And as one of the leading doves on the Fed's policymaking
council - Vice Chair Lael Brainard - is set to depart the
central bank later this month, her colleagues seem happy for
markets to look ever higher for the rates summit.
"Clearly there are risks that inflation stays higher for
longer than expected, or that we might need to raise rates
higher" than current forecasts, said New York Fed President John
Williams, adding that a year-end rate between 5.0% and 5.50% was
"the right kind of framing".
The about-turn in rates markets in just two weeks has been
extraordinary - with Fed funds futures pricing moving from a
terminal rate as low as 4.8% to 5.26% on Wednesday. Year-end
pricing has moved above 5% too. Two-year Treasury yields soared
to a 3-month high of 4.64% on Tuesday - where current Fed rates
sit - and only gave back a fraction of that on Wednesday.
The dollar extended gains against Japan's yen and the pound
but was restrained against the euro by speculation the European
Central Bank faces a similar rethink on inflation and rates
that's also pushing up where its peak tightening might be.
U.S. stocks held up remarkably well on Tuesday - helped by
hopes recession fears are easing even as rate speculation
intensifies. But futures and world stocks in general were
feeling the heat today.
U.S. January industrial production and retail sales data are
now the next gauge of what's happening on the ground in the U.S.
economy.
Sterling slipped as UK inflation fell faster than expected
last month, even though the annual inflation rate remains in
double digits.
Despite many banks benefiting from the higher interest rate
environment, Britain's Barclays has proven an outlier and its
shares dropped almost 10% on Wednesday after a dire 2022
earnings update.
Barclays reported a 14% fall in full-year pre-tax
profit as earnings were pole-axed by surging costs, a collapse
in deal fees and multi-million dollar fines relating to an
administrative blunder.
There was better news on the inflation front in energy
markets. Oil dropped for a second day on Wednesday, as an
industry report pointed to ample supplies in the United States
and anticipation of further rate hikes sparked concerns over
weaker fuel demand and the economic outlook.
Warren Buffett's Berkshire Hathaway , meantime,
slashed its stake in Taiwanese contract chipmaker TSMC as well as in some banks in the fourth quarter, while
bolstering its holdings in Apple Inc .
Berkshire cut its position in Taiwan Semiconductor
Manufacturing Co - roughly three months after it said it had
bought more than $4.1 billion worth of the stock.
Key developments that may provide direction to U.S. markets
later on Wednesday:
* U.S. Feb NAHB housing index, Empire manufacturing index, Jan
retail sales, industrial production, Dec business inventories,
Dec TIC Treasury holdings data
* European Central Bank President Christine Lagarde speaks in
European Parliament
* U.S. Treasury auctions 20-year bonds
* U.S. corp earnings: Cisco, Analog Devices, Marathon, AIG,
Equinix, Kraft Heinz, Biogen, Albemarle, ROBLOX, Zillow, Roku,
Rollins, EQT, Synopsys
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Implied Fed Rates to Yearend Surge Above 5% U.S. Inflation UK sees some respite from price rise Barclays underperforms ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(By Mike Dolan, editing by Emelia Sithole-Matarise;
mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)
A look at the day ahead in U.S. and global markets from Mike
Dolan.
U.S. inflation is not falling fast enough, the Federal
Reserve is stamping its foot and the assumed 'terminal' interest
rate in this brutal monetary policy tightening cycle is climbing
upwards once again.
The net impact of Tuesday's sticky U.S. inflation report for
January and the red hot employment readout for the same month
has been to catapult market pricing of both peak Fed rates and
where they'll be at year-end well above 5% and above where even
Fed guidance had been late last year.
Deutsche Bank, for one, has raised its U.S. terminal rate
forecast by half a percentage point to 5.6% since the CPI
release, with some market players already mulling the chance
that even 6% now comes on the risk radar.
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