving into better balance,” while any mention of “additional policy firming” was removed completely. The language was translated by many to mean that the world’s most influential central bank had finally called time on an aggressive tightening cycle that bumped rates up to more than two-decade highs.However, analysts at ING flagged that the Fed recognizes its credibility was damaged after it asserted that “inflation is transitory” in 2021 only to reverse course with significant rate increases over the next two years. “The last thing the Fed wants to do is get it wrong again at a key turning point, loosen too soon, too quickly and reignite inflation pressures,” the ING analysts said.Markets have subsequently dialed down prior bets for an early spring cut of 25 basis points, with the CME Group’s closely-monitored Fed Watch Tool now showing a 35% possibility of such a scenario. In late December, when traders were buoyed by surprisingly dovish Fed commentary following its previous meeting, that chance stood at 73%.2. Futures edge higher post Fed decisionU.S. stock futures pointed into the green on Thursday, as traders digested Powell’s comments and looked ahead to a slate of megacap earnings (see below).By 05:03 ET (10:03 GMT), the Dow futures contract had inched up by 47 points or 0.1%, S&P 500 futures had gained 16 points or 0.3%, and Nasdaq 100 futures had risen by 95 points or 0.6%.The main averages ended the prior session lower, as sentiment was dented by the diminishing expectations for a March interest rate cut and Powell’s cautious statements. The benchmark S&P 500 shed 1.6% and the tech-heavy Nasdaq Composite dipped by 2.2%, while the blue-chip Dow Jones Industrial Average fell by 0.8%.Weighing on equities was a slide in shares in Microsoft (NASDAQ:MSFT) and Google-parent Alphabet (NASDAQ:GOOGL). Both of the rival tech giants warned of rising costs needed to build out their artificial intelligence capabilities, offsetting what were otherwise solid quarterly returns.3. Tech giants to reportMega-cap tech stocks Amazon, Apple and Facebook-owner Meta Platforms all set to unveil their latest quarterly figures after the closing bell on Thursday.The health of Amazon’s AWS cloud computing division will likely be in focus, while analysts will be keeping an eye on Apple’s iPhone sales and the advertising revenue Meta has generated with its Reels short-form video offering. The AI arms race could also be a major focus for analysts, as they attempt to gauge how much each firm expects to spend on developing the nascent technology.Along with Microsoft and Alphabet, these companies make up five of the so-called Magnificent Seven stocks which have largely driven a rally in equity markets this year.Elsewhere, Qualcomm (NASDAQ:QCOM) reported a fiscal second-quarter profit that topped Wall Street estimates, although investors were concerned that the San Diego-based AI chipmaker is losing crucial market share in China. Shares were lower in premarket U.S. trading after they seesawed in after-hours dealmaking.4. Musk says Tesla to hold investor vote on Texas incorporationElon Musk has said that Tesla (NASDAQ:TSLA) will hold a shareholder vote on shifting its corporate registration to the U.S. state of Texas, after a judge in Delaware invalidated his massive $56 billion compensation package.Judge Kathaleen McCormick voided the pay package on Tuesday, arguing that it was an “unfathomable sum” that was ultimately unfair to investors and negotiated by a directors of board who appeared to be overawed by a “Superstar CEO.”Musk wrote on his X social media platform shortly after the ruling: “Never incorporate your company in […] Delaware.” He later held a poll on X asking users if Tesla should incorporate in Texas, and more than 87% of over 1.1 million respondents were in favor of the shift.Citing the poll, Musk said on X that the electric carmaking giant Tesla will “move immediately” to put the decision to investors. Tesla already has a significant interest in Texas: the company switched its corporate headquarters from California to the southern U.S. state in 2021.5. Crude higher with OPEC+ meeting in focusCrude prices inched up on Thursday, as traders awaited the latest meeting of the OPEC+ oil group.By 05:04 ET, U.S. crude futures traded 0.8% higher at $76.44 a barrel, while the Brent contract climbed by 0.7% to $81.12 per barrel.The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, is set to hold a meeting of the Joint Ministerial Monitoring Committee later in the day — its first major gathering of 2024.The meeting is not expected to result in any changes to production, particularly after the difficulties the group had in agreeing output cuts late in 2023. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Many of the world’s biggest carmakers are buying aluminium produced by victims of forced labour in China’s Xinjiang region, according to a new report that details how the supply chains of multinational companies could be implicated in Beijing’s long-running campaign of repression.A report published on Thursday by Human Rights Watch shows that nearly 10 per cent of the world’s aluminium supply comes from Xinjiang, following a sixfold increase of production in the north-west Chinese region since 2010. Carmakers are the biggest industrial users of the metal.Researchers also found that the Xinjiang aluminium industry relied on workers in state-backed labour transfer programmes, making domestic automotive production in China — the world’s biggest car market — highly exposed to possible human rights abuses.More than 1mn Uyghur and other minority Muslims have been detained in internment camps or subjected to other abuses in Xinjiang over the past decade, according to rights groups.Chinese officials say the labour transfer programmes help alleviate poverty and address underlying causes of separatism and terrorism by giving residents productive employment. More than 3mn transfers were made annually in 2021 and 2022, according to government data.Jim Wormington, who led the Human Rights Watch research, said “the reality is that the whole mechanism of labour transfer” is deployed for increased coercion and control by the state.“They don’t have a choice but to participate,” he added. “Once they’re moved, they’re in places where their movement is restricted. They are not able to freely leave employment.” Wormington added that victims of forced labour transfer were subjected to “mandatory ideological . . . indoctrination”.China has come under intense criticism for its conduct in Xinjiang, where more than 1mn Uyghurs and other Muslims are believed to have been interned in camps More

The Federal Reserve made two things clear at its meeting on Wednesday — interest rate cuts are coming, but not as soon as many investors might like.After two years of turbulence, including a bout of rampant inflation that caught the central bank’s officials off guard, the Fed has called time on one of the most dramatic cycles of rate rises in decades.Gone from the official statement was any mention of “additional policy firming” — that is, more rate rises — if the Fed deemed it appropriate. Instead, there came a hint of triumph, with the central bank noting that risks to full employment and low inflation were now “moving into better balance”. Fed watchers read through the jargon: a punishing period in which borrowing costs rose by 525 basis points in just 18 months is as good as officially over.Just don’t think that means new cuts are imminent. Like it had for the previous three meetings, the Fed on Wednesday held rates deep in restrictive territory, at a 23-year high of between 5.25 per cent and 5.5 per cent. And while the bias towards further rises has gone, the Fed is not ready to slash them just yet. The cause of the delay? Officials want “greater confidence” that inflation will be beaten down to the Fed’s 2 per cent goal. That need for surety is bemusing some economists and investors. Measured over the second half of 2023, the inflation gauge Fed officials watch most closely — the personal consumption expenditures index — was just 1.9 per cent. That marked six months of “good news” on inflation, Fed chair Jay Powell acknowledged. But the central bank wants even more data, and even more certainty. So he was adamant that market bets of a cut as soon as the next meeting, in March, were overeager — not his “base case”.Fed watchers said that, barring an economic catastrophe between now and March 20, Powell’s comments on Wednesday all but ruled out an early spring cut. The market move after the meeting reflected that too, as stocks fell, Treasuries rallied and traders reduced the odds of a March rate cut, which fell from 60 per cent to about a third.Powell’s pushback against investors’ bets marked a contrast to the Fed chair’s remarks in mid-December, when his dovish rhetoric raised some market expectations for as many as six quarter-point cuts beginning in early spring.On Wednesday, Powell was in a more Eeyorish mood, reining in the optimism on the economy — and refusing to join the chorus of cheerleaders claiming rate-setters had pulled off a soft landing, by quelling inflation without inducing widespread job losses.The US performed better than other advanced economies last year, expanding by 3.1 per cent even while unemployment remained historically low, at just 3.7 per cent in December. And yet, Powell said, there was still “a way to go” before victory could be declared.In fact, it is that strong growth that has given rate-setters leeway in deciding when, and by how much, to begin easing monetary policy, noted Christopher Waller, a governor at the Fed, last month. “The Fed clearly doesn’t want to jinx its run of good luck by prematurely advertising any rate cuts,” said Eswar Prasad, a professor at Cornell University. “Nevertheless, the Fed is sending an unambiguous signal that rate cuts will be forthcoming if the news on inflation continues to be good.”You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.But holding off rate cuts until later in the year was not without some jeopardy, said some economists. The central bank had originally been too slow to respond to high inflation — and now risked cutting too late.“We have the right ingredients to continue with the last mile of disinflation,” said Greg Daco, chief economist at EY. Companies had lost some ability to keep pushing up prices, Daco said, and there were signs that wage inflation was also easing.“Any external observer will tell you that easing in March would most likely be optimal,” he added. “But Fed officials want to have that extra confidence cushion, so they will probably wait until May.” Some analysts shared Powell’s concerns that inflation could yet prove sticky — and beyond the 2 per cent target. Vincent Reinhart, a Fed veteran who is now at Dreyfus and Mellon, pointed to a rise in the consumer price index — another inflation gauge monitored by the Fed — from 3.1 per cent in November to 3.4 per cent in December. The uptick was another reason not to signal a March cut.“That beneficial drag on prices from the easing of supply chain pressures and the lower cost of goods has certainly stopped and has probably turned around,” Reinhart said.Investors were already doing some of the Fed’s job, he pointed out, as they priced in rate cuts, driving down bond yields and helping to lower the cost of capital for businesses. That market outcome, coupled with the economy’s strong health, favoured the Fed taking its time.“What happens if inflation doesn’t keep falling, or even rebounds? If you ease too soon, markets are just going to reinforce your mistake. As a central bank, you’re better off being too conservative right now.” More

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Keir Starmer, leader of the left-leaning party, will tell assembled executives that Labour will “get under the bonnet to fix an unprecedented stagnation in British productivity growth.”Labour, which leads Prime Minister Rishi Sunak’s Conservatives by around 20 percentage points in opinion polls, has sent senior policy chiefs to the World Economic Forum in Davos as part of Starmer’s pitch to the business community.He will also tell the conference that Labour has changed and is now the “party of business”, offering stability under his leadership, in contrast to the “permanent cycle of crisis” which has seen five Conservative prime ministers in eight years.”The depth of the changes we’ve made to transform the Labour Party’s relationship with business is something I take immense pride in,” he will say, according to extracts released by the party.Labour will also launch a plan on Thursday called “Labour’s Partnership with Business for Growth,” setting out more details of how to improve skills in the economy, back businesses and create economic stability.Ahead of the conference, the party’s finance policy chief Rachel Reeves said that Labour would champion Britain’s financial sector and not bring in a new cap on bankers’ bonuses.Labour also wants closer economic ties with the European Union, including deeper co-operation with the bloc on financial services. More

Aozora had previously forecast a net profit of 24 billion yen ($163.3 million).This would mark the Japanese bank’s first annual net loss since the year ended March 2009 at the height of the global financial crisis.Rising U.S. interest rates brought about losses on Aozora’s securities portfolio, which is mostly made up of foreign bonds, and its U.S. office loan portfolio, which has also suffered under the shift to remote work, the bank said in a statement.($1 = 146.9900 yen) More

NEW DELHI (Reuters) – Indian Prime Minister Narendra Modi’s government will present its final budget on Thursday before elections, with plans expected to be fiscally prudent with a focus on infrastructure spending but heavy on political messaging ahead of the national vote.Finance Minister Nirmala Sitharaman will announce the budget for the financial year 2024/25 which starts April 1 at 0530 GMT.She is expected to highlight the Modi government’s 10-year economic performance, but will hold back on expensive schemes to lower the fiscal deficit.The budget could serve as an economic manifesto for Modi’s party by laying out his vision for the economy for the next five years. He is bidding to win a rare third term in general elections to be held by May.”The upcoming interim budget would lack any big bang announcements but is likely to be watched for the pace of fiscal consolidation and policy priorities ahead,” said Madhavi Arora, economist at Emkay Global.The government is likely to aim to lower fiscal deficit by at least 50 basis points in 2024/25 from its current target of 5.9% of GDP, which economist expect it to meet.To attain this, the government will cap major subsidies on food and fertiliser at the current year’s level, while announcing inexpensive welfare schemes like cash handouts for female farmers.An increase in spending on low-cost housing is also likely.”We rule out the likelihood of any aggressive competitive populism,” Arora said.The government is expected to increase capital spending or expenditure on infrastructure, which has been key to pushing the country’s growth.It will spend 10 trillion Indian rupees ($120.5 billion) or over 3% of GDP on infrastructure in the current year with a further increase of as much as 20% expected for 2024/25.The Indian economy grew 7.6% in the July-September quarter, and forecasts are for growth of 7.3% for the full year that ends on March 31, the world’s fastest pace for a major economy. The economy is expected to grow at close to 7% in fiscal 2024-25, according to government estimates.The government is expected to keep its gross market borrowing little changed in 2024/25 at between 15 trillion rupees and 15.5 trillion rupees. “This budget is expected to primarily focus on fiscal consolidation. There will only be a marginal increase in market borrowings,” said Rupa Rege Nitsure, Economist at L&T Finance.In the current fiscal year the government is expected to borrow 15.44 trillion rupees. ($1 = 83.0200 Indian rupees) More

BUENOS AIRES (Reuters) – The government of Argentine libertarian President Javier Milei was racing to secure votes in Congress for its key ‘omnibus’ reform bill that entered the lower of chamber on Wednesday, even as the left-leaning opposition pledged to oppose it.The bill, ranging from economic policy to privatization of state entities, is one the main planks in Milei’s reform push to tackle the South American country’s worst economic crisis in decades, with inflation over 200% and state coffers running dry.It marks his first major test since taking office in December after a shock election win for the economist who made his name as an acid-tongued TV pundit and campaigned with a chainsaw pledging to slash spending and the size of the state.Milei faces a major challenge to push the bill through with his coalition only having a minority in both chambers, which means he has to win over allies. His government yanked a divisive fiscal section from the bill last week to boost support.”Today, politicians have the chance to start reversing the damage they’ve caused the Argentine people,” Milei’s office said in a post on Wednesday, urging lawmakers to support the bill as an expected mammoth debate by legislators began.In a sign of the challenge ahead, however, the main Peronist opposition bloc Union por la Patria, which is the largest single grouping in Congress, said it would reject the bill, posting a picture with a slogan “No to the Omnibus bill” on X, formerly Twitter.”We reject the Omnibus bill because it puts fuel in Milei’s chainsaw to hurt the daily lives of Argentines,” wrote Peronist politician and former foreign minister Santiago Cafiero, a reference to his austerity plans to undo a deep fiscal deficit.If the law is approved in the lower chamber – a debate that will likely extend beyond Wednesday – it moves next week to the Senate. Investors are watching closely, with hopes that the pared back version will pass, which would bolster local markets.”The Omnibus bill now has a better chance of being approved in Congress,” said Fernando Sedano of Morgan Stanley.”We continue to consider that the approval of radical reforms is positive for the medium-term narrative, even with a watered down version of the original bill.” More