Fed rate cut canceled amid strong US economy, company news and geopolitics
Stock market news
• Why worry about a soft landing when you can just keep flying? That’s the message from a U.S. jobs report that’s likely to raise the Atlanta Fed’s GDP estimate so far from its already above-trend 2.7%. With the labor market so resilient and inflation only slowly coming down, markets may wonder why the Fed is easing at all. A reading above 0.2% for core consumer prices on Wednesday could persuade futures to start giving up on even one decline this year.
• US Labor Market Was Much Better Than Expected
- Unemployment Rate 4.1% (expected 4.2%, prior 4.2%)
- Nonfarm Payrolls 256K (expected 164K, prior 212K adjusted)
- Average Hourly Earnings 0.3% (expected 0.3%, prior 0.4%)
Construction job openings fell by 178K, nearly matching 2020 levels, the second-largest decline this century.
• The U.S. labor market showed unexpected strength in December, with nonfarm payrolls rising by 256,000, beating the consensus forecast of 157,000. The strong job growth led to a slight decline in the unemployment rate, which now stands at 4.1%.
Average hourly earnings rose 0.3% from the previous month, in line with expectations but reflecting a slower annual rate of 3.9% from the previous month.
Inflation expectations rose sharply to 3.3% from 2.8%, according to the University of Michigan .
The Bank of Japan is revising its inflation forecasts.
• The BoJ chairman said the rate decision would depend on wage growth in the spring and U.S. policy under the new administration. Rate hikes would not be considered solely based on inflation forecasts, even as rice and yen prices rose.
• The Treasury market is clearly concerned that the cuts are now complete and the next step could be a hike, especially if President-elect Donald Trump moves to impose tariffs, mass deportations of immigrants and cut taxes.
• China's December disclosure of a whopping $105 billion trade surplus with the United States only adds fuel to the case for tariffs. Add to that a growing budget deficit, and it wouldn't be surprising to see 10-year Treasury yields breach the 5% barrier. That raises the bar for discounting corporate earnings just as earnings season begins for big banks on Wednesday. It also makes risk-free debt relatively more attractive than other investments, including stocks, cash, real estate and commodities.
• There was a sea of red in Asian stocks on Monday. Japan is on holiday, but Nikkei futures are down about 1.2%. S&P 500 and Nasdaq futures are down about 0.5%, and European stock futures are down 0.1% to 0.3%. There is no cash trading in Treasuries, but futures are down about 5 ticks. Rising yields are fueling the dollar and creating tensions in Asia, where central banks have had to intervene regularly to support their currencies.
• China's central bank is increasingly digging into its policy toolbox to support the yuan, announcing Monday it would raise the limit on how much domestic companies can borrow overseas. If they can borrow the dollars they need, that means less need to buy dollars with yuan on the spot market.
• Another currency under fire was sterling, which hit a fresh 14-month low of $1.2138 as markets worried about the Labour government's financial credibility. During a trip to China, finance minister Rachel Reeves had to reassure the media that she would act to ensure the government's fiscal rules were followed.
• Oil rose another 1.5% as investors weighed the full implications of the latest round of US and UK sanctions on Russian producers. The move could prove truly painful as it affects another 160 tankers in Russia's shadow fleet, taking the total to 270. Previous tankers hit by sanctions had their sailing ability severely restricted and some were eventually scrapped.
• Elon Musk's AI bot Grok has become a separate application. It is currently a beta version, which has certain limitations: the application can only be downloaded by iOS users in the US. At the same time, as Engadget writes, the application has the same functions as Grok in X: creating images, summarizing texts, and getting answers to your questions. Musk plans to introduce paid registration in the X social network for $8 as early as February of this year, - Fortune. Those who do not pay will only have access to reading tweets, but will not be able to perform any other actions.
• Oil prices topped $80 a barrel, driven by the latest and toughest U.S. sanctions against Russia’s oil sector.
Delta Air Lines (DAL) rose about 9% after impressive fourth-quarter fiscal 2024 results
The airline reported better earnings and results due to strong demand for holiday travel. Notably, Delta recorded four of its 10 highest revenue days ever in November and December, delivering strong growth in both leisure and corporate bookings. The company also issued promising guidance for Q1 2025.
• Walgreens Boots Alliance (WBA) shares are up more than 15% pre-market, reflecting investor optimism after the company beat expectations for its fiscal first quarter of 2025. Walgreens’ efforts to cut costs and streamline operations are starting to pay off, as evidenced by improved sales and a bump in adjusted earnings. The company continues to focus on transforming its retail pharmacy operations and stabilizing its bottom line.
• Constellation Brands (STZ) saw a decline in pre-market trading after missing consensus estimates in its fiscal third-quarter earnings report. The company reported a slight decline in profit from a year ago, with earnings per share also missing expectations. Despite challenges with consumer spending, the beer segment showed some resilience with net sales and shipment volumes increasing, particularly for brands like Modelo Especial and Pacifico.
• Nvidia (NVDA) expressed concern about potential new restrictions on the export of artificial intelligence chips by the Biden administration. The company criticized the timing of such a policy, suggesting it could hurt the U.S. economy and benefit adversaries. Nvidia's position underscores the ongoing tension between regulatory measures and the tech industry's growth ambitions.
• Constellation Energy (CEG) announced the acquisition of Calpine in a $26.6 billion deal. The move positions Constellation as a leading provider of clean energy in the U.S., expanding its portfolio to include Calpine's low-emission natural gas and renewable energy. The acquisition is intended to enhance Constellation's competitive advantage in the retail electricity market.
• Taiwan Semiconductor Manufacturing (TSM) reported strong revenue growth in December 2024, driven by strong demand for AI applications. The company's fourth-quarter revenue exceeded analysts' expectations, highlighting TSM's important role in the technology supply chain for major companies like Apple, Nvidia, and AMD.
• Stellantis (STLA) hits 100,000-unit US inventory reduction target. Asia-US container rates rise
Early loading by shippers ahead of the Lunar New Year holiday has helped push up trans-Pacific container rates to the US in early 2025.
• AbbVie (ABBV) Admits $3.5 Billion Loss for Failed Schizophrenia Drug AbbVie said it will admit a $3.5 billion loss related to the failure of a drug it acquired when it bought Cerevel Therapeutics.
Google Searches for Facebook, Instagram Account Deletion Surge After Meta Stops Fact-Checking - TechCranch
• U.S. 30-year Treasury yields hit 5% as traders push back on next Fed rate cut - Bloomberg. U.S. Treasuries fell as evidence of a strong labor market prompted traders to push their expectations for the Fed's next rate cut into the second half of the year.
Bank of America says the Fed is done cutting rates and sees risk of hikes. "With the December jobs report out, the only mystery is why the market is still pricing in a [Fed] funds rate cut in 2025 and 2026," - TS Lombard.
• Treasuries are effectively entering the sixth year of the third “great bond bear market in the last 240 years,” BofA notes. The previous two rising bond yields spanned 1899-1920 and 1946-1981.
Context is always important. And right now, the big context is the unpredictable Trump.
• ESPN, FOX, Warner Bros. Discovery drop Venu Sports streaming service ahead of launch Venu Sports, a streaming service that was set to combine offerings from The Walt Disney Co.'s ESPN, FOX and Warner Bros. Discovery, was canceled by the companies on Friday ahead of its launch.
• Insurance stocks fall as California wildfire damage estimates rise. The massive California wildfires have caused between $135 billion and $150 billion in damage, according to experts.
• Travis Hill, vice chairman of the Federal Deposit Insurance Corporation (FDIC) and a potential next leader of the U.S. banking regulator, outlined a sweeping plan Friday to ease scrutiny of the banking industry on issues ranging from capital to cryptocurrencies.
• Stocks slipped again after a predictably weak start to the year. U.S. Treasuries also fell amid a strong labor market, rising inflation expectations and a 3%+ rise in oil prices. Gold rose 1% to $2,717 despite a stronger U.S. dollar. Gold is seen as a safe haven.
Bitcoin is stable near $94,000.
• Ethiopia's stock exchange reopens after half a century. Ethiopia's prime minister has announced the launch of a stock exchange for the first time since the previous one closed in 1974. He said the exchange would strengthen the country's financial system and help develop the economy.
• TikTok to be blocked in US on January 19: app to be removed from Apple and Google stores. Will Trump unblock TikTok?
• Qatar-based Ooredoo (ORDS) is partnering with Nvidia (NVDA) to develop data center infrastructure, strengthening its presence in Southeast Asia to compete with Saudi Arabia and the UAE.
• The U.S. will speed up licensing of new reactors. Nuclear Regulatory Commission Chairman Christopher Henson is seeking to shorten the process to less than a year to speed up the development of carbon-free energy and the expansion of the nuclear sector.
Musk-backed ADN is battling Tesla.
• The right-wing populist Alternative for Germany party is strongly opposed to electric cars and state subsidies for their buyers. Meanwhile, such measures would be very useful for Tesla now - after all, its sales in Europe's largest market, Germany, fell by more than 27% in 2024.
• Market sentiment has returned to neutral territory - JP Morgan. Billionaire Steve Cohen's Point72 Asset Management will return $3 billion to $5 billion to investors after making a big profit - WSJ.
• Apple's board recommends shareholders vote against proposal to eliminate diversity programs
The National Public Policy Center, a conservative think tank, has filed a motion calling for the company to consider eliminating its "inclusion and diversity program, policy, department, and goals."
• Next week, investors will be looking at two key indicators:
- The wholesale inflation indicator will be released on Tuesday,
- The consumer price index (CPI) will be published on Wednesday.
• Also expected are data on retail sales, inflation expectations and housing activity. In corporate news, quarterly results from JPMorgan (JPM), Citi (C), Wells Fargo (WFC), Bank of America (BAC), BlackRock (BLK), Goldman Sachs (GS), Morgan Stanley (MS) and Taiwan Semiconductor (TSM) will be the week’s highlights. Fed
officials may also share their thoughts on monetary policy ahead of their late-January meeting:
New York Fed President John Williams, Minneapolis Fed President Neel Kashkari and Chicago Fed President Austin Goolsbee are scheduled to speak this week.
Key events that could impact markets on Monday:
- US federal budget balance.
Fundamental news
• Switzerland is ready to host a meeting between Putin and Trump. This was reported to Le Temps by the representative of the Swiss Foreign Ministry, Nicolas Bidault. He noted that after the summer peace summit in Bürgenstock, Russia, Ukraine and the United States were repeatedly informed "of our readiness to support any diplomatic efforts that will help establish peace."
• Dubai has become the center of the Russian Federation's "shadow fleet" - an investigation by the MOT department of the Finnish newspaper Yle. According to investigators, 55 tankers are registered to Dubai companies. One of these vessels, the Eagle S, is suspected of damaging the underwater cable between Finland and Estonia. Having studied about 150 Russian vessels, the publication discovered that a third of them changed their name after the introduction of sanctions, and almost as many changed owners and management companies.
• Cyprus could join the Schengen area by the end of the year - Politico. The country is also in the final stages of lifting the visa regime with the United States for Cypriot travelers.
• Another Russian group that planned to influence the Polish elections has been discovered in Poland, says the head of the Polish Ministry of Digitalization, Krzysztof Gawkowski, Polska Agencja Prasowa reports.
• Thousands of Israelis again took part in rallies across the country on Saturday night calling for a deal to free Gaza hostages. Clashes with police occurred during the protests - The Times of Israel.
• German conservatives fear Trump could derail their path to victory - Bloomberg. Even with a comfortable lead in the polls, advisers to Friedrich Merz, the leader of the Christian Democratic Union, are anxiously awaiting Donald Trump's inauguration on January 20 as a watershed event that could change the electoral calculations and cast Scholz as a "defender of democracy," according to a party official who spoke to reporters.
• Poland supports Donald Trump's demand that NATO countries spend 5% of GDP on defence, even if it takes some members of the Alliance 10 years to reach that target, Polish Defence Minister Wladyslaw Kosiniak-Kamysz told the FT.
• Orban's Chief of Staff - Under US Sanctions. 52-year-old Antal Rogan is not only the chief of staff of the Prime Minister of Hungary, but also the chief intelligence officer, and in fact the second person in the country. On January 7, it became known that Washington imposed sanctions against him under the "global Magnitsky Act", which allows for punishment for serious human rights violations and political corruption around the world. The not very public Rogan himself has a very bad reputation in his homeland as a "gray cardinal": he is called "Tony Lux", "the minister of propaganda" and "the Hungarian Richelieu", and the media periodically mention him in connection with corruption scandals.
A broken wire on one of the power lines could have caused large-scale fires in California - Bloomberg.
• The United States may impose sanctions on the International Criminal Court in The Hague (ICC) over the arrest warrant for Netanyahu. The House of Representatives has passed a bill to that effect, and now the Senate must approve it.
• The EU is preparing for Trump to lift sanctions against Russia - FT. According to the publication's sources in EU diplomatic circles, in connection with Trump's possible decision, senior officials of the European Commission have instructed to review all measures taken by President Joe Biden over the past four years to determine how their lifting could affect the EU. Congressional approval would be needed to lift the sanctions.
• Greenland's prime minister has expressed his desire for independence for the island. A U.S. court has given Trump an unconditional release as punishment in a document forgery case, NBC News.
• Donald Trump will be the first U.S. president to take office with a felony conviction. Trump: Jeff Bezos came, Bill Gates came. Mark Zuckerberg came. Many of them came many times. All the bankers came. Everybody comes.
• The Bundestag is checking Elon Musk's stream with Alice Weidel from the Alternative for Germany. Alice Weidel is running for chancellor. According to German parliament staff, the purpose of the check is to find out whether there was an illegal party donation to the AfD.
• Denmark's PM wants to talk to Trump about Greenland in person, but Trump hasn't responded yet. Mette Frederiksen said she asked to talk to Trump after his inauguration amid his increasing talk of taking control of Greenland. A possible military annexation of Greenland by the US would be the shortest armed conflict in human history - Politico.
• Canada's Liberal Party will elect a new leader on March 9, meaning Justin Trudeau will be prime minister until then. The final months of Trudeau's tenure will likely be spent dealing with Canada's initial response to Trump's threats.
• EU aviation regulator calls for not flying over the European part of Russia. The European Aviation Safety Agency has tightened its recommendations for airlines that use Russian airspace for flights. In an updated report on the risks of flying over conflict zones, the aviation regulator called for avoiding flights over the European part of Russia, including the Urals.