Economy

BENGALURU (Reuters) -The U.S. Federal Reserve will wait until September to cut its key interest rate, according to a majority of 100 economists polled by Reuters, with half saying there will be only two cuts this year and only about a third forecasting more. That change in the outlook – from a June start and two or more additional cuts in a poll published a month ago – follows evidence of persistent strength in the U.S. labor market and a series of stronger-than-expected inflation data.Fed Chair Jerome Powell also said on Tuesday “the recent data … indicate that it’s likely to take longer than expected to achieve that confidence” that inflation is falling back to the U.S. central bank’s 2% target, remarks that dimmed hopes for rate cuts anytime soon. Financial markets, which earlier this year were pricing six Fed rate cuts starting in March, are also expecting the first reduction in September and one more in either November or December. While Reuters polls have consistently forecast fewer Fed rate cuts than markets, both have now come into line in the latest survey following last week’s inflation report, blowout retail sales data and more hawkish remarks from Powell.Just over half of economists surveyed, 54 of 100, predicted the first decrease in the federal funds rate to happen in September, pushing that rate to the 5.00%-5.25% range. Twenty-six forecast a July cut and only four said it would happen in June. Last month a two-thirds majority, 72 of 108, expected the first rate cut in June. “This is an economy that surprises us again and again by just how resilient it is. We are having very strong growth and it doesn’t seem like the Fed’s policy has made that much of a difference,” said Jonathan Millar, senior U.S. economist at Barclays.Millar now expects the Fed to cut only once this year, in September, a change from his previous prediction of 75 basis points of rate cuts starting in June.The personal consumption expenditures (PCE) price index, which the Fed uses to gauge progress toward its 2% inflation target, rose to an annual rate of 2.7% in March, faster than the 2.5% reported for February, according to estimates presented by Fed Vice Chair Philip Jefferson this week.The outlook for the various inflation measures – the consumer price index (CPI), CPI excluding food and energy, or core CPI, PCE and core PCE – were broadly upgraded from last month in the latest Reuters survey. None of these measures of inflation were expected to reach 2% until at least 2026.”They say again and again policy is restrictive, but there’s a lot of metrics that may suggest they’re not nearly as restrictive as they think … the neutral policy rate in nominal terms is maybe 4.5% to 5.0%. That suggests they’re not overly restrictive,” Barclays’ Millar added.Although there was no majority on how many rate cuts would be delivered this year, half of the participants, 50 of 100, saw two quarter-percentage-point cuts, 34 said more than two, 12 saw only one reduction and four said none. A 60% majority of economists who replied to an additional question, 36 of 60, said the chances were high or very high the Fed would hold rates steady for the remainder of this year. The rest said the probability was low or very low.A few economists now expect the federal funds rate at the end of 2025 to be at least 100 basis points higher than they were expecting just recently, underscoring how quickly the outlook has changed. Steve Englander, head of North America macro strategy at Standard Chartered (OTC:SCBFF), said the March CPI data “raise the possibility inflation is proving harder to stamp out than the Fed had thought.””We have delayed our first cut, but also see a rising probability stubborn inflation will shift the question from ‘when’ to ‘whether’,” he said.The U.S. economy was forecast to expand at an average 2.3% this year, up from the 2.1% forecast last month.(For other stories from the Reuters global economic poll, click here.) More

(Reuters) -U.S. stocks were set to rise at open on Tuesday as some growth and chip stocks gained, while investors digested a raft of quarterly earnings updates, ahead of reports from Big Tech later in the week.Some megacap growth stocks, including Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT) and Amazon.com (O:AMZN), edged up between 0.5% and 1.3% in premarket trading.The tech majors are scheduled to report their quarterly numbers this week, with Tesla (NASDAQ:TSLA) kicking off the cycle after markets close on Tuesday.Early gains in some chip stocks also offered support to equities, with Nvidia (NASDAQ:NVDA), Micron Technology (NASDAQ:MU) and Advanced Micro Devices (NASDAQ:AMD) up between 0.7% and 2.0%.Apple (NASDAQ:AAPL) was an outlier, down 0.2%, as market data showed its smartphone shipments tumbled 19% in China in the first quarter.On the earnings front, General Motors (NYSE:GM) advanced 4.9% after the automaker posted quarterly results above Wall Street targets and raised its annual forecast. Spotify (NYSE:SPOT) gained 8% after the Swedish music streaming company beat estimates for premium subscribers. GE Aerospace rose 4.3% after the aerospace giant raised its full-year profit forecast.Danaher (NYSE:DHR) jumped 7.6% after the life sciences firm beat quarterly profit and sales expectations.On the flipside, JetBlue plunged 10.8% as the low-cost airline trimmed its annual revenue forecast after reporting lukewarm first-quarter revenue.”Overall, people are happy with how (earnings) have gone because mostly they’re surprised that things aren’t worse,” said Will McDonough, chairman and CEO of Corestone Capital.Earnings are estimated to grow by 6% in the first quarter, as per latest estimates from LSEG.U.S. equities sold off sharply last week amid heightened tensions in the Middle East and as traders re-evaluated their rate-cut expectations from the Federal Reserve.The Personal Consumption Expenditures (PCE) index reading for March, the Fed’s preferred inflation measure, is due on Friday and will help ascertain the central bank’s monetary policy trajectory.Money markets are now pricing in just about 38 basis points of interest-rate cuts, down from about 150 bps seen at the start of the year, according to LSEG data. On the data front, investors will await the S&P Global Composite Flash PMI data for April, due shortly after the opening bell.At 8:34 a.m. ET, Dow e-minis were up 81 points, or 0.21%, S&P 500 e-minis were up 13.75 points, or 0.27%, and Nasdaq 100 e-minis were up 48.5 points, or 0.28%.Among other stocks, Cadence Design (NASDAQ:CDNS) Systems lost 6.4% in premarket trading after the chip design software maker forecast second-quarter revenue below analysts’ estimates. Nucor Corp (NYSE:NUE) shed 6.9% after the steelmaker missed Wall Street estimates for first-quarter earnings. Roblox added 4.2% after J.P. Morgan upgraded the gaming platform to “overweight” from “neutral” on significant monetization opportunity.Hibbett jumped 18.8% after JD (NASDAQ:JD) Sports Fashion proposed to buy the athletic fashion retailer for about $1.08 billion. More

The world’s biggest parcel delivery firm also is grappling with higher labor costs tied to its new Teamsters contract. In January said it would cut 12,000 non-union jobs as part of a bid to slash $1 billion in costs this year. First-quarter adjusted profit slumped to $1.43 per share, down 35% from last year but above analysts’ estimates for $1.29, according to LSEG data. Revenue was $21.7 billion, missing analysts’ target of $21.9 billion.UPS reported a 3.2% decline in average daily volumes in its key U.S. business and a 5.8% drop in its international segment, but said volumes “showed improvement through the quarter”.Revenue in both businesses “fell short of expectations,” Jonathan Chappell, equity analyst at Evercore ISI, wrote in a client note.To offset lower volumes, UPS is focusing on higher-margin deliveries for small businesses and healthcare companies. In particular, it plans to double its healthcare-related revenue to $20 billion by 2026. It reported an adjusted operating margin of 8% for the quarter, down from about 11.1% last year. The company earlier said this quarter’s margin would be its lowest in 2024, with business conditions improving in the second half.”UPS has been out of favor for several quarters,” said Chappell, who noted the company has had success with expense control.Meanwhile, UPS won a significant contract with the U.S. Postal Service, replacing rival FedEx (NYSE:FDX) as the agency’s largest air cargo service provider. That business was worth more than $1.7 billion to FedEx in fiscal 2023. UPS shares were virtually unchanged at $144.75 in premarket trading. More

Russia’s economic rebound from a 2022 slump relies heavily on state-funded arms and ammunition production as Moscow prosecutes its war in Ukraine, masking problems that are hampering an improvement in Russians’ living standards.The International Monetary Fund this month raised its 2024 forecast for Russia’s GDP growth to 3.2% from the 2.6% projected in January, pointing to strong government spending and investment related to the war, as well as higher consumer spending in a tight labour market and strong oil export revenues in spite of Western sanctions.Economy Minister Maxim Reshetnikov, speaking at a government meeting, said the main factor behind economic growth was domestic consumer and investment demand. The economy ministry expects GDP growth of around 2.3% in 2025-2026, while the rouble is forecast to make a steady decline to trade at an average of 101.2 to the dollar in 2026, compared with current levels around 93.Russia expects oil prices to fall, the forecast showed, and the export price of Russian oil until 2027 is seen at $65 a barrel. Russia’s Urals crude currently trades at around $79 per barrel.Russia’s success in circumventing the West’s oil price cap, through redirecting exports to friendly destinations and the opaque ownership of a so-called shadow fleets of ships to transport oil, has eased sanctions pressure, but reduced export revenues can still harm the budget deficit. RISKSRussia’s war in Ukraine is draining state coffers – the liquid part of Moscow’s rainy day fund has fallen sharply since the invasion – but economists say that even oil prices as low as $60 a barrel still allow Russia to retain a fiscal safety net that could last for years. Reduced export revenues are seen squeezing Russia’s trade and current account balances. The trade balance is expected to drop by more than 30% in the coming years, compared with previous estimates and expectations for the current account surplus are down threefold, to as low as $25.3 billion in 2026. “Risks also remain,” Reshetnikov said. “Externally, this is first and foremost a slowdown in the global economy as a whole and in the economies of countries that are Russia’s main trading partners, as well as continued sanctions pressure.”The ministry improved forecasts for real disposable incomes and retail trade. Incomes, partially driven by high government spending and the tight labour market, are seen increasing 5.2% in 2024, up from 2.7% growth in the previous forecast. The ministry expects inflation to end the year at 5.1%, above the previous estimate and the central bank’s 4% target. Analysts expect interest rates, currently at 16%, to stay in double digits until at least mid-2025. The ministry does not anticipate Russia solving its labour shortage conundrum any time soon, according to the forecasts. Unemployment, currently at a record low 2.8%, is seen hovering at 3% from 2024-2027. More

LONDON (Reuters) – Global shares rose on Tuesday, driven by a recovery on Wall Street, where investors focus on earnings reports from the U.S. megacaps, while the yen hit a new 34-year low against the dollar, prompting a warning from Japanese officials. The MSCI All-World index, which on Friday hit a two-month low, was up 0.3%, lifted by gains in Europe, where the FTSE 100 scaled a record high, while the STOXX 600 traded at one-week highs thanks to the technology sector.Adding to the optimism was a series of surveys of business activity that showed Germany returned to growth in early April after months of contraction, while activity in the broader euro zone expanded at its fastest clip in nearly a year.Investors are less concerned right now about the threat of a major re-escalation of tension in the Middle East and more focused on earnings.Against that backdrop, gold is heading for a week-on-week drop of 3.2%, its largest this year, while oil has backed off last week’s highs.”We are turning a bit more positive on risk sentiment. There still remains a fair bit of uncertainty around geopolitics and rising U.S. real yields, but we are more positive than we were a week ago,” Mohit Kumar, a strategist at Jefferies, said.The dollar retreated from its recent highs, but is comfortably supported by the view among investors that no rate cuts will be forthcoming any time soon from the Federal Reserve and by the climb this month in Treasury yields to their highest since November.On Wall Street, big tech shares outperformed ahead of quarterly results this week, sending the Nasdaq 1.1% higher. AI darling Nvidia (NASDAQ:NVDA) gained 4.4% while Amazon.com (NASDAQ:AMZN) rose 1.5% and Alphabet (NASDAQ:GOOGL) jumped 1.4%, although Tesla (NASDAQ:TSLA) dropped 3.4% after it cut prices in its major markets.Tuesday brings a wealth of big-cap earnings, including Tesla, PepsiCo (NASDAQ:PEP), UPS, Lockheed Martin (NYSE:LMT) and Halliburton (NYSE:HAL)”Odds are the earnings reports that we see over the next few weeks will be positive, but obviously there’s still issues around what the Fed will do the next,” said Shane Oliver, chief economist at AMP (OTC:AMLTF), noting that security concerns also remained. “It’s too early to say that problems in the Middle East have gone away.””There are lots of things that could cause volatility between now and the end of the year. And so we’re probably coming to a more constrained, more volatile period for markets.”Aside from Tesla, Meta Platforms (NASDAQ:META), Alphabet and Microsoft (NASDAQ:MSFT) will release earnings this week. MEGA WOBBLE?UBS on Monday downgraded its rating on the mega-cap companies, warning that profit growth momentum of the so-called Big Six technology stocks could “collapse” over the next few quarters.U.S. business activity, quarterly economic growth and a measure of monthly inflation top the macro data bill this week.Traders now expect the first Fed rate cut to come most likely in September and see just 40 basis points’ worth of cuts this year, compared with expectations for 150 bps of cuts at the beginning of the year.Treasuries have been a big casualty of the shift in thinking. The yield on the two-year note, the most sensitive to changes in rate expectations, was up 1.8 bps at 4.898%.In Europe, the picture is different. The European Central Bank is expected to cut in June and this divergence is weighing on the euro. It was last up 0.14% at $1.0667, not far off last week’s five-month low of $1.0601. The yen slid to another 34-year low on Tuesday, but recovered modestly to trade flat at 154.79 to the dollar. Japan’s finance minister Shunichi Suzuki said last week’s trilateral meeting with his U.S. and South Korean counterparts laid the groundwork for Tokyo to take appropriate action in the foreign exchange market.This is the clearest warning yet from Japanese monetary authorities that tolerance for the slide in the currency is wearing thin and official intervention to prop it up is likely.Oil pared earlier gains and fell modestly as investors continued to assess the situation in the Middle East. Brent futures were last down 0.4% at $86.63 a barrel, while U.S. crude fell 0.5% to $81.49.Gold fell for a second day, dropping 1% to $2,320 an ounce, after shedding 2.7% the day before, as investors took profit on the 12% rally in the price so far this year. More

The company now expects 2024 operating profit of $6.2 billion to $6.6 billion, compared with its earlier forecast of $6 billion to $6.5 billion. Adjusted earnings for the year are estimated at $3.80-$4.05 per share, compared with $2.95 per share in 2023. Shares of the aerospace giant were up 4% in trading before the bell.Earlier this month, GE completed its breakup into three companies focused on aviation, energy and healthcare.Wall Street analysts have been bullish on the prospects of the aerospace business, with some calling it the “most appealing” of mega-cap U.S. aerospace companies.Analysts say planemaker Boeing (NYSE:BA)’s production challenges are also expected to be a near-term benefit for GE Aerospace as it increases demand for older engines and allows the company to supply more of its LEAP engines in the aftermarket.The company has a dominant share in the engine market for narrowbody jets and enjoys a strong position in widebodies. More than 70% of its commercial engine revenue comes from parts and services.The business has been benefiting from a surge in demand for after-market services as a strong rebound in travel and a shortage of aircraft due to production and engine issues has forced carriers to keep older jets in the air for longer.CFM International, GE’s joint venture with Safran (EPA:SAF), is the sole supplier to Boeing’s 737 MAX family of jets, which are currently being produced at a lower rate due to an ongoing safety crisis.Engine makers typically sell engines to airlines at a discount and recoup the money by selling parts and services over the life of the engine. “We have yet to see a pick up in older GE powered aircraft being retired, as the supply/demand imbalance in new aircraft deliveries is being exacerbated by the 737 ramp halt and the GTF (geared turbofan) engine recall,” Vertical Research Partners analyst Robert Stallard wrote in a note earlier this month.Last month, GE Aerospace forecast an operating profit of about $10 billion in 2028.On Tuesday, GE Aerospace said GE’s first-quarter adjusted profit, which included results for both aerospace and energy businesses, rose 76% to $1.5 billion, or 82 cents per share. The energy business GE Vernova completed its spin-off on April 2. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Bank of England should be wary of cutting rates too soon after years of above-target inflation, a senior policymaker has warned, as he reiterated the need for “restrictive” monetary policy. The pound rose against the dollar after Huw Pill, the BoE’s chief economist, said that falls in headline inflation were not enough reason to ease policy, though a reduction in interest rates from 5.25 per cent was “somewhat closer”. “After several years of above-target inflation rates and given the threat of persistent inflation dynamics becoming embedded in expectations, in my view there are greater risks associated with easing too early should inflation persist rather than easing too late should inflation abate,” Pill said on Tuesday. “This assessment further supports my relatively cautious approach to starting to reduce Bank Rate.”Pill’s words suggest he is not yet ready to vote for a reduction in interest rates as the Monetary Policy Committee prepares to meet on May 9. His assessment of inflation risks contrasted with Sir Dave Ramsden, BoE deputy governor, who said last week that inflation could hold around the bank’s 2 per cent target for the next three years. The pound traded 0.4 per cent higher against the US dollar at $1.24.Senior BoE officials including Ramsden and BoE governor Andrew Bailey have in recent days struck an optimistic note about the battle against inflation as price growth falls to 3.2 per cent in March — far below the double-digit levels inflation hit in mid-2022. Bailey said last week that the latest inflation data was “pretty much on track” with the central bank’s February forecasts as he insisted there was less “demand-led” inflation in the UK than in the US.In a speech hosted by the London campus of Chicago Booth School of Business, Pill said he believed there had been “little news” in recent months on inflation. “We are now seeing signs of a downward shift in the persistent component of inflation dynamics,” he said, in a reference to services price inflation, pay growth, and the tightness of the UK labour market. “But we still have a reasonable way to go before I am convinced that the persistent momentum in underlying inflation has stabilised at rates consistent with achievement of the 2 per cent inflation target on a sustainable basis.”Official figures last week showed that while headline inflation retreated somewhat in March, annual growth in the price of services slowed less than expected, from 6.1 per cent to 6 per cent. Declines in closely watched indicators that pointed to persistent inflation had been “tentative”, said Pill, adding that the MPC still needed to maintain restrictive monetary policy. A cut in the key rate of interest would not entirely undo that restrictive stance of policy given where rates stood, he added.This suggests that Pill sees scope to modestly reduce rates while still keeping downward pressure on inflation. But his comments indicated that the time was not yet ripe for an initial move.Recalling a speech he gave in Cardiff in March, Pill said that his “baseline scenario” then had been that the time for cutting the BoE’s key rate remained “some way off.” “Taken together, the absence of news and the passage of time have brought a Bank Rate cut somewhat closer,” Pill said on Tuesday. “But the same absence of news gives me no reason to depart from the baseline that I established in Cardiff.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK business activity rose more than expected in April, marking the fastest expansion since last May, according to a closely watched survey that also flagged increasing cost pressures in the economy.The S&P Global flash UK composite output index rose to 54 in April from 52.8 in March, well above the 52.6 forecast by economists polled by Reuters, according to data released on Tuesday. A figure higher than 50 indicates expansion.Chris Williamson, chief business economist at S&P Global Market Intelligence, said the UK’s economic recovery “continued to gain momentum” as improved growth in the services sector offset a renewed downturn in manufacturing.He noted the data suggested the UK economy was growing by 0.4 per cent in the second quarter, following an estimated 0.3 per cent expansion in the first three months of the year. However, the data also indicated a steep increase in average cost burdens, which had grown at their fastest pace since May 2023. The PMIs pointed “to growth well in excess of Monetary Policy Committee forecasts and robust inflation pressure”, said Rob Wood, economist at the consultancy Pantheon Macroeconomics.In February, the Bank of England forecast economic growth to remain stagnant at about 0.1 per cent in each quarter of 2024. The survey respondents linked stronger input price inflation to higher staff wages, in part reflecting the nearly 10 per cent annual increase in the national living wage from April. Prices charged by businesses rose at a slower pace than in the previous month but strong demand combined with rising costs could soon reverse that trend, according to the report.“The upward pressure on inflation will add to concerns that a sustainable path to below target inflation has not yet been achieved,” said Williamson. The rise in business activity was exclusively driven by the services sector, with the index increasing to an 11-month high of 54.9 in April, from 53.1 in the previous month. Businesses reported rising consumer spending supported by an increase in real wages, easing inflation and low unemployment. The UK composite figures were higher than 51.4 for the eurozone. Salomon Fiedler, economist at the bank Berenberg, said the figures suggested “the economic rebound started slightly earlier in the UK than on the continent”. More