Quoteworthy: "Instead of doing anything to help make Americans’ lives better, they are focused on attacking me with lies." –— US President Joe Biden, after domestic political rivals the Republicans push for impeachment inquiry
Fed prepares to shift to rate cuts in 2024 as inflation eases
The Federal Reserve pivoted toward reversing the steepest interest-rate hikes in a generation after containing an inflation surge so far without a recession or a significant cost to employment.
While Chair Jerome Powell said on Dec 13 that policymakers are prepared to resume rate increases should price pressures return, he and his colleagues issued forecasts showing that a series of cuts would be likely next year. Powell said the topic came up at their meeting, where the Fed decided to keep rates at a 22-year high for a third straight time.
Moreover, Powell’s lack of pushback during his press conference against growing investor expectations for 2024 rate cuts helped spark a massive rally in Treasuries and sent the Dow Jones Industrial Average of stocks to a record high.
Less than two weeks after saying it would be “premature” to speculate on the timing of rate cuts, Powell said officials were starting to turn to that question.
See also: ECB delivers landmark rate cut but few signals top
“That begins to come into view and is clearly a topic of discussion out in the world and also a discussion for us at our meeting today,” Powell said.
Officials decided unanimously to leave the target range for their benchmark federal funds rate at 5.25% to 5.5%, the highest since 2001. Policymakers pencilled in no further interest-rate hikes in their projections for the first time since March 2021, based on the median estimate.
Updated quarterly forecasts showed Fed officials expect to lower rates by 75 basis points next year, a sharper pace of cuts than indicated in September. While the median expectation for the federal funds rate at the end of 2024 was 4.6%, individuals’ expectations varied widely.
See also: ECB holds rates and signals cuts are still some way off
“His presser certainly had a tone of finality to it,” said Derek Tang, an economist with LH Meyer/Monetary Policy Analytics. “He and the whole FOMC [Federal Open Market Committee] saw no need to push back with the dots against the market suspicion of earlier and deeper easing.”
A tweak to the Fed’s post-meeting statement on Dec 13 also highlighted the shift in tone, with officials noting they will monitor a range of data and developments to see if “any” additional policy firming is appropriate. That word was not present in the November statement from the US central bank’s policy-setting FOMC.
In another shift, the committee also acknowledged that inflation “has eased over the past year but remains elevated”. In addition, most participants now see the risks to price growth as broadly balanced.
“There’s technically the hiking bias in the statement and he’s still talking like that but no one believes that,” said Veronica Clark, an economist at Citigroup Inc. “We all know the next step is cuts and he confirmed that.”
For months, Powell has made reducing inflation his singular mission, and he warned that quashing it would require “some pain.” The deceleration in price increases has been mostly pain-free for workers, although the sought-after “soft landing” in the economy remains far from assured.
“It’s really good to see the progress that we’re making,” Powell said at his press conference. “We just need to see more.”
While economic data in recent months has generally aligned with what the Fed would like to see — a cooling in both inflation and the labour market — figures released in the past week or so have painted more of a mixed picture.
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Job openings fell, but so did unemployment. Underlying consumer price growth accelerated from the prior month, but a pullback in certain producer prices should mean a subdued print for the Fed’s preferred inflation gauge next week.
Powell was more explicit on Dec 13 that policymakers must balance risks to both of their mandates — to achieve maximum employment and stable prices.
“We are aware of the risk that we would hang on too long,” Powell said, of keeping rates too high. “We know that is a risk and we are very focused on not making that mistake.”
The updated projections also showed lower inflation forecasts for this year and next, with the Fed’s preferred price gauge excluding food and energy now seen increasing 2.4% in 2024. Policymakers lowered their forecast for economic growth slightly for next year while keeping unemployment projections unchanged. — Bloomberg
Singapore retrenchments increase in 3Q2023
Re-entry into employment among retrenched residents in Singapore improved to 65.3% in the 3Q2023, up from the rate of 59.4% in the quarter before, says the Ministry of Manpower (MOM) in its quarterly labour market report released on Dec 14.
The labour market expanded in 3Q2023, with total employment for residents and non-residents increasing for the eighth straight quarter to 23,600, excluding migrant domestic workers, says the report.
Resident employment grew by 2,800, reversing from the contraction of –1,200 in the quarter before, while non-resident employment continued to grow at 20,800, albeit at a slower pace compared to the past quarters. Most of the increase in resident employment came from the growth sectors while the increase in non-resident employment was mainly from the construction, administrative & support services and food & beverage services sectors.
At the same time, the number of retrenchments rose to 4,110 in the third quarter, up from 3,200 in the previous quarter. This came as more firms went through reorganisations or restructuring activities, or faced business and cost concerns.
That said, re-entry into employment among retrenched residents improved to 65.3% in the 3Q2023, up from the rate of 59.4% in the 2Q2023, and unemployment rates remained low at 1.9% overall. However, the ministry highlighted the rise in resident long-term unemployment rate, which stood at 0.7% in September, up 0.2 percentage points q-o-q, “bears close monitoring”.
While the number of job vacancies fell to 78,400 in September from 87,900 in June, the ratio of job vacancies to unemployed persons remained tight at 1.58 in September.
Looking ahead, the ministry notes the slowing pace of growth in employment and warns that economic headwinds will continue to weigh on the labour market. — Felicia Tan
Bears vanish as world-beating Japanese stocks set for more gains
Even one of the most bearish strategists on Japan’s Nikkei 225 Stock Average has now capitulated, making it hard to find someone on Wall Street who is not positive on the market heading into 2024.
The Nikkei will rise to 37,750 and the benchmark Topix to 2,650 by the end of next year, suggesting another 12%–15% of upside for the country’s stocks, according to the median estimate of analysts compiled by Bloomberg News. One notable bear, Ryota Sakagami at Citigroup Inc, switched his view and now expects the Nikkei to reach 39,000.
Japan’s stock market is heading for a world-beating rally this year as the third-largest economy shows a sign of decisively stamping out decades of deflation and luring back global investors with the endorsement of Warren Buffett. That’s brought money into Japan from China, and that trend is not likely to let up into 2024, according to Masanari Takada, a derivatives strategist at JPMorgan Securities Japan Co.
Sakagami’s estimates were the highest of the major securities firms, whereas previously he had been among the most bearish. A rally in the Nikkei to 39,000 would take it past its previous closing high of 38,915.87 in December 1989.
The Japanese economy is in a long-term growth phase, leading to expectations of solid gains in stocks, according to Miyuki Kashima, head of investments, Japan, at Fidelity International. Overall wages will see upward pressure due to manpower shortages, she said.
A stronger yen and increases in bond yields are seen as challenges to bulls. Most economists expect the Bank of Japan (BOJ) to end its negative interest rate policy by April, according to a survey by Bloomberg. Greater-than-expected yen appreciation in reaction to the BOJ changing monetary policy more than anticipated, and the global economy growing less than forecast are risks to Japanese equities, said Morgan Stanley strategists including Serena Tang and Vishwanath Tirupattur.
Japan’s currency gained to as much as 142.10 against the dollar after the Federal Reserve gave its clearest signal yet that its aggressive hiking campaign is finished.
That said, expectations of corporate reforms, backed by a huge push from the Tokyo bourse, are driving positive views that have already pushed stocks to 33-year highs this year. Traders are also expecting inflows from individual investors due to the expansion of a revamped tax-free investment account program.
With rallies of at least 25%, the Nikkei and the Topix are on track for the biggest gains of any major benchmark stock index globally this year. — Bloomberg
