Economy

(Reuters) -Just days after a Federal Reserve meeting that penciled in an ample course of interest rate cuts next year, which in turn unleashed a broad rally in financial markets, one of the U.S. central bank’s top policymakers pushed back on the ebullience on Friday. “We aren’t really talking about rate cuts right now,” New York Fed President John Williams said in an interview with CNBC. When it comes to the question of lowering rates, “I just think it’s just premature to be even thinking about that” as the central bank continues to mull whether monetary policy is in the right place to help guide inflation back to its 2% target, he said. Williams was the first Fed official to speak in the wake of a policy meeting this week in which the central bank left its benchmark overnight interest rate unchanged in the 5.25%-5.50% range. With rates steady, the big shift in the Fed outlook was tied to projections of an easing of monetary policy next year.Fed officials’ forecasts collectively priced in three-quarters of a percentage point in cuts in 2024, which would leave the policy rate in the 4.50%-4.75% range by the end of 2024. Those forecasts summarize the views of policymakers and are not an official Fed view, but they are nevertheless closely watched and the numbers helped spur sharp drops in bond yields while driving stock prices up.In a press conference following the two-day meeting, Fed Chair Jerome Powell on Wednesday acknowledged the shift in views, explained how the forecasts work, while acknowledging “the question of when will it become appropriate to begin dialing back the amount of policy restraint in place, that begins to come into view, and is clearly a topic of discussion out in the world and also a discussion for us at our meeting today.” ‘CLARIFY’ THE MESSAGESome market observers saw in Williams’ appearance an attempt to reframe the message that markets took from both the policy meeting and Powell’s comments to reporters. Williams’ interview appears “intended to lean against speculation on a March cut without ruling it out, and slow the sense in markets of a Fed rush towards cutting following Powell’s very dovish December press conference,” Evercore ISI analysts said.”Deploying the N.Y. Fed president in this manner is standard practice when the Fed leadership wants to ‘clarify’ the message, but market pricing moved only modestly in response to his comments, reflecting investor conviction that the data is moving in support of earlier/deeper cuts.”Futures markets briefly fluttered in the wake of Williams’ comments but continued to settle on March as the point at which the central bank will start cutting rates. CME Group’s (NASDAQ:CME) FedWatch Tool maintained a strong probability of a March cut, with views fragmented on the path of cuts after that. In an interview with Reuters later on Friday, Atlanta Fed President Raphael Bostic also presented a monetary policy outlook partially at odds with the market’s stance, projecting the possibility of a rate cut in the third quarter of next year. Bostic, who will be a voting member of the central bank’s policy-setting Federal Open Market Committee in 2024, said he thought inflation, as measured by the personal consumption expenditures price index, would end next year at around 2.4%, which would be enough progress towards the Fed’s 2% target to warrant two quarter-percentage-point rate cuts during the second half of 2024. When it comes to easing, “I’m not really feeling that this is an imminent thing,” Bostic said, with policymakers still needing “several months” to accumulate enough data and confidence that inflation will continue to fall before moving away from the policy rate’s current range.Meanwhile, in an interview with the Wall Street Journal, Chicago Fed President Austan Goolsbee said it is increasingly likely the central bank will need to shift its attention from inflation to employment, the other part of its dual mandate. He also told the newspaper he wouldn’t rule out a rate cut in March. Against all the talk around the prospect of lowering rates, Williams reminded markets that the Fed could still go the other way. When it comes to the economy, “the base case is looking pretty good: Inflation is coming down, the economy remains strong and unemployment is low.” That said, “one thing we’ve learned, even over the past year, is that the data can move in surprising ways,” he said, adding “we need to be ready to move further if inflation, the progress of inflation were to stall or reverse.” More

NEW YORK (Reuters) – A surge in U.S. government bonds has helped lift stocks and heightened investors’ appetite for risk. Now some are betting that further gains may be harder to come by unless the economy severely weakens, potentially upsetting the narrative of resilient growth that has propelled markets.An unexpected dovish pivot from the Federal Reserve earlier this week turbocharged the rally in Treasuries, sending benchmark 10-year yields to their lowest level since July. Yields, which move inversely to bond prices, now stand at 3.93%, some 110 basis points from a 16-year high hit in October. The tumble in Treasury yields has rippled far beyond the bond market as it pulled down rates on mortgages, eased financial conditions and pushed investors into stocks and other risky investments. The S&P 500 is up nearly 15% since its October lows and has risen nearly 23% this year, putting it within striking distance of a record high. Some investors, however, believe much of the dovish shift from the Fed may already be reflected in Treasury prices. Deeper cuts, they say, would be more likely if a rapidly slowing economy forced the Fed to accelerate its easing – an outcome that would run counter to the “soft landing” outlook that has buoyed stocks in recent months. “The market is pretty perfectly priced for a soft landing,” said Stephen Bartolini, said lead portfolio manager of the U.S. Core Bond Strategy at T. Rowe Price. “The bulk of the move lower is complete and if we were to push yields from here it would have to be due to expectations that the economy is slipping into recession.” The Fed’s new projections – published on Wednesday – pencil in a median 75 basis points of cuts next year, taking the fed funds rate to between 4.50% and 4.75%. Traders, by contrast, are betting rates will fall by 150 basis points, according to data from LSEG. Technical factors may also make it more difficult for the bond rally to sustain itself. The swift move will likely prompt some profit-taking on the part of investors due to concerns that the trade is overcrowded, strategists at BofA Global Research said in a note Friday. Some Fed officials have begun pushing back against the view that a pivot is imminent. New York Fed President John Williams on Friday said the U.S. central bank is still focused on whether it has monetary policy on the right path to continue bringing inflation back to its 2% target.“We have seen the easy money on this Fed pivot already made,” said James Koutoulas, chief executive officer at Typhon Capital management, who believes further gains in Treasuries may require a growth scare that sparks a scramble for safe assets. “We expect to chop around a bit in the front of the curve until the economy materially weakens further.”Investors will be watching economic data next week, including personal consumption expenditures and initial jobless claims that may sway the Fed’s outlook for inflation. A soft landing, in which growth remains resilient while inflation slows towards the Fed’s target rate, has become the base case scenario for Wall Street firms, including BMO Capital Markets and Oppenheimer Asset Management. The firms see the S&P 500 at 5,100 and 5,200 next year, respectively, compared to its current level of 4719. Some investors believe yields will continue to fall. Jack McIntyre, portfolio manager for Brandywine Global, said the week’s rapid drop in yields was likely aided by bearish investors unwinding their bets after being caught off guard by the Fed’s pivot. Short bets against two-year Treasuries hit record levels earlier this month, data from the Commodity Futures Trading Commission showed. Though yields might pare some of that move in the near-term, McIntyre expects the decline to resume as inflation cools, with the 10-year settling between 3.5% and 3.7% in the middle of next year. Arthur Laffer Jr., president of Laffer Tengler Investments, is less bullish on government bonds. The swift decline in yields is already loosening financial conditions, potentially making it more difficult for the Fed to cut rates next year without risking a snapback in inflation, he said. Laffer pointed to data such as the Atlanta Fed’s GDPNow estimate, which shows fourth quarter GDP rising by 2.6%, more than one percentage point higher than in mid-November. The rally “is overdone and the market has moved too fast,” he said. More

WASHINGTON (Reuters) -The acting head of the National Highway Traffic Safety Administration (NHTSA) said on Friday she is stepping down from her post after overseeing the agency’s investigation into Tesla (NASDAQ:TSLA) Autopilot and efforts to strengthen fuel efficiency regulations.Acting NHTSA Administrator Ann Carlson, who has run the agency since September 2022, told employees in an email she will leave her post on Dec. 26 because of a law limiting how long officials can remain in a temporary role. Carlson, who was chief counsel at NHTSA beginning in January 2021, will serve in her former chief counsel role until the end of January before leaving the agency, she added.Carlson, who took a leave of absence as an environmental law professor at the University of California, Los Angeles (UCLA) in 2021, said the new fuel economy standards to be finalized in 2024 “will save consumers money at the pump, increase our energy independence, and reduced harmful pollutants, including the greenhouse gases that cause climate change.” NHTSA Deputy Administrator Sophie Shulman will serve as acting administrator. She previously was deputy chief of staff for policy at the Transportation Department and also has served at the Energy Department, Office of Management and Budget and White House Domestic Policy Council.On Wednesday, Tesla agreed to recall 2.2 million vehicles in the United States and Canada to install new safeguards in its Autopilot advanced driver-assistance system after NHTSA raised safety concerns.”One of the things we determined is that drivers are not always paying attention when that system is on,” Carlson said Wednesday. In May, President Joe Biden withdrew his nomination of Carlson to serve in the top job on a permanent basis after she faced Republican opposition, and Biden has not made a new pick.Attempts in Congress to reduce her salary to $1 over Republican ire about electric vehicles were voted down.Carlson also oversaw safety probes into air bag ruptures, and efforts to reduce traffic deaths and advance about 50 safety regulations.U.S. traffic deaths fell 4.5% in the first nine months of the year to 30,435 after sharply rising during the COVID-19 pandemic, the agency said Wednesday.”While we are optimistic that we’re finally seeing a reversal of the record-high fatalities seen during the pandemic, this is not a cause for celebration,” Carlson said.For much of the last six years, NHTSA has been without a Senate-confirmed administrator. During the Trump administration no nominee was ever confirmed to head NHTSA. More

NEW YORK (Reuters) – A late-year surge in stocks is exacerbating the pain of short-sellers, who are on track for their worst collective annual loss since 2020, according to data and analytics company Ortex.Short sellers – who aim to profit by selling borrowed shares and buying them back later at a lower price – are down over $145 billion for the year, according to an Ortex analysis of short interest in 1,500 U.S. stocks.The losses have come in the face of a rally that has ramped up in the fourth quarter on expectations that the U.S. Federal Reserve is done raising interest rates and will likely pivot to cuts next year. The index is up 22.9% year-to-date and around 2% away from a record high. “2023 has seen huge losses for short sellers,” said Peter Hillerberg, co-founder of Ortex, said.Short interest rose by $9.8 billion for the year, suggesting that investors were reluctant to double down in their bearish bets, Hillerberg said. By contrast, short interest rose by $95.84 billion in 2020, when short sellers racked up $182.65 billion in losses, Ortex data showed.Short interest has stayed roughly consistent throughout the year, Ortex data showed. The unweighted average short interest as a percentage of free float on the stocks tracked by the firm stands at 4.75%. That is toward the higher end of this year’s range of 4% to 4.75%. On Friday, the S&P 500 finished about flat on the day but up 2.3% for the week, its seventh straight weekly gain, the longest such streak in six years. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Global shipping companies have halted journeys through the Red Sea because of the threat of attacks by Yemeni rebels, in moves that could disrupt vital trade through the Suez Canal.AP Møller-Mærsk, which operates the world’s second-largest container shipping fleet, on Friday said it had instructed all vessels due to pass through the Bab-el-Mandeb strait to “pause their journey until further notice”.The strategically important strait, which connects the Red Sea and the Gulf of Aden, runs past Yemen and there have been more than 10 attacks on ships in the area by the country’s Iran-backed Houthi rebels since the outbreak of the Israel-Hamas war.“We are deeply concerned about the highly escalated security situation in the southern Red Sea and Gulf of Aden,” said Mærsk, adding that the attacks on commercial vessels posed a “significant threat” to crews.Trafigura, one of the world’s largest commodities traders, on Friday said it was “taking additional precautions” for its owned and chartered vessels.The attacks risk disrupting the global supply chains that pass through the Red Sea and the Suez Canal, the waterway that accounts for 30 per cent of all container ship traffic and is a vital conduit for crude oil shipments.German company Hapag-Lloyd, the world’s fifth-largest container shipping group, on Friday said it was “pausing all container ship traffic through the Red Sea” until Monday.Its announcement came after one of its container ships, the Al Jasrah, was attacked while sailing close to the Yemen coast on Friday. Mærsk also revealed a “near miss” attempted attack by the Houthi rebels on its ship Mærsk Gibraltar a day earlier.Henning Gloystein, a director at consultancy Eurasia Group, said such decisions would add “thousands” of miles of travel to trade between Europe and the Indo-Pacific region. In a memo to customers on Friday, Maersk Tankers, a separate group that operates one of the world’s largest product tanker fleets, also cited the “rapidly escalating” security situation. It said its tankers travelling between Asia and Europe would now have to consider diverting via the Cape of Good Hope to avoid the danger area.Shipowners this month have called for protection for maritime routes in the region and the Pentagon has said a US warship also came under attack off the Yemeni coast.The US is expected to make an announcement in the coming days about setting up a task force to ensure the safe passage of ships in the Red Sea. US national security spokesperson John Kirby on Friday said Washington was discussing with a “range of partners” to ensure the “free flow of commerce through a vital checkpoint and vital body of water”. The Houthi rebels, who have controlled large parts of Yemen since 2014, have threatened to target any vessels heading to Israeli ports, according to S&P Global Commodity Insights.Marco Forgione, director-general at the Institute of Export & International Trade, a professional body providing support to business, said the developments “could not come at a more difficult time for global supply chains”.Drought was causing severe shipping delays through the Panama Canal, he said.“This impacts every link in the supply chain, from producer right down to end user, and will only increase the chances of critical products not making their destinations in time for Christmas,” said Forgione of the companies’ decisions. “All eyes now will be on other shipping firms to see if they follow suit.”Oil prices were little changed on Friday, with the international benchmark Brent crude up 0.3 per cent at $76.84 a barrel. Mærsk’s share price jumped 7 per cent on expectations that the crisis would cause freight rates to rise.Additional reporting by Felicia Schwartz More

By David French(Reuters) – Six U.S. oil and gas bankers who missed out on a wave of mega deals in the oil patch after leaving mergers and acquisitions powerhouse Citigroup last year to join smaller firm Guggenheim Securities are now decamping to Moelis (NYSE:MC) & Co, according to people familiar with the matter.The merry-go-round underscores the restlessness of dealmakers who try to get hired on big, high-prestige deals while working for firms that let them keep more of the advisory fees they generate. Energy and power has been the most active sector for dealmaking this year, accounting for $460.3 billion worth of transactions globally, up 4% year-on-year, according to LSEG. The six bankers which Moelis has hired from Guggenheim include Muhammad Laghari, Alexander Burpee, Benjamin Dubois, and Ryan Staha, said the sources, who requested anonymity because the moves have not yet been announced.The bankers, who previously worked at Citigroup together, are on gardening leave and will start at Moelis in the next few weeks, the sources added.Moelis and Guggenheim declined to comment.Dealmaking has soared among oil and gas producers in the last two months, as companies seek to boost profitability by adding more and better acreage. Exxon Mobil (NYSE:XOM) clinched a $60 billion deal to buy Pioneer Natural Resources (NYSE:PXD) and Chevron (NYSE:CVX) announced a $53 billion agreement to buy Hess (NYSE:HES). Occidental Petroleum (NYSE:OXY) said on Monday it would buy closely held U.S. shale oil producer CrownRock for $12 billion including debt. While Citigroup advised Exxon on its purchase of Pioneer, neither Guggenheim nor Moelis were on these deals.Deal-focused investment banking boutiques like Moelis and Guggenheim typically allow their bankers to keep more of their client fees compared with big bulge-bracket banks like Citigroup, which run more diverse businesses they have to pay for.Guggenheim ranks 19th in LSEG’s league table for U.S. oil and gas deals this year with $5.8 billion of announced transactions, having been outside the top 25 advisers in 2022. Its largest mandate was helping Civitas Resources on its $4.7 billion purchase of energy producers from private equity firm NGP, which was announced in June. Moelis has also been a minor U.S. player. It is currently 25th in the same league table this year, and was outside the top 25 in 2022. It has close ties, however, to a number of major international energy clients, including Saudi Aramco (TADAWUL:2222) and Abu Dhabi National Oil Co. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The only thing Jay Powell could have done to deliver a stronger impression of a festive giveaway to global markets this week would have been to conduct his press conference decked in an oversized red suit with fluffy white trimmings and a matching hat.The public appearance by the chair of the US Federal Reserveon Wednesday was a big opportunity to use the central banker Jedi mind tricks we all know and love to hint to investors that they have read the situation all wrong.He has, of course, done this before. Back in October, when real-world borrowing costs were sailing higher with benchmark 10-year Treasury bond yields hovering close to a post-crisis peak of 5 per cent, he said markets were doing some of the Fed’s job for it. As any trained Fed nerd will tell you, that is central banker speak for “yields are too high, knock it off”.Since then, swept along by continuing signs of weaker inflation and by dovish cooing by other Fed officials, those yields have pulled back hard. Investors had even been anticipating pretty forceful interest rate cuts in 2024 — quite the turnaround from the historic tightening cycle that has now been running for close to two years.So after leaving rates on hold this time around, Powell was widely expected to give a subtle wink and a nod to markets that “you’re overdoing it, knock it off”. He did not do that at all. Instead, first he took a bit of a victory lap, observing that the recessionistas had got it all wrong. The Fed’s 5.25 percentage points of rate rises had not nuked the economy after all. Then he confirmed that inserting the word “any” into the Fed statement’s discussion of “the extent of any additional policy firming” was a deliberate acknowledgment that rate rises were likely to be over. It pays to watch the details here.Then, perhaps most strikingly, he noted that some of the Fed’s rate-setters had trimmed their rate forecasts for the coming years in between Tuesday’s data showing that consumer prices had risen in November and Wednesday’s data showing that producer prices had held steady. Scribbling out forecasts and writing in new ones on the day of the rates decision and report is some pretty intense data dependency. The possibility of cuts was coming into view, he said, and was “also a discussion for us at our meeting today”.Powell has “out-doved” the market. In response, US government bond prices flew higher, while stocks pushed ever closer to a record high. That ripping noise you can hear is not excited children opening their Christmas presents but the sound of thousand year-ahead market forecasts heading towards a bin. We are already within spitting distance of the market’s consensus forecast for where US yields will end next year.Dan Ivascyn, chief investment officer at Pimco, the world’s largest active bond investment house, suggested that, sure, much could still go wrong, but now might be a time to pat central bankers on the back. “Certain people have been a bit harsh out there in the markets about central banks,” he told the FT before the Fed’s announcement.“Yeah, they were late [to respond to inflation] but, wow . . . Central banks including the US Fed, in probably one of the environments with one of the highest degrees of difficulty ever . . . they have been able to get us to this point with this level of disinflation and the economy holding up,” he added. “They may go down as one of the most effective central banks when the history books are ultimately written.”The Fed was not the only game in town this week, however. Outside emerging markets, Switzerland’s central bank also lowered its inflation forecasts, Norway proved to be a fun sponge with a further quarter-point rise, and the Bank of England opted to keep rates on hold but with a solid three of the nine rate-setters voting for a rise. Meanwhile, the European Central Bank president Christine Lagarde said she and her colleagues “did not discuss rate cuts at all”.At this point, macro hedge fund managers and other investors who seek to harness broad global economic trends are rubbing their hands with joy. Generally speaking, the past two years or so have featured the big central banks all pulling in the same direction. With the exception of the Bank of Japan, each of them has been seeking to damp down inflation with hefty rises in interest rates. Now they are very clearly at different stages in terms of dialling rates back down, and each is dependent on how economic data releases shape up. Electoral cycles are also not synchronised. With investors unusually closely focused on fiscal policy, that means different major bond markets and currencies are likely to swing around in relation to each other. “As a macro strategist, this is what I dream about,” said John Butler, head of macro at Wellington Management in London. “This is the best macro environment I’ve experienced in 30 years.”It could still be the case that the Fed is forced to eat humble pie and jack up rates again next year. Similarly, no one truly knows whether an ugly recession will land. But an obsession over the small print of every senior policymaker’s utterance will be essential throughout next [email protected] More

(Reuters) – The U.S. Securities and Exchange Commission asked a federal appeals court on Friday to reconsider a ruling that it said prevents the agency from clawing back ill-gotten gains in cases in which laws were violated but no victims were harmed. The SEC filed a petition asking the full 2nd U.S. Circuit Court of Appeals in New York to review the October ruling made by a three-judge panel in a case involving Aron Govil, former CEO of Cemtrex Inc. If left intact, the ruling risks letting players in the securities industry profit from illegal activity, the agency said.The question applies to a broad range of cases, including allegations that cryptocurrency industry participants were required to register as securities businesses.The SEC has the ability to recoup ill-gotten gains in its cases, a mechanism known as disgorgement. The U.S. Supreme Court set limitations in 2020, saying disgorgement cannot exceed the net profits of the conduct at issue. The court also said that disgorgement generally must be “awarded for victims.”The agency argued in its petition on Friday that the 2nd Circuit misapplied that decision in the case alleging that Govil misappropriated investor funds.Govil was ordered to pay $5.8 million in disgorgement last year. After he appealed, the 2nd Circuit said the SEC had failed to show investors were harmed.The SEC argued on Friday that disgorgement is about “restoring the status quo by depriving a wrongdoer of his ill-gotten gains, not redressing pecuniary harms of victims.”Matthew Ford (NYSE:F), an attorney for Govil, said the 2nd Circuit followed the Supreme Court’s ruling.”If the SEC wants to seek a return of money to investors it claims lost money, it must show the investors actually lost money in the first place,” he said. A spokesperson for the SEC did not immediately reply to requests for comment. More