Thought for Thursday, Fed meet market expectations, all eyes on BoE at noon today, Alphabet's latest release show falling stocks, and the world's largest cruise ship set sail from Miami earlier this week.
Federal Reserve Hold as Markets Seek Guidance on Future Monetary Pathway
Last night the Federal Reserve met market expectations in maintaining their benchmark policy target rate of 5.25-5.5% – its highest level in 22 years. This marked the fourth consecutive hold as policy makers considered it does “not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent”.
Nevertheless, the Fed removed reference to any notion of “additional policy firming” i.e. further rate cuts. In other words, the Fed’s tightening cycle which saw rates rise 525bps in 18months is firmly over. Here Chair Powell’s press conference saw the governor remark, “We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year”.
Hence, attention continues to be firmly on the extent to which the Fed will cut rates this year. As we looked at yesterday there continues to be a gulf between implied market expectations of the Fed’s monetary loosening over 2024 and the Fed’s guidance. For example, while the FOMC have indicated 75bps worth of cuts this year, implied market expectations are signalling over double this level at around 150bps.
Market expectations regarding rate cuts have been pretty well unmoved in light of yesterday’s FOMC meeting, with the general consensus pointing to over a 90% chance of a rate cut on 1 May. This comes against a roughly 35% chance that the Fed will cut rates on their policy meeting on 20 March.
At 1200 noon today, markets will turn their attention to Threadneedle Street, where the Monetary Policy Committee are expected to hold the Bank of England’s benchmark policy rate at 5.25%. This would mark the fourth hold in a row following fourteen consecutive rate hikes which saw the Bank of England raise rates to the highest level in 16-years. Markets will also be looking to gain further insight into how policy makers see the central banks future monetary pathway. Such insight will likely be aided by the release of the BoE’s quarterly economic outlook along with the latest set of inflation forecasts.
Alphabet’s stock fell sharply yesterday following a miss on analysis fourth quarter earning expectations from Google. Their latest release indicated that revenue (excluding traffic acquisitions) hit $72bn, missing expectations by close to a billion dollars.
Despite the miss on expectations, Alphabet’s advertising revenue grew 11% to $65.5bn as income from YouTube advertising grew as much as 20%. This came as revenue from Google Cloud surpassed forecasts rising 26% from a year ago to hit $9bn. Nevertheless, markets are keeping a close eye on Alphabet in relation to the Generative AI battle, which thus far appears to show Microsoft in the lead with their investment into OpenAI, the group behind ChatGPT.
Trading saw shares slump as much as 7% over the course of yesterday’s session.
Earlier this week, the world’s largest cruise ship, Icon of the Seas, left Miami on its maiden voyage. The ship – which is over 1/3 of a kilometre long – cost €1.65 billion to build and can host as many as 7,600 passengers. These passengers can enjoy seven swimming pools amongst the ship’s 20 decks. According to Royal Caribbean, the cruise industry is enjoying revived growth with a younger demographic entering the market. The Miami based company – which is the largest cruise line in terms of revenue and second largest by passengers – said that the cruise industry contributed $75bn to the global economy.
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Thought for Thursday, House of Commons ceasefire vote decision, minutes released from Federal Reserve monetary policy meeting, geo-political update in Russia and Gaza, and looking at today's data.
Word of the week Wednesday, data indicates public sector net borrowing in surplus, this afternoons House of Commons vote for a ceasefire in Gaza, and release of FOMC policy me.eting minutes
Travel Tuesday, changes for China's property market, attacks on Red Sea Vessels cause further shipping disruption, EU defensive naval operation launched, and US propose a UN Security Council Resolution in the Middle East.
Macro Monday, update on Israel-Gaza conflict, town in Ukraine in full control of Russian forces, and pressure for creation of more public-private partnerships in the UK from insurers.
Friday Feeling, Labour take comfort in by-election results, potential for income tax cut plans to be dropped, president of European Commission speaks on European Union defence production.
Thought for Thursday, data released this morning shows UK in technical recession, Sunak's pledge for economic growth takes a blow, increasing number of MPs not looking for re-election for the Conservative party, and Labour party lead drops seven percentage points.
Word of the week Wednesday, hotter than expected US inflation, inflation data in the UK comes in double than BoE's target, US Senate agrees foreign aid package, and today's data.
Travel Tuesday, plight of US commercial real estate owners according to Bloomberg, data shows increase in UK wage growth, easing UK unemployment, and talks to revive negotiations in the Middle East.