Five Things You Need to Know to Start Your Day
The U.S. Federal Reserve raised interest rates as expected, yet markets were clearly hoping for a more dovish tilt as stocks and Treasury yields tumbled in the aftermath. Here are some of the things people are talking about.
The Fed Hikes...
The Federal Reserve raised rates for the fourth time this year, looking through a stock-market selloff and defying pressure from President Donald Trump, while dialing back projections for interest rates and economic growth in 2019. By trimming the number of rate hikes they foresee in 2019, to two from three, policy makers signaled they may soon pause their monetary tightening campaign. Officials had a median projection of one move in 2020. Chairman Jerome Powell, speaking at a press conference after the decision on Wednesday, stressed that policy was not on a preset course. “There’s significant uncertainty about the -- both the path and the ultimate destination of any further rate increases,” Powell told reporters. Still, the decision to stick with forward guidance, rather than abandon it as some had thought possible, will continue to come in handy as uncertainty about the macro picture grows, Bloomberg Opinion's Daniel Moss writes.
...And Markets Revolt
While the Fed leaned dovish during its latest policy meeting, financial markets clearly wanted more. U.S. stocks fell to a nearly 15-month low after the policy decision, with the S&P 500 closing just a bit above 2,500, as Powell failed to quell investor angst about the possibility the central bank will hurt economic growth. Markets had been priced for just one hike next year, not the two the FOMC sees. Treasury yields slid and the yield curve flattened, while the U.S. dollar recouped earlier losses to finish slightly higher in the session. The VIX volatility index remains above 25, versus its lifetime average level below 20.
The PBOC’s ‘Low-Profile’ Rate Cut
The People’s Bank of China said it would supply lower-cost liquidity for as long as three years to banks willing to lend more to smaller companies, as policy makers roll out targeted measures aimed at shoring up the flagging economy. The central bank will create a “targeted” version of its Medium Term Lending Facility, and take applications from banks that meet regulatory requirements and have potential to increase credit supply to smaller companies, the PBOC said in a statement late Wednesday. The funds will be at a rate of 3.15 percent, lower than current facilities which have shorter maturities. In addition to four cuts to reserve requirements so far this year, the new funding tool signals that policy makers remain concerned about the threat to economic growth posed by a clampdown on shadow banking that has gripped hard in recent months
Asia Tech Bulls Get Picky
More than $1.4 trillion of equity value has been zapped in the worst year for Asia tech stocks in a decade. For bulls, it’s a test of nerves. While the rout has left many dazed, they see prospects for earnings growth unchanged, with demand for parts and processors burgeoning among auto and consumer-device makers. Choose wisely and be selective, they say -- volatility is unlikely to dissipate with the U.S. and China arguing over trade. Gone are the days when everything worked. Caroline Maurer of BNP Paribas Asset Management says next year will be driven by corporate fundamentals, not macro-economic factors. David Raper of Comgest Far East is buying technology stocks with good long term prospects. “This year, the easier decision would be to underweight tech,” Maurer said in a phone interview from Hong Kong. With earnings among things likely to call the tune in 2019, “at least it does give you some room to try to think about which ones potentially work better.”
The U.S. Senate will vote as soon as Wednesday on a bipartisan spending bill to avert a government shutdown, even as President Donald Trump vowed that he’d get his border wall built -- eventually. The Senate GOP introduced a stopgap spending bill to keep agencies open through Feb. 8, and Democrats said they’re ready to pass it and put off the fight over Trump’s demand for $5 billion for the wall. The House could take up the measure as early as Thursday and lawmakers from both parties said they expect it to pass. The Senate vote could be delayed amid jockeying to attach lawmakers’ pet legislation to the stopgap measure, including expiring wildlife habitat funding. Without the stopgap measure, current funding for nine government departments would run out after Friday.
What we've been reading
This is what’s caught our eye over the last 24 hours.
- The biggest moments in money this year.
- A third Canadian is being held in China.
- Bill Gates and Jeff Bezos are among billionaires backing Alphabet's energy spinoff.
- Hong Kong is going to sell cheap "starter homes."
- How U.S. dynasties are securing their fortunes through the generations.
- The top 10 art exhibitions to see in 2019.
- Luxury travel for your inner "do-gooder."
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