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Federal Reserve is 'closely monitoring' global economy as it leaves rates on hold - business live Federal Reserve is 'closely monitoring' global economy as it leaves rates on hold - business live
(35 minutes later)
8.07pm GMT
20:07
The selloff is picking up pace, with the Dow Jones industrial average now down over 1%.
That’s not all down to the Fed, though. Apple has shed 6% after last night’s disappointing results showed that iPhone sales have slowed.
Market Alert » Dow falls to new session low, down 235 points: https://t.co/FOojOlLKR6
8.01pm GMT
20:01
Paul Ashworth, chief US economist at Capital Economics, also points out that the Fed is no longer willing to describe the risks to the outlook as “balanced” (as covered here).
He writes:
As expected, the new statement acknowledged the apparent slowdown in activity growth in the fourth quarter. The growth of consumption and business investment is now described as “moderate” whereas back in December it was described as “solid”. The slowdown in inventory investment also receives an explicit reference. At the same time, the Fed stressed that labourmarket conditions “improved further” with “strong” job gains.
Ashworth reckons that economic data, and financial markets, may not improve in time to allow a rates to rise in March. But he still expects a string of hikes later in the year.
Nevertheless, we still think that once the worst fears about China blow over and US economic growth rebounds, the Fed will end up raising interest rates more rapidly that expected in the second half of this year. We expect the fed funds rate to reach 1.50% to 1.75% by end-2016.
7.58pm GMT
19:58
The Fed is primarily worried about China, argues Worth Wray, chief economist at wealth management firm Evergreen GaveKal.
When the #Fed says it is "monitoring global economic & financial developments," it largely means #China & the #RMB. https://t.co/TFeq8BK5qX
7.50pm GMT
19:50
One expert reckons the Fed’s statement guarantees more market turbulence in the next six weeks:
"Fed is almost certain to hike if markets stabilize in the next month and half, but might not hike if markets continue to slide..."
"...How can stocks and commodities possibly rally in response to that message?"—FTN's Chris Low
7.47pm GMT
19:47
This month’s Fed meeting was always going to be all about the statement, given the FOMC bit the bullet and raised borrowing costs for the first time since the crisis in December.
The tone of the Fed’s comments set the tone for the next few weeks -- and the statement is being taken as quite dovish.
Chris Beauchamp, Senior Market Analyst at City trading firm IG, explains:
Markets got the more dovish tone they were hoping for, with the Fed noting slowing economic growth and tipping its hat towards the idea that inflation won’t rise towards 2% as fast as it thought in December. This doesn’t mean a March move is out of the question, but the reference to global economic developments means that there will have to be plenty more improvement in the US economy before one is a definite possibility.
With the risks to the economy no longer seen as ‘balanced’ this is a Fed committee drawing in its horns. It was never going to admit that December’s move was a mistake, but today’s statement acknowledges that it is not time to get carried away with rate hikes.
7.36pm GMT7.36pm GMT
19:3619:36
Fed decision: instant reactionFed decision: instant reaction
Matthew Boesler of Bloomberg says the Fed is taking the recent stock market losses seriously, without panicking.Matthew Boesler of Bloomberg says the Fed is taking the recent stock market losses seriously, without panicking.
Clear comment from the FOMC on financial markets without going so far as it did in Sept. to suggest that economic outlook is in jeopardyClear comment from the FOMC on financial markets without going so far as it did in Sept. to suggest that economic outlook is in jeopardy
Brett House, chief economist of US investment management firm Alignvest, reckons the Fed won’t raise rates four times this year (as it had been expecting).Brett House, chief economist of US investment management firm Alignvest, reckons the Fed won’t raise rates four times this year (as it had been expecting).
Mildly dovish #Fed #FOMC statement knocks out 4th 2016 rate hike; equivocates on graduals hikes vs global developments. Mkts go sideways.Mildly dovish #Fed #FOMC statement knocks out 4th 2016 rate hike; equivocates on graduals hikes vs global developments. Mkts go sideways.
Financial commentator Bobi Petrov reckons rates will remain on hold at the Fed’s next meeting, in early March.Financial commentator Bobi Petrov reckons rates will remain on hold at the Fed’s next meeting, in early March.
FOMC signals no imminent change in FF rates in March closely monitors global economic and financial developmentsFOMC signals no imminent change in FF rates in March closely monitors global economic and financial developments
UpdatedUpdated
at 7.37pm GMTat 7.37pm GMT
7.31pm GMT7.31pm GMT
19:3119:31
The Fed also doesn’t see inflation roaring away this year - hardly surprising, given the oil price tumble.The Fed also doesn’t see inflation roaring away this year - hardly surprising, given the oil price tumble.
Tonight’s statement says:Tonight’s statement says:
Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens furtherInflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further
7.28pm GMT7.28pm GMT
19:2819:28
This is a useful tool, showing some of the changes to this month’s statement:This is a useful tool, showing some of the changes to this month’s statement:
How exactly the Federal Reserve's January statement changed from December https://t.co/W3S7hz9wAK pic.twitter.com/NHdUQOVP6BHow exactly the Federal Reserve's January statement changed from December https://t.co/W3S7hz9wAK pic.twitter.com/NHdUQOVP6B
Note how jobs growth is now “strong” after this month’s blowout non-farm payroll report showed 292,000 new hirings in December.Note how jobs growth is now “strong” after this month’s blowout non-farm payroll report showed 292,000 new hirings in December.
7.22pm GMT7.22pm GMT
19:2219:22
Stock market falls after Fed decisionStock market falls after Fed decision
Stocks are falling on Wall Street as traders digest tonight’s statement.Stocks are falling on Wall Street as traders digest tonight’s statement.
Not immediately clear why - but investors may be concerned that the Fed has dropped that line about economic risks being balanced.Not immediately clear why - but investors may be concerned that the Fed has dropped that line about economic risks being balanced.
#DOW drops 144 points in a minute following Fed's decision to keep rates unch. Unknown reason. Earlier gains wiped out. #FED JG#DOW drops 144 points in a minute following Fed's decision to keep rates unch. Unknown reason. Earlier gains wiped out. #FED JG
Dow slides nearly 130 points again, other indexes also gyrating after Fed decision https://t.co/FOojOlLKR6 pic.twitter.com/JJOeKfAbj5Dow slides nearly 130 points again, other indexes also gyrating after Fed decision https://t.co/FOojOlLKR6 pic.twitter.com/JJOeKfAbj5
One notable element of the new Fed statement -- it no longer says risks to the economy are balanced https://t.co/Zkh3znDzHQOne notable element of the new Fed statement -- it no longer says risks to the economy are balanced https://t.co/Zkh3znDzHQ
7.18pm GMT7.18pm GMT
19:1819:18
There’s a significant change between this statement and December’s one. The Fed has dropped the line saying that the risks to economic activity and the labour market are “balanced”.There’s a significant change between this statement and December’s one. The Fed has dropped the line saying that the risks to economic activity and the labour market are “balanced”.
That suggests the Fed thinks the situation has become unbalanced....That suggests the Fed thinks the situation has become unbalanced....
With #Fed omitting line in statement about risks being 'balanced' regarding outlook, turns into a fairly dovish (but expected) #FOMCWith #Fed omitting line in statement about risks being 'balanced' regarding outlook, turns into a fairly dovish (but expected) #FOMC
7.15pm GMT7.15pm GMT
19:1519:15
You can read the statement online, here.You can read the statement online, here.
7.15pm GMT7.15pm GMT
19:1519:15
The Fed is also sticking to its view that interest rates will only rise gradually, meaning borrowing costs will remain below the long-term average for some time.The Fed is also sticking to its view that interest rates will only rise gradually, meaning borrowing costs will remain below the long-term average for some time.
But it all depends on the data.....But it all depends on the data.....
However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
7.14pm GMT7.14pm GMT
19:1419:14
The decision was unanimous -- all 10 members of the Federal Reserve Open Market Committee agreed to leave borrowing costs unchanged. Again, that’s not a surprise.The decision was unanimous -- all 10 members of the Federal Reserve Open Market Committee agreed to leave borrowing costs unchanged. Again, that’s not a surprise.
7.11pm GMT7.11pm GMT
19:1119:11
The US central bank also reckons that the American economy is continuing to heal.The US central bank also reckons that the American economy is continuing to heal.
The statement says:The statement says:
Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed.Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed.
A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resourcesA range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources
7.04pm GMT7.04pm GMT
19:0419:04
Fed is watching global economy and markets closelyFed is watching global economy and markets closely
The Federal Reserve says it is keeping a close eye on the global economy, and financial markets.The Federal Reserve says it is keeping a close eye on the global economy, and financial markets.
In tonight’s statement, is says:In tonight’s statement, is says:
The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.
That means the Fed is considering the impact on recent market turmoil, and the fall in the oil price, on the US economy and the path of inflation.That means the Fed is considering the impact on recent market turmoil, and the fall in the oil price, on the US economy and the path of inflation.
UpdatedUpdated
at 7.10pm GMTat 7.10pm GMT
7.00pm GMT7.00pm GMT
19:0019:00
Federal Reserve leaves interest rates unchangedFederal Reserve leaves interest rates unchanged
In the least surprising news of 2016, the US central bank has left borrowing costs unchanged.In the least surprising news of 2016, the US central bank has left borrowing costs unchanged.
The policy rate remains at 0.25% to 0.5%.The policy rate remains at 0.25% to 0.5%.
US Fed: Keeps Fed Funds Range Unchanged At 0.25-0.50%US Fed: Keeps Fed Funds Range Unchanged At 0.25-0.50%
6.58pm GMT6.58pm GMT
18:5818:58
OK, it’s nearly time for the Federal Reserve to announce this month’s monetary policy decision.OK, it’s nearly time for the Federal Reserve to announce this month’s monetary policy decision.
Remember, it’s all about the Fed’s statement - Wall Street is certain that Janet Yellen isn’t going to raise interest rates again.....Remember, it’s all about the Fed’s statement - Wall Street is certain that Janet Yellen isn’t going to raise interest rates again.....
Markets price zero probability for #Fed rate hike today, only 27% probability for March hike. pic.twitter.com/PP2neJ0IZcMarkets price zero probability for #Fed rate hike today, only 27% probability for March hike. pic.twitter.com/PP2neJ0IZc
5.41pm GMT5.41pm GMT
17:4117:41
The FOMC projected 100 bps (4 quarter percent hikes) in 2015. Swaps show market pricing in 1: pic.twitter.com/XQjugbfsYUThe FOMC projected 100 bps (4 quarter percent hikes) in 2015. Swaps show market pricing in 1: pic.twitter.com/XQjugbfsYU
5.34pm GMT5.34pm GMT
17:3417:34
European markets close higherEuropean markets close higher
Ahead of the Federal Reserve’s interest rate setting meeting, and following a rise in the oil price, European shares have ended the day on a positive note.Ahead of the Federal Reserve’s interest rate setting meeting, and following a rise in the oil price, European shares have ended the day on a positive note.
With hopes of co-operation between oil producers - notable Opec and Russia - to tackle the issue of oversupply, Brent crude has jumped 3.6% to $32.96. The rise comes despite a jump in US crude inventories. The closing scores showed:With hopes of co-operation between oil producers - notable Opec and Russia - to tackle the issue of oversupply, Brent crude has jumped 3.6% to $32.96. The rise comes despite a jump in US crude inventories. The closing scores showed:
On Wall Street, the Dow Jones Industrial Average is currently 34 points or 0.22% higher.On Wall Street, the Dow Jones Industrial Average is currently 34 points or 0.22% higher.
5.02pm GMT5.02pm GMT
17:0217:02
Another reason for the day’s strength in the oil price: Russia has said it discussed co-operation with Opec over crude prices. Reuters reports:Another reason for the day’s strength in the oil price: Russia has said it discussed co-operation with Opec over crude prices. Reuters reports:
Russia’s energy ministry said possible coordination between Russia and the Organization of Petroleum Exporting Countries (OPEC) was discussed at a meeting with Russian oil companies on Wednesday.Russia’s energy ministry said possible coordination between Russia and the Organization of Petroleum Exporting Countries (OPEC) was discussed at a meeting with Russian oil companies on Wednesday.
The ministry said the discussion was related to unfavourable oil prices.The ministry said the discussion was related to unfavourable oil prices.
There is also talk of an emergency Opec meeting in February.There is also talk of an emergency Opec meeting in February.
UpdatedUpdated
at 5.11pm GMTat 5.11pm GMT
4.49pm GMT
16:49
Despite its share price fall, Apple is still top of the pile in value terms:
Despite 5.2% slide in $AAPL today, it remains the world's most valuable company with a $525,600,000,000 market cap. pic.twitter.com/2piOKrtpmC
4.33pm GMT
16:33
Markets are moving higher on the back of the improvement in the oil price. Tony Cross, market analyst at Trustnet Direct said:
The threat of the early sell-off for oil prices this morning failed to materialise with crude bouncing above the $30 mark and this has in turn lent a raft of support to equity markets on both sides of the Atlantic. Even what could at best be described as a mixed bag in terms of US oil inventory data has failed to knock sentiment so London’s FTSE-100 is rounding off the day – where we tested highs not seen for two weeks – with a bullish tone. Next up however it’s the latest Federal Reserve Open Market Committee meeting and anything that is interpreted as being overly hawkish here could readily unseat equity markets globally that are still clearly rattled by recent events.
4.27pm GMT
16:27
US crude stocks rise to new high
Elsewhere, US crude stocks rose to their highest level on record - ie back to 1930 - last week while gasoline stocks increased but inventories of distillates fell.
The figure for distillates, which include heating oil, follows the cold front hitting the country in the past few days. Distillate inventories fell by 4.1m barrels compared to expectations of a near 2m fall.
But crude stocks climbed by 8.4m barrels last week, well above expectations of a 3.3m increase, to 494.9m, the highest level since the Energy Information Administration began compiling records.
Refinery crude runs fell by 551,000 barrels a day.
Gasoline stocks climbed by 3.5m barrels compared to forecsats of a 1.5m increase.
But despite the rises, Brent crude is up 0.79% at $32.05 a barrel. Joshua Mahony, market analyst at IG, said:
US crude oil inventories rose by the highest level since April 2015 last week, pushing overall oil in storage to near levels not seen in 80 years for this time of year.
Crucially, we did see domestic production fall ever so slightly. This distinction highlights the reaction in global trade, which has seen oil prices rise off the back of seemingly bearish headline data. With sentiment driven by record output from Iraq and Russia, alongside the entry of Iran on the mainstream oil market, any news that US output is starting to turn lower is certainly welcome for oil bulls.
3.46pm GMT
15:46
Here’s our take on the libor verdicts:
Related: Five brokers found not guilty of Libor rigging
3.33pm GMT
15:33
Five of the six brokers were acquitted of conspiring to rig Libor, reports Reuters.
The jury also reached a not guilty verdict on one count of conspiracy to defraud for former Icap broker Darrell Read, said Reuters, but it has yet to reach a verdict on a second count. The judge has asked the jury to reach a majority verdict.
3.24pm GMT
15:24
The six brokers on trial were Darrell Read, Danny Wilkinson and Colin Goodman from Icap, Noel Cryan from Tullett Prebon, and Jim Gilmour and Terry Farr from RP Martin.
3.12pm GMT
15:12
Libor brokers acquitted on fraud charges
Five out of six brokers accused of manipulating libor bank rates have been acquitted of fraud at Southwark crown court.
A jury is still discussing one count against one of them, but the others have been freed.
The six were accused of conspiring with Tom Hayes and others in a trial brought by the Serious Fraud Office which has lasted 15 weeks. But a jury took just a day to acquit them.
Breaking: #Libor brokers acquitted on fraud charges. Huge loss for Serious Fraud Office. https://t.co/tvUhVfdn8H
Jury still discussing one count against Darrell Read. All others unanimously freed.
Updated
at 3.43pm GMT
2.52pm GMT
14:52
The Federal Reserve is holding its first meeting since December’s now-contentious decision to raise interest rates for the first time in nearly a decade.
The subsequent market turmoil, focused on a slowdown in China and the tumbling oil price, has made many wonder whether the Fed was a bit premature in pulling the rate trigger.
The Fed is highly unlikely to change rates at this meeting, and there is no press conference for Fed chair Janet Yellen to be quizzed about her thoughts on the aftermath of last month’s move. So the statement accompanying the rate decision is likely to be scrutinised for clues as to the Fed’s latest thinking.
It must surely acknowledge the market slump and fears of a global downturn which have increased since December, and may even hint that it no longer expects three or four more rate rises this year. The wording of its comments on the current state of the global economy will be key, but analysts are divided on what the Fed’s tone will be.
Simon Smith, chief economist at FXPro said:
All eyes will be back on the Federal Reserve today as they make their first interest rate decision and monetary policy statement of the year but there are no economic projections or press conference this time round, which come at the next meeting in March. We’ve seen a rise in risk appetite in this final week of January which so far has been a bit of a blood bath, although the recovery from lows in many indices has softened the blow for many investors. This has come as a result of a bounce in oil prices but also a growing expectation that central banks will have to do more to support the global economy.
Today’s Fed meeting as a result is likely to see a more dovish tone to it, especially since the market consensus is that we will see fewer rate hikes this year than the Fed is currently pencilling in.
Even though we saw a higher than expected rise in US consumer confidence yesterday a big warning shot has come from one of the world’s largest companies Apple which saw its first fall in revenue since 2003.
But lya Spivak, currency strategist at DailyFX, said:
The rate-setting FOMC committee is broadly expected to keep the benchmark lending rate unchanged this time around. Indeed, priced-in probability of an increase is a mere 14.3%. This puts the spotlight on the text of the statement accompanying the rate decision and the forward guidance contained therein.
Investors appear positioned for a dovish outcome having scaled back 2016 tightening bets amid risk aversion since the beginning of the year...
For its part, the Fed will have to attempt a difficult balancing act. On one hand, it will have to acknowledge recent market turmoil as well as softening US growth dynamics in the final months of 2015. On the other, it will have to re-focus investors’ attention on mandate-relevant fundamentals and establish the possibility of tightening in March. This is necessary so that such a move, if deemed appropriate, does not trigger an overly violent response.
On balance, the case for policy normalization remains compelling. Realized and expected inflation is firming: the latest readings on core year-on-year CPI and hourly earnings growth registered at multi-year highs while 2-3 year breakeven rates have trended upward since August. On the jobs front, the unemployment rate is at the lowest level since 2008 and nonfarm payrolls growth is running at a reasonably brisk pace, with the 12-month trend average at 220k.
This means that the Fed statement will have to reassure investors that it will adjust policy if market stress infects the real economy. In the same breath, it will have to explain that as of now, the projected rate hike path has not materially changed since the first post-QE rate hike in December.
The markets’ subsequent reaction will depend on the degree of wishful thinking that traders are prepared to entertain. If they emphasize the first point – a possible result considering the dovish shift in expectations in spite of the aforementioned fundamental evidence – risk appetite is likely to strengthen. This will see the stocks rising alongside sentiment-geared currencies like the Australian and New Zealand Dollars while the greenback as well as the anti-risk Euro and Yen decline. A focus on the second point will probably deliver the opposite result.
2.36pm GMT
14:36
Wall Street opens lower
As investors await the latest US oil inventory figures and the outcome of this month’s Federal Reserve meeting, Wall Street is on the slide again.
In early trading the Dow Jones Industrial Average has fallen 113 points or 0.7%, partly due to Apple which is down 3.8% at $96.24 following its disappointing figures.
2.22pm GMT
14:22
Ahead of the start of US trading, here are some opening calls:
US Pre-market movers: $CAPN +34.9% $RPTP +12.1% $BIIB +5.4% $SUNE +4.9% $TEX +3.2% $BBBY -2.9% $AAPL -3.1% $FCAU -5% $BA -6.7% $X -7.7%
Note Apple is quoted as falling more than 3%.