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Stocks surged and the dollar tumbled after Federal Reserve Chairman Jerome Powell said U.S. interest rates are “just below” neutral, softening previous comments in remarks investors widely interpreted as dovish. Here are some of the things people in markets are talking about.
Federal Reserve Chairman Jerome Powell said interest rates are “just below” the so-called neutral range, softening previous comments that seemed to suggest a greater distance and spurring speculation that central bankers are increasingly open to pausing their series of hikes next year. Powell’s description tempered remarks last month that markets read as a signal of more aggressive monetary policy tightening. In his speech Wednesday, Powell said the Fed’s benchmark interest rate was “just below the broad range of estimates of the level that would be neutral for the economy -- that is, neither speeding up nor slowing down growth.” The spread between December 2018 and December 2019 eurodollar futures -- a measure of how much tightening traders expect next year -- briefly touched less than 25 basis points, the equivalent of one Fed hike. That’s the lowest level in six months and less than half the gap from mid-October.
As you might imagine, equities liked what they heard. U.S. stocks rallied the most in eight months and the dollar sank. Shares that had fallen the most during the six-week slump in American equities led gains. The Nasdaq 100 Index jumped almost 3 percent, with Amazon.com and Netflix each higher by at least 5 percent, while emerging-market equities hit a three-week high. But did Powell put a lasting end to volatility that has bedeviled investors for two months? Wall Street was divided. Trade also remained in focus Wednesday. Car maker shares were under pressure after President Donald Trump threatened tariffs and renewed his haranguing of General Motors for closing U.S. plants. Trump heads to the Group of 20 meeting tomorrow where investors will look for progress in his trade war with China.
BOE Prepares for a Bad Brexit
Mark Carney said the Bank of England is prepared for the worst possible Brexit and that the U.K. faces the steepest economic slump since at least World War II if it crashes out of the EU without a deal. The stark warning from the governor sees the economy shrinking by 8 percent within a year and property prices plunging almost a third under a worst-case scenario, with Prime Minister Theresa May failing to get her Brexit plan past lawmakers. For context, the peak-to-trough drop in U.K. GDP in the financial crisis was just over 6 percent. A Bloomberg survey of 17 strategists and fund managers sees a 55 percent chance that British lawmakers will reject the accord. That may sound low, considering the widespread political backlash it received, which cast doubt over her ability to get it through the House of Commons.
IMF Sees Slower Global Growth
Global economic growth may be slowing more than forecast only a month ago, underscoring the urgency for countries to pull back from a damaging trade war, the International Monetary Fund warned. The IMF downgraded its forecast for world growth last month, and recent data suggest the outlook has gotten worse since then, the fund said Wednesday in report. Financial conditions have tightened, especially in emerging markets, while trade tensions have increased, said the Washington-based fund. Since the IMF’s latest World Economic Update on Oct. 9, global stocks have slumped on concerns that rising interest rates and the U.S.-China trade war could undermine growth.
Malaysia Seeks $600 Million Refund
Malaysia is seeking direct talks with Goldman Sachs Group Inc. to recoup more than $600 million the bank earned from raising funds for troubled state fund 1MDB, the country’s leader-in-waiting Anwar Ibrahim has confirmed. Goldman has lost $11 billion from its market value since Ibrahim said on Nov. 12 that the country is seeking a “full refund” of what the bank made for arranging bond sales for scandal-ridden 1MDB. Anwar expects that market pressure will be enough to push the lender to come to the negotiating table but notes a lawsuit is a second option. “We’re quite optimistic that they’re responding,” Anwar said in an interview in Istanbul on Nov. 27. “They have been adversely affected by all this and we have options: negotiate with them, which is probably best for Malaysia,” or litigation, he said.
What we’ve been reading
Here’s what caught our eye over the past 24 hours.
- Xi Jinping says the global economy is at a turning point.
- The outlook for the world's fastest growing economy is muted.
- Goldman picks some top trades for a G-20 market rally.
- Mike Novogratz’s crypto trading desk hasn’t done so well recently.
- This billionaire wants to put human-like robots in your home.
- Google's parent plans to eliminate mosquitoes worldwide.
- How SpaceX's moon tourist went from punk drummer to billionaire.
©2018 Bloomberg L.P.