[Fed] Bostic: First Rate Cut Will Be in Q3

Remarks of Officials

Atlanta Fed President Bostic said in a speech on January 8th that

Inflation fell more than he expected and is moving toward the Fed's 2% target, but it is too early to declare victory.

Regarding inflation, more attention should be paid to the short-term measures (three-month and six-month). They show that inflation continues to move closer to the Fed's 2% target. In addition, it is now in a very favorable position for the FOMC to keep implementing restrictive policies about slowing inflation continuously, and the process is expected to remain orderly.

Unemployment has risen less than many economists had expected, while wage growth has outpaced inflation, which has boosted consumer purchasing power and is expected to continue.

About the future, expectations for a rebound in inflation are lower. However, as things stand, a victory in the fight against inflation cannot yet be declared.

Later in his speech, Bostic reiterated his unchanged forecast of two rate cuts this year and expected the first one to be in the third quarter of this year, indicating that tightening would need to be maintained over a longer period of time.

Meanwhile, whether and when the Fed should change its pace of shrinking the balance sheet would need further discussion, but the current pace of the Fed's shrinking is appropriate.

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Kevin Du

Central Bank

Economic

Fed Governor Michelle Bowman, kept the prospect of interest rate hikes on the table should progress on inflation stall.

But she moderated a view expressed in November that the Fed would have to raise rates further to get inflation down to the central bank's 2% target.

"My view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time," Bowman said in a speech in Columbia, S.C., before the South Carolina Bankers Association.

While she acknowledged it would eventually become appropriate to begin the process of lowering rates to prevent the policy rate from becoming overly restrictive, she said "we are not yet at that point."

The comments don't match the aggressiveness sought by investors who have priced in six rate cuts this year, double the median of three rate cuts projected by all Fed officials. Wall Street expects those first cuts in March.

Fed's Bowman and Bostic Caution Against Rate Cuts Too Soon_1

Atlanta Fed President Raphael Bostic, in separate remarks Monday before the Rotary Club of Atlanta, also said he is inclined to hold rates steady to be sure inflation is really returning to target before beginning to cut.

He reiterated a previous prediction that two cuts could happen in the second half of the year.

"We are in a restrictive stance and I'm comfortable with that, and I just want to see the economy continue to evolve with us in that stance and hopefully see inflation continue to get to our 2% level," he said, according to media reports of his comments.

Bowman sounded more concerned than Bostic about the upside risks to inflation.

She pointed to geopolitical tensions that could affect the prices of food and energy. A recent easing in financial conditions could also encourage a reescalation of growth, stalling the progress in lowering inflation or even causing inflation to reaccelerate.

Fed's Bowman and Bostic Caution Against Rate Cuts Too Soon_2

Another risk she cited was that a continued strong job market could lead a component of inflation — the services portion — to remain persistently high. December's jobs report showed continued strength in job gains and wage growth, and the labor force participation rate declined.

"While the current stance of monetary policy appears to be sufficiently restrictive to bring inflation down to 2% over time, I remain willing to raise the federal funds rate further at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed," she said.

Source: Yahoo Finance

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Michelle

Economic

Top Goldman Sachs Analyst Says the World Is Moving Into a New Super Cycle_1

The global economy is moving into a new “super cycle,” with artificial intelligence and decarbonization being driving factors, according to Peter Oppenheimer, head of macro research in Europe at Goldman Sachs.

“We are moving clearly into a different super cycle,” he told CNBC's “Squawk Box Europe” on Monday.

Super cycles are commonly defined as lengthy periods of economic expansion, often accompanied by growing GDP, strong demand for goods leading to higher prices and high levels of employment.

The most recent significant super cycle that the world economy experienced began in the early 1980s, Oppenheimer said, discussing content from his newly launched book “Any Happy Returns.”

This was characterized by interest rates and inflation peaking, before a decadeslong period of falling capital costs, inflation and rates, as well as economic policies such as deregulation and privatization, he explained. Meanwhile, geopolitical risks eased and globalization grew stronger, Oppenheimer noted.

But not all of these factors are now set to continue as they were, he added.

“We're not likely to see interest rates trending down as aggressively over the next decade or so, we're seeing some pushback to globalization and, of course, we're seeing increased geopolitical tensions as well.”

The Russia-Ukraine war, tensions between the U.S. and China largely relating to trade, and the Israel-Hamas conflict which is raising concerns on the wider Middle East are just some geopolitical themes that markets have been fretting over in recent months and years.

While current economic developments should theoretically lead to the pace of financial returns slowing, there are also forces that could have a positive impact — namely artificial intelligence and decarbonization, Oppenheimer said.

AI is still in its early stages, he said, however as it is used increasingly as the basis for new products and services, it could lead to a "positive effect" for stocks, he said.

The hot topic of AI and productivity, which has often gone hand in hand with debates and concerns around human jobs being replaced or changed, will likely impact the economy.

"The second thing is [that] we haven't yet seen, and I think we're relatively positive that we will see, [is] an improvement in productivity on the back of the applications of AI which could be positive for growth and of course for margins," Oppenheimer said.

Despite AI and decarbonization both being relatively new concepts, there are historical parallels, Oppenheimer said.

One of the historical periods that stands out is the early 1970s and early 1980s, which he said were "not so dissimilar" to current developments. Elevated inflation and interest rates were perhaps more structural issues than compared with now, he said, however factors including growing geopolitical tensions, rising taxes and enhanced regulation appear similar.

In other ways, current shifts can be seen as reflective of changes even further back in history, Oppenheimer explained.

"Because of this tremendous twin shock that we're likely to see, positive shock of technological innovation at a very rapid pace together with restructuring of economies to move towards decarbonization, I think that's a period that's more akin really to what we saw in the late 19th century," he said.

Modernization and industrialization fueled by infrastructure and technological developments alongside significant increases of productivity mark this historical period.

Crucially, these historical parallels can provide lessons for the future, Oppenheimer pointed out.

"Looking back in time, cycles and structural breaks do repeat themselves but never in exactly the same way. And I think we need to sort of learn from history what are the inferences that we can look at in order to position best for the sort of environment we're moving into."

Source: CNBC

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Glendon

Economic

India forecast annual growth of 7.3% in the fiscal year ending in March, the highest rate of any of the major global economies, providing a boost for Prime Minister Narendra Modi ahead of the national elections scheduled to be held before May.

"These are early projections for 2023/24," the National Statistical Office (NSO) said in a statement on Friday, adding improved data coverage, actual tax receipts and spending on state subsidies could affect subsequent revisions.

The first advance estimates of annual gross domestic product (INGDPY=ECI) follow last month's increased forecast to 7% from the Reserve Bank of India (RBI), up from an earlier estimate of 6.5%.

Analysts said growth exceeding 7% for a third year in a row in the context of a global slowdown would help Modi to win a third term to rule Asia's third-largest economy.

"This growth comes at a time when global conditions remain weak and its credit goes to how the government is managing the economy," Rahul Bajoria, economist at Barclays Investment Bank, said.

S&P Global Ratings expects India will remain the fastest-growing major economy for the next three years, putting it on track to become the world's third-largest economy by 2030, overtaking Japan and Germany.

India's economy grew 7.2% in 2022/23 and 8.7% in 2021/22.

Finance Minister Nirmala Sitharaman will present an interim annual budget on Feb. 1 and is expected to increase spending on infrastructure, helped by rising tax receipts, while aiming to lower the fiscal deficit from 5.9% of GDP in the current fiscal year.

Government spending is estimated to rise by about 4% year-on-year in 2023/24 compared to a 0.1% increase in the previous fiscal year, while private investment would rise by 10.3%, lower than an 11.4% rise in the previous year, data showed.

Private consumption, which accounts for nearly 58% of GDP, was seen expanding by 4.4% year-on-year compared to 7.5% in the previous fiscal year.

EXPANDING MANUFACTURING

Modi has taken steps to attract global companies including Apple (AAPL.O) and Japanese companies, to set up factories in India, while increasing spending to build roads, ports and airports.

Manufacturing, which accounts for about 17% of GDP, is estimated to expand 6.5% year-on-year in 2023/24, compared to 1.3% a year ago, while construction output was seen growing by 10.7%, up from 10% in the previous year, data showed.

India posted faster-than-expected economic growth of 7.6% year-on-year in the September quarter, after growing 7.8% in the previous quarter, which prompted many private economists to upwardly revise their yearly estimates.

Many economists feel that India's growth was fuelled by sectors, including information technology and financial services that only create limited jobs and do not help the poor in rural areas.

Growth in farm output, which contributes about 15% of GDP and employs more than 40% of workforce, was seen slowing to 1.8% in the current fiscal year, from 4% a year ago.

Average per capita income in the South Asian nation with a population of over 1.4 billion, remains around $2,500, less than a quarter of China's.

Source: REUTERS

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Ukadike Micheal

Economic

Forex

Capitol Hill's Republican and Democratic leaders have secured a pivotal $1.66 trillion agreement on US federal spending for 2024, averting the specter of an imminent and costly government shutdown. Announced jointly by key figures, the deal arrives less than two weeks before a crucial budget deadline, with potential ramifications for various federal agencies facing funding expiration on January 19 and February 2. While the bipartisan framework marks progress, challenges loom as the negotiation must navigate the Democrat-controlled Senate, Republican-controlled House, and ultimately secure President Joe Biden's approval.

As the budget discussions unfold, Republican leaders highlight concessions, including $10 billion in cuts to the Internal Revenue Service and a $6.1 billion clawback from unused Covid-19 relief funds. These measures, lauded by Republicans as tangible fiscal discipline, aim to resonate with American taxpayers and streamline the federal bureaucracy. However, the deal faces criticism from hardline Republicans pushing for more substantial budget cuts, raising concerns about potential internal party discord.

The funding framework, separate from additional foreign aid requests for Ukraine and Israel, emphasizes the urgency of maintaining vital funding priorities and preventing a government shutdown. The delicate balance struck by the negotiators acknowledges the need for compromise, with both parties navigating intricate political landscapes.

While the deal has garnered bipartisan approval, challenges persist within Republican ranks, where echoes of discontent reverberate, branding the agreement as a "total failure." As the delicate dance between Republicans and Democrats continues, the intricacies of fiscal governance unfold against the backdrop of a divided Congress.

In navigating these negotiations, the compromise seeks to prevent the unnecessary disruption of government functions, reinforcing national priorities in an era of complex economic challenges. As the deadline approaches, the coming weeks promise heightened scrutiny and potential revisions, emphasizing the delicate balance required for effective governance and the complexities inherent in bridging political divides.

Source: Financial Times

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Chandan Gupta

Traders' Opinions

Commodity

Crude Oil

The West Texas Intermediate (WTI) crude oil market recently hit a high note, climbing up to the upper limit of its holding pattern. It's like hitting the ceiling of a room—seems tough to break through! Around the $75 mark, it's like an invisible forcefield blocking further price hikes. Everyone in the market sees this level as a big challenge, like trying to push a door that says "pull." If we manage to crack this $75 wall, brace yourself—there's going to be a rush of folks getting into the trading game. It's like unlocking a new level in a video game—exciting!

But wait, if we surpass that 50-day Exponential Moving Average (EMA), it's like discovering a secret passageway. More traders will jump in, hoping to drive prices towards the 200-day EMA, which sits around $79. It's like aiming for the jackpot—everyone wants a piece of the action!

On the flip side, if prices head south and hit the $68 mark, it's like finding a cushioned floor. That level's like a safety net—it tends to catch falling prices. So, thinking of buying when prices dip might just be a smart move. It's been a strategy that's stood the test of time. If it ain't broke, don't fix it, right?

In essence, the market's a bit like a game of hurdles right now. Break through the barriers, and it's a victory lap. Hit the support levels, and it's a chance to scoop up some deals. It's all about playing smart and knowing when to make your move. Crude Oil Encounters Major Shifts Following an Exceptionally Optimistic Day_1

Crude Oil Encounters Major Shifts Following an Exceptionally Optimistic Day_1

Brent

In analyzing the Brent crude oil market, a resemblance to the WTI market's behavior emerges. Rather than recommending an aggressive approach at current price levels, a strategic perspective suggests considering buying opportunities during price dips. Attention is drawn to the $80.50 level, particularly in conjunction with the 50-day Exponential Moving Average (EMA), indicating a zone of significance.

The 50-day EMA holds a particular allure for algorithmic traders, amplifying the importance of this level in market dynamics. A breach above this point could signal an entryway to attempt reaching the 200-day EMA. However, the market confronts substantial resistance levels marginally above its present position, demanding considerable effort to overcome. Nevertheless, should such resistance be surpassed, the potential for further upward movement persists.

Ongoing apprehensions about oversupply, the potential for economic downturn, and actions taken by central banks contribute to a cloud of uncertainty hovering over the market. Moreover, external elements, such as geopolitical tensions leading to disruptions in oil flow, like the recent incidents in the Red Sea, further complicate the landscape.

Both the WTI and Brent crude oil markets encounter substantial challenges in their price movements. The $75 mark for WTI and the $80.50 level for Brent are perceived as significant barriers. In this context of uncertainty, it's advisable to approach buying opportunities cautiously, considering the persistent market volatility and the uncertainties arising from oversupply concerns and geopolitical disruptions affecting oil flow. Crude Oil Encounters Major Shifts Following an Exceptionally Optimistic Day_2

Crude Oil Encounters Major Shifts Following an Exceptionally Optimistic Day_2

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Thomas

Energy

Asia's imports of seaborne thermal coal rose to a record high in December as top buyer China sucked up cargoes amid peak winter demand.

But the robust demand did little to move prices as Indonesia and Australia, the two largest shippers of the fuel used mainly to generate electricity, saw strong gains in exports.

Asia's imports of seaborne thermal coal reached 83.69 million metric tons in December, up from 78.87 million in November and the highest in records compiled by commodity analysts Kpler going back to January 2017.

The strength was led by China, with seaborne thermal coal imports of 32.08 million tons, another record high according to Kpler data, and up from 29.57 million in November.

China's appetite for imported thermal coal soared in 2023 as coal-fired power generation rose amid lower hydropower output and rising electricity demand as the economy posted a modest recovery from the weakness caused by Beijing's previous strict zero-COVID policy.

It's also worth noting that China's domestic coal production has also been rising, with November output hitting a record high on a daily basis of 13.8 million tons, besting the previous peak of 13.5 million from March last year.

In the first 11 months of last year China, the world's biggest coal producer, consumer and importer, saw production rise 2.9% to 4.24 billion tons.

Despite the rising domestic output, imports have remained competitive because of lower prices for the main grades of Indonesian and Australian coal that form the bulk of China's imports.

Indonesian coal with an energy content of 4,200 kilocalories per kilogram (kcal/kg), as assessed by commodity price reporting agency Argus, dropped to $57.82 a metric ton in the week to Jan. 7, a two-month low and 36% below the level at the start of 2023.

Australian coal with an energy content of 5,500 kcal/kg also dropped last week, falling to $93.23 a ton, a five-week low and 30.1% weaker than in the same week in 2023.

Indonesia's exports of thermal coal hit 48.05 million tons in December, the most since March last year, with China taking the lion's share at 20.99 million, also the most since March.

India Moderates

One of the reasons why the strong demand for Indonesian thermal coal isn't showing up in higher prices, is that India, the second-biggest coal importer, has been trimming purchases.

India imported 15.53 million tons of seaborne thermal coal in December, down from 17.65 million in November and the lowest since September.

It's also worth noting that India has been diversifying its coal suppliers somewhat, taking higher volumes from South Africa, with imports from the swing supplier to both the Atlantic and Indian basins rising to 2.78 million tons in December from 2.67 million in November.

In December, South Africa's share of India's imports was 17.9%, while in July last year it was 9.6%.

Far East Demand

If softer demand from India is helping to keep a lid on prices for lower energy coal grades, weakness in the price of the premium fuel is down to muted demand in the main buyers of this type, Japan and South Korea, Asia's third- and fourth-biggest importers respectively.

Japan's imports of seaborne thermal coal did rise in December, to 10.64 million tons from 8.79 million in November.

However, the December volume was still more than 1 million tons adrift of the 11.87 million imported in the same month in 2022.

South Korea landed 7.30 million tons in December, up from 6.10 million in November but below the 7.55 million from December last year.

Japan and South Korea mainly buy coal priced against Australian 6,000 kcal/kg fuel, and this grade ended at $131.99 a ton on Jan. 5, according to data from trading platform globalCOAL.

The price has dropped for three consecutive weeks, having recently peaked at $157.01 a ton in the seven days to Dec. 15.

The peak so far in the current northern winter is also substantially below the peaks around $415 a ton from the winter of 2022-23, when prices were still elevated amid concerns that the loss of Russian coal and pipeline natural gas in the wake of Moscow's invasion of Ukraine would cause an energy crisis in Europe.

The overall picture for the seaborne thermal coal market in Asia is that supply has risen by enough to offset strong demand by China.

The outlook for the first quarter of 2024 will largely depend on whether China continues to favour imports, or whether domestic output takes a greater share of power generation and non-fossil fuel alternatives, such as hydro, wind and solar also pick up.