Closing post
Time for a recap.
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The UK’s services sector grew at the fastest rates since last May in January, helped by the prospect of interest rate cuts.
S&P Global’s UK services PMI rose to 54.3 in January from 53.4 in December, an eight-month high, with firms reporting a rise in new orders
Germany’s economy is struggling, though, with its service sector shrinking in January while imports and exports both fell in December.
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The dollar has strengthened after America’s top central banker said the U.S. Federal Reserve can be “prudent” in deciding when to cut its benchmark interest rate.
Chair Jerome Powell told CBS’s “60 Minutes” show that the Fed wants to see confirmation that inflation is moving down to 2% in a sustainable way.
Powell also indicated that Fed policymakers still expect to cut rates three times this year.
Powell’s comments pushed the dollar to its highest level against the pound since December.
Central banks should be certain they have beaten inflation before cutting interest rates this year, the OECD has warned, as it raised its growth forecasts for this year.
McDonald’s has missed sales forecasts, after takings in the Middle East were hit by boycotts against the company due to the Israel-Hamas war.
The pharmaceuticals firm behind the anti-obesity drugs Ozempic and Wegovy is spending $11bn to boost its production facilities, after struggling to keep up with demand.
Boeing could have to delay deliveries of more of its bestselling 737 Max planes after a supplier found new production glitches, adding to pressure on the beleaguered US manufacturer.
Estee Lauder to cut up to 5% of workforce
Cosmetics giant Estee Lauder will cut about 3% to 5% of its global workforce.
The cuts come as Estee Lauder tries to rebuild its profit margins, as a turnaround at it Chinese business is taking longer than expected.
Estee expects incremental operating profit between $1.1bn and $1.4bn from the efforts, up from $800m to $1bn it estimated earlier and looks to record between $500m and $700m in charges before taxes.
Shares in the company have jumped 15%.
Elsewhere on Wall Street, shares in construction equipment firm Caterpillar are up 3% after it beat analyst forecasts today.
Caterpillar reported a 3% rise in sales and revenues in the last quarter of 2023, with full year sales up 13%.
Operating profit margin in the last quarter improved to 18.4%, up from 10.1% a year earlier.
Some perspective for Caterpillar $CAT
— Philip Calrissian (@Trading_Sunset) February 5, 2024
... printing a new hist' high of the $334s, m/t bullish from Oct'2023 $222s... a roughly 50% gain. pic.twitter.com/uFnEj67and
Shares in McDonald’s have dropped over 3% at the start of trading, after it reported weaker-than-expected sales growth due to a slowdown in the Middle East.
McDonald’s has served up a mixed portion of results today, says Adam Vettese, analyst at investment platform eToro.
This set of results from the fast-food giant has some disappointments for investors, but it’s not all bad. The glass-half-full take is that adjusted earnings per share were stronger than expected. The problem is in the sales and growth figures though, and that has driven the initial negative reaction in pre-market trading.
Not only did revenue come up slightly short of expectations, but there’s an underperformance in same-store sales growth. A year ago we had growth of 10.9%, but expectations for this most recent quarter were for a much more modest 4.7% – unfortunately, McDonald’s missed even that low bar, delivering just 3.4%, with stores in the Middle East dragging on the global figure.
The company noted the impact of the war in the Middle East in its press release, and there are echoes here of a similar issue from Starbucks when it reported recently. Domestic sales growth was broadly in line with Wall Street expectations though.
OECD concerned by drop in reading and mathematics skills
The OECD are calling on governments to take steps to improve educational outcomes and enhance skills development, to tackle the drop in reading and maths skills during the pandemic.
Today’s OECD economic outlook flags the “unprecedented drop in performance in many countries for 15-year-olds tested on reading and mathematics”.
OECD empirical work suggests that this decline in PISA scores could have a persisting negative impact on the level of productivity over the next 30-40 years, it says.
School closures during the pandemic may have contributed to the recent drop in test scores, particularly for disadvantaged students who were unable to benefit fully from on-line teaching, the OECD say.
However, they add that the problem also predates Covid-19, saying:
However, the recent decline in performance continues a downward trend in test scores prior to 2018, pointing to longer-term issues in educational systems in some countries.
McDonald’s says Middle East war hits sales
Fast food giant McDonalds has blamed conflict in the Middle East for weakening its sales in the region.
McDonalds has reported that while global sales grew by 3.4% in the last quarter, its International Developmental Licensed Markets segment only expanded by 0.7% “reflecting the impact of the war in the Middle East”.
The company adds:
Segment performance reflected positive comparable sales in all geographic regions, with the exception of the Middle East, which was impacted by the war in the region.
McDonald’s 3.4% rise in comparable sales missed investor expectations, Bloomberg reports.
According to Reuters, investors had expected growth of 5.5% at its International Developmental Licensed Markets arm, so the weaker performance has created its first sales miss in almost four years.
Last month, McDonald’s CEO Chris Kempczinski said customers boycotting the firm in the Middle East for its perceived support of Israel were having a “meaningful” hit to business, adding that such calls were based on “misinformation”.
McDonald’s missed on top line. Revenue in Middle East hit by conflict in the region. $MCD down about 1% #premarket. 🍔 🍟 https://t.co/ZRA223tKfL
— Paul R. La Monica (@LaMonicaBuzz) February 5, 2024
US sales grew by 4.3%, partly due to price rises (or “strategic menu price increases”) and marketing spend.
Sales at its International Operated Markets segment increased by 4.4%. with sale growth in the UK, Germany and Canada offsetting falling sales in France.
For last year as a whole, McDonald’s grew its like-for-like sales by 9%.
Kempczinski says today that McDonald’s remains “confident in the resilience of our business amid macro challenges that will persist in 2024.”
McDonald's: "International Developmental Licensed Markets: Segment performance reflected positive comparable sales in all geographic regions, with the exception of the Middle East, which was impacted by the war in the region." https://t.co/LtKgm4fPzF
— Sam Ro 📈 (@SamRo) February 5, 2024
Updated
Weight loss drug firm Novo Nordisk spending $11bn to boost production
The pharmaceuticals firm behind the anti-obesity drugs Ozempic and Wegovy is spending $11bn to boost its production facilities, after struggling to keep up with demand.
Novo Holdings, the controlling shareholder of weight-loss drug maker Novo Nordisk, is buying drug manufacturing group Catalent in $16.5bn deal.
Novo will then sell Catalent’s key facilities to Novo Nordisk for $11bn, with the deal expected to conclude by the end of 2024.
Those three manufacturing sites, which specialise in the sterile filling of drugs, are located in the Italian town of Anagni, in Brussels, and in Bloomington, in the US state of Indian.
The three sites employ more than 3,000 people and all have ongoing collaborations with Novo Nordisk.
Lars Fruergaard Jørgensen, president and chief executive officer at Novo Nordisk, says:
“We are very pleased with the agreement to acquire the three Catalent manufacturing sites which will enable us to serve significantly more people living with diabetes and obesity in the future.
The acquisition complements the significant investments we are already doing in active pharmaceutical ingredients facilities, and the sites will provide strategic flexibility to our existing supply network.”
Last year Novo Nordisk was forced to restrict the supply of the lowest dose of Wegovy, due to shortages. It has also warned that Ozempic is likely to be impacted by intermittent supply shortages running into 2025, Diabetes UK says.
Shares in Novo Nordisk have jumped 3% today, to a new record high.
Updated
The pick-up in UK service sector activity last month could deter the Bank of England from cutting interest rates soon, argues Tomasz Wieladek, chief European economist at T. Rowe Price.
Faster service sector growth, and reports of elevated wage pressures, could even put further interest rate rises back on the agenda, Wieladek suggests – which isn’t something investors currently think is likely.
Wieladek says:
The message from today’s PMI is that activity is reaccelerating and hiring is rising, but supply chain restrictions due to the Red Sea attacks will likely partially impede the strong disinflation expected previously.
These trends in the data will likely be exacerbated by the government’s recent changes in fiscal policy. The 2% cut in National Insurance in January will likely support the reacceleration of the economy. Furthermore, additional broad-based tax cuts will probably add further fuel to economic momentum after the Budget in March. I believe the data today, together with the government’s fiscal policy, will help the UK grow faster than the eurozone in 2024.
These data imply that the Bank of England will need to be more patient than expected. Given a falling unemployment rate, likely rising employment, accelerating economic activity, and elevated supply chain inflation risks, it is now becoming likely the Bank of England will need to wait significantly longer than expected to deliver the first rate cut. It is now likely the BoE may only be able to cut in November 2024.
Furthermore, if the data continue to be this strong and suggest persistent above-target inflation into the second half of 2024, rate hikes might come back on the table. That is, the Bank of England may have to consider hiking again to ensure inflation remains at the 2% target in the medium term. This is not a scenario markets are pricing today.
The oil price has dropped to its lowest level in almost three weeks, as hopes build for a ceasefire in Gaza.
Brent crude is down 0.5% today at $76.98 per barrel, the lowest since 17 January.
This follows reports last week that Israel and Hamas appear to be inching closer towards a deal for a ceasefire, which knocked the oil price lower.
The reported outline of the proposal envisages a lengthy ceasefire of about six weeks in which Palestinians in Gaza would be allowed to move around the strip freely, while hostages would be released in three phases in exchange for Palestinian prisoners being held in Israel, as reported here.
The framework of this deal has been put to Hamas.
Oil has dipped today despite further attacks against Houthi groups in Yemen over the weekend.
US secretary of state Antony Blinken is due to arrive in Saudi Arabia today, on a trip to the region to push for a ‘humanitarian pause’ in the Israel-Hamas war, and an agreement that secures the release of all remaining hostages. He is also scheduled to visit Egypt, Qatar, Israel, and the West Bank.
Pound hits lowest since December against stronger dollar
Sterling has hit its lowest level against the US dollar this year, despite the encouraging rise in service sector growth.
The pound has lost half a cent against the dollar to $1.2579, the lowest level since 13 December.
This is due to dollar strength – the greenback has rallied by 0.35% this morning, after Fed chair Powell warned of the risks of cutting interest rates too early. The dollar also rallied strongly on Friday, after the blowout non-farm payroll jobs report.
PwC’s Jenny Etherton says 2024 is off to a positive start with an injection of optimism for the UK services sector:
“Services activity grew again for the third month in a row as business and consumer confidence translated into new orders in anticipation of continued falls in inflation and interest rate cuts.
“Despite this, we are seeing a continued flattening for recruitment, with ongoing wage pressures making a significant impact. However, some firms are bucking the trend by creating new jobs to ensure they have the capacity they need to meet stronger order books.
Today’s UK service sector PMI report shows the economy looks to have begun 2024 on a stronger note than it ended last year, says Martin Beck, chief economic advisor to the EY ITEM Club.
He adds there was also “good news on the inflation front”, explaining:
According to January’s services survey, lower fuel costs and raw material prices contributed to input price inflation faced by services firms in January rising at the joint-slowest pace in almost three years. And output price growth eased to the weakest since last September.
“Lower cost and price balances, combined with an upbeat set of readings for the survey’s forward-looking indicators, are consistent with the EY ITEM Club’s view that inflation will fall back quickly over the coming months and momentum in economic activity will likely continue to build.
The latest survey should also offer the Bank of England some reassurance that the economy’s exit out of its recent stagnation may not necessarily present an inflationary threat.”
Updated
The OECD’s new forecasts also predict the UK will suffer the highest level of inflation of all the G7 countries.
At 2.8% this year, prices in the UK are seen rising faster than Canada (at 2.6%), France (2.7%), Germany (2.6%), Italy (1.8%), Japan (2.6%) and the United States (2.2%).
Updated
Central banks must beat inflation before cutting interest rates, says OECD
The OECD is also warning central banks should be certain they have beaten inflation before cutting interest rates this year, my colleague Phillip Inman reports.
The Paris-based thinktank, which represents 38 countries, said it was “too soon to be sure that underlying price pressures are fully contained”.
UK inflation has been forecasted to fall sharply this year after a steep drop in the cost of energy and fuel back towards pre-pandemic levels.
The OECD said a forecast in November had underestimated the waning of inflationary pressures in the UK and an average rate of 2.9% expected this year was more likely to be 2.8%. The US inflation rate in 2024 would be 2.2%, down from a previous forecast of 2.8%.
This rather chimes with the comments from Federal Reserve Jerome Powell to 60 Minutes last night, when he explained the Fed should be prudent when deciding when to start cutting rates.
OECD lifts global growth forecast
Newsflash: The OECD has lifted its forecast for global growth this year, helped by a stronger performance from the US.
In its latest economic outlook, the OECD has raised its globl growth forecast for 2024 to 2.9%, up from 2.7% three months ago.
America’s economy is now expected to grow by 2.1% this year, better than the 1.5 % previously expected.
But the eurozone’s growth forecast has been cut, from 0.9% to just 0.6%, as the slowdown in Germany weighs on Europe. Germany is forecast to see the weakest expansion in the G7 this year at just 0.3%.
The OECD still expects the UK to grow by 0.7% this year.
And it warns that attacks on Red Sea shipping lanes could add to inflationary pressures.
Today’s report estimates that if a surge in shipping costs persisted annual OECD import price inflation could increase by close to 5 percentage points, adding 0.4 percentage points to consumer price inflation after about a year.
This month’s survey of UK purchasing managers also shows a rise in business optimism, despite concerns over geopolitical tensions, Brexit trade frictions and the looming UK general election.
Around 52% of the survey panel forecast a rise in business activity over the course of 2024, while only 12% predict a reduction.
That is the strongest degree of positive sentiment since April 2023, lifted by hopes of interest rate cuts.
Today’s PMI survey explains:
Anecdotal evidence suggested that long-term business expansion plans and supportive economic conditions had underpinned service sector growth projections for the next 12 months. Some firms also cited a favourable impact from looser financial conditions and expected interest rate cuts.
Survey respondents nonetheless noted that geopolitical concerns, Brexit trade frictions, and domestic political uncertainty were all factors that could constrain business activity in the year ahead.
UK services sector revival gains momentum with fastest growth since May
Newsflash: The UK’s services sector has posted its strongest monthly performance since last May.
Services sector firms have reported a faster rise in business activity and new orders in January, spurring them to hire more staff.
This lifted the UK services PMI index up to 54.3 in January, up from 53.4 in December, the third month running it’s been over 50 points (showing growth), and an eight-month high.
Services PMI in the United Kingdom increased to 54.30 points in January from 53.40 points in December of 2023.https://t.co/Tti1VJNW5C pic.twitter.com/rqrRrrl4Ur
— TRADING ECONOMICS (@tEconomics) February 5, 2024
Encouragingly, cost inflation eases to the joint-lowest rate since February 2021, thanks to lower fuel costs and raw material prices, although staff salaries continued to rise.
Tim Moore, economics director at S&P Global Market Intelligence, says:
“The revival in UK service sector performance gained momentum at the start of 2024, with output growth accelerating to its fastest for eight months amid stronger business and consumer spending. New orders have also rebounded this winter as receding recession risks and looser financial conditions led to greater willingness-tospend among clients.
Inflationary pressures subsided during January, despite stronger demand conditions. Latest data indicated that total input costs increased at one of the slowest rates seen in the past three years. Softer cost inflation reflected lower energy and fuel costs, alongside falling raw material prices.
Service providers reporting an increase in their operating expenses overwhelmingly linked this to elevated wage pressures. This resulted in another month of robust rise in average prices charged, although the speed of inflation dipped to a four-month low.
A combination of falling inflation and improving order books provided a strong boost to business activity expectations across the service economy. The degree of optimism regarding year ahead growth prospects was the highest since April 2023. Another uplift in business confidence in January provides a signal that elevated levels of geopolitical uncertainty have yet to exert much of a constraint on service sector growth projections for 2024.”
Updated
One million electric cars sold in the UK
The UK has registered its one millionth electric car, new data from industry group the Society of Motor Manufacturers and Traders (SMMT).
The SMMT has reported that 20,935 battery-powered electric cars (BEVs) were registered in January, around 21% more than a year ago.
That has lifted the overall total since 2002 to 1,001,677, which the SMMT says is “testament to the commitment of manufacturers to deliver ever-increasing numbers of zero emission models”.
Overall, the UK car market grew by 8.2% in January, the SMMT says, which is the 18th month in a row.
But sales to private buyers fell by 15.8%, while the fleet market (sales to businesses) grew nearly 30%.
UK reaches million EV milestone as new car market growshttps://t.co/Y1IwMi3cFR pic.twitter.com/OyDLoyX4TN
— SMMT (@SMMT) February 5, 2024
Mike Hawes, SMMT chief executive, said chancellor Jeremy Hunt should do more to help the electric car market in next month’s budget:
It’s taken just over 20 years to reach our million EV milestone – but with the right policies, we can double down on that success in just another two.
Market growth is currently dependent on businesses and fleets. Government must therefore use the upcoming Budget to support private EV buyers, temporarily halving VAT to cut carbon, drive economic growth and help everyone make the switch.
Manufacturers have been asked to supply the vehicles, we now ask government to help consumers buy the vehicles on which net zero depends.
BEV market share for January also grew year on year to 14.7%, although this is below the full 2023 performance of 16.5%.
— SMMT (@SMMT) February 5, 2024
PHEVs recorded volume growth of 31.1% to take 8.4% of the market, while HEV volumes fell -1.2% with a 13.1% share.https://t.co/Y1IwMi3cFR pic.twitter.com/iW5EhwkbRf
Germany's service sector shrinks again
Another blow for Germany: its service sector has shrunk for the fourth consecutive month in January.
Data provider S&P Global has reported that business activity across Germany’s service sector fell for a fourth straight month in January, at the quickest rate since last August.
The decline was driven by ongoing weakness in demand, S&P Global reports.
Its German services PMI business activity index dropped to a five-month low of 47.7 for last month, down from December’s 49.3. Any reading below 50 shows contraction.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
“Bad ending, even worse start. This is the summary of the German service sector at the start of the year, as the corresponding PMI has deteriorated further in January from the subdued December level.
One painful fact is that new business has shrunk for the seventh month straight and its downward momentum gained pace for the second successive month. Remarkably, outstanding business is experiencing its most rapid decline since June 2020. This is possibly hinting at a wave of order cancellations by clients.
Germany is recession according to its PMI release.
— Shaun Richards (@notayesmansecon) February 5, 2024
Bad ending, even worse start. This is the summary of the German service sector at the start of the year, as the corresponding PMI has deteriorated further in January from the subdued December level https://t.co/aaeV7lnv18
Shares in Lloyds Banking Group and Santander have both dropped this morning, after the Financial Times reported that Iran used both banks to covertly move money around the world.
According to the FT, Lloyds and Santander UK provided accounts to British front companies secretly owned by a sanctioned Iranian petrochemicals company based near Buckingham Palace.
The state-controlled Petrochemical Commercial Company was part of a network that the US accuses of raising hundreds of millions of dollars for the Iranian Revolutionary Guards Quds Force and of working with Russian intelligence agencies to raise money for Iranian proxy militias.
Both PCC and its British subsidiary PCC UK have been under US sanctions since November 2018.
Just published: front page of the Financial Times, UK edition, Monday 5 February https://t.co/hUs0cjMDq4 pic.twitter.com/2eV2FeFosU
— Financial Times (@FT) February 4, 2024
Lloyds shares are down around 1% in London, while Banco Santander are down 3% in Madrid this morning.
UK unemployment rate lower than thought, with workforce 'bigger but sicker'
Good news: the UK’s unemployment rate is lower than previously thought.
The Office for National Statistics has released new Labour Force Survey (LFS) data which show that the UK’s jobless rate is 3.9% in the last quarter, not the 4.2% estimated before.
But more worryingly, the ONS has also revised up its estimate of the inactivity rate to 21.9% in the three months to November, from the 20.8% recorded previously.
This new data follows a rejig of the LFS, which had become unreliable due to a poor response rate from the public.
Today’s new data shows that the UK population is now estimated to have increased by more than previously thought.
Hannah Slaughter, senior economist at the Resolution Foundation, says the data shows the jobs market is bigger but weaker than previous estimates.
“Britain has a bigger, but sicker, workforce than we previously thought. Of particular concern is that the fact that a record 2.8 million people in the country are currently inactive due to ill-health.
“Tackling rising ill-health is a huge social and economic challenges that we’ll be facing throughout the 2020s, as will getting the UK employment back up to and beyond pre-pandemic levels.”
Britain has a bigger, but sicker, workforce than previously thought - @hcslaughter_ examines what the @ONS reweighting of the labour force survey means for the UK workforce. Thread to follow...https://t.co/OOT37Ggzs9
— Resolution Foundation (@resfoundation) February 5, 2024
For more info, read the @ONS article here https://t.co/lSxKki9bDC
— Resolution Foundation (@resfoundation) February 5, 2024
Mobile network operator Vodafone has reported a slowdown in growth at its German business.
Vodafone’s service revenue growth in Germany fell to just 0.3% in the last quarter, down from 1.1% in the previous three months.
That’s also weaker than the 4.7% increase in Vodafone’s overall service revenue in the quarter.
Matt Britzman, equity analyst at Hargreaves Lansdown, says:
“Vodafone’s third quarter had some pockets of optimism for investors to cling to. Growth was in line with the second quarter, arguably a better result than some had feared.
The key German market managed to scrape its way into growth territory but saw a slowdown. Comparisons to the second quarter were always going to be tough, with some non-recurring revenue streams not repeating.
Regulatory changes in Germany are set to kick in this year, adding a layer of uncertainty to operations in the region.
Shares in Vodafone have dropped over 1% at the start of trading, to the bottom of the FTSE 100 leaderboard.
US bond prices are falling after Jerome Powell said the Fed should take a prudent approach when deciding when to start cutting interest rates.
This has pushed up the yield (the rate of return) on US 10-year Treasury bonds by 5 basis points to 4.08%, from 4.03% on Friday night, while shorter-dated two-year Treasuries are 7 basis points higher at 4.44%.
That suggests bond traders are dialling back their expectations for interest rates cuts this year.
Jim Reid of Deutsche Bank told clients this morning:
The confirmation that he [Powell] wasn’t going to use the broadcast for a big dovish turnaround has caused 2yr and 10yr treasuries to back up 4-5bps overnight, adding to Friday’s big climb.
Updated
German exports drop in December
Germany’s manufacturers have suffered a sharp fall in exports, as concerns over the health of Europe’s largest economy mount.
Exports fell 4.6% month-on-month in December, and were also 4.6% lower than a year ago, new figures from the federal statistics body show.
The fall in exports was broad-based; sales to other eurozone countries fell by 5.5% month-on-month, compared to a 3.5% drop in exports to the rest of the world.
Destatis reports:
Most German exports went to the United States in December 2023.
After calendar and seasonally adjusted adjustments, 5.5% fewer goods were exported there than in November 2023. This means that exports to the United States fell to a value of 12.7 billion euros.
Exports to the People’s Republic of China fell by 7.9% to 7.5 billion euros, exports to the United Kingdom fell by 4.3% to 7.4 billion euros.
Im Dezember 2023 sind die #Exporte sowohl zum Vormonat als auch zum Vorjahresmonat um 4,6 % gesunken. Im Gesamtjahr 2023 sanken sie um 1,4 % gegenüber dem Vorjahr. Mehr dazu und zur Entwicklung der #Importe in der Pressemitteilung: https://t.co/4I7rHSGBNU #Außenhandel pic.twitter.com/5KR8VpxU7Y
— Statistisches Bundesamt (@destatis) February 5, 2024
German imports also dropped – down 6.7% compared with November, and a chunky 12.4% compared with December 2022. That indicates weakening domestic demand.
🇩🇪 Germany's external trade balance improved further in December - but this time it was due to a drop in both exports (-4.6% YoY and MoM) and imports (-12.4% YoY and -6.7% MoM), with the latter outpacing the former
— Nikolay Kolarov, CFA (@libertniko) February 5, 2024
➡️ Exports to other EU countries declined 5.5% and imports from… pic.twitter.com/nGrw9rOmnN
Last month at Davos, Germany’s finance minister denied Germany was the “sick man of Europe.”
Instead, Christian Lindner insisted Germany was “a tired man after a short night,” who needed a “good cup of coffee“ – in the shape of structural reforms...
Germany is currently on the brink of recession, after shrinking by 0.3% in the fourth quarter of 2023. Its economy has barely grown over the last year, hit by high energy costs, while its car sector has become too reliant on China – as covered here:
Updated
Introduction: Powell warns against moving too soon on rate cuts
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
America’s top central banker has pushed back against expectations of a flurry of interest rate cuts this year, while flagging that borrowing costs will be lowered at some point in 2024.
Jerome Powell, head of the US Federal Reserve, told CBS’s 60 Minutes that the Fed was alert to the danger of moving too soon and cutting rates before inflation was fully tamed.
He warned:
The danger of moving too soon is that the job’s not quite done, and that the really good readings we’ve had for the last six months somehow turn out not to be a true indicator of where inflation’s heading.
We don’t think that’s the case. But the prudent thing to do is to, is to just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way.
Powell says Fed can be 'prudent' in weighing rate cuts -- CBS '60 Minutes' https://t.co/mh7T2XfjDN pic.twitter.com/aNzJMgfdnO
— Reuters U.S. News (@ReutersUS) February 5, 2024
US CPI inflation was recorded at 3.4% per year in December, above the Fed’s target of 2%, but down on the 6.5% recorded in December 2022.
The Fed currently sets its key rate at 5.25% to 5.5%, the highest since 2001, and many investors – and borrowers – are keen to see it cut.
Powell explained that the US Fed must balance the risks of moving too soon, versus reacting too late, adding:
And there are different risks. We think the economy’s in a good place. We think inflation is coming down. We just want to gain a little more confidence that it’s coming down in a sustainable way toward our 2% goal.
(The Bank of England made rather similar comment last week.)
Powell told 60 Minutes that “almost every single person” on the Fed’s Open Market Committee believes that it will be appropriate to reduce interest rates this year.
And he indicated that policymakers are sticking with their forecast last December that they will make three quarter-point cuts to rates in 2024.
Powell said the Fed would issue new forecasts at its next meeting in March, but added:
Nothing has happened in the meantime that would lead me to think that people would dramatically change their forecasts.
Powell added that it is “not likely” that the FOMC would feel confident enough to cut rates in March.
POWELL TELLS 60 MINUTES FED "NOT LIKELY" TO CUT RATES IN MARCH🤔 pic.twitter.com/R3QBD691j7
— Kasy Jackson (@kacitrader) February 5, 2024
The financial markets are anticipating at least five rate cuts in 2024, although the odds of a cut in March fell further last Friday after a surprisingly strong US jobs report.
The agenda
9am GMT: UK car sales for January
9am GMT: Eurozone services PMI for January
9.30am GMT: UK services PMI for January
10am GMT: OECD to release Interim Economic Outlook
2.45pm GMT: US services PMI for January
