Fed opts for modest rate rise as inflation eases
The markets are waiting to see whether the Bank of England will raise interest rates by the expected 0.5 percentage points on Thursday or follow the US Federal Reserve which tonight opted for a more modest 0.25 percentage increase.
Fed chairman Jerome Powell, pictured, indicated it would raise the rate again next month as it tries to stamp out soaring prices in the world’s largest economy, but the rate of rises are likely to be smaller.
“Inflation has eased somewhat, but remains elevated,” the US central bank said in a statement.
The US central bank “anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time”, the Fed said.
The decision lifted the benchmark overnight interest rate to a range between 4.5% and 4.75%.
The Fed hopes it can continue nudging inflation lower to its 2% target without triggering a deep recession or causing a substantial rise in the unemployment rate from the current 3.5%.
Bank of England rate-setters are expected to rates by 0.5 percentage points to 4% on Thursday. A decision will be announced shortly after noon. It would mean those on a typical tracker mortgage would pay about £49 more a month. Those on standard variable rate mortgages face a £31 jump.
Dame Alison Rose, chief executive of NatWest (RBS) is under pressure to explain why high street banks have not passed on rising interest rates to their savers.
MPs on the Treasury Select Committee have invited the CEOs of all the banks to a meeting next week.
The bank says Dame Alison, who received her damehood from the government in the New Year Honours, is busy preparing for the bank’s full-year results on 17 February and has asked David Lindberg, chief executive of its UK retail bank, to meet MPs.
However, Charlie Nunn, her counterpart at Lloyds Bank which announces results on 22 February, has agreed to attend.
On the Fed’s decision, Samuel Fuller, Director of Financial Markets Online, said: “The Fed’s rate hikes have shifted from the white-knuckle to the normal. Gone is the breakneck pace of relentlessly rising rates, which last year saw the benchmark federal funds rate increase by a cumulative 4.25 percentage points.
“There’s now a growing consensus that the US is past peak inflation, and some marketwatchers are already predicting that interest rates could soon peak at 4.95%.
“At face value the modest 0.25% hike suggests the Fed is leaning to the doveish, but the language surrounding the decision was hawkish.
“The Fed’s statement made clear that it intends to make several further rate increases, with the only question being the pace and extent of the future raises.
“This has left both the Dollar and US stock markets in limbo as traders scramble to decode which of the contradictory signals to believe.”
London closes lower
The FTSE 100 recovered from a sharp dip before the close to end the session 10.59 points lower at 7,761.11 ahead of the US Federal Reserve’s decision on interest rates at 7pm this evening.
New York indices remained weak, with the Dow Jones Industrial Average shedding 197 points or 0.6%, while the S&P 500 index was down 0.2%, and the Nasdaq Composite off 0.1%.
Capricorn board changes
A new board was elected at Capricorn Energy, the Edinburgh-based explorer formerly known as Cairn Energy, and it will almost certainly block a planned merger with an Israeli company.
House prices fall again
House prices dropped by a bigger-than-expected 0.6% in January and are now 3.2% below their peak in August.
This follows a surge in borrowing costs and broader inflation pressures, mortgage lender Nationwide Building Society said.
January’s decline in house prices was the fourth drop in a row and twice the size expected in a Reuters poll of economists, adding to signs that the market is slowing sharply.
Chief economist Robert Gardner said: “There are some encouraging signs that mortgage rates are normalising, but it is too early to tell whether activity in the housing market has started to recover.”
Customers numbers continued to grow in the first quarter of Virgin Money’s financial year as the challenger bank said it expects to benefit from higher interest rates for the remainder of the year.
Ladbrokes owner Entain raised its full-year earnings expectations as it reported a record fourth quarter for both net gaming revenues and active customers.
The company now forecasts FY22 earnings before interest, tax, depreciation and amortisation of between £985m and £995m, up around 12% year-on-year and ahead of expectations.
CEO Jette Nygaard-Andersen said: “2022 has been another year of strong financial, operational and strategic progress for Entain.
“We have continued to grow our revenues in a sustainable and diversified way by expanding our global footprint, broadening our customer appeal, entering new areas of entertainment, and providing a safe environment for our customers.
“All of this has led to a record number of active customers in Q4, as well as a full year EBITDA performance ahead of our previous expectations.
“We have started 2023 with good momentum across the business and remain confident in our ability to continue delivering on our growth and sustainability strategy in the year ahead.’
Revenues at telecoms operator Vodafone fell in the third quarter as the economic slowdown hit trading in continental Europe and offset a good performance in the UK.
The company said service revenue fell 1.3% to €9.52bn and continued to target its updated full-year guidance of adjusted core earnings after leases of €15-15.2bn and adjusted free cash flow of €5.1bn.
The US Federal Reserve will kick off the interest rate announcements at about 1900 GMT. The Bank of England and the European Central Bank will announce their decisions tomorrow.
Markets are expecting a 25 basis point hike from the US central bank. In contrast, half a percent hikes are expected from the BoE and the ECB.
Wall Street closed higher, with the Dow Jones Industrial Average up 1.1%, the S&P 500 advancing 1.5% and the Nasdaq Composite rising 1.7%.
Stocks in Asia were higher, despite some disappointing data about China and Japan’s manufacturing sectors.
In Tokyo today, the Nikkei 225 index was up 0.1%. In China, the Shanghai Composite was up 0.7% and the Hang Seng index in Hong Kong was up 0.9%.
China’s manufacturing sector continued to decline for the sixth month in a row in January, according to new data.