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Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Global markets are rattled today after the US central bank signalled it is ready to raise interest rates as it battles the highest inflation rate in forty years.
Federal Reserve chair Jerome Powell struck a notably hawkish tone at last night’s press conference, saying officials were minded to raise interest in March, and didn’t rule out an aggressive string of interest rate rises at coming meetings.
Yohay Elam
(@forexcrunch)– Powell main hawkish points: 1) Not ruling out raising rates at every meeting 2) Quite a bit of room to raise rates without hurting employment 3) Wages are rising at the fastest pace in years 1/2
Yohay Elam
(@forexcrunch)4)Saying long expansion means price stability, which is different than focusing on employment 5) “we haven’t made any decisions on increments of hikes – basically not ruling out a double-dose of raising rates by 50 basis points. 2/2
Powell told reporters there was “quite a bit of room to raise interest rates without threatening the labor market”, as it also prepares to shrink its balance sheet which has swelled to $9trn .
He also warned that inflation remains above the Fed’s long-run goal and supply chain issues may be more persistent than previously thought.
Investors are bracing for a sharp rise in interest rates this year, after Powell hinted that the Fed could tighten policy faster than in its last hiking cycle, with growth and inflation are higher than in 2015.
As Powell put it:
We are going to need to be, as I’ve mentioned, nimble about this. The economy is quite different this time.
Jonathan Ferro
(@FerroTV)“The hawkish risks we had highlighted emerged in the press conference… Rather than being deterred by volatility in financial markets, Powell described tightening financial conditions as an expected outcome of the Fed’s more hawkish policy orientation”
Citi
Jonathan Ferro
(@FerroTV)“He also suggested that if he were to re-do his core PCE forecast for the end of this year he would be inclined to add three tenths. Bottom line, the risks are skewed to more than 4 hikes this year, as we have been flagging”
BofA
Powell’s hawkish comments wiped out Wednesday’s Wall Street rally, and has sent shares reeling in Asia-Pacific markets to their lowest level in 15 months.
“The Fed’s gone from being the market’s best friend, to a possible enemy,” said Kyle Rodda, analyst at the online trading platform IG in Sydney, adding that the Fed was set on “bringing inflation down, rather than protecting asset prices”.
Japan’s Nikkei has led the way, plunging more than 3% while the Kospi in Seoul found itself in similarly negative territory. The market in Hong Kong was off 2.5% and Sydney shed nearly 2%.
MSCI’s broad gauge of regional markets outside Japan fell more than 2% to its lowest level since November 2020.
European stock markets are set to drop sharply, as January’s market turbulence continues.
Pedro Gallego Gil
(@_SirPeter)European Opening Calls:#FTSE 7352 -1.58%#DAX 15127 -2.15%#CAC 6830 -2.18%#AEX 734 -2.44%#MIB 26072 -2.06%#IBEX 8417 -2.36%#OMX 2236 -2.21%#SMI 11910 -1.55%#STOXX 4060 -2.50%
Also coming up today
We find out how the US economy fared in the final three months of 2021, when the first estimate of GDP for October-December is released.
Economists predict that growth sped up, to an annualised rate of 5.5%, from 2.3% in Q3, before the Omicron variant hit at the end of the year
In the UK, car production has fallen to its lowest level since 1956, as rising energy costs and computer chips shortages hurt the recovery.
The agenda
- 7am GMT: GfK survey of German consumer confidence
- 11am GMT: CBI distributive trades survey of UK retail
- 1.30pm GMT: US Q4 GDP report
- 1.30pm: US weekly jobless figures
- 3pm GMT: US pending home sales
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Read More: Markets rattled as hawkish Fed signals US rate rises coming – business live