Good morning. It is Thursday, February 2nd.
A plethora of market news today, with the most significant being the Fed's interest rate decision and a preliminary reading for eurozone inflation. Among the market-moving developments though, authorities in Australia have "literally found the needle in the haystack," as a tiny radioactive capsule that fell from a truck about a month ago was recovered by emergency services.
- Join the celebration with this Fallout radio playlist. Have a good one.
—Can and Tanem
• The Federal Reserve on Wednesday raised its target interest rate by 25 basis points to a target range of 4.5%-4.75%, in line with market expectations and the highest since October 2007, yet continued to promise "ongoing increases" in borrowing costs as part of its battle against inflation.
- The quote: In a press conference after the decision, Fed Chair Jerome Powell said the US central bank is not yet "at a sufficiently restrictive policy stance." He also said, "It is a good thing that the disinflation that we have seen so far has not come at the expense of the labor market," but added that the economy was still in an "early stage" of easing inflation.
• Eurozone inflation eased for a third consecutive month in January, according to a flash estimate from Eurostat released on Wednesday, thanks mainly to a fall in energy prices. Headline inflation came in at 8.5% year-on-year, down from 9.2% in December and a record high of 10.6% in October. The annual rise in energy costs dropped to 17.2% in January from 25.5% in the month prior.
- However: Food price inflation rose slightly from 13.8% in December to 14.1% in January. Core inflation, which excludes volatile energy and food costs, stood unchanged at 5.2%. The economic indicator is being closely watched ahead of a new interest rate decision due on Thursday from the ECB, which is expected to raise the key interest rate by half a point.
- On a related note: The seasonally-adjusted unemployment rate for the bloc remained stable from the previous month at 6.6% in December, compared with 7.0% in the same period a year earlier. Amongst the largest eurozone economies, the highest jobless rates were recorded in Spain (13.1%), Italy (7.8%), and France (7.1 percent), while the lowest rates were recorded in Germany (2.9%).
• The downturn in eurozone business activity eased slightly into the new year. S&P Global’s Final Manufacturing PMI for the bloc rose for a third successive month to 48.8 in January, up from 47.8 in December and confirming a previous ‘flash’ reading. Despite still being below the 50-mark that separates growth from contraction, the reading was the highest since August 2022.
- Furthermore: New orders continued to fall, but at a rate that was the softest since May 2022. Backlogs of work declined sharply and the survey pointed to another month of broadly stable supply-chain conditions. Input cost inflation eased to a 26-month low. Business confidence improved, with growth expectations bolstering to their strongest since February 2022.
- Zoom in: Some parts of the euro area even recorded an expansion in output in January. Final Manufacturing PMIs for France and Italy registered at 50.5 and 50.4, respectively. Meanwhile, Europe’s largest economy remained in contraction as the reading for Germany came in at 47.3, slightly higher than December’s reading of 47.1.
• Italy’s inflation rate eased slightly more than expected in January, according to preliminary figures from ISTAT released on Wednesday. EU-harmonized consumer prices (HICP) fell 1.3% month-on-month in January, with annual inflation slowing to 10.9% from 12.3% in December, marginally below a median forecast of 11.0%.
• The US remained the most important destination for German exports in 2022 for the eighth consecutive year. Exports of goods reached a record €156 billion last year, well above the previous record of 122 billion euros in 2021, according to Reuters calculations based on preliminary data from Destatis.
• Uniper, Germany's biggest gas trader which was bailed out by the government last year, expects a much smaller annual net loss than it previously feared, thanks to lower gas prices. The gas giant now sees a net loss of €19.1 billion for 2022, it said on Wednesday. Uniper is scheduled to report full-year results on Feb. 17.
- Zoom in: Uniper reported in November a net loss of €40 billion for the first nine months of 2022, saying at the time a chunk of that was based on forward price projection. The company has now said losses caused by costs to replace Russian gas volumes reached €13.2 billion in 2022 while expected losses for future gas replacement costs were reduced to €5.9 billion from €30 billion.
• BBVA on Wednesday posted a 38% jump in net profit to a record €6.42 billion for last year, powered by a double-digit increase in lending income and a strong performance in Mexico, a trend the bank expects to continue this year. Net profit in Q4 at Spain's second-largest lender rose 17.6% to €1.58 billion. Both the full-year and quarterly profits came in slightly above market forecasts.
• Vodafone reported a steeper-than-expected slowdown in Q3 as service revenue fell in Germany, its biggest market, along with Italy and Spain, offsetting a good performance in the UK. The company on Wednesday said organic growth in service revenue fell to 1.8% in Q3, down from 2.5% in the previous quarter.
- Looking ahead… The telecoms giant continued to target its updated full-year guidance of adjusted core earnings after leases of €15-15.2 billion and adjusted free cash flow of €5.1 billion.
• India's market regulator is examining a rout in the shares of billionaire Gautam Adani's companies, Reuters reported, as the losses triggered by a scathing US short-seller report ballooned to more than $90 billion. The regulator is also looking into several of the allegations made by Hindenburg Research, and into any potential irregularities in a key share sale by the flagship Adani Enterprises on Tuesday.
• Russia is preparing for a "maximum escalation" of the war in Ukraine, a top Ukrainian security official said, adding that the escalation can potentially take place as soon as in the next few weeks. Oleksiy Danilov, Secretary of Ukraine’s National Security and Defense Council, added, "I am conscious the main fights are yet to come and they will happen this year, within two to three months."
- What they're saying: Russia is unlikely to see strategic success in any potential offensive in Ukraine this spring because of severe constraints to their ability to backfill losses on force, equipment, and logistics, CNN reported.
- In other news: Russia’s airborne units have joined their mercenary Wagner group in the continuing fierce battle for control over Bakhmut, a former Ukrainian military commander said.
• Ukrainian authorities conducted a series of anti-corruption searches across the country, including the former Interior Minister Arsen Avakov and billionaire Ihor Kolomoisky, the country's parliamentary majority leader said. The investigation came hours after the country's President Volodymyr Zelenskiy promised "new reforms" ahead of talks between Kyiv and the EU on Friday.
- Just as: The anti-graft probes came just as the US is expected to send rockets that would nearly double the firing range of Ukrainian forces, right after Kyiv secured major pledges of weapons from the West in recent weeks.
• Up to half a million British teachers, civil servants, and train drivers walked out over pay in the largest coordinated strike action for a decade on Wednesday. The mass walkouts across the country shut schools, halted most rail services, and forced the military to be put on standby to help with border checks on a day dubbed "Walkout Wednesday".
• Authorities in Australia found a small radioactive capsule that went missing last month after a major search was conducted when the object containing a small quantity of Caesium-137 was lost while being transported.
• Taiwan activated its defenses —fighter jets, navy and missile systems— in response to Chinese military aircraft and warships that are operating nearby, the self-ruled island’s defense ministry said.
• The UK government revealed "ambitious" plans to regulate the crypto industry, such as stronger rules for trading platforms, crypto lending, new token issues, etc. The proposal comes after last year saw the fall of some crypto exchanges like FTX and wildly fluctuating cryptocurrencies.
• Google employees are reportedly testing several potential ChatGPT competitors as part of the company’s bid to launch a response to Open AI’s technology. According to CNBC, several products the company is working on, including a chatbot called "Apprentice Bard", use Google's LaMDA conversation technology.
• Intel said it made broad cuts to executive and employee pay, a week after the company saw lower-than-expected sales forecast due to a loss of market share to rivals and a PC market downturn. The reductions will range from 5% of base pay for mid-level employees to as much as 25% for Chief Executive Pat Gelsinger, as the spokesperson said changes will impact the executive positions more significantly.
• PayPal announced it would lay off 2,000 employees, which amounts to around 7% of its total staff. President and CEO Dan Schulman said the cuts will occur over the next few weeks with some departments affected more than others, as PayPal becomes the latest tech company to lay off a substantial part of its workforce.
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