Early Morning Call: dollar falls on Fed slowing inflation comments, boosts gold, base metals

Central banks

The Federal Reserve (Fed) raised its target interest rate by a quarter of a percentage point on Wednesday, as expected, to between 4.5%-4.75%.

Early data shows that the US central bank's aggressive efforts to combat inflation are bearing fruit, but the US central bank continued to promise "ongoing increases" in borrowing costs as part of its still unresolved battle against inflation which it says has eased somewhat but remains elevated.

Fed chair, Jerome Powell, said that the markets should not expect a rate cut in 2023. The US dollar fell on the announcement, sending US indices higher, and gold to a fresh nine and-a-half-month high.

At lunchtime, the Bank of England (BoE) will unveil its decision on rates. With inflation at 10.5% in December, higher than in the US and the eurozone, with wages excluding bonuses rising at their fastest rate since records began in 2001, expectations are for a 10th consecutive rise by half a percentage point to 4%.

At its last meeting in December, the Monetary Policy Committee (MPC) voted for a 50 basis point hike to 3.5%. But the vote was split three ways. Two members voted to end the rate rises, while one backed a larger three-quarter point move.

Also today, the European Central Bank (ECB) is widely seen hiking by another 50 basis points to 3%, as ECB members made sure in the last couple of weeks to reiterate that they were very much in agreement with Christine Lagarde's scenario of another significant hike.

In the US, initial jobless claims will be released at 1.30pm. Economists forecast 200,000 new claimants. Yesterday, the ADP survey revealed that 106,000 jobs had been created in the US private sector last month. Even though the December number was upwardly revised by 18,000, it remains much lower that the expectations of 178,000 job creations.

As for tomorrow’s non-farm payrolls, economists anticipate 185,000 job creations in January, following 223,000 in December. The unemployment rate should rise one notch to 3.6%, and average hourly earnings should rise by 0.3% month-on-month (MoM), 4.3% year-on-year (YoY).

Equities

Elsewhere on equity markets, BT confirmed its full-year (FY) outlook despite the pressure of high energy costs and other inflationary headwinds. It reported a 3% dip in third quarter (Q3) adjusted revenue, just below market expectations. Pretax profit fell 15%.

Shell's annual earnings reached $39.9 billion, doubling from a year earlier and far exceeding the previous record of $31 billion in 2008. Shell also announced a new $4 billion share buyback programme over the next three months and said capital expenditure will be between $23bn and $27bn in 2023.

Deutsche Bank's fourth quarter (Q4) profit exceeded expectations. Net profit attributable to shareholders was €1.803 billion. That compares with a profit of €145 million a year earlier, and is better than analyst expectations for a profit of around €951 million.

In the US, Meta jumped 25% on the IG platform last night. Net income for the fourth quarter fell to $1.76 per share, much lower than the $2.26 expected by analysts. The decline was largely due to a $4.2 billion charge related to layoffs, and office closures. Revenue reached $32.17bn.

Shares rose after CEO Mark Zuckerberg described 2023 as the "Year of Efficiency" and updated the market on a series of cost cutting measures, like its plans for lower data-centre construction expenses this year. In total Meta Platforms will cut costs in 2023 by $5 billion to a range of $89 billion to $95 billion. The group also announced a new $40 billion share buyback programme.

Tonight, after the bell, Apple is forecast to post earnings of $1.94 per share. Revenue is expected at $121.88bn which would be the first decline since Q1 2019. Apple failed to supply the market with enough iPhones during the period leading to Christmas, as its primary Chinese factory was shut for weeks during Covid lockdowns.

Amazon is expected to post earnings of 17 cents per share on revenue of $145.64bn, up about 5.8% YoY. Investors will be attentive to Amazon Web Services' performance as this segment of the business has been taking an increasing share of revenue over the years. In Q3, AWS revenue growth was 27.5% YoY.

Outside the tech sector, analysts expect Ford to publish earnings of 62 cents per share, on revenue of $41.87bn. Investors are eagerly awaiting Ford’s earnings guidance.

On Tuesday, General Motors forecast adjusted earnings per share for the full-year 2023 of between $6 and $7. If still above Wall Street projections, it represents a decline from 2022 profit. According to Refinitiv estimates Ford's 2023 EPS is expected to fall by nearly 16%.

Commodities

Oil prices fell yesterday after the EIA confirmed the oil stock rise announced earlier this week by the API. US crude inventories climbed 4.1 million barrels last week.

Gasoline stocks rose by 2.6 million barrels and distillate stockpiles rose by 2.3 million barrels.